Family Limited Partnerships: Are They Right for Your Family?

When it comes to planning for the future, many families want a way to stay organized, protect what they have built, and make passing wealth to the next generation a little smoother. One tool that sometimes comes up is a Family Limited Partnership (FLP).

So, what exactly is it, and when does it make sense?

What Is a Family Limited Partnership?

Think of an FLP as a family “bucket” where you put certain assets like real estate, investments, or even a family business. There are two primary roles:

• General partners (often parents) manage the bucket.
• Limited partners (often children) share in the value but do not make day-to-day decisions.

A Family Limited Partnership allows business owners to maintain control while gradually transferring ownership to younger family members.

When a Family Limited Partnership Can Be Helpful

Key Family Limited Partnership advantages are outlined below:

1. Keeping things simple

If multiple family members are involved, consolidating assets into one partnership helps avoid confusion and centralizes management.

2. Business succession

If you own a family company, an FLP can make transferring ownership easier without compromising direction.

3. Adding protection benefits

Limited partners typically don’t have direct control over assets, which can help safeguard family wealth from certain outside risks.

4. Estate planning

For families concerned about estate taxes, FLPs can be an effective way to transfer value to children and grandchildren while retaining some control.

When an FLP May Not Be the Best Choice

The following are potential disadvantages of Family Limited Partnership:

1. Complexity and cost

They take legal setup, paperwork, and ongoing maintenance. For smaller estates, that may not be worth the effort.

2. Family control dynamics

Because general partners hold most of the control, this structure can sometimes lead to disagreements if all parties are not aligned.

3. Other options exist

If your estate is modest or your assets are straightforward, simpler tools, like trusts or joint ownership, may be more suitable.

Key Questions to Ask Before Setting Up an FLP

If you’re curious about whether an FLP fits your situation, consider these questions to guide your thinking:

Do you have assets that are better managed together?

If your family owns multiple properties, a business, or a large investment portfolio, pooling them may make oversight simpler.

Are you comfortable with one or two people having most of the control?

General partners make the decisions. This can be efficient, but it can also cause conflict if other family members feel left out.

Does your family expect to face estate tax exposure?

FLPs are often used in larger estates where tax planning is a factor. For smaller estates, they might add unnecessary complexity.

Is your family ready for ongoing maintenance?

An FLP isn’t a “set it and forget it” arrangement. It requires annual filings, clear recordkeeping, and legal upkeep.

Asking these questions early can save time and frustration, ensuring you choose the right strategy.

Common Misconceptions About FLPs

Because FLPs come up often in estate planning discussions, there are a few common misconceptions worth clarifying:

1. Tax myths: “An FLP avoids all taxes.”

Not true. While an FLP can play a role in reducing certain estate tax risks, it does not eliminate taxes entirely. Families must still comply with IRS rules.

2. Control myths: “Everyone in the family gets an equal say.”

Limited partners hold ownership interests but do not have management rights. This is intentional and one of the primary differences from other arrangements, like joint ownership.

3. Wealth level myths: “It’s only for the ultra-wealthy.”

Although many high-net-worth families use FLPs, they can also be advantageous for families with mid-sized estates, especially if there’s a family business or multiple properties involved.

4. Set it and forget it myth: “Once you set it up, you’re done.”

An FLP is an active structure. It requires proper documentation, annual meetings, and ongoing compliance to remain valid.

The Takeaway

Family Limited Partnerships can be an effective way to organize, protect, and transfer wealth. But they aren’t suitable for everyone. The best choice depends on the size of your estate, your goals, and how your family works together.

If you're wondering whether an FLP might make sense for you, that’s where we come in. Schedule a conversation with our team to explore whether an FLP or another estate strategy fits your family's needs.

Any discussion of taxes is for general information purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax, or accounting advice. Clients should confer with their qualified legal, tax, and accounting advisors as appropriate.

Estate Planning services are provided working in conjunction with your Estate Planning Attorney, Tax Attorney, and/or CPA. Consult them for specific advice on legal and tax matters.

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