Florida Asset Protection Blog

Pitfalls Of LLC Asset Protection

Many investors in assets such as rental real estate or small operating business buy their investments or run their businesses though a limited liability company because unlike shares of corporation, the owners membership interest in an LLC cannot be levied upon by judgment creditors. The judgment creditors’ remedy is limited to a charging lien against distributions of cash, if any, that the LLC makes to its owners. I met with some people today who asked questions about the benefits of an LLC which questions indicated common misunderstandings about the LLC’s asset protection benefits. I’ll address each of the points raised by my client about he and some partners owning rental real estate in an LLC with several owners.

First, an LLC provides no asset protection against lawsuits brought against the LLC. For instance, if you own a parcel of rental real estate in an LLC and one of your tenants, or a guest on the property, brings a lawsuit against the LLC as the property owner, the LLC will not protect the property. If the plaintiff gets a judgment against the LLC the plaintiff can levy upon the property and foreclose the property to satisfy the judgment.

Second, if there is a judgment against one of several LLC members from a lawsuit brought against the owner individually, not against the LLC, the LLC cannot avoid a charging lien against the debtor owner by withholding distributions if at the same time the LLC distributes cash to the other non-debtor owners. Most LLC agreements require equal and pro-rata distributions among members.

Third, the client wanted to know if he could avoid charging liens by having his LLC pay money not to him, the owner, but directly to the bank who holds the mortgage on his personal residence. This too is a bad idea. Paying personal expenses directly from an LLC or a corporation is a prime basis by which a creditor could argue that the business entity is merely the alter-ego of the owner and not a separate legal entity. If the LLC is deemed to be the owner’s alter-ego the creditor can “pierce the veil” of the LLC in which case the creditor holding a judgment against the individual could directly attack the assets of the alter-ego LLC. Do not pay personal expenses directly from your LLC or corporate checking accounts. Have the business pay you money, and then you can pay your expenses.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

My Visit To Nevis, WI and Nevis LLCs

I am a proponent of Nevis limited liability companies as an offshore asset protection tool. I find the Nevis LLC to be more practical and more cost efficient than offshore trusts. The challenge in using a Nevis LLC is finding an offshore LLC manager to run the LLC and foreign banks to manage LLC funds. Meridian Trust Company is the best known institutional LLC manager located in Nevis, W.I. This past week I visited Nevis and met with Mr. Ernie Dover who represents Meridian Trust and its related companies in Nevis. Ernie has some advice and recommendations which many people considering offshore planning may find interesting.

Meridian Trust of Nevis, W.I. charges a base annual management fee of $950 USD to serve as an LLC manager. Meridian Trust does not manage money and does not maintain financial accounts for its LLC clients. Its services are limited to serving as foreign LLC manager .

Ernie suggests that clients looking to invest or manage money offshore consider two Swiss banks: Pictet bank and Lombard Odier Darier Hentsch bank. Neither bank has U.S. offices. Ernie had three recommendations of offshore banks for people who want a bank account without asset management: Butterfield bank in Bermuda and Cayman Islands; Royal Bank of Scotland (Bahamas) and First Caribbean Bank which bank Ernie says is a joint venture of Barclays and CIBC bank of Canada.

I have no experience with any of these financial institutions. However, Ernie Dover has been in the Nevis LLC business for many years, and his knowledge of foreign banking warrants respect and consideration for those clients searching for places to hold money offshore. You can check out Meridian Trust Company of Nevis at: http://www.meridiannev.com/

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Swiss Annuities

More and more people have been asking me about using Swiss annuities as a financial asset protection tool. Trust and Estates journal, a respected legal publication, published an article in its March, 2007 issue about Swiss annuities for asset protection. Its the best academic article I have seen on the subject. Swiss annuities are an effective financial tool for offshore asset protection. I scanned a copy of the article which can be downloaded and read in this post. Download Swissannuity.PDF