Anyone familiar with protecting inheritance to heirs, and business / personal assets with a “Family Limited Partnership” and “Living Trust”?
I attended a Trump sponsored Building Wealth Seminar, where, as one presentation, a retired lawyer spoke of the well tested effectiveness of these legal instuments and positions.
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I represented a client who had a substantial claim against an individual who had assets in a FLP. The litigation was pretty complicated, but I ended up believing that although it offered some protection, if enough money is involved, the benefits of a FLP didn't outweigh the substantial limitations a properly created FLP put on a person's ability to get at his own money. In order to keep assets from creditors, you need to relinquish control over the money. If you can get at it when you want it, so can a creditor. In any event, we sued everybody involved, including the general partner, and they eventually gave in and paid us 95% of the assets in the FLP.
The way it works is that one's assets are irrevocably turned over to a limited partnership. The general partner (who will not be the person whose assets are transferred) has absolute control over any distributions from the partnership to the limited partner (the person whose assets were transferred). A creditor can obtain a so-called charging order from a court, which basically means that if any distributions are made, they go to the creditor, but supposedly a court cannot order a general partner to make any distributions. Thus, your creditor doesn't get your money, but neither do you.
I am not convinced they are really as bulletproof as the seminar crowd claims. I think it makes sense for extremely wealthy people to put some money aside using a FLP and if you are in a high risk business (orthopedic surgeonwhere it may be impossible to get enough insurance, it may make sense as well. For us normal people, I think money spent on liability insurance makes more sense.
By the way, the concept only works if the FLP is created and the money is transferred before the debt or liability is incurred. Otherwise, a transfer is probably considered fraudulent under the Uniform Fraudulent Transfer Act, and is subject to being undone by a court.
The lawyer mentioned issues as you discuss. He said much of the FLP's vulnerability ocurs in the wording and special clauses of the FLP, and that they can be different allowing for vulnerability, seziure or full protection.
He said in his particular instrument, assets were protected, but income distributed from the assets were subject to seizure. Regarding income from the assets of an FLP, he said that the Genral Partner distributing the income from assets can decide NOT to distribute income...mentioning that the FLP must be worded to that effect.
He also said that a Charge Order / Judgement going to a plantiff is subject to tax, even if the plantiff does not receive the judgement. This, he said is in reference to IRS Ruling 77-137. This final tax element of an FLP, coupled with the GPs decision NOT to distribute income and the IRS ruling is one of the main instruments that discourages lawyers and their clients from pursuit.
He mentioned GL, sighting it's limitations, and suggested the use of an FLP. He said the FLP created by his firm has been tested. He quoted and pictured a well known billionaire trial attorney (name escapes me) as being of the opinion that the copyrighted FLP compositiion is BULLETPROOF.
I sure appriciate your input and experience in checking out the lawyers claims. In this the wild wild west days of lawsuits, it seems that if he is making these claims, he could be subject to a lawsuit if his instuments failed to perform as represented. I am sure he has his own protections in place, but what do you think about this observation? He is marketing his instruments and estate planning packages, together with follow-up assistance at 1/10 th of projected cost for the same services by a personal estate plannnig lawyer. I don't know what to think? Don Trump says "Don't trust anyone."
it seems that if he is making these claims, he could be subject to a lawsuit if his instuments failed to perform as represented.
Lawyers are subject to malpractice claims by clients, not peolpe who attend their seminars. In addition, the likelihood that any particular person will be subject to a claim that would trigger whatever benefit might accrue from an asset protection scheme is very remote, especially if you are not in a high risk profession.
