Family limited partnership (FLP) is a legal entity used by families to start a business together or to be an estate planning vehicle. FLPs are made up of general partners who manage the business and limited liability partners who only invest in the business. This structure allows certain family members such as parents to oversee the business while allowing other family members to reap profits from the business. Sometimes FLPs are used by family members who are interested just in grouping their funds together to start a business. Others use FLPs as a way to gift shares to other family members in a tax beneficial manner. FLPs allow individuals to use the annual tax exclusion amount for each family member to gift shares. Many prefer the structure of the FLP because it allows the gifting family members to still control the business after gifting shares, which trusts may not allow. However, FLPs can be problematic because they are businesses which come with liability for the general partners and, in some scenarios, for the limited partners. Also, FLPs cannot be gifted personal assets while continuing to keep the tax beneficial structure, limiting the use of FLPs to investment and real estate assets.
See also: Partnership; Limited Partnership; Estate Tax; Gift Tax
[Last updated in January of 2022 by the Wex Definitions Team]
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