What is a Family Limited Partnership (FLP)?

A family limited partnership (FLP) is a legal entity formed under your state's limited liability partnership law between you and some of your family members.

Does and FLP work just like a standard limited partnership?

An FLP works like any other limited partnership under your state's statutes. The FLP has two kinds of partners: general partners and limited partners.

The general partners have 100 percent control over and responsibility for the management of the partnership and its assets, and they are 100 percent liable for the acts or omissions to act of the partnership and all the other general partners. After setting up the FLP, strategic family assets are transferred into it, including investments and business interests. When the transfers are complete, individuals no longer own a direct interest in these assets. Instead, as general partners they own a controlling interest in the FLP, and it is the FLP which owns the assets.They decide when assets are bought and sold and the timing and amount of the partnership's income and capital distributions.

The limited partners have no control over either the assets or int income if the partnership. The also have no authority over the general partners. They cannot fire the general partners or replace them. Their legal authority and roles are narrowly defined by all states' statutes. Limited partners are not liable for the acts of the general partners and are not liable for claims against the partnership or for partnership debts. They are liable, or at risk, only up to the amount of their partnership investment or interest.

Who are the general partners of an FLP?

The general partners almost always are parents or grandparents or corporations, limited liability companies, or management trusts controlled by those individuals.