Understanding the Electronic Signature Lawfulness for Business Partnership Agreement in Mexico

How to eSign a document: electronic signature lawfulness for Business partnership agreement in Mexico

hey Ken how are you today are you are you muted there you go well welcome everybody to this presentation on llc's with Ken Crotty Ken is a licensed attorney and the father of three daughters so Ken fears nothing today's presentation will not be nearly as boring as normal because Ken is not as boring as the other presenter Alan if you have any questions during the presentation call someone who might know the answer or put your question in the question box okay also at the end of the presentation Alan will come on and he will talk more about a state view software and I will go to sleep because I'm so sick of hearing about it so but I don't want to get sideways with them all right without further Ado here we go okay let me turn my volume up Ken is your volume working Josh I don't hear him is his volume working I'm not hearing them all right so I'll get started while Josh Saves the Day today's talk is on using llc's and limited Partnerships most of our attendees are CPAs and attorneys a lot of our attendees are regular old people so we'll be covering this at both levels if you came in through the CPA Academy you'll get one CPE credit if you answer our silly polling questions if you came in through our website you can get legal credit by just letting us know that you're a Florida lawyer and that you watched this and that you did not fall asleep during any of it if you have a question just go to the upside down pyramid sing the King Tut song by Steve Martin and ask your question and we'll pretend to see it only if we know the answer this will be posted to our YouTube channel later tonight where people can watch it whether they want to watch it or not please remember not to read our Thursday report we're running way behind the last one we did was June 29th so we definitely owe our readers a Thursday report pretty quickly here next week I'll be covering using installment sales for tax planning purposes then the following week we'll be on with Gentry Burns and Katie pimble very very good trust advisors who have opened their own Trust Company the First woman-owned Trust Company in Florida that anyone's aware of if you want a free use of estate view software tell a state view that you are test at test.com use the secret password test if you go to a stateview.link you'll see it and I'll be demonstrating it after the hour uh you won't get continuing education credit or any knowledge at all from watching my presentation you might want to anyway thank heaven we just heard from Ken by the way everyone attending this free pdf of our eight steps to a proper Florida trust and estate plan and let me just go to the first polling question to get one out of the way because we'll have four and I think you have to answer at least three what key aspects should you consider when using utilizing limited liability companies and limited Partnerships for tax Estate Planning and creditor protection purposes a protecting family wealth across Generations and from seed a shining sea B reducing exposure to personal creditors see ensuring proper documentation of The Entity and D utilizing charging order protection and of course the best answer is e is for elephant actually we have an elephant here in the studio today all of the above so if you could just click any of those letters we'll give you full credit for the first polling question or if you're a pole vaulter let us know and we'll give you credit for two of the questions or if you're from Poland and you're a pole vaulter will give you credit for three of the polling questions Matt are we ready we're ready okay so by the way at in about 40 minutes Ernie Dover is going to join us from Nevis live from Nevis or Nevis depending upon how you pronounce it to talk about offshore llc's so Ken where would you like to start and I'm looking forward to listening thank you and Josh you're giving me control of the slides right there we go all right um hold on one second I apologize here um Josh I might need another moment of help here I apologize for the technical difficulty click on this click on display settings display settings yes and then click on the first one there we go all right thanks very much Alan sure uh so what we have here in the beginning I'm not going to waste the time on it because I just spent time before is uh briefly the introduction about the way to qualify for CPA credit for the CPA cpaacademy.org you can go through these steps to help make sure you'll get credit going forward again just real quick how to ask a question if you click on the Arrow you see there you will be able to uh ask a question so we have a upcoming schedule free webinars available also on the YouTube Library Channel it's encouraging like Allen said to possibly learn something on those items and then again with respect to the Thursday report so moving forward to uh a couple of polling questions we're going to slide by we talked about Ernie Dover we talked about the Nevis LLC so let's start with our basics of using llc's the goals one of the items when we have when we lay out for clients when they walk in is we need to know what they have we need to talk to them about the possibility of crender protection obviously that's where your LLCs and your llps come into play talk to them about estate tax protection that's also where again LLCs and llps come into play because