Dana Law Firm > Practice Areas > Asset Protection Planning

Asset Protection Planning

The family limited partnership is a popular way to turn attractive assets (e.g., an apartment house) into unattractive assets. The asset becomes unattractive to a creditor because by placing the apartment house into the limited partnership the judgment creditor's remedy changes. The judgment creditor cannot execute directly upon the apartment house and force its sale. Instead, the remedy is limited to the rights of an assignee of the partnership interest, or only what the general partner decides to distribute, which is often nothing. However, this protection is being abused and is not holding up in many cases where the general partner set up a partnership specifically to avoid a preexisting obligation. For the family limited partnership to be an effective tool for asset protection, it must be set up for valid estate planning (to save estate taxes) or business reasons a substantial time before the obligation arose.

An asset protection trust is any trust utilized to insulate assets from creditor attack. These trusts are normally structured so that they are irrevocable for a term of years and so that the Trustor is not a current beneficiary. All asset protection techniques have one thing in common: they each make it more difficult for a creditor to either find or take assets. By implementing a properly crafted asset protection plan (which may include an asset protection trust as well as a family limited partnership) an individual can legitimately put a significant portion of his assets out of the reach of judgment creditors.