--- title: "Family Limited Partnerships (FLPs) for Wealth Transfer" source: https://www.perissosprivatewealth.com/insights/family-limited-partnerships-wealth-transfer publisher: Perissos Private Wealth Management published: 2026-08-07T05:00:00+00:00 updated: 2026-08-07T05:00:01.601709+00:00 topics: Family Limited Partnerships for Wealth Transfer, FLP valuation discounts, centralized asset management, Oklahoma estate planning, limited partnership interests, federal gift tax exclusion license: Educational content. Cite with attribution. Not personalized financial, tax, or legal advice. --- # Family Limited Partnerships (FLPs) for Wealth Transfer ## Quick answer Family Limited Partnerships for Wealth Transfer facilitate the movement of assets to the next generation by separating management authority from economic ownership. This structure allows parents to retain control as general partners while gifting limited interests to heirs, potentially utilizing valuation adjustments for lack of control and marketability when supported by qualified professional appraisals. ## Key takeaways - The 2026 federal gift-tax exclusion is $19,000 per recipient, and the individual basic estate-tax exclusion is $15 million. - A Family Limited Partnership separates management authority, held by the general partner, from the economic ownership rights held by limited partners. - FLP interests must be valued by qualified appraisers to account for lack of control and marketability, as there is no standard or safe-harbor discount percentage. - Proper IRS reporting on Form 709 requires adequate disclosure and contemporaneous documentation to begin the statute-of-limitations period for a gift. - An FLP functions as a pass-through entity for federal income tax purposes, meaning profits and losses are reported by individual partners on Schedule K-1. # Family Limited Partnerships (FLPs) for Wealth Transfer *How families can transfer economic ownership while preserving a disciplined framework for management and control.* August 5, 2026—The appeal of a family limited partnership is easy to summarize: a family can place business or investment assets under one management structure, transfer limited partnership interests over time, and keep the operating decisions centralized. The hard part is everything that comes after the summary. An FLP is a real legal and economic arrangement, not a tax label placed on a brokerage account. That distinction matters more in 2026 because the federal basic estate-tax exclusion is $15 million per person, while the annual gift-tax exclusion remains $19,000 per recipient. 1 A family whose wealth is comfortably below the federal threshold may have little reason to accept years of entity administration merely to pursue transfer-tax savings. A family with a rapidly appreciating business, a large real-estate portfolio, or wealth already above the exclusion may see the tradeoff very differently. I think the right question is not, "Can an FLP produce a discount?" The right question is, "Does this family need a long-term ownership and governance structure that would still make sense if the tax benefit were smaller than expected?" If the answer is yes, the tax planning can reinforce a good structure. If the answer is no, the structure is probably being asked to do too much. ## What an FLP Actually Is A family limited partnership is a limited partnership in which most of the partners are related. In a common arrangement, one or both parents contribute family business or investment assets to the partnership, retain a general-partner interest, and receive limited-partner interests. They may then give or sell portions of the limited interests to children, trusts for descendants, or both. The general partner manages the entity; the limited interests carry the economic rights defined in the partnership agreement but ordinarily do not carry day-to-day decision-making authority. The IRS describes FLPs as structures commonly used to hold and manage family business or investment assets while distributing limited interests over time. 2 Figure 1 shows the basic architecture. Think of it as separating the steering wheel from the passenger seats. The general partner keeps the steering wheel over partnership decisions, while the limited partners own real economic interests in the vehicle. They are not merely names on a family chart. Their rights, restrictions, distributions, and capital accounts must follow the agreement and applicable state law. Figure 1: A typical FLP separates management authority from limited-partner economic ownership. For federal income-tax purposes, a partnership generally does not pay tax on its income at the entity level; profits and losses pass through to the partners, who receive reporting information on Schedule K-1. 