He also said that a Charge Order / Judgement going to a plantiff is subject to tax, even if the plantiff does not receive the judgement. This, he said is in reference to IRS Ruling 77-137
I looked at that revenue ruling in my case. The promoters of these programs argue that the situation is analagous to subchapter S income, in that if earned by the corporation, it is taxed to the shareholders even if not distributed. I'm no tax expert, but it seemed to me that since the creditor doesn't own the partnership interest, any income to the partnership is taxable to the debtor, not the creditor, no matter who gets the money. Don't forget that although the general partner may not be obligated to pay out any cash, if the asset earns income it will be taxed, probably to the partners, whether distributed or not. A thirty year-old revenue ruling is hardly proof of anything.
He is marketing his instruments and estate planning packages, together with follow-up assistance at 1/10 th of projected cost for the same services by a personal estate plannnig lawyer.
I'll be blunt. The purpose of these seminars is to sell gullible people stuff they don't need. If you are a multi, multi millionare, you need an estate plan or asset protection plan developed for you, by professional lawyers and accountants who are accountable to you. If you are an ordinary Joe, save your money.
Edited 2/18/2007 10:17 am ET by smslaw
If you are a multi, multi millionare, you need an estate plan or asset protection plan developed for you, by professional lawyers and accountants who are accountable to you.
Given my present situation, and considerable inheritance from both sides, I will probably need to do something effective. I am trying to get an early education and perhaps a start. I am careful and try to get as much education and wisdom as possible. It sometimes takes me 6 months to buy a new car or truck.
My goals are to reduce or eliminate inheritance estate tax and protect assets.
I am not trying to push, promote or debate this estate planners package, but if there is a possibility of putting some effective instruments in place for $5,000 rather than $35,000, that is of interest.
The lawyers claims his package dots the Is and crosses the Ts, and they offer follow-up help. My question about the liability of his claims are in reference to purchase and use of his package, and not what he may say in a seminar.
Of course, discovery within his package will probably uncover responsibility exit clauses and disclaimers. And, if he is as good at assets and income protection as he claims is avaliable for others...he is probably a hollow shell, with nothting to gain by those who would pursue him. You may be right, he is probably a modern snake oil salesman.
I do know that a Homeowner can buy a house plan on the internet, and make modifications for 10- 50 % of custom plans, producing very effective results. Also, engineering is always a part of our design / build packages. I am experienced enough to create a preliminary plan and have an engineer's review, he tells me what revisions are neessary and I produce a final plan for his approval / stamp. I reduce our clients cost considerably achieving the same results. One thing I am exploring the possibilities of there are simialr tricks in your profession. $5,000 rather than $35,000. Isn't that one way multi-millionaires are made?
Mr. Trump says don't be afraid to ask anything.
Edited 2/19/2007 11:49 am ET by txlandlord
I am asking if there are simialr tricks in your profession. $5,000 rather than $35,000.
There are books and seminars which purport to show you how to do almost anything. I suppose "Structural Engineering for Dummies" would help me decide if that balsa wood beam will really hold up my roof, but I'll sleep better if a real engineer takes a look at it.
Anyone who pays $5000 for a bunch of forms is, in my opinion, nuts. One size fits all is not a concept that applies to the law, especially when a substantial amount of money is at issue.
Isn't that one way multi-millionaires are made?
I suppose selling people stuff they don't understand and probably don't need is one way to get rich.
Mr. Trump says don't be afraid to ask anything.
Taking financial advice from a media-created personality is of dubious utility. Ask Trump why he doesn't do something about the hair. Keep in mind that he started out rich.
Thanks so much.
I had similar thougths even as the seminar was rolling. Todays presentations are not with covered wagon, with advertising for Dr. Feelgood's majic elixer. I did not just fall off a turnip truck, and I was born at night, but not last night.
Your input has my wife and I talking about the situation more, and searching the internet for more education. Great. Regarding another presentation, they sighted ouststanding performance of a stock filtering from a membership in Market Investor and use of their stock analysis program Investools, the reviews online from common users tell a different story.
