Asset Protection in Florida: Practical Tips for Small Business Owners

1. Asset Protection in Florida: Practical Tips for Small Business Owners Part 4: Off-Shore Planning 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. Off-Shore Planning • Introduction • Not just for the very wealthy • Quality off-shore jurisdictions • Predictability of off-shore jurisdictions vs. U.S. Court system and the “result oriented” judge • Not for avoidance of income taxes • Not a substitute for avoiding filing bankruptcy • Limitation of on-shore planning • Tied to state of domicile

3. Why Consider Off-shore Planning • Completely change the rules of the game when your creditor must go to an off-shore jurisdiction: #1 Must get another attorney in the off-shore jurisdiction • “Self-settled trust” rule is not applicable • For self settled spendthrift trust – settlor can establish a trust for his own benefit; can be grantor – should not be trustee • No full faith and credit: U.S. judgments are not recognized • Need trial de novo under the laws of the foreign jurisdiction • No contingent fees: creditor must pay the local attorney as litigation proceeds; substantial retainer required.

4. Why Consider Off-shore Planning Cont. • “Loser pays” is usually applicable • Creditor must post bond • Higher standard of proof: “beyond a reasonable doubt.” This is the traditional American criminal standard. • Burden of proof is always on the creditor • Short fuse: A shorter statute of limitations will apply. Often statute begins to run when assets transferred to trust. U.S. law usually 4 years; several off-shore have 2 year statute of limitations. • Statute of Elizabeth overruled. This is the English forerunner of our Fraudulent conveyance act.

5. Why to Not Use Off-shore Planning • More IRS reporting: Client needs CPA familiar with reporting requirements for foreign accounts. • Reporting requirements: • FBAR: Report of Foreign Bank and Financial Accounts. • Any citizen or resident that has financial interest or signature authority over any financial account in a foreign country with an aggregate value exceeding $10,000. If close call, file.

6. Structure of an Off-shore Trust • Trustee: Single foreign trustee • Trust Protector: • Power to remove and replace trustee • Veto investment decisions of the trustee • Veto distribution decisions of the trustee • Who can serve? • Not advisable for client or member of family • If client insists, must resign in event of legal threat

7. Structure of an Off-shore Trust Cont. • Anti-duress provision • Often, off-shore trust allows settlor or trust protector to advise the trustee, direct or veto a trustee action or remove and replace trustee. • Anti-duress clause directs the foreign trustee to ignore any advice, order, or instruction given under duress. • Flee Provisions or “Pull the plug” Provision • Allows trustee to change situs of the trust – this is where the trust is bases

8. Best Kept Secret: Nevis Limited Liability Company • Advantages of Nevis LLC: • More control than off-shore trust • Less expensive than off-shore trust • Strongest, most comprehensive laws • Example: has “beyond a reasonable doubt” standard • Geographic proximity • Local attorney problem for creditors • No local taxes • Record to date is 100%: no U.S. creditor has successfully secured judgment in Nevis • LLC law similar to Florida

9. What & Where are Nevis & St. Kitts • Sovereign Country, member of British Commonwealth and United Nations (participated in the Olympics) • British Parliamentary system • Politically stable: 96% literacy rate – highest in the Western hemisphere • Population: 12,000 • Location: Southwest of Virgin Islands • Main city: Charleston • Birthplace of Alexander Hamilton

12. Structure of a Nevis LLC • Operating Agreement similar to Florida LLC • Manager managed • Manager can be client • Can transfer to off-shore manager • Best plan for a physician who chooses to go bare or minimal insurance • Nevis Island LLC with “pull the plug” provision • Cook Island Asset Protection Trust with Cook Island trustee

13. Take-away Points for Off-shore Planning • Consider a Nevis LLC as a component or principal part of any off-shore plan • IRS reporting requirements must be followed • have a CPA familiar with such requirements • If properly structured, assets are well protected from most creditors other than Federal creditors

14. FUTA: Florida Uniform Fraudulent Transfer Act • Transfers under Florida Statute 726.105 • A transfer is fraudulent if made “with actual intent to hinder, delay, or defraud any creditor of the debtor.” The creditor may rely on the “badges of fraud.” • The transfer was of substantially all the debtor’s assets. • The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred. • The transfer occurred shortly before or shortly after a substantial debt was incurred.

15. Fraudulent Conversion • Transfer of non-exempt property to exempt property is prohibited • Example: after judgment, debtor takes her $100,000 CD and purchases an annuity

16. Fraudulent Transfer is Not Equivalent of Common Law Fraud • Florida Rules of Professional Conduct prohibit only common law fraud • Common law fraud is an intentional tort. • Not unethical to assist client in transaction later deemed to be fraudulent transfer. See Freeman v. First Union National Bank, 865 So. 2d 12721 (Fla. 2004); see also Kleinfeld & Alper, The Florida Supreme Court Finds No Liability for Aiding and Abetting a Fraudulent Transfer, 78 Fla. Bar J. (June 2004).

17. Present Creditors vs. Future Creditors • Before receive summons • After receive summons • After judgment • Statute of Limitations: 4 years after transfer made or if later, within 1 year after the transfer was or reasonable could have been discovered. F.S. 726.110(1).

18. Final Take-away Points • Timing is critical • How you hold title is critical. • Protect the rock.