Family Limited Partnerships (FLPs) and the Role They Play in Thoughtful Family Wealth Planning

When families gather—whether for holidays, milestone celebrations, or extended time together—it often creates rare opportunities for meaningful conversations about long-term wealth, legacy, and how to protect assets across generations.

For high-net-worth families, those conversations can naturally lead to more intentional planning. One powerful tool to support that planning is the Family Limited Partnership (FLP).

What Is a FLP?

A FLP is a legal entity that allows families to consolidate and manage assets, such as investment portfolios, real estate, or family businesses, under a single structure.

It typically involves:

• General Partners (GPs) – Often the parents or senior generation, retaining management control.
• Limited Partners (LPs) – Often children or trusts for their benefit, holding economic interests without decision-making authority.

Why FLPs Are a Powerful Strategy for UHNW Families

1. Preserve Control While Transferring Wealth
   Even after gifting partnership interests, general partners maintain control over investments, distributions, and strategic decisions.
2. Minimize Estate and Gift Taxes
   By consolidating assets under a FLP, families may be able to apply valuation discounts reflecting lack of control and lack of marketability when transferring interests to the next generation. The valuation discounts are case specific but are often 20-40%, allowing more wealth to pass within the current lifetime exemption limits.
3. Protect Assets
   LP interests are generally shielded from creditors and lawsuits, as creditors cannot force distributions or take control of the FLP, adding another layer of protection to family wealth. It is important that the formalities of the FLP are respected to ensure asset protection in most cases.
4. Centralize Wealth Management
   A FLP allows for coordinated investment strategies, tax reporting, and succession planning under one structure.
5. Encourage Multi-Generational Engagement
   Younger family members can learn investment philosophy and stewardship directly from the senior generation.

For a FLP to withstand IRS scrutiny, it should be established for a valid business purpose (e.g., centralizing investments, governance, or succession) and operated as a real partnership. Improper structure or administration can invite examination.

Family gatherings can be the perfect time to:

• Introduce the concept of long-term planning in a thoughtful, collaborative way
• Identify which assets—such as a family business, real estate, or investment portfolio—may be appropriate for a FLP
• Begin planning ahead of major tax deadlines and legal considerations

Next Steps

If a FLP or LLC structure aligns with your goals, it is important to work with your estate planning attorney, CPA, and wealth advisor to:

• Form the entity with a valid business purpose to withstand IRS review.
• Coordinate professional valuations to justify discounts.
• Ensure ongoing compliance with formalities like annual meetings, separate accounting, and bank records.

Bottom line:
When families take time to talk about the future, meaningful planning can follow. A FLP can help preserve control, reduce taxes, and support long-term stewardship—keeping family wealth aligned with what matters most for generations to come.

Important Disclosures: This article is not intended to provide and you should not rely upon it for accounting, legal, tax, insurance or investment advice or recommendations. This article is intended to be educational in nature and to discuss limited aspects of very complex subject matters. This article is not a comprehensive or complete summary of all considerations regarding its subject. We recognize that every individual has different needs and the opinions expressed in this article may not be appropriate for everyone. Please consult with a Freestone client advisor, insurance provider, accountant, or lawyer regarding options specific to your needs.