          
                        FAMILY LIMITED PARTNERSHIPS
          
               While a properly documented and run corporation
          may insulate one from direct liability, a judgment
          creditor, by taking over a controlling shareholder's
          stock, may force the sale of the corporate assets, or
          take other heavy handed actions.  A general partnership
          offers no asset protection as all partners are
          permitted to control all assets.  However, the limited
          partnership is a hybrid of unique character.  As most
          limited partnership abuses have occurred in the past in
          the public offering stage of a public investment
          partnership's creation, the only real body of law
          regarding "partner's rights" involve the offer itself.
          The Securities and Exchange Commission and local state
          agencies have large staffs fully ready to investigate
          and punish wicked promoters who fleece innocent
          investor's of their invested dollars.  Once you are
          validly admitted to the partnership as a limited
          partner your sole voice in the partnership is through
          the paltry rights written into the Articles of Limited
          Partnership.  While your attorney or advisor would
          normally review the Articles to assure that you have,
          in common with a majority of other limited partners,
          basic rights as to the general direction of the
          partnership, and that the General Partner has a clearly
          defined scope of authority to mange a specific type of
          business, there is no provision of the Revised Uniform
          Limited Partnership Act that keeps the Articles from
          greatly diminishing these "shareholder rights."  Thus
          is born the Family Limited Partnership (the "FLP").
          
               The FLP usually has as its General Partner (the
          "GP") either a corporation or the person whose assets
          are being protected.  As the General Partner makes all
          decisions regarding partnership business and
          assets,this keeps control with this person even if it
          is decided to put a majority of "ownership" in the name
          of other limited partners, such as the spouse or
          children.  If a doctor became the GP of a FLP with
          1.00% interest, and kept a 15.00% interest as a limited
          partner, with family members owning the other 84.00%,
          the Articles could require an 85.00% vote prior to any
          combination of partners being able to force the GP to
          either distribute partnership assets or resign his sole
          authority.  As the liberal gifting provisions of the
          estate/gift tax rules permit substantial transfers over
          time from one generation to the next, it is possible by
          using the FLP to give to one's children almost the
          entire estate while retaining 100% control over it
          until one's death!  Thus the FLP has uses outside of
          lawsuit and asset protection.
          
          Into The Valley of Death Went The Charging Order
               Assume that as part of a valid estate plan a
          business owner has taken the following course of
          action.  He and his wife have executed joint wills that
          recognize their fully funded living trusts.  The trusts
          have organized the ownership of the assets so that upon
          his death his estate has no significant assets to
          probate.  The assets of the trusts are primarily family
          limited partnerships.  Over a period of years enough of
          his assets have been gifted to the children and
          grandchildren that the value of the estate that will go
          to the spouse will be less than the amount that would
          subject it to estate taxes.  He has provided that the
          spouse will become the successor trustee of the trusts
          and General Partner of the Family Limited Partnerships,
          thus retaining control for her until her death.
          However, while he is alive a financial calamity befalls
          him through a lawsuit, trial and judgment.  If he was
          not protected it could wipe him out.  However, upon
          post trial discovery the judgment lien holder
          ascertains that the bulk of his assets have been
          encapsulated by the family limited partnerships.  To
          reach a partner's interest in a limited partnership a
          creditor has sole use of a legal device called a
          "Charging Order."
          
               The charging order must follow a very different
          set of rules than apply to court ordered sales of other
          personal property.  A charging order against a limited
          partner's interest in a partnership merely gives the
          creditor the right to receive such partner's share of
          partnership distributions but gives it no right to vote
          for them or require a BP to exercise his discretion to
          distribute them.  In effect, a creditor with a charging
          order becomes an assignee of the limited partner's
          interest and not,in fact, a limited partner.
          Accordingly, the IRS has held that an assignee of a
          limited partnership interest must be liable for any
          taxes applicable to that interest's K-1 tax return.
          (K-1 is the return filed by a partnership, showing the
          shares of each partner. The partnership itself does not
          pay the taxes -- each partner is responsible for paying
          his share.)  Thus the creditor, having started down the
          valley of the charging order finds that he can get no
          money and must even pay tax on partnership profits
          applicable to his debtor!  The partnership might even
          deliberately increase taxable earnings in those years.
          A prudent lawyer would not permit his client to find
          himself in that position.
          
               If you have any dangerous assets such as rental
          properties or businesses with employees, they should be
          out in their own limited partnerships.  A corporation
          should be the general partner of them.  Safe assets,
          such as bank accounts, stock, jewelry, personal
          property other than vehicles, can be put in a
          partnership with the individual as general partner.
          
          
