Protecting Assests from Lawsuits


Many legal experts call the family limited partnership the most effective tool for lawsuit and asset protection. Some even call it a fortress you build around your assets. It is also a highly effective strategy for achieving these estate planning goals.

What is a Family Limited Partnership?

The family limited partnership (FLP) is a partnership to which you transfer ownership of your investments and assets. Ownership of the FLP is determined by who owns interests in the partnership. You can own them all, or you can make gifts of interest in the FLP to your children.

How Does my FLP Protect My Assets?

The law considers that assets owned by the partnership belong to the FLP partnership itself, not the partners. So, liability created by the individual actions of a partner won’t expose partnership assets to creditors. Creditors cannot:

How Does That Work?

Lets say you have assets that you’d like to protect. You create a Family Limited Partnership, and assign many of your assets---real estate investments, stocks, bonds, collectibles, etc.---to the partnership. You form an LLC to act as general partner, you and your spouse are limited partners, and your Trust are limited partners. You are the Managers of the LLC, therefore, you and your spouse can manage your investments just as before. Meanwhile, you have provided a measure of protection for your assets. Now let’s say that you become involved in a traffic accident for which you are at fault. You are sued by the person whose car you struck, and they obtain a judgement against you that exceeds your coverage under your auto insurance. When your creditor tries to satisfy his judgement by seizing your property, he discovers it is owned by your Family Limited Partnership, and is therefore, OFF-LIMITS.

Getting Started on Your Own Family Limited Partnership

When is the best time to create an FLP? Both estate planning and asset protection strategies should be implemented at the same time: before you need them.

It’s too late to avoid Living Probate when you are so ill or disabled that you can no longer manage your affairs. Likewise, if you wait until you are in the midst of a lawsuit---or one looms on the horizon---you will be unable to implement these strategies.

The courts take a dim view of actions individuals take to defraud creditors. And that’s how many will appraise eleventh-hour strategies that take assets out of your estate and beyond the reach of a plaintiff.