What is the best retirement plan for a self-employed contractor?

A solo 401(k) or SEP IRA may be worth considering when the owner has no eligible employees. The better option depends on income, desired contributions, administration, and whether employees may be hired.

Can an HVAC company offer a 401(k)?

Yes. An HVAC company may establish a 401(k) for eligible owners and employees. The plan must follow its documents and applicable contribution, testing, disclosure, and filing requirements.

Can a business owner contribute more than employees?

Possibly. Certain 401(k), profit-sharing, and cash balance plan designs may allow different contribution results, but applicable testing and plan rules must be satisfied.

Is a SIMPLE IRA better than a 401(k)?

A SIMPLE IRA may be easier and less expensive to administer. A 401(k) may provide greater flexibility and higher potential contribution opportunities. The better choice depends on the company.

Can a contracting business have both a 401(k) and a cash balance plan?

A business may be able to maintain both plans. This combination can create larger contribution opportunities, but it also increases cost, complexity, and funding responsibilities.

Family Limited Partnerships for Business Owners: How an FLP Can Help Transfer a Family Business

Kendall Maccagnan

Sep 30

6 min read

By Kendall Maccagnan, CPA, CFP® and Financial Advisor in Tampa, Florida

A Family Limited Partnership, or FLP, can let business owners start shifting ownership to the next generation while continuing to manage the business during the transition.

For business owners in Tampa Bay and across Florida who expect a business, real estate, or other appreciating assets to eventually pass to the next generation, an FLP can be worth understanding as part of a broader family business succession and estate planning strategy.

What Is a Family Limited Partnership?

A Family Limited Partnership is a partnership generally established by family members for holding and managing business or investment assets. Typically, the parents contribute assets to the FLP and serve as general partners, allowing them to continue managing the partnership. They can then transfer limited partnership interests to their children over time.

In simple terms, a Family Limited Partnership can help you begin transferring ownership while still keeping operational control of the business. That can be particularly useful when the next generation is still learning the business and the parents want time to mentor them before completing the transition.

How Can an FLP Help Transfer a Family Business?

One of the biggest benefits of an FLP is the ability to separate economic ownership from management control.

For example, parents might retain a relatively small general partnership interest while gradually transferring limited partnership interests to their children. The children can participate economically in the partnership, while the parents continue overseeing operations as general partners.

As ownership is transferred, future income and appreciation associated with those transferred interests can also move to the next generation. For an owner whose business may continue growing for another 10 or 20 years, moving some of that future appreciation outside of the parent's estate can potentially become an important estate planning consideration.

How Do Family Limited Partnership Valuation Discounts Work?

Another reason FLPs receive attention in estate planning is that a limited partnership interest may be worth less than a proportional share of the underlying assets. But why is this the case ?

A child who receives a minority interest in the partnership may own part of the business, but they usually cannot control the company, make day to day decisions, or easily sell their ownership interest. Because that ownership stake comes with fewer rights and may be harder to sell, it may be valued at less than its proportional share of the underlying business. That is where the lack of control and lack of marketability discounts come from.

Because the interest is harder to sell and does not come with full control, it may be appraised at a lower value. That can let a family transfer more of the business to the next generation while using less of the parent’s lifetime gift and estate tax exemption.

A Simple Family Limited Partnership Example

Suppose a family owns an appreciating business or investment property worth $10 million. Instead of transferring the underlying property directly to four children, the parents contribute it to an FLP and gradually gift limited partnership interests.

The parents keep control of the partnership but gradually transfer 98% of the limited partnership interests to their children. On paper, 98% of a $10 million partnership would equal $9.8 million.

However, because the children’s interests do not come with control of the partnership and are not easily sold, a qualified appraiser may apply valuation discounts. Let's say for demonstration purposes that a 35% discount is applied.

So instead of the transferred interests being valued at $9.8 million for gift tax purposes they are valued at $6.37 million:

$9.8 million × 65% = $6.37 million

In this hypotetical example, the family transferred interests representing $9.8 million of underlying value, but only $6.37 million counted against the parents’ lifetime gift and estate tax exemption.

