Reducing estate taxes is a priority for many families looking to preserve wealth for future generations. A family limited partnership (FLP) can be a valuable estate planning tool, offering tax benefits while maintaining control over assets. Understanding how an FLP works and the tax advantages it provides can help families make informed decisions about wealth management.
Understanding a family limited partnership
An FLP is a legal entity where family members pool assets under a partnership structure. It consists of general partners, who manage the assets, and limited partners, who have ownership interests but no decision-making authority. The general partners maintain control while gradually transferring ownership to the next generation.
Reducing estate tax liability
An FLP allows parents or grandparents to transfer assets to heirs at a reduced taxable value. Limited partnership interests can qualify for valuation discounts due to lack of marketability and control restrictions. These discounts lower the overall taxable value of an estate, reducing estate tax liability upon the original owner’s passing.
Leveraging the annual gift tax exclusion
General partners can transfer ownership through annual gifts without triggering federal gift taxes. The IRS allows individuals to gift up to a set amount per recipient each year tax-free. By gifting discounted partnership shares, parents can transfer significant wealth over time while minimizing estate tax consequences.
Protecting family wealth
Beyond tax savings, an FLP offers asset protection. Since limited partners do not have direct control, their interests remain shielded from personal creditors. This structure helps safeguard family wealth for future generations while maintaining long-term financial stability.
A family limited partnership is a strategic way to manage wealth, reduce estate taxes, and protect assets. Families considering an FLP should weigh the benefits and legal requirements to determine if this approach aligns with their long-term financial goals.