3 That creates useful flexibility, but it also creates annual accounting, tax-return, recordkeeping, and communication obligations. An FLP is not a "set it and forget it" document. ## How Families Typically Use the Structure The most common use is to pool assets that benefit from centralized management. A family might place interests in an operating business, commercial real estate, mineral interests, or a diversified investment pool into the partnership. The parents can establish an investment and distribution policy, consolidate reporting, and introduce the next generation to ownership without handing each child unilateral authority over the underlying assets. The second use is gradual wealth transfer. Instead of giving pieces of each underlying asset, the parents transfer limited partnership interests. A gift above the annual exclusion generally uses part of the donor's lifetime exemption rather than automatically producing current gift tax, assuming sufficient exemption remains and the transfer is properly reported. 8 The 2026 federal basic exclusion is $15 million per person, and the annual exclusion is $19,000 per recipient. 1 The transferred interest and its future appreciation then belong to the recipient, subject to the partnership agreement. The third use is family governance. The agreement can define who may own an interest, how transfers are handled, when distributions may be made, how a successor manager is selected, and what happens when a family member wants liquidity. This can be especially valuable when a business or property should remain managed as one economic unit. An FLP can create rules for a family asset, but it cannot create family alignment by itself. If siblings disagree about distributions, risk, or succession before the entity is formed, partnership documents will organize the disagreement rather than eliminate it. ## What Valuation Discounts Do—and Do Not—Mean A limited interest may be worth less than its pro-rata share of the partnership's net asset value because a hypothetical buyer may lack control and may have no ready market for the interest. IRS research describes those limitations as characteristics that can support discounts for lack of control and lack of marketability. 2 The important word is "can." There is no standard FLP discount, no safe percentage, and no rule that turns $1 of underlying assets into 70 cents of taxable value merely because an attorney drafted a partnership agreement. 2,4 Figure 2 uses an illustrative $4.8 million limited interest. At pro-rata net asset value, the interest represents $4.8 million of underlying value. If a qualified appraiser concluded that a combined 25% adjustment for the actual lack of control and marketability was supportable, the reported gift value would be $3.6 million. That $1.2 million difference is not cash that disappeared. It is the appraiser's conclusion about the price a willing buyer would pay for the specific restricted interest. The 25% is an assumption for illustration, not a recommendation or a benchmark. Figure 2: Illustrative valuation only; any actual adjustment requires a qualified, fact-specific appraisal. The filing discipline is as important as the appraisal. IRS instructions state that adequate disclosure on Form 709 is needed to begin the statute-of-limitations period for a gift and generally requires a description of the property, the parties and their relationship, and either a qualified appraisal or a detailed explanation of the valuation method. 4 The same instructions require support for the value reported on the return. A valuation memo prepared after an audit letter arrives is not the same thing as a defensible contemporaneous appraisal. ## Who Tends to Benefit the Most The strongest candidate is usually a family with a legitimate reason to pool and manage assets, meaningful potential estate-tax exposure, and a long time horizon. A closely held company, income-producing real estate, or another asset expected to appreciate can fit because the family may want centralized control even as economic ownership moves to descendants. The structure becomes more compelling when the family's projected estate is already above, or could grow beyond, the $15 million-per-person federal exclusion. 1 The family also needs enough liquidity outside the FLP. Once limited interests are transferred, those interests belong to the recipients. Parents should not assume that partnership assets remain their personal reserve. A strong candidate can fund lifestyle, taxes, health care, and contingencies without treating the FLP as a checking account. Finally, the family must be willing to administer what it creates. Separate accounts, timely capital contributions, proportionate ownership records, defensible distributions, annual tax filings, periodic appraisals, and real meetings are not cosmetic. IRS examination guidance tells agents to review whether an entity was validly formed and funded, whether interests were proportionate to contributed value, whether legal title actually moved, whether the transferor retained income or enjoyment, and whether restrictions satisfy the applicable transfer-tax rules. 