Can you realistically keep lim. liability as Limited Partner of LP with rentals?

I own some rental properties that I’m trying to get out of my name. For some time now I’ve heard that Limited Partnerships may offer better protection than LLC’s due to the case history and age of the entity type (LLC’s are rather new in comparison I understand). My Attorney tells me that while an LLC hasn’t been pierced yet in Utah (where I live) they have in some other states and she feels it is only a matter of time until it happens here too. She said something to me about how a “properly drafted” LP has never been pierced. I don’t know what all “properly drafted” implies exactly.

One MAJOR concern I have is trying to maintain limited liability. I know that as a Limited Partner in the partnership, my liability is limited only if I don’t participate in the day to day management of the business in any way. If I appear to have been involved in decision making for the partnership or management of the properties, then a judge could label me a General Partner no matter what my paper work says. If that happened, of course, then the prosecuting attorney could go after me personally (which is what I’m trying to avoid).

I’ve considered starting a corporation to act as my General Partner while my wife and I act as the Limited Partners, however, having said that, I don’t plan to hire a professional property management company to manage for us just yet and worry that I would have a hard time not crossing the line (without even realizing it) in management of the entity or the entity’s holdings. In light of all that, I have thought seriously lately about simplifying life by just doing an LLC (even if it isn’t quite as strong) for simplicity sake since ALL members would have limited liability whether they manage or not.

What do you think? I would appreciate any thoughts, advice, or feedback that you have on whether an LP in really worth the added tight rope walk to avoid liability … or would the protection offered by an LLC be nearly as solid and stable? ???

Another consideration, if you are a limited partner then your net passive loss allowance from rental activities may be unavailable to you.

To take advantage of the $25K net passive loss allowance, I believe you must have “active” participation in the rental activity. By definition, a limited partner is a “passive” participant.

If you go the LP route, a trust for the benefit of your children can be the limited partner and you are the general partner. The bulk of your wealth can pass out of your hands while you maintain complete control. If your state doesn’t offer a generous homestead, you can use some type of equity stripping to protect your residence.

limited liability is broken because you are personally managing the properties, irrespective of your “title” or “status” as limited partner, LLC member, or whatnot.

if you provide personal service to the LP (even when acting as manager through the GP) then the LP income to you is no longer passive. You are still a limited partner, but the income is not passive. so the $25k limit does not apply; losses would be fully deductible in the year incurred.