Glossary term
Family Limited Partnership (FLP)
A family limited partnership is a partnership structure families may use to hold, manage, and transfer family assets.
Updated
Read time
What Is a Family Limited Partnership (FLP)?
A family limited partnership, or FLP, is a partnership structure often used by families to hold and manage assets. It usually has one or more general partners who control the partnership and limited partners who hold economic interests with limited management authority.
FLPs are often discussed in estate planning, family business succession, asset management, and gift planning. They can centralize control and create a framework for transferring partnership interests, but they are technical legal and tax structures.
Key Takeaways
- An FLP is a limited partnership used by family members to hold shared assets.
- General partners usually control management decisions.
- Limited partners generally hold economic interests with less control.
- FLPs may be used in estate, gift, and family business planning.
- Tax, valuation, governance, and legal formalities are central issues.
How an FLP Works
Family members contribute assets to a limited partnership. The partnership agreement defines management authority, distributions, transfer restrictions, voting rights, and partner responsibilities. Parents or senior family members often serve as general partners or control the general partner entity.
Limited partnership interests may be transferred to children, trusts, or other family members over time. Because limited interests may lack control and marketability, valuation can become an important and closely scrutinized issue for gift and estate tax purposes.
FLPs can hold operating businesses, real estate, marketable securities, private investments, or other family assets. The structure can help organize decision-making, but it must be run as a real partnership with records, accounts, and business purpose.
Common FLP Features
Feature | What it means | Why it matters |
|---|---|---|
General partner | Controls partnership management | Centralizes decisions |
Limited partner | Holds economic interest with limited control | Supports transfer planning |
Partnership agreement | Legal operating document | Defines rights and restrictions |
Valuation | Appraisal of transferred interests | Affects gift and estate tax reporting |
Limits and Misunderstandings
An FLP is not a simple tax shortcut. The IRS and courts may scrutinize valuation discounts, retained control, personal use of assets, lack of business purpose, poor records, or transfers made too close to death.
It also does not replace broader estate planning. Wills, trusts, beneficiary designations, insurance, liquidity, governance, and family communication may still be needed.
This entry is educational, not legal or tax advice. FLP planning depends on state partnership law, federal tax rules, valuation support, family goals, and how the structure is actually operated.
The Bottom Line
A family limited partnership can help a family manage and transfer shared assets, but it must be designed and operated carefully. The benefits depend on governance, legitimate purpose, valuation, tax compliance, and family circumstances.