I hear that an FLP is much more protective than an LLC - any comments?
i’m not a lawyer, but something in my gut says that a Family Limited Partnership would not offer the same liability protections of an LLC.
again, i’m not a lawyer. what did you hear that makes believe that an FLP would offer better protections than LLC?
Thanks. It gets a little confusing. I was at a conference where an attorney said that an LLC was piercable and they could eventually come after your personal assets. They said it could take a long time and a lot of money and that it could be done. And he said that a Family Ltd Partnership was like a pension plan - untouchable and the new way to go. I think we will start to hear more about this.
Let me start by saying I am not an attorney. What I will say is until something has been “tested” in the courts, I am not going to place my success into it.
The Series LLC is also a new entity, and it really hasn’t been fully challenged, just as this FLP. So I would think it wise to go with the tried and true, layer some entities and you should be good.
Ever try making the LLC the managing partner of the LP?
I know a fair amount about both entities and from a top level view it kind of apples and pine apples (sound similar but really different animals). A FLP is far more complex than an LLC and probably not suitable for a modest investor. An LLC can easily be set-up by a do it yourself or with a little help. A FLP is very complex in the amtter of taxes and structure an IMHO opinion would need the help of an experience atty (I’ve seen the figure of $10k quoted for set-up)
People always raise the “pierce the corp veil” issue but thats in any case. Understand one thing, if I’m going to sue you, I"m going to name you LLC, you personally, your dog and anybody or entity that appears to be connected to the issue. This is legal 101 (and I’m not a lawyer). That put the burden on you to get file petitions to get yourself (personally) remove form the case.
Yes if someone were to sue me they would name everything I have, however from what I understand, the Family Limited Partnership is not piercable, and if someone has enough money they CAN pierce an LLC.
To me, paying $10K to have the ultimate protection is worth it. I just can see myself working as hard as I did 20 years ago to get to where I am so its worth it for me to spend a little money.
With a Land Trust you still have to tell the courts if you hold any property so having the land trust is just a good block for quick search attorneys but if they do so, they don’t have to do a search, serve you with papers and you have to fill out the form listing all your assets. Then your assets aren’t protected and the LLC is potentially piercable. FLP are completely untouchable.
From what I have read, a FLP, like the LLC, provides excellent asset protection from external lawsuits. A judgement creditor of one of the partners is limited to a charging order against that partner’s interest in the FLP as his sole remedy. Also like the LLC, a lawsuit arising from within the FLP exposes all the assets of the FLP at risk.
The FLP’s value really lies in the estate planning benefits it provides. Special treatments allow the FLP to save on income and estate taxes. Generally, you only want to put safe assets into a FLP. Safe assets are those with very low risk of a lawsuit. Bank accounts and stock brokerage accounts are examples of safe assets.
Dangerous assets are those with a higher degree of lawsuit risk. Active business interests, rental property, even your car are all dangerous assets. Dangerous assets should be held in a separate entity to contain the liability exposure, such as an LLC for rental property. Even better is one LLC for each rental property.
Because the FLP does not enjoy eligibility to the Section 121 capital gains exclusion, you would not put your primary residence into an FLP. Instead, put your primary residence into a revocable trust to maintain Section 121 eligibility.
The above is only my personal research. I have an appointment with an estate planning attorney tomorrow to discuss whether a FLP would fit into my own estate and asset protection plans.
Just a follow-up. I met with an attorney today who told me that the FLP can be pierced much more easily than an LLC. According to this attorney, establishing the FLP with yourself as the general partner, even with a small percentage interest, provides no liability protection. To avoid the liability, you must employ a corporate general partner (expensive) and surrender total control. Not exactly what I want to do.
He recommended a LLC as superior to the FLP for asset protection.
DaveT, Thanks for that update on this topic. Very interesting…
Excellent explanation, Dave.
Both the LLC and FLP provide similar protection, but the LLC will be easier to establish and administer.
Bingo.
In our business, we have one FLP ( my father’s for estate purposes ). Multiple LLC’s for ownership and rental businesses. A General Partnership whose partners are S-corps for operating our business, and a C-corp that is mostly used to provide benefits pre tax.
The only reason that we see for the FLP is the estate issues.
DB