Ohio House Bill 48 (signed by Governer Kasich on February 2, 2012) makes some significant changes to Ohio’s LLC law.  The new legislation (which becomes effective on May 4, 2012) affects Sections 1705.18 and 1705.19 of the Ohio Revised Code.

The new legislation clarifies that a charging order is the sole and exclusive remedy for satifsying a judgment against a membership interest of a debtor-member.  Other legal and equitable remedies are barred.

There had been some uncertainty about this area of Ohio law, and new legislation clears up that uncertainty.

Ohio law still does not specifically state that single member LLCs and multi-member LLCs will be treated the same.

At any rate, the new Ohio legislation makes Ohio LLCs much more appealing from an asset protection standpoint.

Most of us now have multiple on-line accounts that require some sort of password in order to access that account.  Concerns about privacy and protecting assets make us inclined to keep these passwords secret.  Unfortunately, very few people consider what happens if they die and no one can access their on-line accounts.

Your asset protection/estate planning should include leaving a list of on-line accounts (including passwords) with a trusted advisor or family member.  This will avoid a lot of wasted time and effort in the event of your death or disability.

Transferring an asset under certain circumstances can constitute a fraudulent conveyance.  Refusing to accept an asset can also constitute a fraudulent conveyance.

Let’s say that you owe a creditor a significant amount of money.  You then learn that you have received a substantial inheritance.  If you take the inheritance it will go to the creditor.  So you decide to disclaim the inhertiance so that it can go to another family member.  In most states, that disclaimer will be deemed a fraudulent conveyance.  This all depends on state law; but the majority view seems to be that the creditor will be able to successfully reach those funds.

This is why multi-generational asset protection planning can be very important (just like multi-generational estate planning).  If the person leaving the inheritance had left it in a trust (with the right kind of provisions) it probably could have been protected.

It is important to keep in mind that many state fraudulent transfer laws are broad enough to encompass disclaiming certain assets as well as transferring certain assets.

A domestic asset protection trust (DAPT) is one of many different entities that may (or may not) be an appropriate part of an asset protection plan.

  • At least eleven states have enacted DAPT legislation.
  • States that have DAPT statutes include Alaska, Delaware, Nevada, South Dakota, Hawaii, Missouri, New Hampshire, Rhode Island, Tennessee, Utah and Wyoming.
  • While there are similarities, each state statute has different provisions.
  • A DAPT must be irrevocable; the trustee must be a resident of the state in which the trust is formed, or a bank, trust company or other financial institution with offices in that state.
  • The validity of these trusts is still unsettled.  There is no reported court decision either affirming or striking down this relatively new type of trust.

Asset protection lawyers have varying views about DAPTs.  Foreign asset protection trusts provide greater certainty because court decisions have either directly or indirectly upheld their validity in many circumstances.  But these trusts are more expensive to set up, and holding assets offshore can create certain issues and reporting requirements that are not applicable to domestic trusts.

My own view is that each client’s situation has to be examined individually.  A DAPT might be an appropriate alternative for some (but certainly not all) of a client’s assets.  If you are thinking about a DAPT or any other form of asset protection, it is critical that you consult with an attorney who will look at all alternatives (and who is not simply selling a particular kind of trust or other device).

This is the time of year when we are all focused on taxes.  This includes our tax returns for 2011 and tax planning for 2012.  So it is an appropriate time of year for a reminder about retirement plans and IRAs.  We all seem to be aware of their tax advantages; but I constantly remind clients that they are also highly advantageous from an asset protection standpoint.

  • An ERISA qualified retirement plan is protected from the plan participant’s creditors pursuant to the 1992 decision of the U.S. Supreme Court in Patterson v. Shumate.
  • IRAs received specific protection under the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act.
  • Some IRA protections (for example, those relating to inherited IRAs) depend on state law.  For example, Texas and Florida have enacted specific legislation to provide that inherited IRAs are protected from creditors.  Ohio and some other states have passed legislation exempting inherited IRAs in bankruptcy.

The legal details of retirement plans and IRAs can be very complicated.  But a simple point to keep in mind is this: maximizing contributions to retirement accounts is a very basic (and very effective) tax and asset protection strategy.

