FLP - Asset Protection Service
As a domestic asset protection service, the Family Limited Partnership can provide a strong layer of protection between your assets and creditors. By having a properly established FLP, pursuing the assets in the entity is difficult. Even in the event of a judgment there is an additional court ruling that must take place in order to attempt to receive distibutions of profit from the partnership. If that takes place, however, the creditor will be required to pay taxes on profits of the partnership, whether he/she receives money, or not, as you will read below. This is a very strong deterrent for a legal opponent, its called a charging order.
Case law history proves that a family limited partnership is one of many effective asset protection tools in use today. It can help reduce estate and income taxes, it gives you the ability to manage your assets while denying creditors access to them and has a built in tax penalty for any creditor who receives a court order and subsequent charging order against you - which is a substantial deterrent. This is a good first step for many clients.
General partners are in complete control while limited partners have little to no control. The law denies creditors the right to take any interest in the partnership, and if structured properly they can provide great anonymity. Family Limited Partnerships are among the most widely used and effective domestic asset protection services.
FLP's are used to save thousands of dollars in income tax every year, save self-employment taxes, save hundreds of thousands in future estate taxes, insulate your assets from lawsuits and retain control over your assets.
FLP's are used to protect real estate, stocks & bonds, cash, jewelry, furniture and fixtures and many other personal and business assets. This is exceptional in that it is a tax neutral entity. Thus, unlike a corporation, you can freely transfer assets in and out of the Family Limited Partnership without concern about an adverse tax effect.
Service Steps
First, we legally and properly form your FLP that is structured to your needs. This takes important planning. Second, the partnership agreement has to be drawn up and the ownership decided. Third, the assets have to be properly transferred into your entity.
Once all of this has been done, it becomes very hard for a creditor to pursue the assets that are protected in your FLP. If he gets a judgment against you, that still does not give him the right to take your assets that have been titled to the FLP. He has to go back to court and get another judgment called a charging order. That allows him to, theoretically, receive your share of the distributions from the FLP. However, if you do not make distributions, then the creditor gets nothing. You remain in control of distributions and your assets are protected. If the partnership has undistributed profits, the creditor gets a K-1 tax form and must pay tax to the IRS on money that was never received, and probably never will receive. As a result of this, few creditors ever go for a charging order. Thus your assets are protected by two key elements of the basic principles.
Your partnership agreement is confidential and is not filed with any government agency. Typically, only you know what it says and only you know who the limited partners are and what assets are owned by the partnership.
This type of asset protection tool has flow-through taxation. It is truly an excellent domestic asset protection service when it is properly structured and implemented.