Our Trusted NY Estate Planning Attorneys Explain What to Know About Family Limited Partnerships
A family limited partnership (FLP) is a legal agreement established between two or more relatives who share a financial interest in the same business. Most people who form FLPs are married couples who plan to transfer enterprise-related assets, shares, or ownership to their children. 
Although FLPs could seem like a convenient way to keep taxes low while providing a structured inheritance, they demand due diligence. Don’t risk your family’s financial security. Reach out to the experienced estate planning attorneys at Landskind & Ricaforte Law Group, P.C. for help. Here, we explain the advantages and disadvantages of establishing an FLP.
FLPs in New York
FLPs can own and control a wide range of complex assets. However, no matter how many workers a business might employ or how much wealth it generates, most FLPs have simple and easy-to-understand structures. Partners typically fall into either one of the following two categories:
- General partners, who play an active role in the company’s daily affairs
- Limited partners, or “silent partners,” who invest in the business and may be entitled to a share of its profits but are otherwise uninvolved in routine operations
Entrepreneurs and business owners who establish FLPs will often name themselves as general partners while nominating their heirs as limited partners. This delegation of very different duties lets parents retain control of their companies and provides built-in protection against interference.
The Advantages of New York FLPs
FLPs serve a much greater purpose than giving children an opportunity to invest and receive dividends. Most partnerships can be structured to provide advantages, including the following:
- Easy transfer of ownership. A very practical advantage of an FLP is that it gives business-savvy general partners a chance to assess whether heirs have the interest, commitment, and talent needed to someday take the reins themselves.
- Asset protection. Establishing an FLP is a fairly easy way to separate business assets from personal assets. General partners may still be liable for enterprise-related debts, but business accounts or real properties transferred to an FLP before death are typically shielded from creditor claims against the decedent’s estate.
- Minority discount benefits. General partners can regularly gift additional ownership interest to their heirs. Although these gifts count against your annual gift tax exclusion, their value is heavily discounted—both because the recipient cannot cash in on business-related assets and because interest in family-owned businesses cannot be readily converted to cash or credit.
- Income tax deductions. If FLP-derived earnings, interest, or dividends are shared among immediate relatives—especially children—families could save significant amounts of money on their taxes.
- Estate tax exemptions. Assets transferred to an FLP leave your individual estate upon death. Just as partnership-owned assets are shielded against creditor claims, so too are they excluded from estate tax assessments.
The Downside of New York FLPs
FLPs help forward-thinking New Yorkers save big on their taxes—an advantage that, if embraced too eagerly, could very quickly attract a very aggressive audit.
Although most people who establish FLPs aren’t interested in paying any more taxes than necessary, FLPs have a not-entirely undeserved reputation for being easily exploitable. And the IRS knows it, so even innocent mistakes are sometimes met with overt skepticism.
How the Landskind & Ricaforte Law Group, P.C. Could Help Protect Your Legacy
FLPs are a time-tested strategy for keeping businesses among blood without having to cede an executive position or expose an heir’s inheritance to unreasonable risk.
However, establishing an FLP—and ensuring that it stays on the right side of the IRS—isn’t always straightforward. Getting the most out of a partnership often requires the foresight and knowledge of city, state, and federal law that only years of hands-on experience can provide.
At Landskind & Ricaforte Law Group, P.C., our estate planning attorneys have spent decades helping New Yorkers protect legacies of success, prosperity, and charity. We’re here to:
- Talk through your aspirations to determine whether an FLP is the best way to meet your goals or if another strategy seems more likely to save you time, money, and convenience.
- Answer any questions you might have about setting up an FLP in Brooklyn, Queens, Staten Island, or anywhere in the New York City area—including Long Island.
- Draft FLP paperwork, submit copies to the state, and create a long-term plan that protects your assets and minimizes your liabilities.