The Solution To Protecting Your Hard Earned Assets

Using the proper entities to protect your assets.

National Foundation was founded by Jay W. Mitton, MBA, JD. Jay's passion for protecting others from lawsuits was born out of an early childhood experience. Jay describes the experience as follows, "We were forced out of our home three times, each one worse than the previous one, because of lawsuits against my father. One came as a result of him innocently loaning his business truck to a neighbor. I was only 10 or 11 years old when I wrote in my little purple-covered diary, 'When I grow up, no one will ever take one penny from Jay Mitton.' This has led to my life's mission. My goal and mission is that no client of mine will ever go through what I did as a child, nor will their children."

There is a proven solution. It is a court-tested method available today for use by all business owners to find relief from exorbitant insurance rates and excessive judgments. Through proper structuring of a business and careful protection of assets, lawsuits will be minimized, reduced, and even eliminated. In the words of Jay Mitton, "In my 30-plus years of experience as an attorney, specifically studying and researching how to protect assets and dismiss lawsuits, I have found only one tool that will protect your personal and professional assets 100% of the time. That tool is the carefully constructed Family Limited Partnership."

Family Limited Partnerships (FLPs)
In 1916, Congress created the Family Limited Partnership to provide tax benefits and to protect family assets. Today, specialized attorneys have retooled the FLP to include lawsuit protection and estate planning principles. With almost 90 years of case law surrounding it, the FLP has emerged as a tremendously powerful choice for lawsuit prone professionals to hold real estate, equipment, bank accounts, and other assets.

FLPs are structured somewhat like a family business with one or more general partner(s) controlling all of the partnership. The limited partners receive incomes distributed as determined by the general partner(s) and have no control whatsoever.

For instance, if a lawsuit is filed against a business owner and the plaintiff wins, the judge would issue a turnover order in which nonexempt property, including the business owner's home, stocks, bonds, bank accounts, et al, could be turned over to the plaintiff. However, if all of the business owner's property is held within a carefully drafted, asset protection FLP, the law in all 50 states absolutely prohibits any of that property from being seized, sold or turned over.

In fact, the terms of carefully drafted asset protection FLPs give plaintiffs only one remedy to collect on their judgment, namely, the "charging order." This means that a judgment creditor's (or plaintiff's) only right is to receive distributions from the Family Limited Partnership(s), which are made at the sole discretion of the general partner(s).

Because of the Internal Revenue Service Revenue Ruling 77-137, the plaintiff who obtains a charging order against an FLP is required to pay taxes on "phantom income," which is the income of the FLP, even though the judgment creditor does not receive any income. The result is that the judgment creditors do not obtain any assets or income, but are liable for the tax bill on the income they have not received. Therefore, disclosure of an FLP to a prosecuting attorney is a great deterrent to the filing of a lawsuit against a business owner.

We have helped thousands of business owners structure their businesses for lawsuit protection and, of course, many of them have been sued. However, never has one of our clients lost one cent as a result of a lawsuit. The FLP has been upheld time and time again in court cases across the country. In fact, a properly setup and drafted FLP has never been penetrated.

We have had some of the top plaintiff attorneys in the country tell us that if a family limited partnership is discovered during pretrial investigations, they will immediately drop or settle the lawsuit.

It is very important to know that there is a difference between a plain vanilla FLP drafted for tax reduction purposes and a FLP drafted for lawsuit protection. For instance, most FLPs contain weak language surrounding the manner in which general partners can distribute income. This could force the general partner to have to distribute income to a creditor. Asset protection FLPs guard against this possibility with unique clauses not found in most FLPs.

In other words, general partners may legally withold thier income distributions from plaintiffs or whomever else they please.

For example, one of our clients worth over $10 million was sued. He had 100% of his property and all of his assets in a carefully structured family limited partnership. The plaintiff failed to discover this during the pretrial investigation, and the case proceeded to trial. The plaintiff won the case on every single issue in contention. Our client was completely beaten. However, when the judge issued the order for the award, he carefully explained that all of the property was legally and lawfully protected in the family limited partnership and could not be touched. This would have devastated the plaintiff except for the fact that they had subpoenaed our client's tax return from the previous year and knew that over $200,000 of income had been distributed from the family limited partnership to our client. They received the charging order from the judge and waited.

Our client, as the general partner, elected to not distribute the income, and the plaintiff received nothing. Then, when tax time came, the plaintiff received notice from the IRS of the taxes he now owed on the income never received. This plaintiff had spent hundreds of hours and thousands of dollars to win the lawsuit, received nothing for it, and ended up paying the taxes due on the money never received.

Conclusion
Proper asset protection has a proven track record of reducing, minimizing, and even preventing lawsuits from being filed. It stands up in court and can help business owners achieve financial peace of mind. Once business owners gain and implement this knowledge they can use the legal system instead of being abused by it.