Family limited partnership sounds like one of those dry, financial terms that make you think of dusty ledgers and boardroom tables. In reality, it’s a handy tool for families looking to keep their business and assets intact across generations, while steering clear of some heavy tax burdens.
A family limited partnership defines roles instead of letting everyone have an equal say. There’s the general partner who is typically a parent or the family patriarch or matriarch making decisions. There are also the limited partners, usually the children or grandchildren, who invest in the business but don’t get into the management.
A family affair with a corporate twist
An FLP allows you to control your assets while involving your family as partners. It’s a legally recognized entity that owns family assets. This could be anything from a family business to real estate. It comes with perks, particularly regarding taxes and estate planning.
Gifting with a purpose
An FLP also opens the door to gifting that’s more tax-efficient. The general partner can gift limited partnership interests to the kids or grandkids, easing the taxable value of their estate bit by bit, year by year, often without hitting the gift tax or using up the lifetime gift tax exemption.
Keeping it in the family
In a standard family business scenario, transferring ownership means you might have to hand over power. The general partner retains management rights and can decide about the assets or business operations. In contrast, the limited partners sit back and let the dividends roll in without meddling in the daily affairs.
So, if you’ve got a family business or substantial assets and you’re trying to figure out how to pass on your legacy without losing half of it to taxes or causing a family feud, an FLP might just be the tool you need. It’s a way of keeping it all in the family without the usual drama that money can bring.