5 Those are the same questions a careful family should answer before the IRS ever asks. ## Who Tends to Benefit the Least An FLP is usually a poor fit for a family whose estate is comfortably below the federal exclusion, has no state estate-tax exposure, and has no genuine need for centralized ownership. The entity may still offer governance value, but the family should compare that value with legal fees, accounting work, appraisals, tax returns, and the loss of simplicity. Complexity should earn its place in the plan. It is also a poor fit for someone who needs unrestricted access to the contributed assets. Section 2036 is the central warning. The IRS explains that transferred property can be included in a decedent's gross estate when the decedent retains possession, enjoyment, income rights, or the power to determine who will enjoy the property, unless an applicable bona fide-sale exception is satisfied. 6 The IRS's FLP examination materials likewise focus on implied agreements, incomplete title transfers, and retained income. 5 If the real expectation is "I gave it away, but I can still use it whenever I want," the plan has a serious structural problem. Families with high-conflict ownership dynamics are another weak fit. So are families expecting a near-term sale but waiting until the buyer, price, and transaction are effectively fixed before transferring interests. At that point, the valuation becomes harder to defend, and the family may be creating an entity during the least forgiving part of the timeline. Low-basis assets deserve special caution. A lifetime gift generally carries the donor's basis to the recipient, while inherited property generally receives a basis tied to fair market value at death, subject to exceptions and the estate's elections. 7 An FLP can reduce transfer-tax exposure and still increase a future capital-gains burden. For a family unlikely to owe estate tax, giving away heavily appreciated assets may solve a tax problem that does not exist while giving up a basis benefit that does. The estate-tax and income-tax models need to be run together. 1,7 ## The Implementation Standard I would evaluate an FLP in three layers. First comes purpose: which assets need centralized management, what family problem is being solved, and why a partnership is better than direct ownership or a trust. Second comes economics: how much control and liquidity the parents need, what is actually being transferred, how distributions will work, and how basis and future appreciation change the result. Third comes administration: the partnership agreement, state-law formation, title transfers, capital accounts, appraisal, Form 709 disclosure, annual Form 1065 filings, and succession of the general partner. 3 The order matters. Forming the entity and deciding on the purpose afterward is backwards. The IRS has repeatedly emphasized that the validity, funding, proportional interests, retained enjoyment, and restrictions of family entities are factual questions. 5,6 A well-run FLP should look like a well-run partnership because that is what it is. What does this mean for your plan? If your family owns appreciating private assets, expects a taxable estate, wants a durable management system, and can afford to part with economic ownership, an FLP deserves serious analysis. If your wealth is liquid, your estate is unlikely to be taxable, you need the assets for your own spending, or the family does not want years of shared governance, the answer may be a much simpler gifting plan. This is the framework; the specifics are a conversation with us, your estate attorney, your CPA, and a qualified valuation professional. Our role is to model the transfer, basis, cash-flow, and investment consequences together so the entity supports the family plan rather than becoming the plan. ## Closing An FLP can be an effective wealth-transfer tool, but its best feature is not a valuation discount. Its best feature is the ability to pair gradual economic transfer with a clear system for managing family assets. When that system has a real purpose, adequate liquidity, disciplined administration, and coordinated tax and legal work, the transfer-tax benefits can be meaningful. When those foundations are missing, the structure can create more risk than value. Our team will continue to evaluate these decisions with a long horizon and a plan-first, tax-aware approach. The goal is not to force a family into a sophisticated structure. It is to use the simplest structure that can carry the family's actual objectives. All my best, Brandon VanLandingham, CFA, CMT, CFP Founder / CIO [Irrevocable Life Insurance Trusts (ILITs): How They Work](https://www.perissosprivatewealth.com/insights/how-irrevocable-life-insurance-trusts-work) [Charitable Bequests vs. Lifetime Giving: Tax Implications](https://www.perissosprivatewealth.com/insights/charitable-bequests-vs-lifetime-giving-tax-implications) [Dynasty Trusts: Building Wealth That Lasts Generations](https://www.perissosprivatewealth.com/insights/dynasty-trusts-building-wealth-that-lasts-generations) ## Citations - - Internal Revenue Service, "IRS releases tax inflation adjustments for tax year 2026, including amendments from the One, Big, Beautiful Bill." The IRS states that the 2026 basic estate-tax exclusion is $15,000,000 and the 2026 annual gift-tax exclusion is $19,000. https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill - Internal Revenue Service, Statistics