What is a Family Asset Protection Partnership?
There are several ways that an asset protection lawyer can assist clients with protecting the assets they have worked hard to amass. A great way to do this is by setting up Family Limited Partnerships (FLP) as a way to protect clients’ assets from lawsuits. However, it is important to know that an FLP is only one part of that protection and other asset protection plans must be used in conjunction with it. If a client only sets ups an FLP without other options, there will be no more protection provided than what would be offered by a living or revocable trust.
When an FLP is utilized correctly, it can provide both asset protection and savings on tax obligations, both income and estate taxes. This is why it is critical to contact a seasoned asset protection attorney to help establish all necessary legal structures.
Establishing an FLP
In order to establish an FLP, a parent or parents will take a portion of their assets –and transfer them into the Family Limited Partnership. These assets can come from savings, investments, or other business interests. The parents can either be general partners where they will owe a predetermined percentage of the FLP, or they can form a Limited Liability Corporation (LLC), which will own that percentage.
In the majority of situations, corporations are not used because shares of a corporation can be legally seized by a creditor, which would nullify the asset protection benefits of the FLP. It would also mean the creditor would become a general partner of the Family Limited Partnership, giving the creditor all management rights to the assets.
Who Owns the FTP?
The parents can also retain ownership of a portion or all of the limited partnership or transfer to other family members. As general partners, it is their responsibility to manage the FTP and all of its assets. Anyone who is a limited partner is not allowed in any management participation other than the right to vote on any matters which are specified in the agreement put forth when the FLP is established.
Once all the assets have been transferred into the Family Limited Partnership, the parents will no longer retain direct ownership of these assets. Now it is the FLP that directly owns the assets, and the parents will maintain controlling interest of the FLP. Since they maintain control of the FLP, they are able to purchase or sell any of the assets contained in the FLP, as long as they adhere to all of the terms set forth in the partnership agreement. The parents, as the general partners, also determine what amount will stay with the FLP and what amount will be distributed to any of the limited partners.
In the majority of FLPs, the parents transfer limited partnerships to their children. By naming them as limited partners, the parents are able to move assets to their children while obtaining that asset protection and tax protection mentioned above. When it comes to lawsuits, any assets that have been placed into the Family Limited Partnership cannot be attached or seized by any creditor judgment.