If you own and operate a family business, a family limited partnership (FLP) or family limited liability company (FLLC) has the potential to become a valuable component of your overall estate plan. A properly formed and maintained FLP or FLLC offers the opportunity for families to transfer limited partnership or membership interests to future generations in a tax efficient manner, ultimately helping to facilitate the transfer of a family business or other family assets, while protecting from potential creditors.
What is an FLP?
The FLP is a limited partnership created under and governed by state law that divides rights to income, appreciation, and control among family members, according to the family’s overall objectives as outlined in the FLP partnership agreement. Organizing the family business as an FLP allows for the shift of income and future appreciation of the business assets to other members of your family. An FLP consists of two classes of Partners, who are all family members. The General Partner (GP) controls the partnership and assumes majority of the liability, whereas the Limited Partners (LPs) are essentially investors. GPs typically own the largest share of the business; however, the GP may own as little as one percent.
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