 

Being named as a defendant in a medical malpractice case can be emotionally devastating to a physician — even if the physician is only peripherally involved in the case. Very few people fully appreciate how troubling it can be for a doctor who is named in such a lawsuit.

An excellent article by Pauline W. Chen, M.D. in the New York Times articulates very clearly how involvement in a medical malpractice suit can negatively impact a physician’s way of practicing medicine.

According to the article, a recent survey of more than 7,000 surgeons found that nearly one in four were in the midst of litigation.  The lead author of the survey (Dr. Charles M. Balch of the University of Texas Southwestern Medical Center in Dallas) notes that malpractice is at the top of the list of major stressors for most physicians.

I have found that meaningful asset protection can be a huge benefit to a physician — not only financially, but emotionally as well.  Having reasonable malpractice insurance is a critical first step.  But going a step further — and making sure that you have done everything reasonably possible to lawfully protect your personal assets — will usually bring quite a bit of peace of mind.

Debt Collector NCO Financial Systems will pay $1.5 million and change some of its collection practices to end an investigation by 19 states, including Ohio.  That is according to an article today in the Cleveland Plain Dealer, by its Consumer Affairs Reporter, Sheryl Harris.  The article reports that consumers in various states may be eligible for refunds if they had paid NCO for a third party debt they did not owe, or if they were charged interest on a debt that was not permitted by law or the original contract.  NCO also agreed to change some of its collection practices.

This is yet another reminder that debt collectors can be very aggressive — and sometimes too aggressive — in attempting to collect debts.  Debt collectors are subject to various fair debt collection and credit reporting laws.  This recent settlement shows once again that debt collectors sometimes fail to abide by the applicable requirements.

You can pretty much count on a creditor using all lawfully permitted means to attempt to collect a debt from you.  You should likewise take advantage of available laws to protect your assets to the greatest extent that you are able to do so.

As I have mentioned in many other posts, there is nothing wrong with using Swiss bank accounts or offshore entities.  A recent front page article in the New York Times noted that Mitt Romney and his wife hold millions of dollars in a Swiss bank account and millions more in partnerships in the Cayman Islands.  Their attorney, R. Bradford Malt, said that the Swiss bank account complied with all Internal Revenue Service reporting requirements, and that the family had paid all applicable taxes.

This is simply another reminder that it is perfectly appropriate for a U.S. citizen to hold funds outside the United States — as long as applicable U.S. taxes are paid in full.  Even though holding assets offshore may sometimes be tax neutral, those assets can frequently be much better protected from U.S. creditors.

It is generally estimated that more than half of all Americans have absolutely no estate planning documents.  This can potentially create a lot of hassles for your loved ones.

But even those Americans with very good estate planning documents often fail to focus on asset protection for their children and other beneficiaries.  If you simply leave assets to your beneficiaries without any kind of ongoing trust arrangement, those assets can generally be reached by their creditors with little effort.

We now recommend dynasty trusts for many of our clients.  These trusts are not as exotic as the name might imply.  They simply allow your children and other beneficiaries to hold assets in a continuing trust arrangement.  This can provide better protection in the event of a divorce; and it can also provide better protection from future creditors of the beneficiaries.

Providing some added protection for the assets that you leave to your loved ones can be an important gift to them.

The IRS is continuing its efforts to identify sources of offshore taxable income of U.S. taxpayers.  This has lead to a new reporting requirement.  Many U.S. taxpayers with foreign assets must now file IRS Form 8938 – Statement of Specified Foreign Financial Assets.  This new requirement is applicable to the 2011 tax year, and must be filed with an individual’s annual federal tax return.  The IRS has issued instructions for the new form.

This new requirement does not replace the annual FBAR report, which is due by June 30 of the applicable filing year.

Some, but not all, U.S. taxpayers are subject to the new requirement.  For instance, it applies to married taxpayers filing a joint income tax return if the total value of your specified foreign financial assets is more than $100,000 on the last day of the year or more than $150,000 at any time during the tax year. 

There are failure-to-file and accuracy-related penalities relating to Form 8938, and these penalties can be severe.  It is therefore very important for anyone with funds in offshore accounts to have a tax preparer who is familiar with all of the applicable reporting requirements.