Is a Family Limited Partnership the Right Choice for Estate Planning?

October 9, 2023
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8 min read

As a parent, you want to leave your kids with enough resources to guarantee their comfort after you pass away. If you’ve built up a business over the years, that might include profits or assets from that company. And, if you trust your children, it might even mean passing down ownership and control of the company to your offspring.

You have several options depending on your goals and what exactly you want to pass down. An FLP or family limited partnership might seem attractive, but is it a good choice compared to a traditional trust? Let’s take a closer look.

FLPs Briefly Explained

A family limited partnership is a holding company that’s owned by two or more family members. Similar to a limited liability company, an FLP is relatively easy to form and can be used for different business goals, like:

  • Sharing ownership responsibilities and financial liabilities among multiple family members
  • Conversely, allowing many family members to contribute to the formation of a business, but limiting business control to one or two family members

For example, if you and your five siblings want to start a business, but you are the one with the best business sense, you might create a family limited partnership. Then, each of your siblings can financially contribute to the company and be entitled to dividends later. But you remain in control of the organization and its operations.

Should You Use an FLP for Estate Planning? Depends on Your Strategy

You might already see the potential use case for a family limited partnership in terms of estate planning. But whether or not it’s the right vehicle to use depends heavily on your strategy and your desires.

You Want Your Kids to Take Over a Company/Venture

If you want your kids to take over the ownership and operation of your company, an FLP could be just the ticket. With a family limited partnership, you can transfer ownership shares to your kids, grandkids, or other family members over time.

That way, when you pass away, ownership of the company can pass smoothly to the next inheritor, depending on your wishes. Even better, you can transfer many of those ownership shares (and the associated wealth) to your kids tax-free.

That said, giving your children money or assets in this way comes with risks and potential downsides. For example, even if you explicitly lay out other controls or checks and balances in your will, giving ownership shares of a family-owned company to your kids via a family limited partnership necessarily gives them some amount of control. This may or may not work out as you anticipate.

Furthermore, there is a limit to how much money you can transfer to your children with associated tax benefits through an FLP.

You Want to Provide Your Kids with Wealth

If you want to plan for the distribution of your state with the primary goal of giving your kids immense amounts of money, an FLP is not the best choice.

As of 2023, a parent can give a maximum of $12.92 million to kids through the gift tax exemption throughout their lives. Even if both parents combine their gifts, that’s a little less than $26 million.

What if you have more than that you want to distribute to your kids, grandkids, and more while still taking advantage of tax benefits? An FLP will not be sufficient for your goals. With that in mind, it might be wiser to investigate something like a trust.

With a trust, you can:

  • Set up assets to be managed and distributed for a long time to come through an experienced trustee
  • Control when your beneficiary(s) have access to the assets within the trust
  • Protect the assets within the trust from future legal difficulties, such as creditors, lawsuits, and much more

You can pick up a trust as a more comprehensive, flexible, and dynamic estate planning vehicle compared to an FLP. A family limited partnership, in contrast, is more rigid.

Further Differences Between FLPs and Trusts for Estate Planning

Family limited partnerships and trusts are both appropriate in different circumstances. Grasping their differences could help you determine which is right for your estate plan.


A trust is far more flexible compared to a family limited partnership. With a trust, for example, you can name your children or grandchildren as beneficiaries and ensure they receive the monetary dividends you want to guarantee their financial stability for the rest of their lives. But you don’t have to give them ownership of the family-owned company to do so.

You can also adjust or set limits on dividends and other assets, such as:

  • When beneficiaries receive assets (and the schedule, e.g., all at once, monthly, etc.)
  • Which beneficiaries receive assets and which assets go to which beneficiary
  • What beneficiaries can do with the assets
  • And so on


In this way, a trust is both more flexible and gives you greater control over how your assets are managed and distributed after you are gone. This is not the case with a family limited partnership.

Say you create an FLP and give your kids ownership shares of the company. Once that happens, your children will have the ultimate say over how they use those shares. 

Furthermore, there’s no guarantee that they have to listen to how you want them to run the company associated with those shares, whether they can sell the shares, and so on.

There are limits and controls you can implement with the guiding documents of an FLP, of course. But with a trust, it’s much easier to make sure that your will is implemented exactly as you intend. 

A trust is simply a more robust and comprehensive estate planning document – an FLP isn’t really intended to be an estate planning tool in most cases.

Legal Protections

Lastly, a trust might be a better choice than a family limited partnership for estate planning purposes thanks to the inherent protections it offers. At its core, any family limited partnership is about tax planning and business control/financing.

But a trust is about tax planning and asset protection simultaneously. For example, you can set up an offshore asset protection trust with Dominion, thereby protecting any of the assets within against a variety of legal threats, like lawsuits, creditors, etc.

By doing this, you'll ensure that the assets within the trust are still accessible to beneficiaries for a long time to come. So, if you want to plan your estate with a mind toward long-term security, a trust is the obvious better choice.

Consider Your Options with Dominion

At the end of the day, you need to decide what exactly you want to give your kids when you pass away and what will become of your company. If you want your kids to have control over your business, whether to a small or large extent, and you don’t care as much about passing down massive wealth over decades, a family limited partnership might be ideal.

On the other hand, guaranteeing your children’s financial security and leaving your company in the hands of others may call for the establishment of a durable, perfectly-drafted trust. That’s where Dominion can help.

Our legal and financial advisors are the best in the business when it comes to creating and maintaining resilient, effective trust vehicles, particularly in offshore jurisdictions. With our help, you can set up the perfect trust for your estate planning purposes and guarantee that your kids have access to resources or dividends for a long time to come. Contact us today to learn more about your options.


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