Asset protection is important for people who own businesses, and it is essential for those who are in certain lines of work. Physicians and real estate investors are particularly vulnerable. In this post we will look at two different legal devices that are used by business owners who want to protect assets.
Family Limited Partnerships
Family limited partnerships can be utilized by those who want to protect assets, and this asset protection could extend to your estate plan. Clearly, you want to protect assets for your own purposes, but it is also important to protect assets that you intend to leave to your loved ones.
With a family limited partnership, the person creating the structure is called the general partner, and the general partner can bring limited partners into the partnership. All the partners must be members of the same family.
The general partner makes all decisions with regard to the actions of the partnership. A family limited partnership is not a democracy. Limited partners cannot exercise any power.
Assets that have been conveyed into a family limited partnership are going to become the property of the partnership itself. As a result, if a business that was placed into the partnership were to become the target of a lawsuit, the personal property of the limited partners would not be in play. Only the assets in the family limited partnership would be vulnerable.
Conversely, the assets in the partnership would not be vulnerable if a partner was sued.
You can limit your exposure to liability by creating multiple different family limited partnerships. For example, if you owned a medical practice and a rental property, you could place the businesses into two different respective family limited partnerships. If someone slipped and fell on your rental property, they could not seek recovery from your medical practice, and your personal property would be protected.
Family limited partnerships can also be useful for those who are exposed to the estate tax. Resources can be transferred between partners in a tax efficient manner. You could also use the $14,000 annual gift tax exclusion to distribute tax-free shares in the partnership on an incremental basis.
Limited Liability Companies
Limited liability companies can also be used for asset protection purposes. When you create a limited liability company, you are separating your personally held assets from the assets and actions of the limited liability company.
There are shades of gray when you are using a limited liability company to protect assets, so you should certainly discuss the ideal structure with a licensed attorney.
Free Report on Asset Protection
In this post we have provided some basic information. If you would like to dig deeper, download our free report on asset protection.
You can access the report through this link: Asset Protection Report.
Asset Protection Consultation
Our firm offers free asset protection consultations. To request an appointment, send us a message through our contact page.
John’s practice focuses on the use of Wills and Living Trusts in Estate Planning to help individuals protect their families and preserve their legacies after their deaths, but his practice also focuses on the critical issues of protecting individuals with dementia or other diminished capacity, assisting individuals in qualifying for Medicaid and other government benefits to offset the costs of long-term care, and providing special needs planning.
John is admitted to practice law in North Carolina, South Carolina, Kentucky, and Ohio, and he is accredited by the Department of Veterans Affairs.
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