Ownership by Children

A transfer of ownership of the limited partnership interests to a child or children may provide a good solution. A lawsuit against H or W would not impact the partnership interests because ownership is no longer in the name of H or W. Although H and W may retain control, directly or indirectly over the assets as general partner, there are no limited partnership interests available for the plaintiff. H and W have effectively protected assets by gifting the limited partnership interests to their children. 

The disadvantage is that a direct gift in this form may create gift tax liability, depending upon the amount involved. Further, the children have legal rights as limited partners which must be respected. The gift to the children is real under this arrangement, so assets in the FLP must be those which H and W are willing to part with. Those in a position to make an irrevocable transfer to their children may accomplish good asset protection with this strategy.