California Family Limited Partnership Attorney, Sebastian Gibson
Asset Protection - Family Limited Partnerships and Charging Orders
If you’ve been searching for California asset protection lawyers or offshore asset protection attorneys in California and haven’t found the asset protection attorney in which you can be confident when retaining a lawyer for your asset protection, voluntary disclosure, offshore trust protection and family limited partnership matters in California, Sebastian Gibson is the asset protection attorney you’ve been looking for.
California Asset Protection Lawyer
With over thirty years of experience handling international matters, with law degrees in both California and in Great Britain, and years of international experience in London as well as decades of experience in California, California asset protection lawyer Sebastian Gibson brings a wealth of experience to the table and was chosen one of the 2011 Top Lawyers by Palm Springs Life Magazine.
Asset protection utilizing family limited partnerships is all about protecting the assets of the individual client, who may or may not be a debtor, from future claims of any creditors. To understand family limited partnerships, however, you must understand the significance of charging orders and their usefulness in asset protection strategies.
The selling point of family limited partnerships for the past few years has been that a creditor who sues a general partner and obtains a judgement is only entitled to a charging order entitling that creditor to any distributions made to that general partner. Even if no distributions are made, the judgement creditor has a tax obligation on any income that should be distributed to the general partner as indicated on the yearly Schedule K-1 form.
In jurisdictions where a family limited partnership limits a creditor’s rights to a charging order that entitles the creditor to claim distributed profits, the benefit to a creditor can be elusive. A debtor-partner can still accept loans from the family limited partnership, a salary, and a consulting fee or payment for any other assets he or she sells to the family limited partnership. In the event the debtor-partner is entitled to only 10% of the profits of the Family limited partnership or less, and even where there is a distribution to all partners, the amount of the debtor-partner’s distribution is thus limited. A creditor with a large judgment may have a long wait for his or her judgment to be satisfied. If the distributions of the debtor-partner go into another limited partnership where distributions are withheld, the creditor obtains nothing.
A creditor’s better choice of remedies is often to allege a fraudulent transfer took place, i.e. that the family limited partnership general partner transferred his assets to the Family limited partnership to defeat the claims of a known creditor. The creditor’s claim has even more credence when a general partner receives a disproportionately small partnership interest for his or her contribution. For this reason, assets should not be transferred to a domestic family limited partnership when creditor claims are known or suspected.
If a Family limited partnership provides the general partner with discretion as to whether or not to make a distribution to the partners or just to one partner, a creditor with a charging order will get nothing from the Family limited partnership. There is no fiduciary relationship between the general partner and a creditor and thus no obligation to make a distribution.
Charging orders are therefore one of the most important aspects of family limited partnerships and asset protection. Charging orders also come into play with offshore asset protection.
A creditor who forecloses on a charging order will still have a difficult time selling it, even to a collection agency, which may incur adverse tax consequences. The debtor will still not have lost his or her management or voting rights. An assignment of a limited partnership does not dissolve the family limited partnership.
Additionally, there’s nothing to prevent a partner from putting language into the operating agreement a restriction against the assignment of a limited partner’s interests.
Another way to maximize the utility of a charging order is to provide in the operating agreement that when distributions are made, the debtor vests in the distribution while at the same time instructing the general partner to withhold any distributions to limited partners against whom there are charging orders. This will conceivably allow the Family limited partnership to charge the creditor with income without ever having to make a distribution to the creditor who has foreclosed on a charging order.
Poison pills may also be inserted into the Family limited partnership operating agreement with provisions allowing the Family limited partnership or non-debtor partners to buy out a debtor for a negligible amount of money, thereby leaving the creditor with only this small amount of money the creditor can collect, and to treat a judgment creditor as the owner of that portion of a partnership interest for income tax purposes without the ability to replace the general partner, require distributions or force a liquidation of the Family limited partnership.
A family limited partnership agreement can also include buy-out provisions and rights of first refusal that provide for the right of other partners to buy out a partner’s interests to prevent unwanted persons, including ex-spouses from becoming partners.
In compliance with IRS requirements, we must advise you that any U.S. federal or state tax advice contained in this informational article concerning family limited partnerships and charging orders is not intended to be used nor is it published in order for it to be used and you may not use it for the purpose of avoiding penalties or fines under the Internal Revenue Code. It is not intended to be used nor is it being published in order to promote, market or recommend any specific transaction, tax-related matter or estate planning tax scheme to any party.
California Asset Protection Attorney, Sebastian Gibson
Sought out to be a writer for California’s two largest and most prestigious legal newspapers, California asset protection attorney Sebastian Gibson’s articles have been published in the Los Angeles Daily Journal and the San Francisco Daily Journal. Today thousands and thousands of people visit this website and his blogs monthly for useful advice and thousands more follow him on Twitter for his humor.
One of the best asset protection attorneys for people in California to follow for his humor and wit, one of the funniest California asset protection lawyers as well as one of the top humorous California asset protection attorneys people follow on Twitter, California asset protection attorney Sebastian Gibson has been called "brilliant," "hilariously funny" and a "legend."
It matters more than you think who you call for your asset protection and other legal matters. When it matters most, call California asset protection lawyer Sebastian Gibson. When it’s time to hire a California asset protection attorney, hire a legend.