you can take discounts for lack of control lack of marketability and it can help to reduce the size of the Gross State of the client for the purposes of any potential federal estate tax exposure that they might have in addition you can make sure that the assets are in structures that are protected from subsequent spouses and lifetime children descendants and also help to address any special concerns that the clients might have um kind of our process do we just have control of mine this is the process of going through the uh the process with the clients here and also a treasure and the team of advisors is important as well so when we turn to the limited liability entity we're in the various entities that we could be looking at um one was a general partnership that the default entity it's not very popular anymore and the main reason for that is that the past taxation uh is available that's fine that's not a bad issue but you have personal assets being at risk because the general there's no limited liability protection for anybody involved um now a combination besides that is a limited partnership now with respect to a limited partnership the limited partnership itself is a pass through entity the limited partners are generally protected from the uh risk of towards you know of having liability um but the general Partners do have some exposure stuff the llps that you see our professional service business entities those are entities generally uh which could be a combination of attorneys combination of CPAs Etc uh generally with the llps there's some protection in that you may have liabilities for the contracts of the entity uh as a partner but you're not going to have liability for any tortious activity of another partner llc's for great more flexibility you have the ability to pick how you're going to be taxed you can be taxed as a disregarded entity which is a sole proprietor single member LLC which is a pass-through entity you can be taxed as a partnership if you have two or more entities which again would be a past Serenity um you can be taxed as a corporation or as an S corporation if you make the necessary election so you have the flexibility there the great thing about llc's is that the members and the managers should have limited liability assuming that all the corporate formalities are followed with a corporation one of the things with corporations is other than possibly Nevada corporations corporations generally do not have charging order protection or you know offer really any protection at all uh with respect to the shareholders other than from the business debts um you're going to have taxation double taxation for corporates uh if it's a C corporation if it isn't S corporation is going to be treated as a pass-through taxable entity so real quick one thing just to mention as Alan pointed out we had e for elephant it is National elephant day so we're going to go ahead and continue with the bad humor two quick jokes why don't elephants like using computers the reason is because they're afraid of the mouses and what do you call an elephant that doesn't really matter and the answer for this is irrelevant so we're going to continue with the bad humor Alan wasn't a party to the Past bad humor that I had when he was in London I still think my best joke of that day was what do you call London without electricity and the answer there is lundoff um so no guarantee anything's going to get better but we'll try all right so llc's unlimited Partnerships again a brief overview llc's you're going to have members and you're going to typically have managers the LLC structure you can have what's called a member managed LLC meaning that all the members are also managers frequently that causes more issues for us in our situations that we almost always enable our name uh rather a manager to serve as the manager of the entity so you're going to have members who are the owners and then you're going to have a manager who is the decision-making power conceptually if you have clients that are familiar with Partnerships it's easier to explain it to them in the sense that the member is essentially a limited partner and the general partner is essentially the manager the difference being that typically with a general partner the general partner is going to have an ownership interest in the partnership here with a manager and an LLC the manager can be a member but it does not have to be a member so again that you can have 100 ownership by members a b and c and you can have manager being D and not having any ownership at all and the manager D in my example effectively would function as the general partner would in a partnership making all the decisions going down to the Partnerships it's important to note under Florida Statutes again that a general partner can be both a general partner and a limited partner one item to note on that is and we'll get to it in a minute is that you could have potential exposure for your limited partner interest if you are also a general partner uh so as far as forming an LLC goes Secretary of State's website sunbiz.org very easy follow um extremely simple from Florida standpoint for LLC formation you file the articles of organization to do that you need to have a name and address a registered agent and list to the managers Etc um you do not have to have an operating agreement but it certainly best practice we always try and have operating agreements for our clients if you don't have an operating agreement you're going to be relying on the statute