Family Limited Partnership (FLP)
Definition
A business entity with family members as partners. General partner, usually a parent, manages the partnership. The other family members are limited partners.
When Does It Apply?
FLP can be used with business, personal and investment assets.
How Does It Operate?
Family member or members contribute property to a partnership. General partner is personally liable for all debts, but the limited partners are only liable up to the value of their interest.
Advantages/Disadvantages
Advantages - Income tax liability is shifted from parents to children. Minority and marketability discounts available for limited partnership interests gifted to children. Parent as general partner maintains control over assets. Assets are protected from creditors.
Disadvantages - very expensive to set up and operate.
Estate/Gift Tax Implications
Value of interests is included in taxable estate of general and limited partners.
Income Tax Implications
All income tax consequences are passed through to the partners, whether general or limited.
Other Considerations
A very flexible arrangement that can be modified as family and business needs to change. FLP's are not irrevocable, in contrast to other planning devices, i.e. irrevocable insurance trust.
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