Knowledge Center

Advantages of Family Limited Partnerships

  • Controlled Distributions

    General partners control the FLP and its distributions. Income and profits from the partnership do not have to be distributed. They can be reinvested.

  • Control Over Limited Partners

    General partners can restrict limited partners from transferring, selling or otherwise "losing" their ownership interest.

  • Valuation Discounts

    You can discount the value of limited partnership interests given to family members.

  • Creditor Protection

    Owning an interest in a limited partnership comes with a certain degree of built-in credit protection. A limited partner's creditor(s) cannot go directly after partnership assets or take a limited partner's interest in a limited partnership. Currently, the law only allows for a "charging order." This requires any monetary distributions from the LP to be given to that partner's creditor(s). To avoid this, the partnership can simply choose to reinvest earnings instead of making distributions.

  • Arbitration for Dispute Resolution

    An FLP can include an arbitration provision to resolve family conflicts among partners. The partners simply agree in advance to settle any disputes through arbitration.

  • Buy-Sell and Right of First Refusal

    An FLP agreement can include buy-sell and right of refusal provisions to prevent unwanted persons from becoming partners. A buy-out provision can stipulate that partnership interest may be purchased by other partners at the partnership's fair market value or at a discount.

  • Asset Protection in the Event of Divorce

    The FLP can be used to separate individual property from communal marital property. If a limited partner divorces his or her spouse, an FLP can protect the partner's ownership interest, ensuring it remains in the family.

  • Flexibility

    Unlike an irrevocable trust, a family limited partnership is very flexible. A family limited partnership can be amended or terminated if all of the members agree to do so.

  • Reduced Costs

    Placing family assets in a single FLP costs less than placing them in several entities or trusts. This means there are fewer administration expenses involved.

  • Intangible Assets

    An FLP is considered an "intangible asset." This means it's likely that only your home state (state of residence) will be able to impose any inheritance tax on partnership units. This is ideal for real property owners who own property in several states.

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