What Is a Family Limited Partnership (FLP)?

A family limited partnership (FLP) is an arrangement by which famiౠly members pool money to run a business venture. Each family member buys units or shares of the business.

Profits are shared in proportion to the number of shares each member owns, which is outlined in the partnership operating agreement.

FLP general partners have unlimited liability relating to the operation oܫf the ✅business. Limited partners have limited liability.

Understanding an FLP

Types of Partners

FLPs have two types of partners:

• 澳洲幸运5开奖号码历史查询:General partners usually own the largest share of the business and are responsible for day-to-day management tasks such as overseeing all cash deposits and investment transactions. The general partner may also take a management fee from profits if that is provided for in the 澳洲幸运5开奖号码历史查询:partnership agreement. 
• 澳洲幸运5开奖号码历史查询:Limited partners have no management responsibilities or say in investment decisions. They simply buy shares of the business in exchange for dividends, interest, and a share of profits that the FLP may generate.

Setting It Up

FLPs vary depending on the natureಌ of the business. For example, suppose an individual wants to start a luxury apartment venture.

They expect the project to cost $1 million, including wor𒆙king capital, and take in about $200,000 in cash each year before interest on mortgage payments and taxes. 

They calculate that they'll need at least a 50% down payment of $500,000. And they decide to work with family members to fund the business.

Family members agree to establish an FLP that will issue 5,000 澳洲幸运5开奖号码历史查询:limited partnership shares at $100 each for a total of $500,000. The limited partnership agreement states that units cannot be sold for at leas🌃t six years. In addition, the FLP&ღnbsp;will pay 70% of cash earnings in the form of dividends.

The general partner (the individual with the original idea and 🔥strategy) buys 500 shares by contrib🦹uting $50,000 to the FLP.

Family members buy the remaining shares. Now, each family member owns a stake in the FLP and the business has $500,000 availabl♊e to begin operations.

The general partner gets ꦑa first mortgage loan with the $500,000 to start the $1 million luxury housing project. Infrastructure and units get built.

The FLP 𒀰then leases these apartments to tenants and begins building revenue through rent payments. As the mortgage is paid off, profits and dividends are distributed, and each family member profits.

Advantages of FLPs

There are some estate and gift tax advantages of an FLP. For example, families that form an FLP can more easily 澳洲幸运5开奖号码历史查询:pass the wealth they are building ♛on to their children and grandchildren, thereby increasing their family's generational wealth.

Gift Tax

Individuals can gift FLP interests tax free to other individuals every year, up to the 澳洲幸运5开奖号码历史查询:annual gift tax exclusion.

For tax year 2025, the annual gift tax exclusion for individuals is $19,000, up $1,000 from $18,000 in 2024. The amount for married couples is $38,000.

Example

Suppose a couple amassed savings worth $5 million. They have three children and nine gran🤡dchildren.

♔The couple decides to transfer the entire $5 million amount to the FLP they established. If the gift🦹 tax exclusion remains at 2025 levels, the couple can gift $38,000 to each of their 12 kids or grandkids each year.

Thiওs means the couple can transfer $456,000 worth🌠 of FLP interests every year without having to pay gift taxes.

Since the gift tax exclusion is ♛generally adjusted annually for inflation, the value of interests they can gift will likely increase each year.

Estate Tax

Assets transferred to an FLP effectively leave the partners' estates, as far as the IRS is concerned. This means that any future returns would be exempt from 澳洲幸运5开奖号码历史查询:estate taxes.

The couple's children and grandchildren would benefit from any interest, 澳洲幸运5开奖号码历史查询:dividends, or profits generated from🌞 the FLP. This further preserve🍸s wealth for future generations. 

Partners can se🌳t stipulations in the partnership agreement to protect these gifts from being squandered or mismanaged.

For example, they can stipulate that gifted shares can't be transferred or sold until the beneficiaries reach a certain age.

If any beneficiaries are minors, the shares can be transferred through a 澳洲幸运5开奖号码🐽历史查询🤪:Uniform Transfers to Minors Act (UTMA) account.

Disadvantages of FLPs

There are downs🐈ides to creating an FLP. First, it can be expensive to set up and maintain because of its complexity.

Most often, setting up an FLP will requi📖re the professional assistance of a tax specialist and estate planning 🌄attorney. In addition, you may need to call on other professionals who can help to support an FLP.

For tax purposes, an FLP runs as a business. This can expose the partners to liabilities and debts if the business is mishandled by the ge😼neral partners.

Other drawbacks include capital gains liabilities and the potential difficulty involved in transferring partnership interests should the general partners have too much control.

The Bottom Line

A family limited partnership 🅺is a limited partnership entity in which two or more family members buy buy shares.

FLPs can provide gift and estate tax advantages to partners. These advantages allow members to more easily pass profits from the business to their heirs, increasing the family's generational wealth.

How🎃ever, the rules concerning FLPs can be complicate🎀d and have to be followed carefully to protect the tax advantages offered.

Furthermore, as with any business, there is a chance of the venture failing. Partners could lose their investments and even incur debt if the business doesn't succeed or is poorly managed.