The family limited partnership (FLP) has emerged as a prime estate planning tool. An FLP is a limited partnership made up of family members.
The general partner (GP) makes the decisions and bears considerable liability for partnership obligations. Limited partners (LPs) play passive roles and bear no liability, beyond assets they contribute and debts they assume. Generally, parents or grandparents serve as GP while children or grandchildren are the LPs.
Via an FLP, assets can be transferred to younger relatives, who hold LP interests rather than the assets themselves. Thus, assets can be transferred from the GP’s taxable estate yet the GP still retains control over those assets.
The transferred assets may be valued at a discount, for gift tax purposes. In addition, assets held inside an FLP may enjoy protection from creditors.
