Ayography

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Well-structured limited partnership agreements provide that the general partners and the limited partners cannot sell, give, or in any manner dispose of their interests in the limited partnership without the consent of all the other partners. This provision works well in the asset protection arena.

If a creditor has a judgment against a partner, that creditor cannot be a legitimate owner. Hence, the creditor has no standing to “step in the shoes” of the partner who owes the judgment creditor. This provision in the limited partnership agreement makes partnership interests unattractive for creditors. The best that a judgment creditor can do is to get a court to issue a “charging order” or a legal instrument that allows the creditor to seize any part of the partnership distribution that would otherwise be allotted to the partner who owes the judgment to the creditor. Thus, if the limited partnership is composed of family members or close friends, relatives and associates, it is highly probable that a distribution will not be made because this will frustrate the judgment creditor of one of the partners. The judgment creditor of the debtor partner will then be encouraged to settle the debt rather than endure the anxiety of a long wait.

The origins of partnerships could be traced to the Babylonians, the Romans and the merchants of the Middle Ages over 4,000 years ago. From the Irish Sea to the Persian Gulf, merchants had their own courts that they used to enforce the customs of commerce.

By the 13th century the English became familiar with partnerships due to their dealings with Italian bankers. In the 17th century, the English royal courts started adopting partnership law English jurists grappled with the problem of fitting this alien intrusion into English legal doctrines.
Enter the 20th century. The dazzling American states of California and New York are in full bloom. partnerships are now used to bankroll modem commercial activities and artistic projects. Hollywood and Broadway partly owe their success to limited partnerships.
Limited partnerships helped get the funding for some of the biggest movies and plays of America’s entertainment empire. They financed the production of motion pictures by the big movie studios and by many independent film production companies. The investments derived from small investors and limited partners are used to provide the capital base to make blockbuster motion pictures. The investor-partners share the proceeds from ticket sales, video spin-offs and merchandising. Several limited partnerships also finance the production of Broadway plays. Entertainment is a risky venture. Many of the films and plays produced in Hollywood and Broadway will be commercial flops. Only a few will be certified hits. But the limited partners will hit the jackpot once the film or the play becomes a smash hit.

Probate is a tedious legal process in which the court validates the will of the decedent and directs the distribution of the estate. If not handled properly, probate opens another pathway to the poorhouse for the surviving heirs. It is time-consuming, frustrating and often costly. The various costs associated with probate are staggering: attorneys’ fees, compensation for executors or administrators, court filing fees, appraisal fees, advertising expenses and other expenditures needed to defend the estate against will challenges and disputed claims of creditors. The sheer length of time it takes to complete probate proceedings has pushed many people to scramble and find ways to structure their finances with a view of passing their substantial properties to their designated heirs without passing through the proverbial eye of the needle called the probate court.
Asset protection and privacy are other powerful motives why high- profile people (corporate moguls, politicians, media personalities, and movie stars) seek ways to avoid probate because they wish to keep the size of their estate and the identity of their beneficiaries confidential. Any public disclosure of assets may lead to real threats from prying eyes. The sweet aroma of a vast empire will surely attract the attention of predators. Others skirt probate out of a realization that their heirs should be spared from emotional upheavals they will surely experience while the will is undergoing probate, “Technically,” wrote the editors of American Lawyer and Court TV, “the only property subject to probate is that for which there is no other legal mechanism for shifting title to a new owner.”
Lawyers have devised various techniques to help their clients avoid the expenses and delays caused by probate proceedings. In the United States, persons with estates to pass on to their heirs have several options to bypass the probate court to distribute assets to their spouse and children.
Many property owners set up a popular form of trust called the “revocable living trust” that is properly given to a trustee (a friend, relative, or business adviser chosen by the person.setting up the trust to manage for the benefit of the settler or the person who sets it up). When the settler dies, the trustee must pay the deceased’s debts, taxes, and expenses, including the fee of the trustee and the expenses of maintaining the trust property, and then turns over the balance of the estate to the beneficiaries. For estates that have moderate sums of money, American banks have special bank accounts that do not require any trustee called “Totten Trusts.” These simple and inexpensive trusts may transfer the designated funds to the beneficiary upon the death of the settler. Many Americans have found it convenient to jointly own a real estate property that will pass directly to the survivor, and life insurance proceeds that will go directly to their beneficiaries.
Belli and Wilkinson revealed that some of the common methods used by Americans to avoid probate include
1) entering into joint tenancy (when two or more people own property as joint tenants, title automatically transfers to the surviving owner upon the death of the joint tenant);
2) giving gifts during your lifetime (for small or moderate sums of money);
3) getting a Totten Trust (you open a bank ac
count in your name as trustee for another person and you keep the power to revoke this “trust” at any time before your death);
4) purchasing a life insurance policy (the beneficiary is automatically entitled to the proceeds upon your death);
5) setting up a living (inter vivos) trust (you turn over everything you own to a trust which provides for you while you live and then distributes your assets to your heirs at the time your demise).
Elliot & Debra Raphaelson in their book How To Be Your Own Financial Planner (1990) advised Americans that if they have a lot of assets and they want the property settlements to be private, a living trust might be for them. Some of the property will pass through contract or law instead of through probate. For example, property that passes to a named beneficiary, like life insurance policies (IRA, Keogh accounts and United States savings bonds) passes by contract, not probate. To skirt probate, many Americans get life insurance policies and name a living individual as their beneficiary and a contingent beneficiary who will take the proceeds if the primary beneficiary is not living at the time of the insured’s death.
Many of them do not want the benefits to be paid into their estate, which is what will happen if there is no living beneficiary. Paying money into the insured’s estate will necessitate court action, whereas proceeds of a life insurance policy will ordinarily be paid to the beneficiary without regard to the terms of the deceased person’s will, and without court probate proceedings.

The essence of a limited partnership is precisely the presence of one or more limited partners who by the articles of co-partnership are not liable to firm creditors beyond their capital contribution; who are not authorized to take part in the firm management nor to have their names included in the firm name. An association cannot be a limited partnership if it has no limited partners (Collector of Internal Revenue v. Isasi, 101 Phil. 247). The general partner takes charge of the management responsibility of the partnership. The limited partner contributes cash or property (but not services) and owns an interest in the firm. He does not undertake any management responsibilities and is not personally liable for partnership debts beyond the amount of his investment. The partners must sign a certificate of limited partnership which requires information similar to that found in a corporate charter. The certificate must be filed with the SEC.

The limited partnership had its heyday in the 1980s, when it was formed mainly to give American investors an advantage in tax benefits.
Billions of dollars were invested due to the promise that the American investors in a limited partnership will pay taxes only once (at the individual level) because all the tax benefits, capital gains, capital losses, and income are passed through immediately to the limited partners.
The limited partnership was a tax shelter for investors who gain write-offs against their earned income. Some of the main types of investments in which limited partnerships were used include low-income housing, agriculture and livestock, cable television, real estate, historic rehabilitation, low-income housing, equipment leasing, movies, research and development (R & D), leverage buy-outs (LBOs), venture capital, self-storage, and stage plays.
A limited partnership (LP) is a special form of general partnership. It is a form of ownership, a business organization made up of two or more people (the partners) who have entered into an agreement to conduct a business enterprise for gain or profit. Not all partners share the same responsibilities and liabilities.
Only the general partners have unlimited personal liability. The liability of the limited partners is restricted only to the extent of their capital contributions to the firm. The New Civil Code provisions on limited partnerships were culled from the American Uniform Limited Partnership Act with some modifications.