for the default rules will apply with respect to how uh you know the operation of the LLC is going to occur like what the managers rights are what the obligations are between the members um things like that like you see there those can all be specified in the operating agreement now there are a few Provisions when you check the statute that you cannot contract around meaning that you know I can't change that and a lot of it goes to fiduciary obligations and things like that everything else for the most part the default rule is stated in the statute but you are able to contract around that in your operating agreement statement of authority as a concept for llc's in Florida and that's especially important for LLCs that own real property the statement of authority is a statement that can be filed which specifies who has the authority to take certain actions with respect to the LLC so again if I have an LLC that owns real property I can file a statement of authority that states that only I individually myself can have the ability to sign any mortgages with respect to that property so it helps to prevent fraud with respect to the property what you would do is you get a statement of authority from Secretary of State and then you go ahead and send that in for recording in the applicable County where the property is located and that puts prospective purchasers on notice with respect to the fact that they would have to contract with me to handle anything with respect to the LLC and mortgaging the property I mean that they don't have the ability to do that with anybody else so with the llc's the filing fee 125 annual report fee 138.75 so it's not a significant cost um and again if you're talking to your clients about this if you have a single member LLC meaning it's 100 owned by say a client or you know the spouses together that LLC can be treated as disregarded meaning that it doesn't have a separate filing obligation from a federal tax standpoint so you might be that you're not even creating an entity that costs more in the sense of annual filings for tax returns depending on how you structure it all right turning to the limited partnership formation um one thing to note just kind of off the bat is the lp filing fee one thousand dollars LP annual report p 500. so with an LLC the filing fee is 125 in the annual reports 138 dollars so one-third the cost to maintain it and one-eighth of the cost to open it so unless a client has a specific reason to use limited partnership structure I would suggest that most clients would be using LLC structures simply because it costs less to form and less to maintain and from a tax standpoint from a federal tax standpoint you know an LLC like I said can be treated at the elect to be taxed as a partnership so it's going to have the same taxation so unless there's a given reason for it or a specific reason for it most clients in our situations would prefer to have LLCs but again with a limited partnership if you are going to form it you have to file a limited partnership certificate and same idea limited partnership name the address registration and the partners information again limited partnership agreements not required but you want to have that there for specificity makes life easier for everybody involved when there's an issue all right so with that we're at 11 17 so I'm going to swing back to a polling question and uh following question number two who is Will Johns is it a Eric Clapton's nephew B George Harrison's nephew C an amazing blues rock guitarist and recording artist D Mick fleetwood's nephew or E all of the above so I'll give you a minute to think about that I will slide back to where we were so that we're ready to go all right and the answer was e so not the elephant thing um and again in honor of elephant day let's do one more quick one how do you get down from an elephant how do you get down from an elephant you don't you get down from a goose there we go I think you're getting better all the time all right uh moving on we have limited liability Partnerships as I mentioned earlier these are normally for professionals grouping together um it what it does is it allows the partner to not be person liable for the obligations of the LLP or other partners of the LLP they are still going to be personally liable for the partner's own wrongful acts or for the wrongful acts as someone under the partners direct supervision um all right so it helps to limit some liability again it's a standard it's a situation where if you're in a group in a professional practice that this would be applicable all right with limited partners um again the general rule is that the general partner is personally liable for the debts of a limited partnership but a limited partner is not the limited partner has no control over the business that's the rationale behind not enforcing the debt against a limited partner um is there's an exception uh in that delimited partner if they exert too much control over the business that they can be liable for the business um and so the statutory rule for that is that the limited partner is not liable for obligations unless so a good double negative to start our evening with statutory rules uh limited partner is also a general partner so if my if I'm a limited partner and a general partner I could have exposure as a limited partner because I'm also a general partner that makes sense or The Limited partner participates in control of the business and we'll get to the control in a minute and so it's a two-part thing