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ASSET PROTECTION IN THE NEW MILLENNIUM
We live in litigious times.
People sue each other at the drop of a pin and juries grant ever larger
awards. Verdicts of four or five million dollars are commonplace.
One modern phenomenon is the "deep pocket lawsuit." Someone who considers
himself wronged will sue not only the person he believes responsible, but
also a related party, upon the flimsiest of claims, simply because that
second party is wealthy while the one really responsible is not. The hope
is that the wealthy defendant will throw some money at the plaintiff to
settle the lawsuit, rather than pay heavy legal bills in a lengthy
litigation. Guilt and innocence do not matter.
In addition, newer more creative theories of liability subject each of us
to the danger of losing our hard-earned assets and life savings as a
result of an astronomical verdict for something for which we would not
have been responsible a few years ago. Landlords are responsible for the
present effects of lead-based paint applied many years before they ever
purchased the property (and insurance companies refuse to cover this
liability). An innocent "fender bender" may result in a multi-million
dollar lawsuit for "psychological damage" because the plaintiff claims she
now has insomnia and the plaintiff's spouse claims "loss of
companionship."
Combine these developments with the fact that many hard-working, honest
people find themselves with more debts than they can handle and little or
no income to cover those debts.
The need for each of us to protect our assets -- the money, securities,
homes and other things for which we have worked so hard over the years --
is clear and unquestionable. Almost all of our assets are vulnerable to
attack: to being attached, frozen, seized and taken away by a hungry
creditor. Yet, we each have a right to protect those assets; to preserve
them as security for our later years and as our legacy to our children and
grandchildren.
Can we do this? Can we legally protect and preserve our assets from attack
by litigants, collection agencies, the I.R.S.? The answer is YES! We can
and should protect our assets by using a little known law that exists in
all fifty states. Not taught in law schools, overlooked and misunderstood
by most lawyers, this law can be used to protect your assets and reduce
(and possibly eliminate) estate taxes.
The law is called the Revised Uniform Limited Partnership Act ("RULPA,"
for short) and here's how it works: RULPA states that assets owned by a
limited partnership are not owned by the individual partners. Therefore,
those assets cannot be attached by a creditor of an individual partner. So... If your assets are owned by a limited partnership, they are no
longer owned by you and they cannot be attached by your creditors.
But you can still CONTROL these assets. Limited partnerships have two
kinds of partners: General Partners and Limited Partners. The General
Partners are the "dictators" of the partnership. They control the
partnership and all of its assets. There is no majority vote, no elections
and no review of a General Partner's decisions.
Limited Partners have only
one right -- the right to their fair share of partnership profits IF the
General Partner decides to distribute those profits. The General Partner
can get salary from the partnership and if the General Partner says Okay,
a partner can borrow money from the partnership.
The partnership may be a "Family" Limited Partnership; that is simply a
partnership in which all of the partners are family members. Mother and
Father are both General Partners and Limited Partners (you can be both at
the same time). Each child is a limited partner.
If Mother and Father place the family's assets into such a partnership,
those assets will be protected from attack by creditors. Why? Because
RULPA says so!
Of course, the law doesn't allow you to transfer assets with the specific
intent of keeping bona fide creditors away from them, but that's the
"secret weapon" of RULPA. By placing all your assets into a Family Limited
Partnership in which you are the General Partner, and then giving away
limited partnership "shares" to your children, you reduce the value of
your estate but you never lose control over the assets in the partnership.
This reduces your estate taxes (possibly also income taxes) significantly.
Depending on your age and the size of your estate, you may end up with
zero estate taxes. This is recognized by the I.R.S.!
If your assets are significant enough to be subject to estate taxes, the
Family Limited Partnership becomes a valuable estate planning tool. If the
transfer of assets is done for estate planning you don't have the
"specific intent" to block creditors. The transfer of your assets into a
Family Limited Partnership, while eliminating estate taxes, also creates a
bullet-proof shield around those assets.
The establishment of a Family Limited Partnership is a complicated,
document-intensive procedure that should not be entrusted to general
practice lawyers. It requires the experience and knowledge of an expert
who is well versed in estate planning, taxation and asset protection law.
But if done properly and carefully, under the protection of RULPA, a
Family Limited Partnership will protect all that you have worked and saved
for throughout your life and will preserve those assets for you and your
family is.
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