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FLP For Asset Protection? Assets Ltd. Partners Family Ltd. Partnership Gen. Partner Typically Is FLP Creator, Contributes The Assets, May Be A Married.

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Presentation on theme: "FLP For Asset Protection? Assets Ltd. Partners Family Ltd. Partnership Gen. Partner Typically Is FLP Creator, Contributes The Assets, May Be A Married."— Presentation transcript:

1 FLP For Asset Protection? Assets Ltd. Partners Family Ltd. Partnership Gen. Partner Typically Is FLP Creator, Contributes The Assets, May Be A Married Couple

2 FLP For Asset Protection? Assets Ltd. Partners Personal Legal Attack, Resulting In Judgment Family Ltd. Partnership Gen. Partner Creditor Creditor (1 Eye Monster)

3 FLP For Asset Protection? Assets Ltd. Partners Personal Legal Attack, = Charging Order Family Ltd. Partnership Gen. Partner = Lien or Garnishment On Distributions Of Affected Partner Distributions Of Affected Partner

4 FLP For Asset Protection? Assets Ltd. Partners Family Ltd. Partnership Gen. Partner K-1 $ 0.00, + Tax Liability = Hot Potato Creditor (1 Eye Monster)

5 FLP For Asset Protection? A Creditor w/Charging Order Cannot: Reach Partnership Assets Reach Partnership Assets Manage The Partnership or Vote Manage The Partnership or Vote Control Cash Flow Or Force Distributions Control Cash Flow Or Force Distributions Cause Partnership Liquidation Cause Partnership Liquidation Theory of the K-1 Hot Potato Effect is Enhanced With These Results…

6 Creditor, In Reality, Is Not Shut Out! FLP For Asset Protection? Because The General Partner Cannot: Make Distributions to Some Partners While Withholding Distributions to The Partner Who Has The Charging Order *Make Distributions to Some Partners While Withholding Distributions to The Partner Who Has The Charging Order * Withhold Distributions Period, Without Legitimate Business or Investment Purpose *Withhold Distributions Period, Without Legitimate Business or Investment Purpose * Therefore, In Many Or Most Cases the Creditor Will Be Able to Force Distributions To Accompany The K-1…. Or, All Partners Are Tied Up – Stalemate!Therefore, In Many Or Most Cases the Creditor Will Be Able to Force Distributions To Accompany The K-1…. Or, All Partners Are Tied Up – Stalemate! * See The Cutting Edge Handout

7 Creditor, In Reality, Is Not Shut Out! FLP For Asset Protection? The Charging Order Partner Definitely Cannot Receive Distributions of Income or CapitalThe Charging Order Partner Definitely Cannot Receive Distributions of Income or Capital If The FLP Forming Partners (Clients) Receive a Charging Order, They Have No Asset Protection!If The FLP Forming Partners (Clients) Receive a Charging Order, They Have No Asset Protection! The Promoter’s Claims Are Not ValidThe Promoter’s Claims Are Not Valid Even If The General Partner Could Withhold The Creditor’s Distributions, While Paying Other Partners,

8 And, The Creditor May Very Well Pay The Taxes! FLP For Asset Protection? Taxes To Pay May Be Small In Comparison to Judgment AmountTaxes To Pay May Be Small In Comparison to Judgment Amount May Be No Taxes At All, If FLP Assets Are Primarily Capital GrowthMay Be No Taxes At All, If FLP Assets Are Primarily Capital Growth Paying The Taxes Probably Is A Good Investment, Ultimately Creditor Will Receive Corresponding Capital and Growth On ItPaying The Taxes Probably Is A Good Investment, Ultimately Creditor Will Receive Corresponding Capital and Growth On It The Promoter’s Claims Are Not ValidThe Promoter’s Claims Are Not Valid

9 FLP For Asset Protection? Other Limitations And Issues: General Partners Must Give Away (98%?) Interests To Protect Assets Which They Contribute To FLPGeneral Partners Must Give Away (98%?) Interests To Protect Assets Which They Contribute To FLP No Protection For Non-FLP Assets, For Any PartnerNo Protection For Non-FLP Assets, For Any Partner California Effectively Eliminated Charging Orders for LLCs On 1/1/2004, Allowing Membership Interest Liquidation For Creditor (FLPs and Other States Not Far Behind?)California Effectively Eliminated Charging Orders for LLCs On 1/1/2004, Allowing Membership Interest Liquidation For Creditor (FLPs and Other States Not Far Behind?) And, You Have To Question Competence Of Anyone Not At Least Recommending A Limited FLP or LLCAnd, You Have To Question Competence Of Anyone Not At Least Recommending A Limited FLP or LLC

10 FLP For Asset Protection? Assets Ltd. Partners What About Legal Attacks On The Partnership? Gen. Partner Family Ltd. Partnership

11 FLP For Asset Protection? Assets Ltd. Partners What About Legal Attacks On The Partnership? Gen. Partner Family Ltd. Partnership For This Case, Charging Order Is Useless For Partnership Assets and General Partner’s Non FLP Assets. Only Ltd. Partners Are Protected.