here limited partner participates in the control of business and the person suing who transacted the business with the partnership reasonably reasonably believed rather that the limited partner is a general partner and that's based on the conduct of The Limited partner so you need to have this justifiable Reliance prompt uh to be liable as a limited partner with respect to control safe harbors so if you are in one of these situations you are not participating in control of the business so this is a safe harbor meaning that if I have an issue I don't have an issue really in that I'm not a limited partner participating in control of the business the first prong of the second test here so to satisfy that I would not satisfy it for instance if I was an officer director or stockholder of a corporate General partner um so you can look through that in case you're in a situation where it is an issue for your client I might help them sleep a little bit better at night knowing that they don't have liability as a limited partner because they're not participating in control of the business all right so creditor applications charging order entities and other porcupines I missed an opportunity here with it being elephant day I could have said charging order entities and other elephants in the room as a side note I would like to point out that porcupines also do have a national day for those that are interested it's July 2nd all right so charging order entities limited liability companies and Partnerships and jurisdictions have charging orders not every order or jurisdiction has a charging order protection you need to check if your estate does so what is a charging order protection charging order basically means that if I am a member of an LLC and I have a creditor that the Creditor is limited to getting a charging order from the LLC meaning that if the LLC makes a distribution to me the Creditor can obtain that distribution but the Creditor can't force the LLC to make the distribution to me and the Creditor can't access the assets of the LLC so that's kind of the distinction there so if I'm in a situation where I don't have that charging order protection what should I do and the way to protect yourself in that situation is to make sure that you do not have the voting control um so typically what we would do is we would give our clients half of the voting control and half of the voting control would go to an irrevocable gifting trust with somebody else serving as trustee and then that way if there's no charging order and the client gets a judgment against them the client themselves don't have the ability to unilaterally to make a distribution from the LLC because they would need the consent of the other member with the split of the voting control so that's something to think about and we'll talk about that more in these following slides uh you know with some examples as well one case to know about Wells Fargo equipment financing versus uh redarath I believe is how you pronounce it uh the nutshell here is that Jason redrath uh was a debtor for of Wells Fargo um Jason had an ownership interest in an Iowa LLC in an Iowa LLC excuse me and Jason and Anaya claim that their ownership of interest in the LLC the Iowa LLC was owned as tenants by the entireties and so what's the importance of this so under Florida law if I am a husband a husband and wife so my wife Karen and I or Mary still surprisingly some would say but you know it goes back to the three children thing and I think anybody with three children can appreciate that um on a side note again not to diverge uh but with three children we have a middle child this is also national middle child day but the last thing I was going to do was tell that anywhere near anything that could come back to my middle child just to make her feel more important on her specific day she already does that well enough by herself so anyway so back to the husband and wife husband and wife on NASA is attendance by the entireties if I get sued they cannot look to attendance by the entirety asset that is a different asset because it's owned as tenants by the entireties between me and my wife it is not owned by me individually and therefore it is not subject to my accreditor claims um so in this situation uh they debtors were claiming that their interest in the Iowa LLC was owned as tenants by the entireties the problem is as the court explains and it's a very well written decision but if we go back towards the end here um the paragraph in this case the middle paragraph here under Iowa law uh the problem was is that the LLC exists under Iowa law the Creditor remedies are also limited by Iowa law and the Court held that because we're dealing with an LLC that's located in the state of Iowa and formed in Iowa that Iowa law would apply and the biggest issue is that Iowa law does not recognize the ownership of property by a married couple as tenants by the entireties so therefore the court treated the ownership interest as having been owned solely by the husband and therefore it was subject to the Creditor and the charging order that was applicable there um so it's a choice of law issue it's something to be aware of it maybe uh you know it's it's when you're looking at States if you're dealing with states where you're actually working in them you're going to have a little bit less flexibility if you're dealing with States maybe where the real estate Zone there might be a little less flexibility but if you're dealing with states where you have investment