The field of Asset Protection involves income tax planning, estate planning and lawsuit protection. The Lawsuit protection area is a primary concern of many of our clients.
Lawsuit protection involves the use of one or more different entities which can protect valuable assets from creditors and judgements. A very effective technique is an Asset Protection Partnership. This entity is set up as a limited partnership with special provisions to provide the asset protection features. You alone or you and your spouse will be general partners with full management and control of all partnership affairs. The two of you will also be limited partners. Perhaps, we will also bring in children or other family members as additional limited partners.
Typically, we transfer all or most of your personal and business assets into this partnership. The family house, bank or brokerage accounts, and other real estate investments will be transferred into the partnership.
This technique is effective, because in the event of a lawsuit and a judgement, your creditors generally will not be able to reach inside the partnership and seize any of these assets. Under California law, and the law of most other states, a creditor has no right to execute or levy on partnership assets with a judgement against one of the partners. This provision is contained in the California Revised Uniform Limited Partnership Act which has been the law since 1949.
Under the proper circumstances, the remedy that a creditor can use is called a "charging order". If any cash is distributed to you by the partnership, the creditor can take that cash to satisfy the judgement. If no distributions are made to you, the creditor receives nothing. The partnership can sell assets and retain or reinvest the proceeds but if no money comes out to you there is nothing for the creditor to take. A creditor cannot take your interest in management and control of the partnership and cannot take any of the assets in the partnership.
The specific arrangement which we would recommend for you will depend upon your particular circumstances, the business you are in and the type of assets which you own. If you are engaged in any business or if you own property, you should take the necessary steps to arrange your affairs to maximize the income tax, estate planning and lawsuit protection techniques currently available. A lot of money can be saved if your plan is properly implemented.
If you would like to meet to discuss these matters in more detail, please give us a call. We will be happy to discuss the best plan to accomplish these very important objectives.
