In simple terms, a limited partnership is a business entity that has one or more general partners who control operations and one or more limited partners who usually have minimal say in day-to-day management. A family limited partnership (FLP) takes the basic structure of a limited partnership, often used within families to manage and protect assets.
- Structural Overview: How FLPs Operate in Michigan
- Advantages of Using FLPs for Advanced Estate Planning
- Integrating FLPs into a Comprehensive Estate Strategy
- Secure Your Family’s Legacy
An FLP can be incredibly useful in family business succession planning because it combines the control and management benefits of general partnerships with limited liability protections for other family members. The arrangement can help you manage your assets, keep wealth in the family, and smooth out the process of intergenerational transfers.
Let’s explore how family limited partnerships work in Michigan, how such structures can benefit your estate plan, and what to consider when setting one up.
Structural Overview: How FLPs Operate in Michigan
A family limited partnership typically includes at least one general partner and one limited partner. The general partners manage the operations, make investment decisions, and often hold the deciding vote on significant transactions. Limited partners, on the other hand, are essentially family members who hold passive stakes in the partnership but have a limited say in day-to-day matters.
-
- General Partners
General partners carry the most responsibility and potentially the most risk. If the FLP faces financial or legal trouble, the personal assets of the general partners could be at stake if insurance or partnership assets aren’t enough to cover liabilities.
-
- Limited Partners
Limited partners enjoy liability protection similar to shareholders in a corporation. Their liability is usually capped at the amount invested in the partnership. Limited partners don’t participate in management decisions and have less control over daily operations.
To form an FLP in Michigan, you must execute a Certificate of Limited Partnership. The document includes essential information, such as the name of the partnership, the names and addresses of each partner, the nature of the business, and other basic details. Once the certificate has been filed with the Corporations, Securities & Commercial Licensing Bureau, the FLP officially comes into existence.
Because FLPs often involve transferring real property into the partnership, it’s wise to consult a local real estate lawyer in Muskegon before finalizing any deeds or legal paperwork. An experienced attorney can make sure the property transfers go smoothly and meet all state requirements. Any misstep in documentation or filing can open the door to liability issues or unexpected legal consequences.
Advantages of Using FLPs for Advanced Estate Planning
Family limited partnerships can be a valuable tool for advanced estate planning in Michigan. Why? Because these business structures offer specific benefits that can be hard to achieve with other estate planning instruments. Here are some of the top reasons why people choose FLPs:
-
- Minimizing Estate Taxes
When you transfer assets into an FLP, you can potentially reduce the value of your taxable estate, which is especially important if you anticipate high estate taxes that might eat into the inheritance of your heirs. By structuring assets within the FLP and later gifting portions of ownership to limited partners, you ensure future appreciation of those assets happens outside your individual estate.
-
- Retaining Control
As the general partner of an FLP, you get to call the shots about day-to-day management. The setup contrasts with outright gifts or some trust arrangements, where you might lose direct control of the asset once it’s transferred. FLPs let you decide when to sell property, how to manage investments, and how to distribute income, as long as you’re following the partnership agreement and relevant laws.
-
- Liability Protection
Limited partners aren’t personally liable for debts beyond their investment in the FLP, which helps protect your children or other family members from legal actions that might stem from the activities of the partnership itself. While the general partners don’t enjoy the same level of protection, many families mitigate risks by using corporate structures or trusts to hold the interests of the general partners.
A practical example of how FLPs facilitate generational wealth transfer is through gifting ownership shares. As a general partner, you can systematically gift shares of the FLP to family members without triggering substantial gift taxes. In 2025, you can gift up to $18,000 per recipient under the federal gift tax exclusion without filing a gift tax return. Over time, these annual gifts can significantly move wealth out of your estate.
However, don’t overlook potential pitfalls. If the FLP is not managed according to formal guidelines, the Internal Revenue Service (IRS) might argue that it’s a sham intended purely for tax avoidance. In addition, you have to ensure you’re not mixing personal finances with FLP funds. Meticulous record-keeping, separate bank accounts, and consistent protocols for distributing income are necessary.
Integrating FLPs into a Comprehensive Estate Strategy
Family limited partnerships work best when combined with other estate planning tools and vehicles. If you already have a living trust, for example, you might decide to hold your general partnership interest within that trust to keep the day-to-day control of the FLP within your estate plan, making it even easier to transition management if you become incapacitated.
Wills remain a cornerstone of any estate strategy. Even with an FLP in place, your will addresses matters that the FLP does not cover, which include naming guardians for minor children or specifying distribution details for personal items. Moreover, certain trust arrangements, such as revocable living trusts, can offer flexible ways to manage assets that might not be part of your FLP.
A successful FLP strategy typically involves collaboration among an estate planning attorney, a financial advisor, and, if real property is involved, a real estate lawyer in Muskegon. Each professional brings valuable expertise, ensuring that your FLP is formed correctly, your investments are well-managed, and your properties are appropriately titled and protected.
Secure Your Family’s Legacy
A family limited partnership can be a powerful tool for building and preserving wealth for future generations, especially when you understand its structure and benefits. If you’re ready to explore whether an FLP is right for you, Bowen Hoogstra Law is here to help you navigate the details. From initial consultations to drafting partnership agreements, our competent real estate lawyer in Muskegon can guide you through the entire process. Let us give you the peace of mind that comes from knowing your assets are protected. Contact us today at (231) 726-4484 or here.