The Asset Protection Family Limited Liability Company is the first building block in most asset protection strategies. Some asset protection professionals prefer to use family limited partnerships rather than limited liability companies (both have pros and cons and they are discussed fully here), but these two legal instruments essentially accomplish the same goals with respect to protecting assets against lawsuits.
Family Limited Liability Company
The Master Limited Liability Company is typically 100% owned by a portable offshore asset protection trust, but it is managed by you as an individual. This gives you complete control over the assets held in the Family LLC. If you don’t have an offshore trust but still want the protections of a Family Limited Liability Company, then you (and your spouse, if you have one) would directly own the Family LLC and serve as its manager. Without the existence of an offshore asset protection trust, the ideal form of ownership for a Family Limited Liability Company would be as tenants by the entireties, which is only available to married couples.
What Goes Inside The Family LLC?
Assets that are considered “safe” (i.e. assets that can’t generate liabilities) go directly inside the Family LLC. Examples include cash, stocks, bonds, precious metals, collectible cars (assuming they aren’t driven), artwork, and expensive furniture.
Assets that do have the potential to generate liabilities (a.k.a. “risky assets”) should be placed in subsidiary limited liability companies (sometimes called sub-LLCs) and then the subsidiary LLCs themselves are “placed inside” the Master Limited Liability Company. Assets that fall within the category of risky assets include investment and rental real estate, airplanes, and boats.
Benefits of Using A Family Limited Liability Company
There are a number of benefits to using a master Family LLC, including:
- Increased Privacy — Assets will be owned by the Family LLC (and not by you as an individual), so asset searches on you won’t show you as a promising lawsuit target. What you have is nobody’s business but your own, and most folks like the idea of increased privacy.
- No Public Records — The jurisdiction that we use for Family Limited Liability Companies doesn’t disclose who owns or manages the LLCs. This means that your LLC will fly below the radar when people search for your name in public records.
- Charging Order Protection — If you are personally sued and lose a lawsuit, the best that any creditor will likely be able to do is obtain a charging order against you. That means they could potentially intercept distributions made from the Family LLC to you, but they wouldn’t otherwise be able to access any of the assets held by the Family LLC.
- This benefit comes with an important caveat: States and courts differ on the amount of protection they are willing to offer under charging order statutes. That means that a Family Limited Liability Company could potentially be at risk unless it’s tied to a portable offshore trust.
How Does A Family LLC Work With A Portable Offshore Trust?
While a Family Limited Liability Company can offer a lot of good protection on its own, it’s most effective when it’s tied to a portable offshore trust. In that scenario, the trust will own 100% of the Family LLC while you act as manager of the Family LLC and retain control over all the assets inside the entity (and any sub-LLCs). Remember, you are also the trustee of the portable offshore trust, so all the power of control is in your hands.
If an “event of duress” or an “event of jeopardy” occurs (i.e. if you are facing a potentially catastrophic lawsuit or other devastating creditor claim), the trust can be moved to an offshore jurisdiction and all of the assets inside the Family LLC and any sub-LLCs can be “upstreamed” into the trust and moved offshore, where they will be safe from creditors and beyond the reach of the U.S. courts.
Of course, real estate can’t be moved offshore, but we can strip the equity out of real estate with the help of offshore financing, and then the money obtained from such financing can be protected while you still have the benefits and use of the property.
The same principles apply to the use of a Family LLC with a Section 541 Special Power of Appointment Trust.
Getting A Family Limited Liability Company
Most people with assets can gain a lot of good protection by using a Family LLC. In some circumstances, it might be all the protection that’s needed. In most cases, however, there are clear benefits to having both a Family LLC and a portable offshore trust. Call the Law Office of MWPatton today if you would like to discuss the options that best fit your individual situation.