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Richard, Attorney
Category: Business Law
Satisfied Customers: 55590
Experience:  32 years of experience practicing law and a businessman.
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I have a question about how to hold my properties: 1.) All

Customer Question

I have a question about how to hold my properties:
1.) All of the properties are owned by various LLC's and those LLC's are owned by 1 main LLC. Should I have the LLC be owned by a Family Limited Partnership then have the Partnership owned by a Revocable Trust?
2.) Or should I skip the Family Limited Partnership and have the LLC be owned by the Revocable Trust?
Basically, what are the benefits and downsides of having a Family Limited Partnership?
Submitted: 1 year ago.
Category: Business Law
Expert:  Richard replied 1 year ago.

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Customer: replied 1 year ago.
ok thanks
Expert:  Richard replied 1 year ago.

The benefit of a family limited partnership is asset protection. Putting each property in an LLC is a good first step because it protects each other property and your other personal assets from debt, liabilities and judgments involving one property. But, that alone then leaves your interests in these LLC's at risk for your creditors because although the assets themselves in the LLCs are not directly at risk, the ownership of the LLC's are at risk. So, what you want to do is put the LLC interest in a family limited partnership. A revocable trust simply allows you to avoid probate; it overs no asset protection. Conversely, carefully drafted, a family limited partnership converts assets that a creditor would find attractive to go after into a limited partnership interest with no control, no rights other than that of an assignment, no transferability, no marketability, and no right to distributions. The transfer is for fair market value…i.e., you are simply exchanging one asset for another of equal value to you. And, you maintain control through a general partnership interest that you control. Yet, when complete it essentially is an asset no one wants and thus the creditor is less likely to pursue the debtor.

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Customer: replied 1 year ago.
basically, having the LLC owned by Family Limited Partnership then having the Partnership owned by a Revocable trust is a good idea. However, I have been told that the downside of doing this is that if someone sues the Family Limited Partnership, they can also sue all of the individual LLC's owned by the Partnership as well. Thoughts?
Expert:  Richard replied 1 year ago.

Yes, that is correct. You can never prevent someone from filing a suit. But: i) they are not likely to file suit against an FLP, because even if they win, they have only the rights of an assignee with no rights of control and no ability to ever cause the FLP to ever distribute assets; and ii) filing suit against an FLP doesn't give them any more rights to sue the underlying LLC's.