A family limited partnership is a partnership controlled by members of a family. There are two types of partners in a family limited partnership: general and limited. For example, you would form a partnership with a family member or members, and keep the general partnership for yourself. This would allow you control over the day-to-day operations of your business, and you would bear 100 percent of the liability and decision-making power. You can then give all or a portion of the limited partner interest to your children or grandchildren directly, or set it aside in a trust. Federal law states that the value of limited partnership shares can be discounted when they are transferred to family members. The agreement can also be amended as family members grow older or their circumstances change.
The general partnership interests are held by the owners/senior partners throughout their lifetimes, while the limited partnership interest are given as gifts over time. This is another way to reduce estate and gift taxes involved with passing on your business.