Family Limited Partnerships

You may have heard of a family limited partnership, or FLP, as an estate planning device. A FLP is just a limited partnership formed for the benefit of family members. Limited partnerships have several benefits over general partnerships, the greatest of which is that limited partners are shielded from liability beyond the extent of their investment or contribution to the limited partnership. In addition, because a separate legal entity, the FLP, owns the assets that are transferred to it, those assets are out of the estate of the individuals, and need not pass through probate, nor be subjected to an estate tax, upon death. For these reasons, FLPs have gained popularity in recent years.

However, as an estate planning tool, FLPs are only for the wealthy. They require expertise to create, involve complex issues of valuation of property that is contributed, and they must be managed as long as they are in existence. In short, unless there are assets of around $1 million that can be put into the FLP, their cost and effort do not justify the benefits. For most people, a FLP is neither necessary nor desirable.