A family limited partnership (FLP) is a family business meant to shield personal assets from the Internal Revenue Service (IRS) and creditors. Family members often use FLPs to assist with succession planning, tax savings, and the handling of assets like real estate and [securities](https://www.masterclass.com/articles/what-are-securities). While FLPs come with perks for beneficiaries and can protect family assets, business owners must not lose sight of the central business purpose and still operate an FLP with business interests in mind.
Two types of partners make up family limited partnerships: general partners and limited partners. Each has a unique form of partner interest in the company as a whole. Partners can modify the partnership agreement at any time to change who is which kind of partner.

General partnership interest entails owning the lion’s share of stock in the FLP and the ability to make business decisions. General partners are directly involved with the daily running of the business. In FLPS, parents or grandparents are usually general partners. 

Limited partnership interest means having a lack of control over business decisions and limited partnership shares in comparison to those the general partners hold. In FLPs, it’s common for children to start as limited partners and later become general partners.
Family limited partnerships can be very useful in financial planning as a whole. Here are five key reasons a person might consider forming an FLP:

1. __Asset protection__: Once you transfer assets into an FLP, they become FLP assets. In other words, they’re no longer yours personally and are more extensively shielded than they would be if they were still an individual’s property. These underlying asset perks are one of the main reasons people register FLPs. 
2. __Estate planning__: Forming an FLP is a reliable estate planning tool. It can help protect the fair market value of the included assets for future generations and prove useful in drawing up a succession plan.
3. __Liability protection__: Like a limited liability company (LLC), an FLP provides legal and tax liability to at least some of its members. General partners have unlimited liability, meaning their partnership [assets](https://www.masterclass.com/articles/assets-vs-liabilities) are still liable for seizure by creditors or the state should they not pay their debts. But limited partners have limited liability, protecting their assets from anything of the sort.
4. __Pass-through status__: One of the major tax benefits of utilizing an FLP is pass-through status. Each member of the family simply pays at their own tax bracket rate on their individual income tax returns, rather than the family limited partnership itself paying taxes. 
5. __Tax purposes__: FLPs come in handy for tax planning for a litany of reasons. Those involved in FLPs can take advantage of annual gift tax exclusions, estate tax exemptions, lack of marketability discounts, as well as other valuation discounts. Each of these allows the transfer of assets into the business so that the family can keep more wealth for itself rather than be subject to capital gains and estate taxes.
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A family limited partnership is a type of business arrangement that helps family members retain control of their assets. Learn more about family limited partnerships.

A family limited partnership is a type of business arrangement that helps family members retain control of their assets. Learn more about family limited partnerships.

5 Benefits to Family Limited Partnerships: How FLPs Work

A family limited partnership (FLP) is a family business meant to shield personal assets from the Internal Revenue Service (IRS) and creditors. Family members often use FLPs to assist with succession planning, tax savings, and the handling of assets like real estate and <a href='https://www.masterclass.com/articles/what-are-securities' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/what-are-securities","linkCopy":"securities","category":null}'>securities</a>. While FLPs come with perks for beneficiaries and can protect family assets, business owners must not lose sight of the central business purpose and still operate an FLP with business interests in mind.

What Is a Family Limited Partnership?

Two types of partners make up family limited partnerships: general partners and limited partners. Each has a unique form of partner interest in the company as a whole. Partners can modify the partnership agreement at any time to change who is which kind of partner.General partnership interest entails owning the lion’s share of stock in the FLP and the ability to make business decisions. General partners are directly involved with the daily running of the business. In FLPS, parents or grandparents are usually general partners. Limited partnership interest means having a lack of control over business decisions and limited partnership shares in comparison to those the general partners hold. In FLPs, it’s common for children to start as limited partners and later become general partners.

How Does a Family Limited Partnership Work?

Family limited partnerships can be very useful in financial planning as a whole. Here are five key reasons a person might consider forming an FLP:<ol class="mc-m-4"><li class="mc-my-4"> 1. Asset protection: Once you transfer assets into an FLP, they become FLP assets. In other words, they’re no longer yours personally and are more extensively shielded than they would be if they were still an individual’s property. These underlying asset perks are one of the main reasons people register FLPs. </li><li class="mc-my-4"> 2. Estate planning: Forming an FLP is a reliable estate planning tool. It can help protect the fair market value of the included assets for future generations and prove useful in drawing up a succession plan. </li><li class="mc-my-4"> 3. Liability protection: Like a limited liability company (LLC), an FLP provides legal and tax liability to at least some of its members. General partners have unlimited liability, meaning their partnership <a href='https://www.masterclass.com/articles/assets-vs-liabilities' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/assets-vs-liabilities","linkCopy":"assets","category":null}'>assets</a> are still liable for seizure by creditors or the state should they not pay their debts. But limited partners have limited liability, protecting their assets from anything of the sort. </li><li class="mc-my-4"> 4. Pass-through status: One of the major tax benefits of utilizing an FLP is pass-through status. Each member of the family simply pays at their own tax bracket rate on their individual income tax returns, rather than the family limited partnership itself paying taxes. </li><li class="mc-my-4"> 5. Tax purposes: FLPs come in handy for tax planning for a litany of reasons. Those involved in FLPs can take advantage of annual gift tax exclusions, estate tax exemptions, lack of marketability discounts, as well as other valuation discounts. Each of these allows the transfer of assets into the business so that the family can keep more wealth for itself rather than be subject to capital gains and estate taxes. </li></ol>

5 Benefits of a Family Limited Partnership

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A family limited partnership is a type of business arrangement that helps family members retain control of their assets. Learn more about family limited partnerships.

A family limited partnership is a type of business arrangement that helps family members retain control of their assets. Learn more about family limited partnerships.
