OFFSHORE ASSET PROTECTION - Nevis LLCs
Limited Liability Companies
Florida limited liability
companies (LLC) are a popular business planning tool. Many lawyers
use the LLC as an alternative to Subchapter S corporations as
the preferred legal entity for new businesses. Asset protection
attorneys also use the LLC as a legal tool for domestic asset
protection planning. Membership interests in a limited liability
company are not exempt from execution or attachment by judgment
creditors, but Florida law gives creditors limited remedies
against a debtor’s LLC interest. A judgment creditor cannot
attach an LLC member’s interest. A judgment creditor cannot
seize assets owned by the LLC to satisfy a judgment against
any one of the LLC’s owners. In a properly drafted LLC agreement,
the creditor has no rights to inspect the books and records
of the LLC.
Under Florida Statutes, a creditor’s remedy is limited to what is known as a “charging lien” against the LLC’s cash distributions. In the event the LLC manager chooses to make no distributions, the member’s creditor gets nothing. There is an IRS revenue ruling that held that in the event an LLC has taxable income allocated to a debtor/member, but where the LLC makes no distributions which are attachable by a charging lien, the member’s creditor is responsible for his income tax liability to a member even though the creditor receives no distributions by virtue of his charging lien. A Florida creditor's limited rights under a charging lien, together with this income tax liability, makes creditors reluctant to attack a member’s interest in a limited liability company and makes the Florida LLC an effective asset protection planning tool.
A limited liability company agreement with effective asset protection features is a complicated legal document which should be drafted by a Florida lawyer experienced in Florida asset protection law.
Nevis
Limited Liability Companies
Establishing an LLC entity in an
offshore jurisdiction gives another layer of asset protection.
The Island of Nevis, in particular, has enacted favorable LLC
laws. Most important, Nevis, like Florida, permits a single-member
limited liability company, and Nevis law also establishes a
charging lien as a creditor’s exclusive remedy to attack a debtor’s
LLC ownership interest. A transfer of assets by a U.S. citizen
to an offshore single-member LLC does not have any adverse tax
consequences otherwise associated with transfer of assets to
other offshore entities. To attack a Nevis LLC interest, the
creditor has to apply in a Nevis court for issuance of the charging
lien. It is unclear whether a Nevis court would even recognize
a Florida judgment giving rise to a creditor’s request for a
charging order. Officials in Nevis have told me they know of
no instance where a U.S. creditor has obtained a charging lien
in Nevis to enforce a U.S. judgment.
Under Nevis law, the manager of the
LLC does not have to be a Nevis resident or a Nevis business
organization. A Nevis LLC’s manager may be the debtor/member
himself or any other individual located either in the United
States or a different foreign jurisdiction. A debtor serving
as LLC manager has substantial control over the Nevis LLC and
to physically maintain assets anywhere in the world. A
Nevis LLC can own assets in the United States, Nevis, or anywhere
else in the world. For example, a Nevis LLC may have a
Florida bank account, or if appropriate, it may open an offshore
account in Nevis or another popular banking center such as Switzerland.
A debtor serving as manager of his
own Nevis LLC maintains control over LLC assets, but he does
not have the best asset protection. A Nevis LLC provides it
optimal protection if the debtor appoints as either initial
or successor manager an individual or company outside of the
United States. No U.S court has jurisdiction over a foreign
manager. The foreign manager will have control over all Nevis
LLC assets. An effective LLC operating agreements provides that
the foreign manager cannot be removed by the debtor/member.
It is critical that the U.S. debtor be willing to trust a foreign
LLC manager if an aggressive creditor threatens to attack a
Nevis LLC. Some debtors have friends or relative live in foreign
jurisdictions whom they appoint as successor managers. Other
U.S. debtors must exercise their own due diligence to investigate
and interview offshore companies that provide LLC manager services.
There are many reputable companies, but each person needs to
take the time to interview companies in which they may trust
control over assets transferred to the Nevis LLC. You should
not rely solely on referrals from your friends or your professional
advisors is selecting an offshore manager for a Nevis LLC.
Asset management within a Nevis LLC is similar to discretionary financial accounts offered by most U.S. financial institution. A discretionary account is when you, the client, appoints a financial entity to invest your money on your behalf.If you appoint a financial company as offshore manager of your Nevis LLC the management company and its employees do not actually manage the LLC assets. Instead, the LLC manager hires a financial institution outside the U.S. in a discretionary capacity.
Just as the case in U.S. discretionary accounts, you set the direction and limits of financial investment within a Nevis LLC. You can instruct the money manager about degree of risk, percentages of cash invested in either stock or bonds, amount of investment in U.S. or international equities, income tax strategies, and general risk appetite. The money manager of the Nevis LLC can send monthly statements and trade confirmations if requested.
A Nevis LLC may require
filing of additional tax forms with the IRS. For example, a
single member Nevis LLC must file IRS Form 8832 to be a "disregarded
entity" although domestic LLCs are "disregarded for
tax purposes by default. Although a Nevis LLC should have no
effect on U.S. income tax, people should consult their CPA regarding
the filing tax reporting forms after setting up a Nevis LLC.
