There are two asset protection tools which have substantial benefits for estate planning as well as asset protection. These tools are the limited partnership (LP) and the limited liability company (LLC).
Limited partnerships are created and administered under Chapter 620 of Florida Statutes. A limited partnership is a partnership consisting of two classes of partners, general partners and limited partners. A general partner has general liability for all partnership debts, and he has the responsibility and authority to manage partnership business. The general partner controls the partnership’s investments, distributions, and other business decisions. A limited partner has an investment interest in the partnership, and he plays a passive role in partnership business. An individual can be both a general partner and a limited partner in a limited partnership.
A limited liability company is a business entity created pursuant to Chapters 608 and 605 of Florida Statutes. In 2013, the Florida legislature created a new Chapter 605 which rewrites Florida’s LLC laws. The new statute does not change the asset protection features and requirements for Florida LLCs.
An LLC is controlled by a manager. The manager directs the LLC’s business affairs and determines the amount and timing of cash distributions. The investment interest in an LLC is held by the members. Members invest the initial capital in the limited liability company, and they incur gains or losses from the LLC’s business. An individual can be both a manager and a member of an LLC.
An LP interest and a membership interest in an LLC are both intangible property, and both types of interest are assignable and transferrable subject to restrictions of the limited partnership agreement or the LLC operating agreement.
One practical limitation with the multi-member LLC or partnership charging lien protection is that the debtor’s cash and assets can remain trapped inside the entity as a “patient creditor” holds its charging lien anticipating future distributions. Members and limited partners subject to charging liens have used varying means to access cash from their LLC or partnership entity to maintain a normal lifestyle. One solution is for the partnership or multi-member LLC to pay the debtor a salary which is exempt from creditors if the debtor is head of household. Or, the entity can loan money to the debtor. Another solution is for the multi-member LLC or partnership to purchase an annuity naming the debtor as annuity beneficiary. Annuity payments remain exempt after distribution and deposit in a debtor’s bank account so long as the funds are traceable back to the annuity.
A limited partnership and a multi-member limited liability company offer similar asset protection. Based upon a June 2010 Florida Supreme Court ruling in the Olmstead case, Florida law does not extend the same asset protection benefits to a single-member LLC.... Continue reading
Several years ago Florida enacted amendments to its limited partnership statutes which, among other things, affirmed that a charging lien is a creditor's exclusive remedy against a debtor's limited partnership interest, and more particularly, the amended statute... Continue reading
The first step in creating an FLP or LLC is the preparation and filing of an application with the Secretary of State. An applicant files a Certificate of Limited Partnership to form a new limited partnership or Articles of Organization to form a limited liability... Continue reading
Formation of LLCs and limited partnerships in states outside Florida, such as Nevada and Wyoming, is widely promoted on the internet. The promised benefit of forming a partnership in a state other than Florida (a "foreign state") is that foreign state partnership... Continue reading
A family partnership or LLC work for asset protection or tax planning only if you transfer assets from your name into the name of the entity. Transfer of assets into a partnership, or other entity, is often referred to as “funding” the entity. Partnership... Continue reading