Asset Protection Law Journal : Asset Protection Lawyer & Attorney : Kenneth J. Laino : Schneider Smeltz Ranney & LaFond Law Firm : Trusts, Estate Planning

As I mentioned in a post last month, limited liability company laws vary significantly from state to state.  Depending on your particular circumstances, one state could have significant advantages over another.

Here are a few reasons why Delaware is one of the best states to form a limited liability company from an asset protection standpoint:

• Formation is relatively convenient and inexpensive compared to many other states.
• The applicable Delaware statute clearly makes a charging order the exclusive remedy of a creditor.
• Certain other creditor remedies are expressly barred.
• Delaware law allows various provisions in the LLC Operating Agreement that could be favorable from an asset protection standpoint.
• Delaware has a more developed body of case law than many other states; and the Delaware Chancery Court is a very sophisticated court from a business standpoint. 

If you form your LLC in Delaware but it does business in another state, you will have to file additional papers in that other state to qualify to do business.

Ohio LLCs may provide significant protection; but they are currently not as solid as the protection offered by Delaware law.  I am now generally forming Delaware LLCs even when one of my clients will be doing business in Ohio.

Each situation should always be examined on an individual basis.  As I have mentioned many times before, there is no magic asset protection formula that will be appropriate in all situations.  But in situations where a limited liability company is appropriate, Delaware is currently a very reasonable choice.

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Offshore trusts have very stringent reporting requirements.  Some of the major filing requirements are the following:

• IRS Form 1040 NR -- while a domestic trust files an IRS Form 1041, a foreign trust must file a Form 1040 NR.
• IRS Forms 3520 and 3520-A. 
• TD F 90-22.1 (FBAR) if their are foreign accounts.  This is required for any foreign account over which you have any direct or indirect interest or signature authority.

You are obviously not going to handle foreign trust reporting requirements on your own.  The point here is that it is critical to have an accountant who is familiar with all these requirements.  There are severe penalties for non-compliance.

As I have mentioned in other posts, a foreign asset protection trust may be perfectly appropriate under many circumstances.  It is important to keep in mind, however, that there are very stringent annual maintenance requirements for these trusts -- particularly the required tax filings.  If you set up a foreign asset protection trust but subsequently fail to meet reporting requirements, the effects can be disastrous.  Again, the key is to have the proper professional advice to make sure all major reporting rules are complied with.

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While estate planning and asset protection planning are related, they are not the same.  An asset protection plan is designed principally to protect your assets from creditors during your lifetime.  It can also be designed to protect assets you leave to your spouse, children and other family members.

An estate plan is focused more on how you want your assets distributed after your death.  Estate planning involves other considerations as well (including Powers of Attorney; Health Care documents; minimizing estate taxes; etc.).  But the central focus of estate planning is distribution of your assets following your death.

Assets can be well protected from creditors but still included in your gross estate for federal estate tax purposes.  For example, funds in your 401(k) account are well protected from creditors.  But these funds will be included in your gross estate for federal estate tax purposes.  The point here is that even though you have an asset protection plan, you may still need an estate plan review, and vice versa. 

Asset protection planning and estate planning are clearly interrelated.  But I have learned that many individuals have a rather sophisticated estate plan (often carefully designed to minimize estate taxes); but that plan may do little or nothing to shield assets from creditors.  Many individuals would benefit from consulting with an asset protection lawyer even if they already have a good estate plan.

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