The other potential benefit is that any future appreciation and income associated with the transferred interests may also move to the next generation rather than remaining in the parents’ estates.

The partnership structure and valuation must be legitimate. The tax benefits only work if the FLP is respected as a separate entity. You cannot transfer assets into it and still treat them like your personal property.

What Can Go Wrong With a Family Limited Partnership?

This is where business owners need to be careful. In several cases, FLP planning failed because the original owner continued exercising too much personal control or enjoyment over assets supposedly transferred to the partnership.

If you transfer an asset to an FLP, you need to respect the FLP as a real, separate entity.

That means having a legitimate non-tax reason for the arrangement, documenting transfers properly, obtaining qualified appraisals when appropriate, and avoiding continued personal use of partnership assets as though nothing changed. Owners should also retain sufficient assets outside the FLP to cover personal living expenses rather than depending on partnership assets to fund personal needs.

What Assets May Not Belong in an FLP?

Not every asset is a good candidate for a FLP. Personal use assets such as homes, vacation homes, or automobiles into an FLP generally should not be transferred into a FLP when the parents intend to continue personally using these assets.

S corporation stock generally should not be transferred to an FLP. A partnership is not an eligible S corporation shareholder, so transferring S corporation shares to an FLP can terminate the S election.

When Might a Family Limited Partnership Make Sense?

An FLP may be worth exploring when a business owner:

Wants to gradually transfer ownership to children or other family members
Wants to retain management control during the transition
Owns assets expected to appreciate significantly
Has potential estate tax exposure
Wants a structured way to divide ownership among multiple family members
Has a legitimate business or management reason for using the partnership

An FLP is not appropriate for every family, and the tax benefits should not be the only reason it exists.

The Bottom Line: FLPs Can Combine Succession Planning With Control

A Family Limited Partnership can give business owners a way to begin transferring wealth and ownership to the next generation without immediately giving up control. When properly structured, it may also allow future appreciation to move outside the parent's estate and may support valuation discounts for transferred limited partnership interests. Qualified valuations, proper gift tax reporting, legitimate business purposes, and real separation between personal and partnership assets are all important when discussing FLPs.

For Tampa Bay business owners hoping to keep the business in the family, an FLP can be one tool worth evaluating as part of a broader succession and estate planning strategy.

Next Steps: If you are thinking about eventually transferring your business to your children or other family members, feel free to book a consultation to discuss how your business structure, personal financial plan, taxes, and succession goals fit together.

Frequently Asked Questions About Family Limited Partnerships

What is a Family Limited Partnership?

A Family Limited Partnership is a partnership commonly used to hold family business or investment assets while allowing ownership interests to be transferred among family members.

Can parents keep control of an FLP after gifting interests to children?

Potentially. Parents may serve as general partners while transferring limited partnership interests, allowing them to retain management responsibilities while gradually shifting economic ownership.

Do Family Limited Partnerships reduce estate taxes?

They may help with estate planning by transferring ownership, future appreciation, and potentially discounted limited partnership interests to the next generation. The result depends on the family's circumstances and how the FLP is structured.

Can an FLP own S corporation stock?

Generally no. A partnership is not an eligible S corporation shareholder, and transferring S corporation stock to an FLP can terminate the S election.

Are Family Limited Partnerships useful for family business succession?

They can be. An FLP may allow an owner to gradually transfer ownership while continuing to manage the business and mentor the next generation.

This content is provided for educational and informational purposes only and should not be construed as investment, tax, or legal advice. It is not intended as a solicitation or offer to provide advisory services in any jurisdiction where Off the Bay Wealth, LLC is not properly registered or otherwise permitted to operate. Information presented is based on sources believed to be reliable; however, accuracy and completeness are not guaranteed. This material is not intended to be a comprehensive analysis of all topics discussed. IRS provisions are subject to ongoing guidance and regulatory updates. Any financial decisions should be made in consideration of your individual circumstances, including your goals, risk tolerance, and time horizon. Investing involves risk, including the potential loss of principal.