Issues about Asset Protection

Much has been written about the asset protection benefits of the Family Limited Partnership (FLP) and the Limited Liability Company (LLC). It has been seen that these structures produce consistent success. However, if the FLP is not correctly designed or administered, or if ownership of the interests is not properly protected, asset protection goals would be in jeopardy.

In some states, there are laws that limit a creditor of a partner or member to a “charging order” which isn’t a very useful remedy for most plaintiffs. However, in many states, a creditor is allowed to “foreclose” on a partnership or LLC interest. This “foreclosure” is a seizure of the debtor’s interest, and that could be a powerful weapon for the plaintiff. An FLP and/or LLC can be useful within the context of a larger plan. But, every plan involving an FLP or an LLC has to protect ownership interests with a trust designed for that purpose.

In a recent case, Bankruptcy Court affirmed that a creditor of a single-member LLC would have rights beyond the charging order remedy. Since there was no other member to protect, there wasn’t any reason in limiting the ability of a creditor to reach the assets of the LLC.

As a result, in order to protect the assets of a particular LLC against outside liabilities, there must be more than one legal owner of a membership interest in an LLC. For those needing single-member status for tax purposes, a Grantor Trust may be designated as the second member.

Once again, the FLP or LLC interests should not be held directly by the individual client. For those in a high liability business or having great wealth, the interests should be owned by a trust to protect against potential charging orders, foreclosure or even from an argument that the entity is the other half of the founder. You can’t gamble with the effectiveness of an asset protection plan. The only viable strategy is a specially designed trust arrangement in providing sufficient “distance” between the client and the FLP or LLC assets. You have to ensure that the plan is able to withstand whatever degree of scrutiny that is applied.

flp

Family Limited Partnerships


  • The origin of Family Limited Partnerships (FLPs)

  • How Family Limited Partnerships (FLPs) work

  • Family Limited Partnership Review
  • Issues about asset protection

  • Family limited partnerships – Charging order protection
  • Future creditors and fraudulent transfers

  • Charging Order Protection

  • Uniform Limited Partnership Act – Section19
  • Family Limited Partnerships and the benefits of leverage
  • Family Limited Partnership (FLP) frequently asked questions
  • Family Limited Partnerships (FLPs) and creditor protection
  • Family Limited Partnerships (FLPs): keeping the family business in the family
  • The differences between Family Limited Partnerships and General Partnerships
  • Family Limited Partnerships and Family Limited Liability Companies work well
  • Family Limited Partnerships and IRS scrutiny
  • Building wealth with a Family Limited Partnership
  • Carefully planned Family Limited Partnerships can avoid IRS scrutiny
  • Court decision could affect Family Limited Partnerships
  • Family Limited Partnership structures
  • Defects in Family Limited Partnerships – Part One
  • Defects in Family Limited Partnerships – Part Two
  • Defects in Family Limited Partnerships – Part Three
  • Properly structuring a Family Limited Partnership (FLP) – Part One
  • Properly structuring a Family Limited Partnership – Part Two
  • Properly structuring a Family Limited Partnership – Part Three
  • Using Family Limited Partnerships for planning estates
  • Family Limited Partnerships (FLPs) and Family Limited Liability Companies (FLLCs)
  • What are Family Limited Partnerships (FLPs)?
  • Is a Family Limited Partnership (FLP) good estate planning?
  • Maintenance List for Family Limited Partnerships – Part One
  • Maintenance List for Family Limited Partnerships – Part Two
  • Maintenance List for Family Limited Partnerships -Part Three
  • Is a Family Limited Partnership (FLP) a good Estate Planning tool?
  • The attraction of Family Limited Partnerships (FLPs)
  • When Family Limited Partnerships are suitable
  • Family Limited Partnership Review
  • The uses and benefits of Family Limited Partnerships (FLPs)
  • More frequently asked questions about Family Limited Partnerships (FLPs) – Part One
  • More frequently asked questions about Family Limited Partnerships (FLPs) – Part Two
  • More frequently asekd questions about Family Limited Partnerships (FLPs) – Part Three
  • More frequently asked questions about Family Limited Partnerships (FLPs) – Part Four
  • More frequently asked questions about Family Limited Partnerships (FLPs) – Part Five
  • Family Limited Partnerships – an overview
  • Family Limited Partnerships (FLPs) attract IRS investigations
  • Family Limited Partnership “Do’s and Don’ts”
  • Family Limited Partnerships facing increased scrutiny by the IRS

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