Family limited partnership (FLP)
A family limited partnership (FLP) is a partnership that pools assets, consolidates management and creates a business relationship with beneficiaries. A general partner controls investments and distribution decisions, while limited partners hold interests without that control. Estate planning practitioners describe the FLP as a vehicle for transitioning business investments to beneficiaries at death. Any valuation discount depends on proper formation and operation.
How it works
Formation starts with a partnership agreement and a filed Certificate of Limited Partnership. Practitioners point to the certificate as giving notice of formation and limited liability.
Title to assets intended for the FLP must actually be transferred to the partnership, according to one practitioner.
Control sits with the general partner. One practitioner says the general partner's sole control over investments and distribution decisions may be held through an LLC or S corporation.
Where it shows up for owners of businesses, real estate and private investments
Practitioners regard one general partner directing the investments while the partnership holds them together as the usual arrangement.
Beneficiaries who hold limited partner interests are the other side of the arrangement.
Valuation questions follow from the structure.
Points that are easy to confuse
General partner and limited partner roles are different. The general partner holds control over investments and distributions, and limited partners lack that control.
The FLP and the entity serving as general partner are separate. An LLC or S corporation may hold the general partner role, and that entity is distinct from the partnership itself.
Pro-rata share of net asset value is a reference point for the interest.
A filed certificate and an actual asset transfer are different steps. The certificate gives notice of formation, while title to the assets must separately be moved into the partnership.
Common questions
What does the general partner do in an FLP?
Trust and estate practitioners describe the general partner as holding sole control over investments and distribution decisions.
Why does the Certificate of Limited Partnership matter?
Practitioners see the filed certificate as the document that gives notice of formation and limited liability. The partnership agreement is the other document practitioners name. A practitioner adds that title to contributed assets must also be transferred to the partnership.