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Why FLPs Are Better Than LLCs (and a little political harangue).

By Rob Lambert - Email Editor

Date : Feb 23, 2006

I just have to say it--I am disgusted with the Bush Administration!

Two quick points: This weekend I was driving from San Francisco to Los Angeles and decided to use this time to listen to 1984 by George Orwell. In 1984, we saw the world through the eyes of Winston, who rewrote history for Big Brother. His job was to make sure that there was nothing embarrassing in the records, and if there was, Winston simply altered the offending articles. Well, this seemed totally ridiculous, but well designed to make a point.

On Monday, I nearly fell over when I saw that the U.S. has implemented a secret program of removing from public access over 50,000 pages of historical documents that were available to the public for years. It turns out that many of the documents removed from public access in this reclassification program are documents that might be embarrassing to the government. For example, one reclassified document gives the CIA’s assessment on October 12, 1950 that Chinese intervention in the Korean War was “not probable in 1950.” Just two weeks later, on October 27, 1950, more than 300,000 Chinese troops crossed into Korea.

It seems that Winston is alive and well in 2006.

Well, things could get worse. We now see that our anti-terrorism President says he will veto any Bill which threatens to block a deal allowing a United Arab Emirates-owned company, headquartered in Dubai, from taking over the management of ports in New York, Miami and several other major American cities. Yes, the UAE has been helpful to the USA, and it is an ally. However, it is the same country from which two of the 9/11 hijackers hailed. It is also a country whose banking system has been utilized to assist with the laundering of money for these and other terrorists, and it was the transshipment point for Abdul Qadeer Khan, the Pakistani nuclear engineer, who ran the world’s largest nuclear proliferation ring. It is NOT crystal clear that everybody in the UAE is our friend.

What’s wrong with taking a little time to see if this deal might expose the USA? After all, if you want to get a nuclear weapon into the USA, isn’t a container (currently only 5% are inspected), the best way to do it? And, is allowing the UAE unfettered access to our shipping patterns going to increase that risk? These are fair questions. I wonder who is being paid off? The awful thing is that just by asking this question, and making this observation, I just may find my phones bugged.

Now, wouldn’t that make Winston proud?

Enough griping…. bring on the hate mail.

FLPs vs LLCs

After all, getting some real information on Asset Protection is why you read this newsletter. Now, I am going to give you a small, yet very important tidbit.

FLPs and LLCs are great entities. Each has its place, and I use each often. With that said, I strongly prefer FLPs when I combine them with Kinetic Asset Protection Trusts.

WHY?

Simple. FLPs are better entities to separate ownership from control. As you recall, we often want to separate OWNERSHIP (which we leave with the Asset Protection Trust) from CONTROL (which will normally be retained by the client when the financial seas are calm).

Why are FLPs better entities to separate ownership from control? The answer is that the state legislatures have done much of the work. The Limited Partnership statutes in ALL states make it clear BY STATUTE that the Limited Partner (aka the Asset Protection Trust) has no material hand in the management of the Limited Partnership. By comparison, with an LLC, all owners are “MEMBERS,” and all Members have the capacity to operate the business subject to the terms of the Operating Agreement. In short, in the case of LLCs, the task of separating ownership from control is left with the drafter of the Operating Agreement. I don’t care how great the drafter is. It is still very difficult to do a perfect job eliminating the powers of the Kinetic Asset Protection Trust Member of an LLC to manage the LLC …and remember from last week’s newsletter: If the Member has management power, then the Member is much more likely to be sued. Not a good thing when the Member is also the Asset Protection Trust containing the assets we are striving to protect.

I hope this rave and tidbit were helpful.

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