A difference between a corporation and an LLC is that a creditor of an owner may directly levy on the debtor/shareholder’s stock in a corporation and thus take all the rights that compose the stock share, such as voting rights, right to elect directors, etc. By contrast, a creditor of an LLC is usually limited to a lien against the debtor/member’s economic right to distributions only until the judgment is paid, but the creditor usually takes no other of the debtor/member’s rights in the LLC. (This is often referred to as a “charging order lien” from the form of the relief usually specified in the RULPA/RULLCA).

Keep in mind that one can have an “S-LLC” by the simple expedient of checking the box for the LLC to be taxed as a corporation instead of a partnership, and then making the S-election for the LLC.

Although the ruling in the Olmstead case subjected single-member LLC assets to liability tied to its single member, this may be held to be a bad ruling in the future. It certainly goes against the purpose and spirit of the LLC laws. In any event, this potential adverse result may be easily avoided by interjecting a second member in any Florida LLC until the law is further clarified. Another significant problem with an S Corp is that they are, by far, the worst structure for advanced planning purposes. The limitations imposed on financial planning and estate planning and the limitations against international shareholders are major impediments to using S corps, particularly in an increasingly more complicated estate and tax environment and a world that is quickly globalizing.

Too many attorneys and CPAs don’t seem to know that you can make the S election for the LLC; in general I much prefer the LLC for estate planning and asset protection purposes (although the single-member issues can be a concern if their are not two viable members to include in the LLC). While S corporations still have some effective uses, their use in the future as business entities will be far more limited, and LLCs will continue to be the vehicle of choice for privately-held and family businesses.

Divorce and second marriages present special challenges in estate planning. These challenges are common where the spouses have children from prior marriages. The emotions and people involved require a delicate balancing between the needs of the surviving spouse and those of natural children. The surviving spouse will want to insure a continuation of the lifestyle they enjoyed while both spouses were alive and children from a prior marriage may require support for education and maintenance until they are mature.

Multiple marriage spouses cannot afford to procrastinate or put off the issue for later. Some believe that the best approach to estate planning is to put everything into joint ownership with the new spouse and expect that person to be fair and honest. This rarely works; the messiest probate battles almost always involve step parents, step children and step siblings. Don’t be the person who left a legacy of hurt feelings and anger. Inheritance battles will permanently divide families. The feud between families can go on for a very long time because the expensive and emotionally draining probate litigation process can go on for years. If you love your family, don’t leave them to sort out your mess. With proper planning, the estates of multiple marriage spouses can be administered in an orderly, mature fashion, with provision made for all interested parties.

One convenient and effective solution is the Revocable Trust. In a Revocable Trust only the Grantor can amend the agreement. Upon the death, the Trust becomes irrevocable, since the only person who had the right to amend it is unable to do so. In order to ensure the welfare of the children of the prior marriage, each spouse’s Revocable Trust should be funded with that spouse’s separate assets. Separate assets funded in each spouse’s separate Revocable Living Trust, and subsequently maintained in that Trust during the course of the marriage, often remain separate in a subsequent divorce. The Grantor can name anyone they wish as Trustee to manage and distribute the trust assets. The trust will specify all the provisions necessary to ensure that the Grantor’s wishes are met. In contrast to a will there is no probate process and a trust will not be contested.

The needs and wishes of couples in second marriages vary widely, depending on the age of the spouses, their net worth, the length of their marriage, the age of their children, and their relative contributions to the marital estate. A heartfelt and mature conversation must take place to discuss what is best for the family. Consulting an experienced Estate Planning Attorney is a good starting point. The result of establishing the Trust is that the Grantor may provide for his or her surviving spouse, and be assured that the Grantor’s children will also be taken care of.

If you die without a trust in place and leave all of your assets to your minor child, that child’s surviving parent will be able to manage the entire estate on behalf of the child. If you die while happily married, there is no issue. However, if you die while divorced, your ex-spouse will end up with ALL of your assets. The only way to prevent this from occurring is to set up a Separate Share Trust for your child, to be funded by your Living Trust at the time of your death. Don’t leave everything to your ex; leave it to your child. Get a trust in place immediately.

In addition to severely weakening the asset protection advantage of a single member LLC in Florida, the Florida Supreme Court’s decision in the Olmstead case unfortunately calls into question the effectiveness of multi-member LLCs in this state.

The Olmstead decision provides a stark reminder of two very important points:

1.Asset protection law varies significantly from state to state; and
2.Asset protection laws are constantly changing, both through statutory changes and court decisions.

Having a competent professional assist you with your asset protection planning is vitally important. It is also important to have any asset protection plan reviewed periodically because the law in this area is evolving very rapidly.

In a wise, but surprising turn of events, the President has agreed with the Republican Congress and adjusted the estate tax levels for 2011 and 2012. For the next two years, the estate tax will be levied on all estates over $5 million for an individual and $10 million for a married couple and at a rate of 35 percent. Historically, Republicans have often been known for their distain of excessive taxes and Democrats have been known as the party that favors big government and higher taxes. With the referendum against the Democrats in the last election and the heavy shift to a Republican House and Senate, the President had no choice but to cave to the Republican demand for a lower estate tax. If not, the amount of estate taxes paid by the families of middle-income voters would have been a hot button topic during the 2012 Presidential election, and could have been the cause of a loss of the White House.

So where does this leave us? While the estate tax is held in check for the next two years, there is no definitive answer as to where it goes after that. In 2013, we could have another year of no estate tax or we could have a 55 percent estate tax on everything over $600,000. Who knows? The only thing that we can do is hope for the best and prepare for the worst. A trust-based estate plan will ensure the most tax savings no matter what the estate tax number is in the year you die. In addition, there are more advantages to having a trust than just estate tax protection, including but not limited to probate avoidance, asset protection, and control of your assets from beyond the grave.

For more information on successful Florida estate planning and asset protection techniques, please contact the South Florida law firm of Wild Felice & Pardo, P.A. at 954-944-2855 or via email at info@wfplaw.com to schedule your free consultation. It’s a Wild world. Are you protected?