12 FLP For Asset Protection? General Problems and Issues: To Improve Protection, Should Use Outside PartnersTo Improve Protection, Should Use Outside Partners Must Avoid Personal Usage, Alter Ego ProblemsMust Avoid Personal Usage, Alter Ego Problems FLP Must Be Run As A BusinessFLP Must Be Run As A Business Court Can Sell Interest, Even Dissolve FLPCourt Can Sell Interest, Even Dissolve FLP Limit on Asset Type, All Must Have Biz PurposeLimit on Asset Type, All Must Have Biz Purpose Statutory Action Is All In the Trust ArenaStatutory Action Is All In the Trust Arena If The FLP Worked For Asset Protection, NAFEP Would Support That. We Do Create FLPs For Proper Usage.If The FLP Worked For Asset Protection, NAFEP Would Support That. We Do Create FLPs For Proper Usage.

13 If Not For Asset Protection, Then What Is FLP Purpose? Assets Ltd. Partners Family Ltd. Partnership Gen. Partner FLPs Make An Excellent Income and Estate Tax Planning Vehicle FLPs Make An Excellent Income and Estate Tax Planning Vehicle Very Useful For Managing Family’s Income Producing Assets Very Useful For Managing Family’s Income Producing Assets

14 FLP For Asset Protection? Source\Reference Material For FLPs:  The Cutting Edge, Published By Leimberg Associates, Inc. www.leimbergservices.com, $60.00  The Cutting Edge, Published By Leimberg Associates, Inc. www.leimbergservices.com, $60.00 Asset Protection, By Peter Spero, Published By Warren Gorham Lamont (WGL-RIA), Division of Thomson Tax & Accounting CompanyAsset Protection, By Peter Spero, Published By Warren Gorham Lamont (WGL-RIA), Division of Thomson Tax & Accounting Company Tools and Techniques of Estate Planning, By (Many Authors), Published By National Underwriter Co., $64.95, www.nationalunderwriter.comTools and Techniques of Estate Planning, By (Many Authors), Published By National Underwriter Co., $64.95, www.nationalunderwriter.com

15 Getting Rid of Myths This Is Not Asset Protection: Limited Liability Co. Assets LLC Owner LLC Units Personal & Property Directed Legal Attacks Business Directed Legal Attacks

16 Getting Rid of Myths This Is Not Asset Protection: Personal Legal Attacks Revocable Living Trust Asset Directed Legal Attacks Assets

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37 Your Assets Without a Life Estate Trust Your Assets With a Life Estate Trust EARNED INCOME HOUSEHOUSE (Some Protection in Some States) VACATION HOUSE AUTOMOBILES OFFICE BUILDING RENTAL PROPERTY CASH/SAVINGS EARNED INCOME HOUSE (Some State Protection & Full Protection in Trust) VACATION HOUSE AUTOMOBILES OFFICE BUILDING RENTAL PROPERTY CASH/SAVINGS

38 Your Assets Without a Life Estate Trust Your Assets With a Life Estate Trust ANNUITIES INVESTMENTS INVESTMENT INCOME LIFE INSURANCE CASH VALUE PENSIONS-PROFIT SHARING / 401K IRA / 403 B (Protection in Some States) ANNUITIES INVESTMENTS INVESTMENT INCOME (Protected After April 15 th of Each Year if Left in Trust) LIFE INSURANCE CASH VALUE PENSIONS-PROFIT SHARING / 401K IRA / 403B (Protection in Some States)

39 Asset Protection Support Materials The Preceding PowerPoint Presentation w/Script Automated Presentation (Answers To Life’s Financial Risks) Answer’s Booklet, Paralleling Above Presentations, Excellent Study Guide at Seminars, Client Handout Color, Bi-Fold Brochure, Client Handout Asset Protection Legal Package, For Client’s Counsel


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