A recent article in the New York Times provides a reminder of how flexible and versatile limited liability companies have become.

Facebook CEO Mark Zuckerberg and his wife recently announced that they would eventually give away 99% of their shares of Facebook during their lifetimes.  When they said that they would use a company to implement this plan, most people would have expected that entity to be a non-profit corporation.  But Mr. Zuckerberg and his wife, Dr. Priscilla Chan, decided to use a Delaware limited liability company to help implement their strategy.  An LLC will provide more flexibility for investing in for-profit social enterprises and also for supporting certain political activities.

The key point is that when the Facebook CEO and his wife wanted a flexible business entity–they chose a limited liability company.

LLCs are not the only option for new business ventures.  But they are often a good choice.  Keep in mind that state LLC statutes can have significant variations.  Mr. Zuckerberg and his wife chose a Delaware LLC; and I am certain their advisors made that choice after a careful analysis of many different factors.  But even for those with far less net worth than Facebook’s owner — a limited liability company is frequently a good choice for a new business related activity. 

S Corporations and LLCs are both “pass through” entities for federal income tax purposes.  That is, owners are taxed on dividends/distributions; but the entity itself is not subject to federal income tax.  And, as I mentioned in previous posts –on March 26, 2014, July 2, 2009 and June 3, 2009 –both an S Corp and an LLC protect owners from the debts of the entity.

But with respect to an owner’s personal debts–there is a big difference between a corporation and a limited liability company.  If a creditor obtains a judgment against you, the creditor can generally get your S Corporation stock fairly easily.  That creditor, however, can usually only get a charging order against your LLC interest.

So when deciding what kind of entity is best for your needs–keep in mind that a limited liability company will generally be preferable from an asset protection standpoint.

A “dynasty trust” is a trust that is structured to preserve assets for multiple generations.  Assets continue to be held in trust (rather than being distributed directly to beneficiaries).  This is not a vehicle to protect your assets from your own personal creditors; but it protects the assets once they pass to a beneficiary.

For example, let’s say you plan to leave your daughter $1 million when you die.  That money immediately becomes available to most of her creditors as soon as she receives it.  So if there are any judgments against your daughter or she otherwise has any financial issues, your assets could go to pay her creditors.

But if upon your death you leave her the $1 million in a properly structured dynasty trust, those funds can pretty much be available to her but will generally be protected from her creditors.  While she could not automatically protect her own assets from her own creditors, you are allowed to protect the assets that you give her from her creditors.

This is obviously a simplified description of a trust that must be carefully structured.  But if you hope to leave a significant amount of assets to your children or other beneficiaries, you should talk to your estate planning attorney about leaving those assets in a trust (perhaps a dynasty trust) to protect them from your beneficiary’s creditors. 

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.

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.

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. 

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. 

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.

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.

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.