Asset Protection: General/Limited Partnership, Corp Chapter C, Chapter S, LLC, Trusts
Asset protection comparison & definitions of General Partnership, Limited Partnership, Corporation Chapter “C”, Corporation Chapter “S”, Limited Liability Companies & Revocable Trusts and Irrevocable Trusts.
PART 2: ASSET PROTECTION: GENERAL/LIMITED PARTNERSHIP, CORP CHAPTER “C”/CHAPTER “S”, LLC, TRUSTS
THE CONCEPT OF ASSET PROTECTION
includes the possibility of placing title in certain assets in the name of a less vulnerable spouse or other family members, or a legal entity. One should be very attentive in transferring title without an open invitation to a “fraudulent transfer” claim against the asset transferred as a result of the possibility of death by the spouse or a family member, or the possibility of a dissolute marriage, or even a court judgment.
- Joint Tenancy
- Joint Tenancy with right of survivorship
- Tenants in Common
- Tenancy by the Entirety
- Community Property
- General Partnership
- Limited Partnership
- Limited Liability Company
- Corporation under Chapter “C”
- Corporation under Sub Chapter “S”
- Revocable Trust (There are many Revocable Trust variations, since a Trust is nothing more than a Contract)
- Irrevocable Trust (There are many Irrevocable Trust variations, since a Trust is nothing more than a Contract)
ON FAMILY LIMITED PARTNERSHIPS
- Family Limited Partnership Asset protection. The creditor may not step into the shoes of the “Partner.” The only remedy for the creditor is the “charging order” obtained subsequent to litigation and judgment in favor of the creditor. A creditor who obtains a charging order is therefore liable for Federal Income Taxes on their pro-rata share of the partnership income even though the creditor may never be able to receive or collect the income. A major detriment to the creditor.
- Family Limited Partnership on Reduction of Federal Estate Taxes. You can make a lifetime of gifts under the gift tax rules ($12,000 for 2006 and forward) and still retain all the control.
- A reduction in taxable estate tax valuation by application of discounting for lack of marketability and minority interest.
LIMITED LIABILITY COMPANY
CORPORATIONS (Standard Corporation under Chapter “C”)
- Shareholders are not personally responsible for LLC debts.
- Unlimited number of membership units (similar to Corporation stock-holders).
- Ease of transfer of LLC membership interest. Have you noticed that some publicly traded shares are LLC membership units?
- Ease of raising capital by issuing additional membership units.
CORPORATION UNDER SUBCHAPTER “S”
- Individual shareholders of a Subchapter “S” corporation must be U.S. citizens or have U.S. residency status. If shares are sold, passed to (by will, divorce or other means), or otherwise fall into the hands of a foreign national, the corporation loses its “S” corporation tax status.
Shareholders must be individuals or certain types of qualified trusts or estates. “S” corporations can’t have partnerships or other corporations as shareholders.Under typical state statutes, LLCs may have both natural (individual) and artificial (corporate, partnership, trust and estate) members. Moreover, the LLC may be the general partner of a partnership or be owner of the “S” stock.
- There can be no more than 75 shareholders in an S corporation, unlike an LLC which may have an unlimited number of shareholders.
- “S” corporations must have only one class of stock. Different voting rights are permitted, meaning that “S” corporations may have different classes of shares, but it’s just too inflexible.
REVOCABLE TRUST OR REVOCABLE LIVING TRUST
- Duty to keep all beneficiaries informed on a reasonable basis by communicating the material facts of any material transactions of Trust assets.
- Duty to administer Trust assets solely for the benefit of beneficiaries.
- Duty to preserve Trust assets.
- Duty to invest all Trust assets in a prudent diversification.