llc's or other items like that and you definitely want to pick llc's in states where you could have that tenants by the entirety protection you know if we use Wyoming frequently in addition to Florida one benefit of Wyoming is that you have additional anonymity if you look at the Secretary of State website there's no information on there regarding who's serving as the manager of the entity or anything like that unlike Florida where you do have the information regarding the manager but in either State you can have the tenants by the entirety ownership so that if the court applies Wyoming law because let's say the uh the contract that was violated and you know rose out of Wyoming and Wyoming law applied at least under Wyoming law they would still be in this tenants by the entirety ownership um so again it's important to remember and to think through as well and it relates both the charging order from a voting control standpoint with respect to what you want to do there and it also with respect to how you're going to own your assets and where you're going to place them with respect to the state law and if you can have that ownership interest attendance by the entireties for the protection or not for a married couple all right so uh briefly for charging orders traps for the unwary again like we talked about not all states recognizing charging order protection a court in the state of residency can apply the law of that state and not the law of another jurisdiction to determine if it applies so again that's like in the example of let's say if Iowa in our last example it was to the tenants by the entirety portion of the prong I was talking about not the charging order but if Iowa didn't have charging order then the court would say okay we're applying Iowa law and you don't have charging order protection because they were applying Iowa law so that's the concern there is that it's not just the fact that I have charging voter protection under Florida law it's where am I going to actually have the charging order protection and is that going to be applicable in the state that the judge picks um again if the non-deter members has at least one half the Voting Rights they could seize control so you want to get rid of you know half or even more if that's possible um and then the last thing and this is more of a technical item that goes to the operating agreement or the partnership agreement and this is from the e-min case in Ray Heman came out years a few years ago probably about 10 now it makes me feel old um is that charging order does not apply if uh you're in bankruptcy and the operating agreement is not an executory contract an executory contract means that you have affirmative duties meaning that there's obligations that the partners or the members have to each other that they still have to perform for each other and that obligation to perform um you know that the people would not have entered into the operating agreement with each other if that obligation was not going to be performed um exactly mean like additional Capital calls it could mean the obligation of attending meetings it could make the obligation of attending of making certain votes um yeah so those are items that you can add to your contracts earning your operating agreement or your partnership agreement so that the members or the partners and especially non-voting members or limited partners have affirmative obligations that they still owe to the other members of the other partners of the entity um so that'll help provide that protection if you are ever in that situation in bankruptcy so that you can make the claim that you still have an executory contract again that's in Ray even I believe it's ehma and then uh if you want to look that up um there are several articles have been written on that and examples as to how to help beef up your operating agreements and partnership agreements if that's applicable uh with respect to that all right so um a very basic asset protection example um you know client has revocable living trust and originally client owns 100 of business or Investment LLC maybe what happens then is that client transfers a 0.5 voting and a 2.5 percent non-voting interest to the irrevocable trust for children uh that would be a trust that the client is not a trustee of so they could have somebody like Alan as trustee or your CPA as trustee or your brother or whoever you want as trustee what's important to note is that the client can retain the ability to remove and replace the trustee of the irrevocable trust at any time and for any reason and appoint an alternate individual there are limitations on who could be appointed but the client still has the ability to change the trustee so if they appoint me as trustee and they think I'm going rogue and not making good decisions with respect to the business or investment LLC because I do have 0.5 of the voting control as Trustee of their trust they can replace me with their CPA for example all right um and in this example we're showing that 96 of the entity would be put in a Nevada Trust uh the reason that we would put it into a Nevada trust is that under Nevada law I can create a trust for my benefit that's created from my or protected from my creditors if I live in Nevada that's great and if I live in Florida I'm in a similar situation to what we just talked about for the charging order protection and for the tendency by the entirety's uh application of law is whether the court will apply Florida law or will the court apply Nevada law and