FF—Family Limited Partnership

The family limited partnership (FLP) is a valuable planning technique offering numerous advantages to the owners of a closely held business. With this technique, business interests and other assets can be transferred to family members at reduced values while maintaining indirect yet effective control.

ESTABLISHING PARTNERSHIP.The FLP is established by an agreement setting forth the partnership’s operating rules and the filing of a certificate of limited partnership with state authorities. The typical FLP agreement places restrictions and limitations on ownership of partnership interests, and cannot be changed or terminated for a specified number of years without the concurrence of all partners.

Once the agreement is drawn, the parents then contribute assets to the FLP, which in turn issues bothgeneralandlimitedpartnership interests. Thereafter, the parents make gifts of the limited partnership interests to their children. These gifts can be structured to fall within the gift tax annual exclusion, or the $12,920,000 (per the 2017 Tax Act) estate tax exclusion amount and used to immediately transfer large amounts of limited partnership interests.