Nevis Is Good Choice For Offshore LLC

Nevis (a small island in the Caribbean) is currently a good choice for an offshore limited liability company. 

Nevis recently amended its LLC Ordinance to better limit fraudulent transfer claims, and also to make it more difficult to enforce foreign judgments.  Nevis also now requires an LLC creditor to post a large bond to secure potential liability for litigation costs.  These and other changes present further obstacles to creditors trying to collect against a Nevis LLC or its owners.

Keep in mind that assets of a Nevis LLC do not necessarily have to be held in Nevis.

An offshore LLC is certainly not always the right choice for a U.S. citizen who is seeking better asset protection.  But it is one of many asset protection alternatives that could be appropriate under the right circumstances.

Ohio Appeals Court Says LLC Must Identify Its Members

Some states require public disclosure about LLC owners/managers/officers and others do not.  Ohio is one of the states that requires no such public disclosure. 

But keep in mind that ultimately, a creditor can always discover who the owners and managers are.  Once a lawsuit is filed, the identity of the members, managers and/or officers will almost always be a discoverable item.  A court can ultimately order that disclosure if requested to do so by the plaintiff.  There is no absolute right to keep ownership/management information confidential. 

This was recently confirmed by an Ohio appeals court.  In Block Communications, Inc. v. Pounds, (Ohio App. 6 Dist.) 2015-Ohio-2679, the Court ruled that Ohio LLC law neither expressly nor implicitly creates a protectable interest in preserving the confidentiality of members’ identities.  In other words, Ohio law does not require disclosure about Members when Articles of Organization are filed with the Ohio Secretary of State; but identity of the Members can be obtained through a valid lawsuit.

This is a reminder that asset protection does not involve hiding assets and other information.  While confidentiality plays a part in asset protection, its main goal is to legitimately protect assets from the reach of creditors - - even when creditors know exactly where the assets are and how they are held.

Majority of Public Companies Continue To Incorporate In Delaware

A front page article by Liz Hoffman in Monday’s Wall Street Journal noted that some companies are convinced Delaware is less of a corporate haven than it used to be.  Some companies feel the state has become less hospitable toward business (for example, by not doing enough to curb ever-growing shareholder litigation).  Nevertheless, Delaware remains by far the first choice of incorporation for large companies.  It is the legal home for more than half the public companies in the United States.

This is a good reminder that laws and court systems can vary quite a bit from state to state. 

Large public companies have traditionally taken advantage of what they consider to be favorable Delaware law.  Asset protection planning - - for both companies and individuals - - also needs to carefully take into account differences in state laws.  In the past, I frequently advised clients to set up asset protection trusts and/or LLCs in Delaware.  Now, Ohio is an excellent choice for both.  Asset protection attorneys must diligently follow changes in state laws to better assist clients with choosing the most suitable asset protection strategies.  Differences in state laws can be very relevant to individuals and smaller companies as well as large public corporations. 

UVTA Includes Important Provisions About "Insolvency"

Your ability to transfer assets for asset protection purposes depends to a great extent on whether or not you are “insolvent” at the time of a transfer.  Insolvency is generally defined in terms of your ability to pay your debts as they become due. 

The Uniform Voidable Transactions Act (“UVTA”) - - a uniform law which will likely be followed by many states - - has two important provisions dealing with insolvency. 

Section 2(b) of the UVTA states that a debtor that is generally not paying debts as they become due other than as a result of a bona fide dispute, is presumed to be insolvent.  Excluding a bona fide dispute from the insolvency calculation is helpful.  In the event that you are refusing to pay a creditor for a good reason, you should not be deemed “insolvent”. 

The UVTA, however, places a burden on the debtor to essentially prove solvency at the time of a transfer.  In other words, if you are moving some assets for asset protection purposes, you must be able to show that you are solvent at the time of the transfer. 

This is another reminder that the best time to transfer assets for better protection is when you are clearly solvent and before you have any significant creditor issues. 

Uniform Fraudulent Transfer Act is Now the Uniform Voidable Transactions Act

In 2014, the National Conference of Commissioners on Uniform State Laws adopted several amendments to the Uniform Fraudulent Transfer Act (UFTA).  Over 40 states have enacted some form of the UFTA, and most will likely in due course adopt the recent amendments. 

One of the amendments changed the name of the law.  It is now called the Uniform Voidable Transactions Act (UVTA).  Changing the word Fraudulent to Voidable is significant.

Certain transfers that used to be called fraudulent may not seem fraudulent in the way that word is usually used.  For example, if you move $10,000 from your bank account to your husband’s bank account, you may not feel like you are committing fraud.  But if you are insolvent at the time of that transfer, one or more of your creditors may be able to void that transfer and get those funds.

Words are important and this name change is helpful.  The transfer of assets and the timing of the those transfers need careful consideration.  Transfers that may not seem “fraudulent” to you may in fact be voidable by a creditor.  Restructuring assets before you have any creditor issues is always the best strategy.

