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Asset Protection Lawyer: The New Asset Protection Strategy in Divorce Cases

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Asset protection is one of the primary purposes for creating a limited liability company ("LLC"). LLCs provide two types of asset protection: (1) protecting the members from the liabilities of the company (sometimes called protection from "inside liabilities") and (2) protecting the assets of the LLC from the liabilities of the members (sometimes called protection from "outside liabilities").

If an LLC owns a rental house and the tenant sues the LLC because they slipped and fell down the stairs, this is an example of an inside liability. The general rule is that the tenant can sue the LLC, but they cannot go after the assets of the members unless they can pierce the corporate veil of the LLC. Piercing the corporate veil is very difficult to do. The test for a piercing of the corporate veil may vary slightly from state to state, but generally the tenant must prove that the LLC is the alter-ego of the member, and that the member has not treated the LLC as a separate and distinct legal entity. Because the laws protecting the members from an inside liability are similar in every state, the asset protection against inside liabilities is similar regardless of where the LLC is filed.

If a member is a physician and is sued for malpractice, the creditor may attempt to go after the assets of the LLC in order to collect on the judgment. This is an example of an outside liability because a creditor of a member is seeking to get into the LLC through the member. The remedies available to a creditor of a member vary greatly from state to state. In some states, the creditor of a member has a right to foreclose on the members interest and become the owner of it. In other states, the creditor of a member is limited to a charging order. A charging order is a court order which requires the LLC to pay any distributions that otherwise would have been paid to the member directly to the creditor. A charging order is not a good remedy for a creditor because the creditor is only entitled to distributions if the LLC decides to make a distribution; a creditor cannot force a distribution to be made. Therefore, an LLC offers greater asset protection if it is governed by the laws of a jurisdiction that strictly limits the remedies of a creditor.

Most if not all states follow the "internal affairs doctrine" established by the United States Supreme Court. This doctrine says that the internal affairs of a company are governed by the laws of the state where the company is filed, not the laws where the business activities take place or where the members are located. In fact, most states have a statutory provision stating that the internal affairs of an LLC are governed by the laws of the jurisdiction where the LLC was filed. This means that if an LLC is filed in Alaska and a California resident sues another California resident who is a member of the Alaska LLC for a tort committed in California, the issue as to whether the creditor can get information or assets from the LLC is governed by the laws of Alaska and not the laws of California. In other words, the state where an LLC is filed is critical in determining the asset protection provided by the LLC from outside liabilities.

Another issue affecting the asset protection provided by an LLC is confidentiality. In some states, the members and managers of an LLC are required to be disclosed and included in the state records which are available to the public. In other states, the members and managers are not made a part of the public record. Many people feel that they have better asset protection if the identity of the members and managers are not made public.

Having studied the laws of every state in this regard, and having read many scholarly articles on the subject, it is my opinion that Alaska provides the strongest asset protection against outside liabilities because they not only limit the remedies of a creditor of a member to a charging order, but they also prohibit a creditor from obtaining a court order for inquiries, accountings or directions (see Alaska Statutes 10.50.380). Several other states expressly limit the remedies of a creditor to a charging order, which should also be sufficient to prevent a creditor of a member from collecting from an LLC.

When it comes to confidentiality, I believe that the New Mexico LLC is the best option because there is no public disclosure of members and managers and no requirement for the filing of an annual report.

Nevis is a country in the Caribbean that has the best LLC laws in the world. Nevis LLCs offer the strongest asset protection and confidentiality of any jurisdiction. Nevis LLCs can be created and maintained without excessive cost or complexity. Any business or assets can be owned by a Nevis LLC, wherever it is located. If you want the strongest asset protection available, I recommend a Nevis LLC.

If you want the best LLC within the United States, I feel that Alaska is the best option for asset protection purposes and New Mexico is the best for confidentiality of managers and members. Alaska has a convenient online filing system, but New Mexico has lower filing fees and zero annual renewal fees. In conclusion, it is important to note that the laws described in this article are apt to change from time to time. This article is provided for informational purposes and should not be used as legal advice for any specific situation. Readers are advised to seek competent legal counsel in designing and creating limited liability companies or engaging in asset protection planning.

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Logan Cache Co. UT trust and estate attorney

Asset Protection Attorney: Asset Protection and Charging Orders - What They Are - How They Work

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A major goal of asset protection planning is to substantially diminish and reduce your financial profile. If you can restructure your assets in such a way so as to place them beyond the reach of future potential creditors, while at the same time maintaining a beneficial interest in those assets, you have succeeded in substantially reducing your financial profile. Accordingly, you are a far less attractive target for litigation because of issues of doubt of collectability, thus reducing the likelihood that you will be sued; or if you are sued, increasing the likelihood of a favorable settlement.

A trust can be an effective foundation for your asset protection planning. Trusts have been utilized for centuries as a means of conserving and protecting property for the beneficiaries of the trust. However, most domestic trusts do not provide protection from creditors. The typical revocable living trust, wherein the trustors are the lifetime beneficiaries and retain the power to revoke, amend and invade the principal of the trust, provides no protection whatsoever against the creditors of the trustors. Accordingly, absent specific legislation to the contrary, self created or self settled trusts are ineffective for asset protection planning purposes.

As was stated previously, most self settled trusts are not protected from creditors. However, recently, several states have provided various degrees of asset protection legislation for a self settled trust. The trust legislation in Alaska, Delaware, Missouri, Oklahoma, Nevada, Utah and Rhode Island is similar in many respects to the asset protection trust legislation found in several offshore jurisdictions. It should be noted, however, that the courts have not had an opportunity to pass muster on this type of legislation because of its recent enactment and because the statute of limitations in most cases has not expired. Depending on the timeline involved with respect to when the claim has arisen, these trusts can be and should be considered in appropriate circumstances, but only by an attorney who understands all of the ramifications.