so typically we would use the Nevada trust we would have client put the Nevada trust interest or draft the Nevada trust rally so it would be held for the benefit of the client's children we would provide a provision that if the client's net worth fell to a certain level that in the future that the client could be added by trust protectors that's the safest version for some clients they're immediately Audible and then some clients are okay just being a discretionary beneficiary right now but by having the LLC with multiple members you're going to have the benefit of charging order protection and by splitting the voting control if you're in a situation where you don't have charging water protection you're still going to have some control one item I'd like to mention real quick uh because I just kind of glossed over it as the multiple member if you're in Florida and you are a single member LLC then the uh charging order protection does not apply um so for Florida for charging water protection I need to have a multiple member LLC meaning more than one member so in this example I would have a multiple member LLC because I've got myself my revocal trust is one member and then the two other trucks from the body trust and the irrevocable trust for children are treated as two members it's important to note too that from a federal tax standpoint the irrevocable trust for children in the Nevada trust can both be drafted so that they're ignored for income tax purposes meaning that I'm not generating additional tax returns I'm not even creating a partnership in the business or investment LLC level because everything is treated as being owned by me for a federal tax purpose but from a state law protection standpoint from a state law creditor standpoint this LLC has 3 members and if I'm in Florida I have a multiple member LLC meaning I now have the full charging order protection and I do not have to worry about having a single member LLC all right so we're at 11 32 so I'm going to go back to one more polling question right now and here we go why wasn't Alexander Hamilton able to be U.S president a he did not read the Thursday report B he did not use a state view software C he was not supported by Ernie Dover D he was born in Nevis and not a U.S citizen and there really should be e and maybe it's just the fact that he liked elephants and that could have been enough of a reason back then so we'll give you a minute to go ahead and answer the polling questions I am going to get us back to where we were um so here we are 42 is our next slide now before we get into this I do want to mention one thing which I found fascinating is that you know I was doing the legwork trying to figure out and like work's not a good joke I could have done a better pun there about elephant days um and it turns out that elephant jokes were really popular back in the 60s and so uh in addition and I'm gonna go to my paper for this so there was Isaac Asimov who uh wrote the foundation he was a foundation a couple other many other books and as one of his quotes is that he found the elephant jokes were the favorites of youngsters non-sophisticated adults so I'd like to think I checked both of those boxes which probably explains why I enjoyed finding these elephant jokes so the one thing about elephant jokes is especially back in the 60s is that they would build on each other and even if they're irrational it didn't matter so a good example that I found is why do elephants wear sandals the answer is that they don't sink into the sand and the follow-up to that is why do ostriches bury their heads in the sand and the answer is they're looking for the elephants that didn't wear sandals so that my friends is a classic 1960s elephant joke that Isaac Asimov would have found unsophisticated but to me is funny so moving on separating assets and functions um so here's another idea that we can use with the LLC structure originally we had Smith family Holdings LLC and the entity itself had all of the construction and Electric electrical the service and repair and the Sales Group um they were all together uh and exposing each other to unlimited liability by creating subsidiaries underneath Smith family Holdings LLC we can have 100 known subsidiaries each of these subsidiaries then should be firewall protected from the others so if there's liability associated with the servicing repair work it wouldn't go to the construction and Electrical uh and vice versa and so in addition what you're able to do by forming this structure with the subsidiaries below it is that you're able to do this in a way where you're not creating again additional you know much more additional work you might have some additional tax returns just depending on how it's structured and what the entities are um you know but you do have the the protection from the liability standpoint which is obviously a huge feature on this and you're able to do this in the structure with where you should be able to do it with minimal tax effects or tax impacts at least from a federal tax standpoint and in addition you're able to to segregate the assets out like I said so that's really a great idea for the structure to help segregate out for the liability it doesn't really matter who the ownerships are or who the ownership is I mean here we're just showing the four members um in addition now Smith construction electoral electrical LLC you know maybe every six months excess cash gets taken out of that LLC and put up at Smith family Holdings LLC level that should