Presentation Transcript

1. Asset Protection in Florida: Practical Tips for Small Business Owners

   Part 3: Asset Protection Ladder Phillip B. Rarick, Esq. Rarick & Beskin, P.A. 6500 Cowpen Rd., Suite 204 Miami Lakes, FL 33014 www.raricklaw.com (305) 556-5209 prarick@raricklaw.com
2. The Asset Protection Ladder Off-shore Planning On-shore LP + off-shore LLC + off-shore trust LLP or LLLP: limited liability limited partnership OR Domestic Asset Protection Trust LLC: limited liability company Corporation (properly maintained) Tenancy by Entirety (only for Husband and Wife)
3. LLC vs. Corporation: Why the LLC provides higher quality asset protection LLC: outside creditor’s remedy is limited to charging order vs. a creditor of a corporation can grab the stock certificate Value of the charging order Creditor has only rights of an assignee: entitled to share in profits when distributed No voice in LLC when distributions are made Distributions are made by Manager of the LLC No ability to change Manager Revenue Ruling 77-137 may require assignee of a partnership to report the income attributable to debtor’s partnership interest Tactic: threaten creditor with a K-1
4. Restrictions on Assignability of LLC Interest vs. Corporation Restrictions on Assignability of LLC Interest Good operating agreement prevents without consent of all members Even if assignable, assignee has no participation rights Corporation No similar charging order protection. Creditor can grab stock certificate and immediately has rights to look at books and become a major pest. No similar protection for assignment of a shareholder’s stock in a corporation or its levy and execution by a creditor of that shareholder Director liability for unlawful distributions and other acts Shareholder liability for unlawful distribution and other acts
5. Take-away Points for LLC vs. Corporations Convert corporation to LLC Avoid single-member LLC if feasible
6. LLC vs. LLLP Bankruptcy: In a LLLP, filing by a debtor limited partner does not trigger a right to withdraw causing monetization of Partner’s interest In a LLC, filing by a debtor member does cause that person to withdraw or disassociate as a member and cease to be a member of the LLC, absent contrary language in Operating Agreement. Withdrawing member must be paid fair market value of interest
7. Importance of Ehmann: Limited Partnership Agreement or LLC Operating Agreement should be executory contract so that bankruptcy trustee will not disregard the terms of the agreement and so the debtor’s interest does not become property of the bankruptcy. Document that partners intend the partnership or operating agreement to be an executory contract. What is an executory contract? A contract where performance remains due.
8. Domestic Asset Protection Trust Florida does not permit self-settled spendthrift trusts 11 states do, Florida may be 12th The States that do: Nevada, Alaska, Utah, etc. Limitations May need corporate trustee and must pay corporate trustee Control issue: settlor cannot be trustee