Could my family benefit from a family limited partnership?
Effective estate planning should address wealth transfer in a practical and cost-effective way. One strategy families with closely held businesses should consider is the family limited partnership (FLP).
What is a family limited partnership?
An FLP is a partnership agreement among family members involved in a trade or business. It divides rights to income, appreciation, and control based on the family’s objectives. The “family business” can include real estate or investments.
An FLP is a partnership agreement among family members involved in a trade or business. It divides rights to income, appreciation, and control based on the family’s objectives. The “family business” can include real estate or investments.
How is this arrangement achieved?
Typically, general and limited partnership interests are created. You retain the general partnership interest, becoming the “general partner” with control over the business, while gifting limited partnership interests to your children. As “limited partners,” they share in ownership but not control.
Typically, general and limited partnership interests are created. You retain the general partnership interest, becoming the “general partner” with control over the business, while gifting limited partnership interests to your children. As “limited partners,” they share in ownership but not control.
A sound strategy for transferring ownership
An FLP allows you to give your children an interest in the business while meeting several goals. You can assess their ability to manage ownership, reduce estate tax liability by removing assets from your estate (if properly executed), and transfer ownership gradually over time. It may also provide income tax benefits.
An FLP allows you to give your children an interest in the business while meeting several goals. You can assess their ability to manage ownership, reduce estate tax liability by removing assets from your estate (if properly executed), and transfer ownership gradually over time. It may also provide income tax benefits.
Estate tax savings
Transferred interests, including future appreciation, are generally excluded from your estate. Only the value of the taxable gifts is included, which can reduce estate taxes.
Transferred interests, including future appreciation, are generally excluded from your estate. Only the value of the taxable gifts is included, which can reduce estate taxes.
The benefits of leverage
By gifting interests over time, you can maximize the $19,000 annual gift tax exclusion ($38,000 for married couples). In addition, “minority discounts” may reduce the value of gifted interests—sometimes by 30% or more—allowing greater use of the exclusion and unified credit. These discounts require a legitimate business purpose.
By gifting interests over time, you can maximize the $19,000 annual gift tax exclusion ($38,000 for married couples). In addition, “minority discounts” may reduce the value of gifted interests—sometimes by 30% or more—allowing greater use of the exclusion and unified credit. These discounts require a legitimate business purpose.
Income tax benefits
Sharing partnership income with children may reduce overall family taxes. However, if the income is unearned and the recipient is under age 24, “kiddie tax” rules may apply.
Sharing partnership income with children may reduce overall family taxes. However, if the income is unearned and the recipient is under age 24, “kiddie tax” rules may apply.
Other opportunities can serve your family
Family partnerships require all partners to be involved in management and carry more liability, though benefits are similar. Minors generally need a guardian to hold their interest. Investment partnerships hold assets like securities or real estate expected to appreciate. In some cases, these may be treated as investment companies, meaning gains or losses could be recognized when property is transferred, unlike typical partnership rules.
Family partnerships require all partners to be involved in management and carry more liability, though benefits are similar. Minors generally need a guardian to hold their interest. Investment partnerships hold assets like securities or real estate expected to appreciate. In some cases, these may be treated as investment companies, meaning gains or losses could be recognized when property is transferred, unlike typical partnership rules.
Seek professional guidance
The benefits of the family limited partnership can be significant. But they can only be realized if the arrangement is valid under the requirements of the IRS. Costs and expenses are associated with the creation of these legal instruments. Consult a qualified legal or tax advisor if you think your family could benefit from a family limited partnership.
This content has been reviewed by FINRA. Prepared by Broadridge Advisor Solutions. © 2026 Broadridge Financial Services, Inc.
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