of Income, "The Use of Family Limited Partnerships in Estate Planning." The IRS paper describes common FLP ownership and management arrangements and explains how lack of control and marketability may affect the value of limited interests. https://www.irs.gov/pub/irs-soi/11pwcompench2cfam.pdf - Internal Revenue Service, Publication 541, "Partnerships" (revised December 2025). The publication explains that partnerships generally pass profits and losses through to partners and discusses partnership reporting and basis mechanics. https://www.irs.gov/publications/p541 - Internal Revenue Service, Instructions for Form 709 (2025), "Adequate Disclosure" and valuation support. The instructions describe the information and appraisal or valuation-method detail generally required for adequate disclosure of a gift. https://www.irs.gov/instructions/i709 - Internal Revenue Service, Internal Revenue Manual 4.25.5.2.12, "Family Limited Liability Entities." The examination guidance identifies entity formation, funding, proportional interests, retained enjoyment, title transfer, and partnership restrictions as areas for review. https://www.irs.gov/irm/part4/irm_04-025-005 - Internal Revenue Service, Instructions for Form 706 (September 2025), "Transfers with retained life estate (section 2036)." The instructions describe retained possession, enjoyment, income rights, and designation powers that can cause transferred property to be included in the gross estate. https://www.irs.gov/instructions/i706 - Internal Revenue Service, Publication 551, "Basis of Assets" (revised December 2025). The publication explains the general carryover-basis rules for gifts and the general fair-market-value basis rule for inherited property. https://www.irs.gov/publications/p551 - Internal Revenue Service, "Estate and Gift Tax FAQs." The IRS explains the unified gift-and-estate-tax calculation and how the credit based on the basic exclusion amount is applied first against lifetime gifts and then, to the extent remaining, against estate tax. https://www.irs.gov/newsroom/estate-and-gift-tax-faqs - ## Important Disclosures This piece is educational. It is not legal, tax, or accounting advice and is not a recommendation to take or refrain from any specific action. Tax law is fact-specific and changes regularly. Please coordinate any decisions discussed here with your attorney, your CPA, and Perissos before acting. Perissos Private Wealth Management is a Registered Investment Adviser ("RIA"). Registration as an investment adviser does not imply a certain level of skill or training, and the content of this communication has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority. Perissos Private Wealth Management renders individualized investment advice to persons in a particular state only after complying with the state's regulatory requirements, or pursuant to an applicable state exemption or exclusion. All investments carry risk, and no investment strategy can guarantee a profit or protect from loss of capital. Past performance is not indicative of future results. The information contained in this newsletter is intended to provide general information about market themes. It is not intended to offer investment advice. Investment advice will only be given after a client engages our services by executing the appropriate investment services agreement. Information regarding investment products and services is given solely to provide education regarding our investment philosophy and our strategies. You should not rely on any information provided in making investment decisions. Market data, articles and other content in this material are based on generally available information and are believed to be reliable. Perissos Private Wealth Management does not guarantee the accuracy of the information contained in this material. Perissos Private Wealth Management will provide all prospective clients with a copy of our current Form ADV, Part 2A (Disclosure Brochure), Part 2B (Supplemental Brochures), and Part 3 (Client Relationship Summary) prior to commencing an advisory relationship. You can also view these documents at any time at adviserinfo.sec.gov or by contacting us requesting a copy. ## Frequently asked questions ### What is the 2026 federal gift tax exclusion? The annual gift-tax exclusion for 2026 is $19,000 per recipient, while the federal basic estate-tax exclusion is $15 million per person. ### How does an FLP separate management from ownership? A general partner retains management authority and decision-making power, while limited partners hold economic rights to the assets without day-to-day control. ### Are valuation discounts guaranteed with an FLP? No, valuation discounts are not guaranteed and require a fact-specific, contemporaneous appraisal by a qualified professional to be defensible. --- Source: [Perissos Private Wealth Management](https://www.perissosprivatewealth.com/insights/family-limited-partnerships-wealth-transfer) — fee-only fiduciary wealth management in Bethany, Oklahoma. 405.212.9690. This article is educational and is not personalized financial, tax, legal, or investment advice.