If you’re wondering whether an FLP (Family Limited Partnership) will really work for asset protection, then you really must first first understand what Asset Protection is. In the most basic sense, Asset Protection is any action that dissuades or disallows any unwanted and unauthorized person or entity from reaching your assets. That’s really it.
In that sense, Asset Protection could include:
- Giving your assets away to a charity or person.
- Losing your assets in Utah.
- Investing your assets in a copper mine in South America, which turns out to have no value.
- Placing your assets in an unreachable location, like a treasure chest dropped to the bottom of the sea, or
- Piling all your assets up and making s’mores over a roaring bon fire.
In each of the above cases, the assets would be difficult, if not impossible, to reach for anyone! The problem, of course, is that anyone includes you. In practical terms, what Asset Protection has come to be known as is slightly different than these methods mentioned above.
Legal Asset Protection is the use of legal entities and tools that place a legal barrier between an unauthorized creditor and your assets, while leaving you in the position of being able to control, use and enjoy those assets.
From this perspective all of the above options are out. What’s in is the Family Limited Partnership and its cousins like the far more powerful Asset Protection Trust. So how does the FLP really work to protect your assets?
The properly utilized FLP is a legal entity drafted under the laws of a state that statutorily does not allow a creditor to reach the underlying assets of one of the FLP members. It does this with one very special feature – The Charging Order.
A Charging Order Against an FLP
The Charging Order is a legal concept and in the words of the Statute itself:
“A charging order constitutes a lien on the judgment debtor’s transferable interest in the partnership.”
The key concept here is lien. If all things go well, a creditor would not be able to force a distribution of the partnership assets and would be left sitting there with just a lien. This has the effect of placing the barrier we want between the assets and a creditor who is after them.
What the charging order, and the FLP in general, does NOT do is completely remove the creditor; rather it just makes them wait. The net effect is that a creditor holding a charging order is likely to come back to the negotiating table and accept an offer of settlement that is far more favorable to you than it would have been had the creditor been able to directly reach your assets.
Is this Asset Protection? Yes, it does accomplish the goal of placing a barrier, while still allowing you to control, use and enjoy those assets, at least to a point. However, it is not an ultimate barrier. If the creditor is not motivated to settle, and is willing to wait it out, they are in line to receive any eventual distributions from the partnership. In the meantime, you are deprived of your use and enjoyment of those assets. It basically creates a face-off.
So when is an FLP enough? Basically that depends on the level of protection you desire and the level of assets you are trying to protect. Our experience has shown that if your asset level is below $250,000 the FLP alone is a good strategy. When your assets begin to climb higher than that, and definitely when the reach the $500,000 mark, we have found that the deterrent effect of the FLP alone is just not enough.
The reason is obvious, the more the money, the more incentive a plaintiffs’ attorney has to either wait it out, or worse yet, attempt to break open the FLP. The later can and does happen and anyone familiar with a courtroom will tell you that judges are highly adept at finding ways around the very rules and statutes they are meant to uphold. Why? Because there are always 2 sides to every story and more than one way to read the statutory intent of a law.
For these reasons 90% of the time I do not rely solely on the FLP for real Asset Protection. While it remains a valuable entity, particularly for the consolidation and management of all the assets, when it comes to real deterrence and protection I rely on the far more powerful
Asset Protection Trust, which is the key to a great estate and asset protection plan.
Free Initial Consultation with Lawyer
It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
Whether you have a higher net worth or are in a high-liability profession, a domestic asset protection trust can help protect you and your family from lawsuits. If you wish to stop the claims of future creditors and litigators, we can help you. There are several ways to protect your assets, from gifting to family members and charities to paying for certain Medicare costs up front. Setting up a trust, however, is one of the most effective strategies.
Asset Protection Trusts and Other Trusts
Types of trusts include:
- Revocable Trusts: These do not provide protection from creditors. Since the person who created the trust can amend it, that person’s creditors can also reach the trust’s assets.
- Irrevocable Trusts: When a trust is created by someone other than the trust beneficiary, assets can be shielded from creditors. There are certain exceptions to this, however, such as government entities and individuals to whom are owed child support payments. Unless a trust is a self-settled irrevocable trust, it will only provide minimal protection.
UTAH PASSES NEW DOMESTIC ASSET PROTECTION TRUST LAW
In May 2013, Utah established a new self-settled domestic asset protection trust statute. This law provides a great degree of protection: as long as a person creates and funds an irrevocable trust with his/her assets and meets the requirements of the statute. When these are met:
- The person’s future creditors will not be able to attach the trust property
- They will not be able to force distributions from the trust to the trust’s creator
- They will not be able to require the trustees to pay directly to the creditor distributions that would otherwise be made to the trust’s creator
ALTERNATIVE ASSET PROTECTION OPTIONS FOR SALT LAKE CITY FAMILIES
Whether one of these new trusts is right for you depends on the size of your estate and your personal wishes. We listen to each client and create custom plans for asset protection. For example, your life insurance and retirement plans might already have sufficient asset protection in place, but other assets may be at risk. We can help set up special trusts, corporations and limited liability companies to protect you.
Salt Lake City Pet Trust Lawyer
Your pets have their own favorite foods, toys, playtime activities, medicines, and other specific health care needs. A pet trust allows you to specify with exactness how your pets will be cared for in your absence. They can get the veterinary care they need, at the veterinarian they are accustomed to, through directives you make in your pet trust. They can be ensured of daily exercise, proper boarding, as well as any other needs they have come to appreciate as being part of your loving family. Sure, you could informally ask your friends or heirs to take care of your pets after your death or if you become disabled. Sadly, the pounds receive many such animals, as those agreements are not enforceable and leave far too much to chance. Your pets mean too much to leave their futures so uncertain. Call us about a pet trust and make sure all of your family is cared for.
What is a pet trust?
A pet trust is a legally-enforceable document that ensures your pets are properly cared for in the event of your death or disability. Under Utah law, a trust can be created that provides for all of your pets and other domestic animals, such as horses, dogs, cats, and birds. When a trust is created, funds are set aside to provide for your animals’ on-going maintenance and care in the event of your incapacity or death. A trustee that you appoint is charged with managing those funds and may legally use them solely for the proper care of your animals, and no other purpose. A pet trust is the only sure way of providing for the continued care of your animals after your death or even if you simply become incapable of taking care of them.
Benefits of Having a Pet Trust
Many people think a will is sufficient. But it is not. Money left for animal care might be contested by heirs. A trust avoids this possibility entirely, by giving you complete control over the designated assets both during incapacity and after death. Wills are subject to court processes and may result in undesired consequences, but a trust is not: it puts you in control by doing what you want, when you want, and keeps you out of court entirely.
Through a pet trust, you can designate not only how the funds are used, but how the funds can be invested and grown over time, to continue providing care and then, following the passing of your pets, to provide for a charitable gift to a charity of your choosing (perhaps animal related, if you like). The amount you set aside can be determined according to your own animals’ needs, such as what kind of animals they are and how many, the type of boarding they need, and medical care they might require as they age.
How Seniors Can Protect Their Pets
Studies have shown that seniors live longer, healthier, more content lives when they have a companion animal. But often seniors are worried about what will happen to their animals when they pass on. Pet trusts make it possible to continue to let your pets know how much they are loved and how much happiness they have brought into your life. With a pet trust, you can rest assured knowing that your companion animals will not be left to fate after your death or incapacity.
Free Initial Consultation with an Asset Protection Lawyer
When it’s time to protect your assets, call Ascent Law for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506