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Estate Planning & Asset Protection

(2007-03-21 10:07:08) 下一个
Estate and asset protection planning are designed to help people preserve their assets for future needs and goals by making them unavailable to creditors. While many people think asset protection involves shady or dishonest techniques, there are many perfectly legal and ethical means to protect financial reserves and property for retirement or for future generations. These techniques may include tax reduction strategies, financial gifts, business formation, or certain types of wills and trusts. Asset protection is a complex area of estate planning, and requires specific knowledge and experience in a range of laws. If you are interested in asset protection, you should seek out a competent and experienced estate planning lawyer to help you achieve your goals. If you have estate planning-related legal questions, call an attorney today.

Family Limited Partnerships and other Business Entities
Family Limited Partnerships (FLPs) can be one of the most important wealth transfer and asset protection strategies for families. FLPs are designed to reduce the value of your estate (for estate tax purposes) while allowing you control of property and assets put into the partnership. FLPs are set up much like traditional limited partnerships. There are two types of parties involved: "General Partners" who control the partnership (frequently a parent), and "Limited Partners" who have a share in the profits but do not have control of the partnership (usually the children).

The General Partners design the partnership to gift Limited Partner shares to family members. General Partners control the operations of the FLP and make day-to-day investment decisions. They can also receive a percentage of the FLP's income in the form of a management fee. Limited Partners have an ownership interest and share in income generated by the FLP, but they have little or no control. When the FLP is dissolved, a proportionate amount of FLP property will pass to each Limited Partner.

At the formation of the FLP, usually a parent or parents own both the General Partner and Limited Partner interests. Over time, they gift to their heirs Limited Partner interests using the annual gift tax exclusion. There is no need to worry about giving away too much of a financial interest to the Limited Partners because, under current law, the General Partners may own as little as one percent of the FLP's assets and still retain control.

FLPs allow people to pass on more than the maximum $1.5 million ($3 million per couple) estate tax credit. A gift of FLP assets of $1.5 million may be appraised at a substantially lower dollar amount because the limited partnership interests lack any control and there is no market for them. This lower appraisal is called "discounting" the value of FLP units.

It is important to work with an experienced attorney on setting up an FLP. Taking too big of a discount may result in a challenge from the IRS. Recently, some estate planning attorneys have started to use limited liability companies (LLCs) to achieve the same or similar goals that were accomplished through the use of FLPs.

Shielding Assets from Creditors
A properly structured FLP or LLC can provide protection from creditors. But there are limitations with respect to the extent of asset protection that this type of planning can provide. Most states have adopted some form of the Revised Uniform Limited Partnership Act (RULPA). Under RULPA, a creditor of a partner in a limited partnership cannot be substituted for the debtor partner. Instead, the creditor can petition a court for a "charging order" that gives the creditor the right to receive any and all distributions from the partnership that the debtor partner would otherwise be entitled to receive. Similar laws limit creditors of LLC members to petitioning for a charging order.

For many years, shifting ownership of assets to a spouse whose risk of liability is less than that of the other was a commonly-employed asset protection technique. Subject to the laws against transfers for the purpose of committing fraud, assets owned by a spouse are not available to satisfy a judgment or order against the other spouse.

Some people own very little of their assets in their own name. Instead, they place their assets into a trust, a foundation, or other entity. If a creditor wanted to sue them, they would find that there are very few assets actually owned by the person. Assets owned by the trust, foundation, or other entity, when properly established, are generally not subject to the claims against the individual. In addition, placing assets into an asset protection entity can remove the assets from a person's ownership and from his or her estate.

Conclusion
There is a very distinct difference between legal asset protection planning and actions meant to defraud the government or creditors, which are criminal. For that reason it is essential to have an attorney guide you through the process. If you have questions about asset protection planning or other estate planning needs, contact an experienced estate planning attorney to ensure that your unique estate planning needs are met.
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