What if you could sign a document, write a check for a couple thousand dollars or less and

• save self employment taxes
• save hundreds of thousands in future estate taxes,
• insulate your assets from the lawsuit epidemic and
• retain control over your assets?

Sound interesting? Well what is a family limited partnership?

It is one of the most effective asset protection tools around. It helps reduce estate taxes, 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 against you. General partners are in complete control while limited partners have no control. The law denies the creditor the right to take any interest in the partnership, and if structured properly they can provide great anonymity. It may sound like a mouthful and it is. They are among the most widely used and effective domestic asset protection tools around.

Family Limited Partnerships are used to protect real estate, stocks & bonds, cash, jewelry, furniture and fixtures and many other personal and business assets. The FLP is unique in that it is a tax neutral entity. Thus, unlike a corporation you can normally freely transfer assets in and out of the FLP without worrying about an adverse tax effect.

So, How do They Work?

The first item is legally and properly form an FLP that is structured to your specific needs. This takes some important planning. Second, the partnership agreement has to be drawn up and the ownership carefully decided. Third, the assets have to be properly transferred into the FLP.
A charging order can blow up in the creditors face!!!

Once all of this has been done, it becomes very hard for a creditor to attack your FLP. If he gets a judgment against you, that still does not give him the right to take your assets in the FLP. He has to go back to court and get another judgment called a charging order. That allows him to get your share of the distributions from the FLP. If you do not distribute anything, then the creditor gets nothing. He cannot take your position and run the FLP. He cannot force you to distribute assets. The rights of an assignee of an FLP interest are much more limited than are the rights of the assignor partner. If the FLP has undistributed profits, the creditor gets a K-1 and must pay tax to the IRS on money he never received and probably never will receive. As a result of this, few creditors ever go for a charging order. Thus your assets are safe! See IRS Rev Rul. 77-137, 1977-1 C.B. 178.

Your partnership agreement is confidential and is not filed with any government agency. Only you know what it says and only you know who the limited partners are and what assets are owned by the partnership.
An FLP does not have double taxation like a corporation so you do not have to worry about that. It is truly an excellent domestic protection tool when it is properly structured and implemented. Contrary to what many promoters claim a partnership is normally not a good structure for protecting your home.

When setting up an FLP beware of mixing risky assets with safe assets. A risky asset is one that is likely to generate a lawsuit and a safe asset is one that is unlikely to generate a lawsuit. Examples of risky assets are rental property, boats, airplanes, cars, stock in closely held corporations etc. Examples of safe assets are cash, stocks and bonds, personal assets etc.

It is not advisable to put your home in an FLP. To do so may result in the loss of deductions and valuable capital gains treatment upon the sale of your home.

Using an FLP to Place a Lein on Your Home

Other Graphs of an FLP and how it may work for you.


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