Definition
A family limited partnership is an entity used to hold and transfer family assets, often with valuation discounts that reduce transfer tax.
How It Works
Parents contribute assets to the partnership and gift limited partnership interests to family members over time while retaining control as general partners. Because limited interests lack control and marketability, they may be valued at a discount for gift and estate tax purposes.
Example
Parents place a real estate portfolio in an FLP and gift limited interests to children at a discounted value, transferring wealth while keeping management control.
When It Works Best
It works best for families transferring closely held businesses or investment assets while retaining control.
Who It Applies To
High-net-worth families with concentrated assets to transfer.
Watch-Outs
Valuation discounts are an IRS audit focus, the structure must have a legitimate business purpose, and aggressive discounts have been challenged.