help protect that extra cash as well so that if there is an obligation against Smith construction electrical LLC the Creditor can't look to the cash of The Entity uh and hopefully that firewall again would be respected all right so this is again the same concept just showing in a different graphical form right um and now this is a similar idea of what we talked about is that with inks again there's no charging water protection except perhaps in Nevada for a regular Corporation so if I have an ink what I want to do is I want to make it so I have an LLC owning the ink this is a 368 a1f reorg we've got our articles written on that again it's 368 a is an apple one f is in Frank reorganization if you Google that you'll be able to see some of the articles that we have that explain this in more detail but it's a way of doing the structuring so that you can have the LLC at the top layer uh being treated as from tax purposes essentially the equivalent of the Smith store inc what you should be the 100 thing that was owned by the entities now they own Smith Holdings LLC so they have charging order protection because the LLC owns the ink um with this being an S corp you can have the Q sub underneath it you're not going to blow your S election and in addition now that you've got Smith Holdings LLC at the Top If you have other assets of Smith's store inc that are valuable you're able to flow them up and down and put them into that possibly subsidiary disregarded so that you can get some of the assets out of some historic inks that if there is a creditor situation those assets are not exposed all right now the advantage of the over easy arrangement so this is again the over easy Arrangement that we talked about Smith's store inc becoming a subsidiary of Smith Holdings LLC number one we don't need to change the name or tax ID of the sub entity that's huge for a lot of people maybe not for Smith store inc but if you're in the medical situation where you're doing billing and things like that and you're trying to do any kind of reorganization the last thing you want to do is have to change tax ID numbers etc for the entities in addition the new parent can loan money to the subsidiary and receive the lean on assets the new parent can own assets for Buy sell purposes of the subsidiary such as life insurance that wouldn't be exposed to any creditor of the subsidiary and the parent this is a big one can be formed in another jurisdiction to better creditor protection so it's a great way to do it uh as well to provide some additional protection all right so disadvantages you know the cost of the new LLC the cost of maintaining the separate LLC um and the coordination of the transition so there is going to be you know some legwork and getting this done but it's a way of if you're in a situation already it's a way of making it into reforming it let's say into a different situation where you're going to have more creditor protection and more benefit so I know we have Ernie coming on in a couple of minutes so what I'd like to do first is like we're going to do that last polling question so we get our four polling questions in and then we will continue going through this until Alan and Ernie come back on so the last polling question would you like to be a beta tester for a state view no I like betta fish but I wouldn't give them artificial respiration no for B I'd rather have a battle fish see yes it seems like it would be very helpful des and I would like a betta fish as well and E All the Above we'll let you answer that and we'll go back to where we were and uh let's see do I have any other questions um I do have a couple more just the last couple jokes I promise okay uh what did the grapes say when the elephant stepped on it nothing but it did let out a little wine I mean That's a classic and uh why couldn't the two elephants go swimming together they only had one pair of trunks there you go and then the last thing is why did the elephant leave the circus and the Elephant was tired of working for peanuts um so that's the end of the jokes for the day um so we had the disadvantages of the over easy Arrangement and this is again with the over easy Arrangement is very simple Smith store becomes a subsidiary of the parent at Smith Holdings level uh as far as looking at it again this is the same idea the same structure dealing with a professional practice teasing out the real estate you have a triple net lease you're able to use this structure they can own the entities can own money up to the family LLC you could place a new parent above the the Q sub or the yeah the practice that's going to own additional money so again these are ways of just taking money out of the entities that could be exposed to a creditor situation and structuring it in a way so that the family LLC uh is more protected all a good thing for the clients all right uh so again using the assets for the otherwise all exposed so this is the idea that client has five million dollars in a building lenders will end up loan 45 4 million 500 on the building so in this situation lender loans the money to client uh client then contributes that money to llcb the llcb can then be gifted to an irrevocable trust for spouse and Descendants the building itself is has a mortgage uh you know held by a friendly creditor now the building being held by the friendly creditor that's fine and then you have the guaranteed note and to the lender for the 4.5 million um you know so this is a situation it's a way where if the building if someone