Growing Awareness of Ohio as a Top Asset Protection Jurisdiction

It has been a little more than two years since Ohio became one of the top asset protection jurisdictions in the United States.  Many people -- including many attorneys--are still not fully aware of this dramatic development.  But word is slowly getting out.  We are getting more and more inquiries about Ohio’s Legacy Trust Statute and other Ohio asset protection alternatives.

The Ohio Asset Management Modernization Act (Ohio House Bill 479) was signed by the Governor on December 20, 2012 and became effective in March, 2013.  This law authorized asset protection trusts in Ohio; increased the homestead exemption to $125,000 ($250,000 for a married couple); and made some other asset protection improvements in Ohio law.  Shortly before that, another Ohio statute made significant asset protection improvements to Ohio’s limited liability company statute.  That law (Ohio House Bill 48) became effective on May 4, 2012.  The combination of these relatively recent Ohio statutes has made Ohio a top asset protection jurisdiction.  Ohio residents now have far greater asset protection alternatives.  And residents of other states can, under the right circumstances, also take advantage of these new Ohio laws. 

Business owners, physicians and other professionals, real estate developers, high net worth individuals, and others whose assets may be at above average risk, are slowly becoming more aware of the asset protection alternatives that are now available in Ohio.  Ohio residents can also sometimes take advantage of asset protection laws in other states.  This is increasingly less necessary, however, since the alternatives now available in Ohio are some of the best in the country.

Obligations as a Guarantor Could Hinder Your Asset Protection Options

Signing a personal guaranty for your business or a relative can have a variety of financial implications. It can also limit your asset protection alternatives.

Asset protection planning frequently involves the transfer of assets. An asset transfer will be a “fraudulent conveyance” if it renders you insolvent (that is, if it means you may not able to meet your financial obligations).

Many of us have personally guaranteed loans for a business, a child, or other family member (perhaps a lease obligation or student loan). It can be easy to forget about these potential obligations.

I am certainly not suggesting you should avoid all guarantees. It is important to keep in mind, however, that personal guarantees must be taken into account in deciding whether you can transfer assets to an asset protection trust, limited liability company, or any other person or entity.

Most Asset Protection Trusts Are Not Designed For Estate Planning

It is highly advisable to focus on asset protection and estate planning at the same time. Keep in mind, however, that you will likely need separate documents for each type of planning.

Most people who set up an asset protection trust (“APT”) -- either domestic or foreign -- usually want to (i) retain some sort of control over the trust assets and/or (ii) continue to benefit from the assets held in the trust. They also generally want to decide what happens to the assets upon their death. This generally means that assets held in your APT will be included in your estate for federal estate tax purposes. In more technical terms, contributions to an APT will be an incomplete gift; and the trust settlor will likely hold a testamentary power of appointment over the assets.

This post is simply a reminder that focusing on asset protection and estate planning at the same time is highly advisable. But you need to keep in mind that each type of planning will likely require separate documentation.

Keep Bankruptcy Code §548(e) in Mind if You Have a DAPT

About 16 states now have laws that allow a Domestic Asset Protection Trust (DAPT). These trusts can be very useful to protect assets in many situations.

But keep in mind that a DAPT (like other asset protection strategies) is designed to protect your assets and keep you out of bankruptcy. It may be less useful if you actually file for bankruptcy.

§548(e) of the Bankruptcy Code gives a bankruptcy trustee the right to challenge a conveyance made to a DAPT within ten years of the time it is made. That is a long time. Outside of bankruptcy, a creditor would likely have nowhere near that amount of time to challenge a conveyance as being fraudulent. Moreover, a bankruptcy trustee may have a lot more power and resources to challenge alleged fraudulent conveyances than many creditors would.

So this is just a reminder that a DAPT may be significantly more vulnerable to an attack by a bankruptcy trustee than by a creditor outside of a bankruptcy situation. This is also a reminder to document transfers to a DAPT (with evidence of your solvency at time of transfer) in case the transfer is later attacked as being "fraudulent".

Thorough Estate Planning Can Help Protect Assets - and Provide More Privacy

Much of my work is centered on helping clients protect their assets during their lifetimes.  But most people also want to make sure that their assets are protected after their deaths.

A recent article in the New York Times describes a very public fight among relatives of actor/comedian Robin Williams.  His widow and his children from prior marriages are fighting over money and personal belongings.  Mr. Williams obviously could afford excellent attorneys, and his estate planning documents may have been very well prepared.  Even so, you can never underestimate the possibility of family members disagreeing about things after your death.

This is simply a reminder that even with the help of excellent attorneys, devising and implementing an effective estate plan is still a challenge.  It is clearly worth the time and effort.  It is a blessing to surviving family members when things are spelled out as thoroughly as possible.  This not only helps family harmony (by avoiding unnecessary arguments), but can also save a lot of family money. 

Careful estate planning should be part of your asset protection planning.