Double Your Protection: Have a Limited Partnership Own Your LLC
Posted on Jan 7, 2019 5:59am PST
If your
Limited Liability Company (LLC) owns substantial real estate – or if your LLC includes non-family
members – you'll want stronger protection. To directly own your
LLC membership interest subjects your LLC distributions to your creditor's
charging order.
If your LLC has multiple members, or if the LLC is managed by a manager
who controls distributions, you may want your LLC interest owned by a
limited partnership that you do control.
An even safer arrangement? Set up an
international trust to be the limited partner of the limited partnership. This completely
insulates any profit distributions from the LLC.
A limited liability company's membership interests owned by spouses
may be titled as
tenants-by-the-entirety in states that protect this type of marital ownership. We particularly
recommend a limited partnership as the member of a limited liability company
in those states that provide greater creditor protection to limited partnerships
than to limited liability companies.
A limited partnership owning your limited liability company also reduces
your estate taxes. To improve protection, add members to the LLC who are
not co-defendants in your lawsuit. Courts are less likely to expand upon
a creditor's remedy when other members would be affected.
Conversely, courts will more likely liquidate an LLC when the debtor is
the sole member since no other members would be hurt.
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