The reference to the engineer, when fully understood, should cause realization that I am not one to take unnessary risk. My plan draft is subject and requires an engineer's review and consequent revisions according to his requirements for stamping, but balsa wood beams would make it easier on the framer. My process, related to the subject engineer, is just a way to cut cost and it does speed up the process.
dubious utility: I like it. An expression not often found in the vocabulary of a contractor. I need to find places to use this in conversation.
searching the internet for more education.
Tx, I think your researching plan makes the most sense. Without significant research, you'll be more prone to falling victim to an inexperienced lawyer who claims that they are experts in protecting you and you won't have any basis for challenging their assertions.
SHG warns about purchasing volumes of forms and I agree, those forms could be problematic because every situation is different. It's kinda ironic though, that every lawyer has that exact same volume of forms to sift through as they tailor a plan for someone like you.
So, my suggestion would be to get a hold of those forms and read them all and understand the gist of the program, then work with a local expert lawyer to create your own program of asset protection.
In your research, you might look a little bit into a guy by the name of Dyches Bodiford.
blue"...if you just do what you think is best testing those limits... it's pretty easy to find exactly where the line is...."
From the best of TauntonU.
Your input has my wife and I talking about the situation more, and searching the internet for more education.
I've noticed you like a good value. Try this:
Most major brokerage companies have a little known division that does executive level financal planning. At A.G. Edwards, the cutoff for this service was $5MM net worth. Other places are $10MM or more. There's no charge.
What they do, is have you fill out this extensive questionaire. Asking about every asset you own, how it's owned, why its owned, etc. Every debt. every kid, every everything. Your broker doesn't do the interpretation, the laywers, CPA's, and master level CFP's at headquarters does it.
Then you get flown to headquarters (they pay, or rather, the broker pays) with your wife, CPA, whatever you choose, and have a full day going over the results and resultant suggestions with the lawyers, CPA's and strategists appropriate for your situation. In your case, you would have an estate planning attorney assigned to your case making a customized presentation to you. Did I say there's no charge?
Every aspect of your financial life is evaluated and then the department head of that area comes and talks to you about the implications. You like real estate? REIT's? You get the head analyst covering REIT's to discuss all parts pertaining to you. And/or you can talk to a M&A expert about merging your portfolio of properties into an existing REIT on a 1031 basis. Questions on insurance? You will never meet someone more versed in insurance than the guy asssigned to work with you personally. No charge.
Taxes? The CPA/tax expert assigned to you has heard them all. These are the guys that hear about wierd things day in and day out.
These are the same teams that sit down with lottery winners, athletes, corporate exec's, basically anyone with too much money and issues about handling it.
They're interested in doing a deal somewhere with you. This is their marketing effort. They do not charge you for expenses, fees, or anything associated with these presentations. You're the top dog for a day. No Cost.
On the other hand, if the broker isn't going to be able to get some form of trade out of you, he'll get surly after a while.
The way it works is that one's assets are irrevocably turned over to a limited partnership. The general partner (who will not be the person whose assets are transferred) has absolute control over any distributions from the partnership to the limited partner (the person whose assets were transferred). A creditor can obtain a so-called charging order from a court, which basically means that if any distributions are made, they go to the creditor, but supposedly a court cannot order a general partner to make any distributions. Thus, your creditor doesn't get your money, but neither do you.
As I understood, the GP IS the person generally contributing and controlling the property - and continuing to be so until voluntary relinquishment or death. The LP's are designated future inheritors being given an IRS acceptable discounted (due to the lack of control, the "market price" being inhibited from "full" ownership rights") piece of ownership, but no control until the GP says.
Which is still a tax paying business entity that can be attached for misdeeds.
The primary purpose of the FLP being the discounted form of transfer and thus transfer taxes. Used best when kids are interested in continuing the family business - however defined.
Or did I sleeep thru that class?
Family limited partnership has serious flaws. One partner has full controll and all others are by definition silent. Liability protection is second rate. Go with an LLC for family realestate holdings or an S-corp for family business. More democratic and better liability protection.