There is some degree of perception that Estate Planning is only relevant for people who anticipate significant tax issues or who intend to dispose of their assets in complex or unique ways. To the contrary, estate planning can be a very useful undertaking even if you intend to leave everything to your children and do not anticipate
significant estate taxes. The reason for this is that estate planning can also be used to protect your assets from future creditors, as well as from the will of family members who may desire to change your plans. Through the use of certain planning techniques, assets can be shielded in a manner that is afforded legal respect. One type of asset for which planning should be undertaken is the ownership interest in a family-owned or closely held business entity.
Current Florida law provides little in the way of asset protection to single member limited liability companies (LLC’s). Not only may a creditor receive a right to future distributions from a single member LLC, but under some circumstances that creditor may “foreclose” on the LLC interest (meaning that creditor can seize control of your company). Lest you, the reader, form the idea that organizing a company outside the State of Florida will solve this problem, a court decision from February of this year indicates that is not the case and highlights the importance of utilizing estate planning in the context of business ownership.
A woman formed a Limited Liability Company (LLC), in the country of St. Kitts and Nevis (Nevis), which was 100% owned by her, individually. Several years after forming the Nevis LLC she was sued in a Florida court and, among other things, her creditors sought to foreclose on her Nevis LLC interest. The woman defended by arguing that the Florida court did not have jurisdiction over her ownership interest in the entity because it was formed outside the country. However, the Florida court held that because the court had jurisdiction over the defendant, personally, it also had jurisdiction over “intangible” assets which were owned by the defendant, such as her interest in the Nevis LLC. This ruling indicates that even with regards to a business entity formed outside the United States a business owners’ company may, under the right (or wrong, as a matter of perspective) circumstances, be subject to the claims of creditors.
This situation may have been avoided if the Nevis LLC had been owned by a trust which was also situated in Nevis (rather than being owned individually). This type of structuring could have helped prevent future creditors from obtaining ownership of the company. This is because if a Nevis LLC is owned by a Nevis trust then Florida courts should not properly be able to exercise jurisdiction over the trust/owner. This type of structuring should afford some protection to the business enterprise while still allowing the beneficiary or beneficiaries of the trust to manage and operate the business from within the State of Florida.
Wells Fargo Bank, N.A. v. Barber, 2015 WL 470589