family limited partnership
A legal structure allowing families to transfer business or investment assets to heirs with potential estate and gift tax discounts.
Example
“The family limited partnership transferred the rental properties to her children at a 35% valuation discount.”
Memory Tip
FLP — transfer assets to heirs at a discount. Complex but powerful for large estates.
Why It Matters
Family limited partnerships help reduce the taxable value of estates passed to heirs, which can save families hundreds of thousands of dollars in estate taxes. This structure is particularly important for families with significant business interests or investment portfolios who want to transfer wealth efficiently across generations.
Common Misconception
Many people believe that creating a family limited partnership completely eliminates estate taxes or allows them to give unlimited gifts to heirs without any tax consequences. In reality, while these partnerships can provide valuable discounts on asset valuations, they still require proper documentation and compliance with tax laws to be effective.
In Practice
A family owns a real estate portfolio valued at 10 million dollars. By establishing a family limited partnership, they might receive a 30 to 40 percent discount on the value for gift tax purposes, reducing the taxable value to 6 to 7 million dollars when transferring ownership to their adult children. This discount can result in significant estate tax savings when the parents pass away.
Etymology
Modern estate planning vehicle — a partnership structure for family wealth transfer.
Common Misspellings
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