In the next couple of weeks, the Internal Revenue Service is expected to issue new guidelines governing Family Limited Partnerships (FLPs). These guidelines can’t come soon enough. The new regulation is a positive step forward to ending the abuse of an investment vehicle that provides very significant benefits to families.
What exactly is an FLP and how does it help families of significant wealth?
An FLP is typically set up to promote the gifting of assets, via FLP interests, to children while allowing the parents to retain control of the assets. Here’s an example: Parents create an FLP and contribute to the FLP a business that they own. They then gift 98% of their Limited Partner interest to their children, and the parents retain a 2% General Partner interest. The Limited Partners, by definition, have zero control in running the FLP, and the General Partners have all the control. However, the Limited Partners own 98% of the value of the FLP, and the General Partners only own 2% of the value.