Offshore asset protection planning normally involves the utilization of offshore trusts and other entities. Offshore planning generally raises justifiable concerns with respect to asset security and tax issues. The most efficacious manner to address these concerns is to make certain that you are receiving the best advice and counsel from a qualified expert in the area. You must be sure that the attorney with whom you are dealing has expertise in the field and is recognized in this regard by his peers.

A FAPT is a trust that is set up in an offshore jurisdiction which has enabling trust legislation providing for substantial protection against creditors of the trustor. One of the greatest advantages of the FAPT is the fact that by its very nature any legal attacks against its assets are transferred abroad to a different legal system. The FAPT is generally much more expensive to set up and create than a domestic trust and requires a certain willingness on the part of the Trustor to deal with offshore jurisdictions and trust entities. The FAPTs' greatest value is for asset protection planning well in advance of any potential creditor problem. Moreover, many times FAPTs are only used when the client already has some international connections and networking. Recent cases have emphasized the need for careful planning in the structuring of the FAPT if it is to be legally efficacious and successful in meeting the purposes and objectives of the trustor.

Most foreign jurisdictions do not recognize US judgments. This may force a trial de novo on the merits under the laws of foreign situs in order for the creditor to impose liability on the trustor and reach the assets of the FAPT. Obviously, the fees and expenses of this trial de novo and the burden of having to select offshore counsel can be substantial. Moreover, the FAPT jurisdiction, generally, requires plaintiffs to employ attorneys who are licensed in that jurisdiction.

Most foreign situs jurisdictions require that the burden of proof in challenging asset transfers to a FAPT is on the creditor and does not shift to the trustor. Moreover, many foreign jurisdictions impose a higher standard of proof upon civil litigation plaintiffs such as the "beyond the reasonable doubt" standard. This is in sharp contrast to the "preponderance of the evidence" principle utilized in US domestic civil cases.

The FAPT legislation of many jurisdictions establishes a statute of limitations for challenging asset transfers to a FAPT that begins to run on the date of transfer. This is contrary to US law where the statute may begin to run the date the transfer is "discovered" by someone with a claim against the trustor. Additionally, the statute of limitations of many FAPT jurisdictions is much shorter than the typical four year statute found under US law.

Manifestly, it is going to be much more expensive and inconvenient to prosecute a claim offshore. Think of the inconvenience of having to pursue a claim out of state and then multiply that by two to three times the cost to pursue the matter in a foreign jurisdiction. Many foreign jurisdictions prohibit contingency fee arrangements forcing the claimant to finance a litigation process entirely on his/her own. Creditors may think twice about having to deal with a completely different legal system out of the country. This unfamiliarity, plus the additional expenses and costs, and the entire uncertainty with respect to the process, adds a substantial element of protection to the FAPT.

The FAPT may assist the trustor in achieving several other objectives and planning goals independent of asset protection planning. Traditional estate planning issues such as the orderly transfer of property at death, the avoidance of probate, the strengthening of spendthrift provisions, greater privacy w, the management of offshore assets and businesses and premarital planning can all be addressed by the FAPT.

The easiest way to understand how a FAPT protects cash and securities is to focus on the process by which a claimant would try to reach trust assets. A claimant must either bring his case in a court that has jurisdiction over the trustee so that the court can order the trustee to give up the assets or initiate litigation in the court that has jurisdiction over the assets themselves so that the court can attach or seize the assets. However, if the client's offshore planning strategy is properly structured and implemented, no domestic court can successfully attack the plan because it would not have the ability to force the offshore trustee to expatriate or return the assets nor would it have the ability to levy on assets properly held outside of the United States.

Protecting non liquid assets like real estate, accounts receivable and business equipment involves the process of equity stripping. Although some of these assets can be put in charging order protected entities that may provide some limited protection, the most effective strategy available to protect a domestic illiquid asset is to strip that asset of its value by encumbering it as collateral for a loan and protecting the loan proceeds with your other liquid assets in the FAPT. Creditors are going to be very discouraged attempting to levy on an asset that may have substantial value, but has very little equity because of a loan encumbrance or lien.

Generally speaking, the establishment of the offshore asset protection plan will be tax neutral. The FAPT will either be a US grantor trust or a foreign grantor trust with a US grantor for US income tax purposes. It will be necessary to file various forms with the Internal Revenue Service in either case, but these forms will only demonstrate that the taxpayer is a responsible and law abiding citizen.

One very typical arrangement with respect to a possible offshore strategy would be for the client to establish the offshore asset protection trust utilizing an offshore trustee. The trust would then set up an offshore limited liability company which would be entirely owned by the offshore trust. You could be the manager of the LLC with direct signature control over bank accounts and securities accounts. In the event of a crisis, you would obviously resign as a manager and appoint a trusted friend, relative or a management company. There are modular variations to this strategy that can be worked out with your professional advisors.

The proliferation of plaintiff lawsuits and the expanding concept of liability that has become second nature in our court system have engendered much concern and anxiety about the preservation of wealth in the United States. Many professionals like doctors and lawyers as well as business owners, corporate executives, real estate developers and investors, contractors and others operate in an environment of high risk. Many such people lack confidence that they will be treated fairly by the US legal system and are desirous of reducing their financial profile and eliminating their liability potential. For these individuals, the offshore planning alternative may very well be the best planning device available for maximum comfort and piece of mind.

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