When setting up an estate plan, many families take their entire estate’s worth into account. There is no federal inheritance tax, but an estate tax applies to any estate worth over $12.06 million. The bad news is that it will soon change. In 2026, the federal inheritance exemption will drop to $6 million. Many families are rethinking their children’s futures and protecting their generational wealth with a Family Limited Partnership.
A family limited partnership (FLP) is an arrangement between at least 2 family members where they pool their money to run a business project. Each family member buys units or shares of the business and can receive profits based on the number of shares. This is a way for parents or grandparents to continue giving funds to their children or grandchildren.
Once your business project shows a profit, it will pay dividends to the shareholders. For example: let’s say you set up a family limited partnership, and your children invest as shareholders. The shareholders (your children) will receive monthly or yearly payments when the business makes a profit. This helps pass your wealth down to the next generation.
There are two types of partners involved:
General Partners: these are usually the people who own the largest share of the business. They are responsible for the day-to-day management of the project.
Limited Partners: these partners usually have no management responsibilities. They invested the money in exchange for dividends, interest and profit.
As with everything, there are pros and cons to a family limited partnership. Consult with your estate planning attorney to decide if this is best for you.
Some advantages are:
Some disadvantages are:
You must be able to trust the person with whom you go into business, including family members. Setting up a family limited partnership is only one part of your estate plan.
Building a solid estate plan will ensure your wealth is passed on to your loved ones. With expert guidance from the estate planning attorneys at Estate & Probate Legal Group in Illinois, we can help make this happen. A Family Limited Partnership may be the best way to ensure generational wealth for your children and grandchildren. Contact us today at 630-864-5835.
AREAS WE SERVE: DuPage, Kane, Lake and Will counties.
