Foreign Limited Liability Companies

International trusts are just one of several structures that can be used as a protective entity and are ideal for estate planning. Foreign LLCs are extremely popular as well and frequently are combined with international trusts for maximum protection.

The Nevis LLC, in particular, has become a powerful wealth protector because of the progressive and debtor-friendly laws of the small island in the Caribbean British Commonwealth. The Nevis LLC is highly respected because of distinguished features that combine components of the international trust, limited partnership and Nevada corporation into one remarkably protective entity.

A Nevis LLC can be either member-directed or managed by a foreign director. For optimal Asset Protection a LLC should be controlled by a foreign (Nevis) managing director after an individual contributes assets to the LLC and becomes a LLC member. Their rights then compare to the rights of a member of a domestic LLC, corporate stockholder, or limited partner of a LP that owns but does not manage the entity. All management resides with the director and this transfer of control protects the LLC assets from U.S. court orders.

Because the assets are owned by the foreign LLC a U.S. court order cannot affect the investor (nor can a U.S. court order the LLC member to repatriate the LLC assets) so an extraordinary level of protection is afforded. Like a U.S. limited liability company, the manager—not the investor—controls the LLC assets except in this case it is a foreign managing director beyond U.S. court jurisdiction and any successful creditor-plaintiff would be limited to a charging order against a foreign LLC interest. Nevis law only permits a charging order obtained through the Nevis courts, which is a costly and complex process.

Under certain circumstances, Nevis law and IRS regulations impose U.S. income tax liability on a charging order creditor for LLC profits attributable to the debtor-member. A charging order creditor can incur a tax liability even if the creditor received no distribution, which is a similar poison pill feature of U.S. limited partnerships and LLCs (but not other international entities). This is another protective feature of the Nevis LLC.

A Nevis LLC is significantly more protective than an international trust if an individual has present creditors because a transfer of assets to a trust would be a fraudulent conveyance contestable in the trust jurisdiction. If a Nevis LLC member has an existing creditor, the Nevis LLC ordinances allow the member to transfer his or her assets to the LLC without it constituting a fraudulent conveyance − if the debtor-member's interest is proportionate to the capital contributed. This transfer is then a fair value exchange and expressly exempt from the Nevis fraudulent transfer statutes. Under Nevis law, a verbal promise of a future investment by an existing or future incoming LLC member can be used to measure proportionality and a debtor-member can then own a small interest in the LLC subject to the charging order, although this member contributed all or most of the LLC's assets. This interesting dilution strategy is highly discouraging for a creditor and is one of the many distinguished features to the Nevis LLC.

Some U.S. courts have ruled that impairing a creditor is sufficient for a transfer to be fraudulent, however there is no ambiguity or uncertainty under Nevis law and investment in or transfer to a Nevis LLC will not be a fraudulent transfer, nor challengeable by an existing creditor. For that reason, we propose that the Nevis LLC is more protective than a foreign trust or domestic limited partnership or LLC. Investing in a Nevis LLC is both legal and ethical. For an attorney with clients that have existing creditors the Nevis LLC is also a more attractive option if the legal advisor has concerns about their own professional liability from a fraudulent transfer.

Other significant benefits of the Nevis LLC:

• The Nevis LLC has minimal IRS reporting requirements, however if a U.S. member owns 10% or more of an LLC interest they must follow the IRS' foreign corporation ownership reporting requirements.
• Nevis LLCs can be designated as a partnership or C corporation.
• Nevis imposes no taxes on LLCs.
• Nevis LLCs can be structured so that profits flow to members in any proportion designated in the operating agreement and the proportions can differ from actual ownership interests.
• A protector can be appointed to oversee the managing director in similar fashion to the IAPT.
• Nevis LLC agreements can incorporate similar poison pills to those of a domestic LLC.
• A Nevis LLC operating agreement can include a flight clause permitting the manager to expatriate threatened LLC assets to another protective entity in another IFC.
• The managing directors and members of a Nevis LLC are immune to company liabilities.
• Minute books, annual director and member meetings are not required of a Nevis LLC, nor is compliance with other customary corporate formalities.
• A Nevis LLC can be owned by an international trust or combined with domestic entities such as LLCs, FLPs and irrevocable trusts.
• A Nevis LLC is less costly to organize and maintain than an international Asset Protection trust.

While the Nevis LLC is rapidly gaining popularity, the international trust is still useful for select international wealth protection purposes such as estate planning, forced heirship avoidance, and other special purposes that can only be achieved with a trust. Unquestionably, the Nevis LLC is more protective than a foreign international business corporation (IBC).

Other IFC's are developing new protective entities including in the Bahamas where a new limited partnership parallels the Nevis LLC. Liechtenstein and Panama have private foundations that compare to the international trust. St. Vincent and the Isle of Man have hybrid companies are often substituted for an international trust or Nevis LLC. Asset Protection IFC's will continue to evolve to serve the needs of a global wealth preservation and the asset security audience.

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