One of the most popular asset protection plan is a device known as the Family Limited Partnership(FLP). The FLP has been used by tax lawyers for many years as a vehicle for recurring family income and estate taxes. Recently though, the FLP has gained considerable attention for its ability to allow an individual to maintain complete control over family assets while successfully protecting the property from lawsuits and claims.

An FLP is a specially designed limited partnership, consisting of one or more general partners who are responsible for managing partnership affairs. The other partners are called limited partners and they are not permitted to participate in any management decisions.

In the typical scenario, family limited assets are transferred to and are held by the FLP. The husband and wife, or one of them, is named as the General Partner. The General Partners have complete control and authority over the assets of the partnership.

The FLP is used for asset protection because it allows an individual to maintain control and enjoyment of his property while divesting himself of the legal attributes of ownership. The law in every state, as embodied in the Uniform Partnership Act, provides that a creditor of a partner cannot reach the assets of the partnership to satisfy a debt of that partner. Since it is the partnership-not the partner- that owns the assets, the creditor has no claim against property that has been transferred to the FLP. Simply stated, when an individual forms a FLP to hold family assets and later there is a judgment against him, the judgment creditor will not be permitted to reach any property held by the FLP, thus, real-estate, investments and cash that are inside the FLP cannot be seized by the creditor.

Although the assets themselves, inside the FLP are protected from claims, any limited partnership interests held by the husband or wife are at the risk of seizure. That leads to the second element of the asset protection plan. Protecting family assets is only one part of the equation. The second part is the protection of the limited partnership interests from being seized by the creditor. To prevent a loss of the limited partnership interests to a creditor, a proper plan involves the creation of a trust to hold the limited partnership interests and keep them safely shielded from potential claims. There are two types of trusts, which can be used for this purpose: A living trust or an irrevocable gift trust.