Part 2: Family Limited Partnerships
By Robert L. Bolick, Esq.
This article is the second in a six-part series on simple and reasonable steps you can take to protect your assets. This issue focuses on how to protect your after-tax investments (other than IRA, 401(k) or other retirement plans which are already protected by law). In the upcoming issues you can learn how to protect your home, rental properties, cash values of life insurance, medical equipment and even accounts receivable.
With the flurry of lawsuits today, more and more physicians are looking for ways to protect their hard-earned assets. The following is a brief discussion of some of the ways you can protect your stocks, bonds, mutual funds, cash, notes, trust deeds and other after-tax liquid investments.
Do Family Limited Partnerships Really Work?
Yes! They are powerful tools that can effectively protect your assets from claims of any and all creditors or claimants. In my opinion, every physician in the state of Nevada should have one. Unfortunately, many have overlooked this powerful and effective asset protection tool.
A family limited partnership (FLP) typically is established with you as the general partner owning 1% and your asset protection trust (or living trust if you don’t have an asset protection trust) as limited partner owning 99%. As the general partner, you have complete control over the assets in your FLP. You control all investments; you control all distributions.
Despite retaining this control, the assets are not treated as being owned by you personally, but rather by the partnership. A creditor of yours can only attach what you own, namely your partnership interest. A creditor cannot: (1) attach the partnership’s assets; (2) force you to distribute any income or assets from the partnership; or (3) force you to dissolve your partnership. Worse yet, you can send your creditor a K-1 at the end of the year forcing him to pay the income taxes on the “phantom” income you have retained in your partnership. Limited partnerships are very unattractive to creditors.
Why doesn’t everyone have a Family Limited Partnership?
Everyone should. For the fraction of the cost of malpractice insurance you can easily create your own FLP and other vehicles to provide a huge degree of asset protection now.
Final words to the wise: Don’t delay. The sooner you get your protection in place, the better. Life is too short to constantly worry that all of your years of schooling, training, scrimping, saving and hard work could all vanish overnight.
Robert L. Bolick is the senior partner in the law firm of Durham Jones & Pinegar in Las Vegas, where he has practiced for over 22 years. His primary areas of practice are asset protection and estate planning. Mr. Bolick has an “A/V” rating from Martindale-Hubbell, the highest professional rating for an attorney. He is listed in “Nevada Super Attorneys” (top 5% in his field). He was named Outstanding Estate Planning Attorney of the Year by the Nevada Business Journal. He has authored numerous articles and publications on asset protection and estate planning, and is a frequent lecturer on these topics. Mr. Bolick is a member of the State Bars of Nevada, California, Arizona, Utah and Hawaii.