ASSET PROTECTION LLCs


“Asset protection” is a term used to describe legal planning that shields a client’s assets from the unanticipated claims of creditors. Asset protection planning employs any number of techniques in isolation or in conjunction to achieve this objective.

A competent asset protection plan assumes that, at some point in the future, the client may be in some form of legal jeopardy obligating the client to account to his creditor those assets that are within the client’s control. Therefore, most asset protection planning techniques incorporate the separation of client control from the assets being protected. The predominant theory is that what a client does not own or control cannot be delivered to the creditor.

The History of Asset Protection – Offshore Trusts

Offshore trusts became a popular form of asset protection planning in the early part of the 20th Century, particular in jurisdictions which offered a perceived degree of protection for trusts funded before a creditor’s claim arose. Trust legislation in countries such as Belize made these protections much more explicit and has led to the general acceptance of trusts as an asset protection planning device.

The Problem with Asset Protection Trusts

Transfers in trust are, by their very nature, gratuitous transfers, i.e., gifts, which can be set aside under fraudulent transfer laws enacted in every state in the USA. Moreover, several U.S. courts have held that transfers to a trust established under the laws of an asset protection jurisdiction are per se fraudulent transfers. While asset protection trust jurisdictions such as Belize do not recognize U.S. court judgments, creditors may use fraudulent transfer judgments to pursue trust assets held in non-asset protective countries.

Asset Protection Using LLCs

Limited liability companies (“LLCs”) have become popular asset protection planning devices in the United States and other jurisdictions for a variety of reasons. There are two prominent features of an LLC most frequently cited as reasons for their asset protectiveness:

  • The dissociation of ownership from control of LLC assets. In an LLC, there are members and managers. A client seeking to protect assets may contribute them to an LLC in exchange for a membership interest, while engaging someone else (such as a professional management company in an asset protective jurisdiction) to act as the manager of the LLC.
  • The limitation of creditor remedies to a charging order. Jurisdictions such as Belize, Nevis, and Wyoming provide that a judgment creditor may obtain a charging order against a judgment debtor’s membership interest in an LLC. However, the creditor is not permitted to interfere with the LLC’s management or obtain direct recourse against the property of the LLC.

 


HIDDEN GEMS

Belize LLC law offers a number of interesting provisions that deter even the most hardened creditor. Contact us to learn more about the benefits of planning with Belize LLCs.

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Wyoming

Wyoming serves as the birthplace of limited liability company legislation, and Lighthouse proactively works with members of the Wyoming state government to ensure that Wyoming LLC law is the most protective available in the USA.  

In 2015, Lighthouse helped implement amendments that now make Wyoming the first jurisdiction in the world to apply an “intrinsic factor” test to piercing the veil of limited liability with a Wyoming LLC.


BELIZE

Belize has implemented LLC legislation modeled after Wyoming, but with important distinctions:

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A Belize LLC is not vulnerable to a fraudulent transfer challenge for contributions to its capital.
A creditor has no right to interfere in LLC management or reach LLC assets.
A creditor seeking to reach assets of a Belize LLC must post a bond equal to 50% of the value of the claim or $50,000, whichever is greater.
All fraudulent transfer claims (even for transfers that are not capital contributions) are barred after the LLC’s first anniversary.
A creditor cannot bring a foreign judgment against a Belize LLC in Belize.
The Belize LLC Act contains duress provisions that help protect the LLC if its members or managers are under attack in another jurisdiction.

Nevis

Nevis offers a number of similar protections within its own unique framework courtesy of 2015 amendments that were drafted with the assistance of members of the Lighthouse Trust service team.  These protections include:

Nevis law requires that the creditor of a debtor-member establish “beyond a reasonable doubt” that, among other things, the member-debtor was insolvent at the time of a transfer to a Nevis LLC.  For this purpose, the value of the member-debtor’s LLC membership interest is included in net worth.
A creditor has no right to interfere in LLC management or reach LLC assets.
A creditor must post a bond of EC $100,000 to bring a fraudulent transfer claim against a Nevis LLC.
Nevis applies a two-year “sliding window” to foreclose creditor claims over time.
Charging orders expire after three years and cannot be renewed.