What is a Family Limited Partnership (FLP)?
Today, I’m going to take on family limited partnerships. I’m going to give you an introduction in five
minutes or less. You won't learn anything too important, but you should watch this first. I wanted to let you know that the methodology is -I’m going to give you a brief overview.
I’m going to show you in later videos what a typical family limited partnership looks like; and I’m going to be putting up with the help of Ryan Fowler and some other of the faculty the details of the relatively new law that is lending a little bit of hope that family limited partnerships and LLC's are more useful than I normally think.
Okay, let's start out. What are FLP's?
Partnerships are creations of State law. They're basically new entities with a full value of a human being, they're just not living, created by the statutes of every State. I think people call them family limited partnerships because they let the lawyers charge more money.
They're really just partnerships. They're helpful though, and why do we like them? We like them because in the old days, particularly and still a little bit now, they allowed you to take discounts on limited partnership interests for a lack of control.
That’s why the estate planners like them. I like them because they separate ownership from control very well. The ownership can be with a limited partner but control can be with the general; and in the case of a partnership, the separation of ownership from control is statutory.
It's in the actual code. It's part of also a multi-decades long history that the limited partners have no say so.
Now, the reason why I think that’s important, is if you make the limited partner your asset protection trust; you can have a situation where you can prove by the statute that you're limited partner asset protection trust did not engage in any of the business decisions, and therefore should not be subject to suit for any bad acts.
Limited partners should be relatively protected from lawsuits, from people who claim they’ve been harmed by some tort. This is what I used them for. A lot of people used them for what's called charging order protection. We'll be discussing that in more detail. There's an intro short video on it, but basically it's a language and a statute that limits a creditor’s rights to charging order protection.
All they can get is an order to get whatever is distributed, if and when the general partner decides to distribute it.
Because that’s been abused by everybody and their mother, it's been limited by almost all the States and charging order protection hasn’t been that effective in most cases particularly with single member LLCs done for family protection.
I don’t use them except to separate ownership from control. I think that they're very good for that and they also allow you to set up a trust – a family – with an asset protection trust being the limited partner of a family limited partnership.
It allows you to keep a majority of your funds safely in the United States without exposing the trust to in rem jurisdiction or really effective service or process in the United States.
You do that by putting all of your U.S. situs assets under the family limited partnership which essentially becomes a holding partnership. I’m going through this very quickly.
You're going to get this in great detail in the videos that are part of this section.
How effective are Family Limited Partnerships?
I think they're just as a start. I don’t think that it's good practice to use partnerships and LLCs as a standalone asset protection plan. Why? Because almost every State- and I really think it is now every State, allows your partnership interest to actually be taken over by a creditor.
The judges are sick and tired of being hosed, abused and disregarded; and they're sick and tired of people hiding behind charging order protection. So they’ve allowed the creditors to simply step in, own the partnership interest, force dissolution and get the money.
It's a good start, because it can easily be incorporated into a more effective asset protection plan that actually takes the protected assets off of your balance sheet and prevents foreclosure or at least makes it very very difficult.
I’m going to urge you to take the time to watch the next video where I will show you what a partnership actually looks like and then if you really want to do it, look at it as a good start. When you see the videos about the new laws that are originating in several States particularly Florida, you may get emboldened. You may say I’m going to do this.
Well, I'll tell you what. If you’ve only got a few bucks and you don’t have the time, energy or money to formulate a more effective asset protection using offshore trust, then this is a darn good start and I urge you to do it. Well, I hope this is helpful to you and, you know, stick with the rest of the videos. You'll get all this information fleshed out.