The Andersen Firm Attorneys at Law

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1 Planning With Wyoming Close LLC and Wyoming Domestic Asset Protection Trust Presented by The Andersen Firm Attorneys at Law South Florida Office 500 E. Broward Blvd. Fort Lauderdale, FL Florida Keys Office 820 Whitehead St. Key West, FL West Florida Office 7273 Bee Ridge Rd. Sarasota, FL Tennessee Office 862 Med Tech Pkwy Suite 200 Johnson City, TN New York Office 230 Park Ave 10 th Floor New York, NY Washington D.C. Office 601 Pennsylvania Ave NW Suite 900 S. Bldg Washington D.C

2 Asset Protection Planning Goal of Asset Protection Planning The goal of asset protection planning is to change a creditor's economic analysis. In order to properly understand asset protection, one must analyze timing, the creditor, and the specific assets under consideration. 2

3 Asset Protection Planning Not About Hiding Assets Asset protection is not about hiding assets. It doesn't work. Private investigators may find the assets. They will be found out in a debtor examination. Perjuring oneself is not a viable option. 3

4 Asset Protection Planning Concepts The concept of asset protection is that creditors can only go after assets that you actually own. The strategy is to remove title of the asset from the client's name but still allow them to have control and enjoyment of those assets. 4

5 Removing the Economic Incentive to Sue The way we do this is through limited liability companies and through trusts. With respect to certain limited liability companies, there is no remedy to attach a membership interest. In certain states, the only thing a creditor can obtain is a charging order. The creditor cannot force a distribution. Thus, it makes it difficult for the creditor to get to the asset. This makes settlement much more favorable to the debtor. 5

6 Wyoming Close LLC Combines many of the characteristics of a Corporation and a Partnership. LLCs are generally not taxed at the entity level. LLCs can be taxed as two different pass-through entities: Partnership S Corporation LLCs can be governed by its Members or by elected Managers / Governors. Close as in closely held. 6

7 Wyoming vs. Other States Wyoming was the first state to enact LLC statues in : WS Basic LLC Statue The most proactive in updating laws to protect and reinforce LLC. 2000: WS Close LLC Supplement 2010: WS Sole Members Creditor Protection 7

8 WY LLC As An Asset Protection Tool Members cannot be held personally liable for debts of the LLC unless they have signed a personal guarantee. The assets of the LLC cannot be attached by the creditors of a Member. A creditor may acquire the right to receive the profits and losses associated with a Members ownership. This is called a Charging Order. 8

9 Example #1 Jon and Jane Doe owns an apartment complex rental property TBE. Joe Tenant slips and falls in his apartment and breaks his hip. Joe Tenant sues Jon & Jane as owners of the apartment. Joe wants medical bills, lost wages, pain and suffering, etc. All of Jon & Jane s assets are exposed to the judgment! 9

10 Example #2 Jon & Jane Doe own a rental apartment complex property inside a WY Close LLC. Jon & Jane are Managing Members. Joe Tenant slips and falls in his apartment and breaks his hip. Joe Tenant sues LLC as owner of the apartment. Joe wants medical bills, lost wages, pain and suffering, etc. Jon & Jane s personal assets are protected from the judgment. 10

11 Example #3 Jon & Jane driving to work one morning and run through a red light and hits a school bus and children are injured. Jon & Jane are sued and found liable. Their personal assets will not be protected (aside from state specific exclusions). The assets in the WY LLC are protected. The only remedy is a Charging Order against the LLC where the holder of that charging order is entitled to their proportionate share of any distributions out of that LLC. 11

12 Example #3 Cont. Jon & Jane have lost a large portion of income from the assets in the LLC. However, there is a technique where not only with Jon and Jane be protected should they be sued but they will also be able to receive all the income from the assets in the LLC. 12

13 Introduction to Asset Protection Trusts As you may know, there are different types of trust instruments that give the trust beneficiaries asset protection to protect the assets from creditors, predators, and divorcing spouses. A Revocable Living Trust gives the person who establishes and funds the trust ( Grantor or Trustmaker ) NO ASSET PROTECTION. This is because the Grantor has access to the assets in the trust and the ability to make changes to the trust, hence the term Revocable. 13

14 Introduction to Asset Protection Trusts Cont. Generally speaking an Irrevocable Trust can offer asset protection only if the Trustmaker is NOT also the Beneficiary of the Trust. There is inverse relationship between control and asset protection. In short, the more control you have over the assets the less protection you are afforded. 14

15 Offshore Asset Protection Trusts Traditionally, individuals seeking a higher level of asset protection had to go offshore to jurisdictions such as Nevis or the Cook Islands. While Foreign Asset Protection Trusts ( FAPTs ) do offer elevated asset protection they also have many downsides including: Can be costly and complicated Higher tax reporting requirements Does the trust pass the smell test? Possibility of Contempt of Court Ruling 15

16 Domestic Asset Protection Trusts During the last several years 13 states have enacted legislation allowing a person to place assets into an Domestic Asset Protection Trust and have those assets protected from the claims of creditors. The Trustmaker can still draw on and use the assets held in this trust by way of distributions out of the trust because the Trustmaker is also the beneficiary. 16

17 States That Have Enacted Domestic Asset Protection Trust Legislation Alaska Colorado Delaware Hawaii Oklahoma Missouri Nevada New Hampshire Rhode Island South Dakota Tennessee Utah Wyoming There are variations from state to state in the specific provisions used in to establish the domestic asset protection trusts. 17

