|Friday, 03 August 2012 00:00|
LLCs and asset protection — In Dayton and Ohio, asset protection attorneys frequently use a limited liability company (LLC) as part of an overall strategy to protect a client’s assets from potential creditors. Often clients have heard about forming limited liability companies in various states and want to know whether an out-of-state LLC is ideal for them and, if so, which state should they form their LLC in.
Do you need an out-of-state LLC?
The only reason to form a limited liability company in a state other than your own, is to take advantage of that state’s asset protection laws. Some states’ laws clearly restrict a creditor’s ability to seize assets in an LLC that a debtor is a member of. Other states are not so restrictive or are not clear about whether a creditor can seize those assets.
Fortunately for Ohioans, the issue of using an out-of-state LLC for asset protection may be a moot point unless the client also wants to form an asset protection trust (which Ohio does not have) in another state and form the LLC in the same state for convenience sake. Our Dayton, Ohio asset protection attorney’s office often does this with a Wyoming Close LLC and a Wyoming asset protection trust — a highly protective combination often known as the “Cowboy Cocktail”.
Best States in Which to Start an LLC for Asset Protection:
Up until this year, Ohio was not a state in which I recommended forming an LLC for asset protection purposes. This is because the law was unclear whether a creditor could do more than collect on payouts from the LLC to the debtor-member. However, with the passing and implementation of Substitute House Bill 48 earlier this year, Ohio’s law was updated to change this situation. The law now makes a charging order against the debtor’s interest in the LLC a creditor’s only remedy for collecting on a judgment. (To understand why this is important for asset protection purposes, see my article, “Ohio LLCs for Asset Protection — Recent Law Change Supports Wealthy Ohioans.”[JF1] ) Now I am happy to recommend an Ohio limited liability company for asset protection unless the client is better served by the Cowboy Cocktail strategy using a Wyoming trust and LLC or the client insists upon forming a single-member LLC.
Despite the recent change to Ohio’s limited liability company laws, Wyoming is still one of my favorite states for forming LLCs and probably always will be. Wyoming is the only state that provides clearly delineated asset protection for a single-member LLC. This means that the charging order is still a creditor’s only remedy when the debtor is the only member of the LLC. In some states the protective veil of an LLC is often pierced when the debtor is the only member of the LLC. The Wyoming Close LLC is also simpler to set up and administer than LLCs in most other states and has some of the lowest start-up and administration fees. Wyoming is also very tax friendly to individuals and businesses. It’s also one of the most stable states financially and politically, so the things that make Wyoming a great state for LLCs and trusts are likely to stay that way.
Nevada and Delaware
Occasionally, our Dayton, Ohio asset protection attorney’s office forms an LLC for asset protection in Nevada or Delaware. Usually this is because either the client already has a trust or LLC formed there and they want to keep everything in the same state. Or the client may have heard that these states are the best in which to form a limited liability company and refuse to budge from that opinion. Certainly these states’ LLC laws are very protective and assets in a Nevada or Delaware LLC would be at least as equally protected as if they were in an Ohio LLC. They also have a long track record for holding up against creditor judgments. However, forming an LLC in these states can be more complicated and more expensive than Wyoming and they don’t offer nearly as much protection to single-member LLC’s.
If you think a limited liability company would be ideal for your asset protection needs, talk to your attorney about LLCs and asset protection. He or she can help you develop a complete and effective plan.
In Dayton, Ohio, the asset protection attorney’s office of Gudorf Law Group, LLC, can assist in setting up a LLC or asset protection trust in an appropriate state. Call us at 1-877-483-6730 to schedule a free consultation regarding LLCs and asset protection.