The Belize LLC: Better Than an Asset Protection Trust

Offshore trusts became a popular form of asset-protection planning in the early twentieth century, particularly in jurisdictions such as the Isle of Man, which offered some perceived degree of protection for trusts funded before a creditor’s claim arose. In 1989, the Cook Islands became the first country to offer explicit asset- protection legislation by statute, with a two-year statute of limitations and a higher burden of proof on creditors. The success of the Cook Islands law spread to twelve other countries and at least as many U.S. states.

The inherent weakness of any asset-protection trust is that transfers to a trust are, by their nature, gratuitous. A creditor bringing a timely claim can set the transfer aside under the Uniform Fraudulent Transfer Act, the Federal Bankruptcy Act, and other federal and state law governing transfers for no consideration. The firm has long held that asset-protection trusts ought only to be established offshore, where the surrounding statutory architecture is designed to defeat the fraudulent-transfer attack rather than enable it.

The 2012 California decision in Kilker v. Stillman, 2012 WL 5902348 (Cal.App. 4th Dist., Nov. 26, 2012), held transfers to a Nevada asset-protection trust per se fraudulent in respect of a future creditor not anticipated at the time the trust was funded. The court took the asset-protective nature of the trust as evidence of the requisite actual intent to defraud. The precedent is sweeping. Other states are likely to follow.

Belize implemented the Belize International Limited Liability Companies Act in 2011. The Act is modeled on certain provisions of U.S. state LLC law, with key modifications that distinguish it from any other jurisdiction.

• Charging order is the exclusive remedy. Section 36(3) provides that the charging order is the exclusiveremedy as against a debtor’s membership interest. The creditor receives only distributions otherwise destined for the member.
• Duress provisions. In a first for LLC law, the Act defines an “event of duress” (§ 2). On an event of duress, management power may shift to managers not subject to the duress (§§ 53, 64(3)–(4), 65(1), (5), (6), (8)).
• Capital contributions are not fraudulent transfers. Section 37 requires a judgment creditor to prove three elements beyond a reasonable doubt: that the property was transferred to the LLC with intent to defraud that particular judgment creditor; that the member has provided no legitimate purpose for the transfer; and that the member was insolvent at the time of the transfer. Even on a successful showing, the creditor cannot void the transfer; the LLC is liable only to the extent of the interest the debtor-member had before the transfer, and only against the property transferred and its proceeds. Critically, § 37(8) defines “transfer” to exclude any transfer made in exchange for a capital interest in the LLC. Capital contributions are protected from any fraudulent-transfer claim whatsoever.
• Statute of limitations. Section 37 bars a fraudulent-transfer claim against the LLC after the earlier of two years from the date of the transfer or one year from the date of the LLC’s formation. After the LLC’s first anniversary, a later contribution may be made with practical immunity from fraudulent-transfer challenge.
• Bond requirement. Section 37(7) requires every creditor, before bringing action against any limited-liability-company property, to deposit the greater of one-half of the amount claimed or US $50,000.
• Non-recognition of foreign judgments. Section 38(1) provides that only judgments issued by a court in Belize are enforceable against a Belize LLC.

On every operative dimension other than maritime tradition, the Belize LLC compares favorably with the Cook Islands asset-protection trust:

• Fraudulent-transfer window: Cook Islands — two years from the last transfer; Belize — capital contributions cannot be challenged at all, with a one-year window from formation for any other transfer.
• Bond: Cook Islands — none required; Belize — the greater of one- half of the claim or US $50,000.
• Foreign-judgment recognition: Cook Islands — yes against the settlor, no against the trustee; Belize — no against the member, no against the LLC.
• Available remedy against the entity: Cook Islands — judgment against the trustee for a fraudulent transfer, return of trust property; Belize — charging order only against the member; the creditor cannot sue the LLC on a capital contribution.
• Per se fraudulent transfer (UFTA / Bankruptcy): Cook Islands — yes under U.S. law per Kilker; Belize — no.
• Pre-judgment freeze: Cook Islands — available; Belize — unavailable.
• Non-asset-protective business purpose: Cook Islands — none under U.S. law per Kilker; Belize — present, in that the Belize LLC is a tax- neutral, business-friendly vehicle for holding an international portfolio of investment assets.
• Client management of assets: Cook Islands — no; Belize — yes.
• Local fiduciary required: Cook Islands — yes; Belize — no.