18 Wyoming Qualified Spendthrift Trust WYDAPT In 2007 WY incorporated its own domestic asset protection trusts directly into is Uniform Trust Code. The WYDAPT is among the strongest of the DAPTs in existence for several reasons. 18

19 WYDAPT Highlights The Trustmaker can retain / receive: A power to veto a distribution from the trust; A testamentary power of appointment over the trust assets; Income from trust assets; Up to 5% per year of the initial value of the trust or its value determined pursuant to the trust instrument; Income or principal from a CRAT or CRUT; The right to add or remove a trustee, trust protector or trust advisor; The right to serve as an investment advisor. 19

20 Investor Advisor Investment Advisor May: Direct, consent or disapprove a trustee's or co-trustee's action or inaction relating to investments of trust assets. Direct the acquisition, transfer or retention of any trust investment; and Direct, consent or disapprove a trustee's or co-trustee's action or inaction in making distributions to beneficiaries. 20

21 Requirements of a Wyoming Domestic Asset Protection Trust (Wyoming Statutes ) Creation of qualified spendthrift trust. (a) A settlor may create a qualified spendthrift trust with a trust instrument appointing a qualified trustee for qualified trust property, which instrument: (i) States that the trust is a qualified spendthrift trust under this section; (ii) Expressly incorporates the law of this state to govern the validity, construction and administration of the trust; 21

22 Qualified Trustee W. S A natural person who is a resident of this state; or A person authorized by the law of this state to act as a trustee or a regulated financial institution which: Maintains or arranges for custody in this state of some or all of the qualified trust property; Maintains records for the qualified spendthrift trust on an exclusive or nonexclusive basis; 22

23 Qualified Trustee W. S Prepares or arranges for the preparation of fiduciary income tax returns for the qualified spendthrift trust; or Otherwise materially participates in the administration of the qualified spendthrift trust. Neither the settlor, nor any other natural person who is a nonresident of this state, nor an entity that is not authorized by the law of this state to act as a trustee or is not a regulated financial institution, may serve as a qualified trustee. 23

24 Requirements of a Wyoming Domestic Asset Protection Trust Cont. (Wyoming Statutes ) (iii) Provides that the interest of the settlor in the trust income or principal, or both, is held subject to a spendthrift provision under W.S and such provision of the trust instrument shall be deemed to be a restriction on the transfer of the settlor's beneficial interest in the trust that is enforceable under applicable nonbankruptcy law within the meaning of Section 541(c)(2) of the Bankruptcy Code; 24

25 Bankruptcy Code Section 541(c)(2) Bankruptcy Code Section 541(c)(2) provides: A restriction on the transfer of a beneficial interest of the debtor in trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title. Therefore, if a grantor s interest in a Domestic Asset Protection Trust is subject to a restriction on transfer that is enforceable under non-bankruptcy law (Wyoming Trust Law), then such property does not become part of the bankruptcy estate. 25

26 What Type of Trust Property Is Protected? Cash and Equivalents Investment Accounts (Including Gains and Appreciation) Investment Real Estate (Non-Income Producing) Income Producing Real Estate (i.e. Rentals) Raw Land (Non-Developed or Gas or Mineral Rights) Personal Property Closely Held Business Interests (i.e. LLCs) 26

27 Cowboy Cocktail 1. Jon and Jane Doe re-title the asset into the name of their WY LLC (Doe Real Estate LLC) 2. Jon and Jan assign their interests in the LLC to their WYDAPTs. 3. Jon and Jane are beneficiaries of the WYDAPT and are able to access the income and principal held in the trusts allowing them to have their cake and eat it too. Wyoming Domestic Asset Protection Trust Real Estate Investment LLC 27

28 Combining the WYDAPT With WY Close LLC (Cowboy Cocktail) By combining the WY Close LLC with the WYDAPT a person can not only protect the underlying assets in the LLC they can also protect the income distributed out of the LLC. Even if a creditor obtains a charging order against the LLC the distributions would flow into the WYDAPT and then out to Jon and Jane as beneficiaries of the Trust. 28

29 What Type of Trust Property Is Not Protected? W. S , Property to be used for the payment of court ordered Child Support. Qualified trust property that is listed upon an application or financial statement used to obtain or maintain credit. Actions brought pursuant to the Uniform Fraudulent Transfer Act. 29

30 Fraudulent Transfer Act W.S A transfer made by a debtor is fraudulent if the debtor made the transfer with the actual intent to hinder, delay or defraud any creditor or debtor. Must Executed Qualified Transfer Affidavit. 30

31 Comprehensive Financial Planning and Estate Planning By having a comprehensive financial plan, in writing, you are also creating a document which can be used in the future to protect the DAPT if it is ever challenged because it was done for financial reasons and not solely for asset protection. Never transfer so many assets that the client become insolvent because the creditor could make an argument to strengthen their case that the transfer was a fraudulent. 31

32 Conclusion The Cowboy Cocktail offers a wonderful opportunity for people to move assets out of the reach of creditors and still have access to those assets. Careful planning and implementation are prerequisite to a successful Asset Protection Plan. Clients should use a team of competent and trusted advisors, including Accountants, Financial Advisors and Attorneys in order to develop an appropriate Asset Protection Plan. 32

33 QUESTIONS????????????????????????????? The Andersen Firm, A Professional Corporation.

34 The Financial Advisors Easy 3 Step Process for Estate Planning 1. Call Angela Christian at to set up an appointment for client. 2. Ask client for current estate-planning documents and forward them to The Andersen Firm. 3. Ask clients to fill out snapshot questionnaire and forward to The Andersen Firm. 34