was actually going to slip and fall in it soon and they're going to get sued on the building they stripped out the equity he's got it in llcb where it could benefit the spouse and the children so that even if they get in a situation where they end up with liability on llca they still have all the equity out in llcb it's a way of definitely benefiting the client and again this is the accuracy Equity stripping example and this is a good uh situation because for us to be talking about as for dovetailing into the rest of the presentation um so in this situation we're talking about John having three million dollars worth of rental houses and he wants to put 2.6 million aside in an offshore Trust so Bank of offshore sets up a Delaware company called ABC lenders and John establishes an offshore trust with Bank of offshore called def Trust and ABC lenders puts 2.6 million into the def trust account which John can direct the investments into CDs and other items the party sign agreements so that there's a mortgage of public record O2 V or o to ABC lenders and it's secured by the mortgage on the property so basically what John's done is he's taking his three million dollar property here in the U.S and he used that as collateral to receive a 2.6 million dollar loan which was placed into an offshore trust for the benefit of John and his family and the benefit of that um is that in this situation the financial statement shows John 3 million in properties 2.6 million in mortgages and that he's only a discretionary beneficiary of the 2.6 offshore Trust uh if he does get into a creditor situation because he's only a 2.6 beneficiary discretionary beneficiary is the key word there of that trust he's the discretionary beneficiary of that 2.6 million dollar Trust that's obviously going to be very hard for a creditor getting access to he's got 400 000 worth of equity in the property uh maybe after everything he settles for just the 300 000 you know part of the equity that he had in the property and because of that you know it's difficult for the client to get that offshore 2.6 million dollars and that'll help the client to live uh you know after the Creditor situation in with the standard they're used to based on the assets that they have all right so again here's the pictorial version of what we just talked about rental houses ABC lenders 2.6 mortgage that gets put into the def trust for John and family um and we're looking at the value of what gets protected in that situation all right um let's see friendly judgments I'm going to pass that for right now the elope system uh the e-love system now again this is what we were talking about before about using the LLCs in the structure or so that you can have this separated liability and the reason we're saying llc's in this example is we have a parent S corporation meaning that it's not a partnership um so I can't have a partnership because obviously a partnership's tax is a partnership but one of the nice things with an LLC like we talked about earlier is an LLC can be treated as a partnership if it has multiple members or it can elect to be treated as an S corporation or it can be treated as a corporation um so we're able to use llc's in this example here we have the parent S corporation that probably is what was formed after because originally the medical practice entity probably was the original only entity that the client had when they came to us and what we end up doing is that we we create the parent S corporation up at the top the new parent F reorganization like we mentioned you keep the key sub Medical Practice entity which again retains its Ein and everything else for billing purposes that's going to own the furniture and the unsold accounts receivable then maybe you have a factory incorporation which would be a separate entity it could be owned under the parent S corporation but the factoring Corporation was going to help for the lives of protection um and then maybe there's a management company that gets paid management fees so again by segregating out all of these assets uh and by taking money out of the subsidiaries making them less profitable making them less easy picking for any judgment creditor to look at and try and get access to all right um so we'll go into the tax planning and see how far we can get so tax exclusive nature of estate and gift tax um so again this isn't necessarily related directly to LLCs and llps but it is a something to understand um with the value of the estate uh 10 million dollars and um value of the estate after deducting gifts in the state tax 10 million dollars at the estate tax so here what we're saying is we've got a 10 million dollar gift um our 10 million dollar estate and so in the no gift column I don't make any gifts so I'm my date of death I have 10 million dollars if I have a 40 estate tax uh then we're gonna have six million dollars of Estates of the estate left and that's what the family is going to get in the above situation if I make a two million dollar gift I'm going to be using uh 40 of the pay the estate if I pay tax on that gift the 800 000 means that I pay 800 000 on my two million dollar gift leaving me with seven million two hundred thousand dollars worth of the mistake it would be estate tax in that example 2.8 million the value of the estate 4.3 you can see from the math that the family actually gets more of a benefit by making the gift during lifetime if they were going to otherwise be subject to estate tax so and Alan are you ready to take over or should I keep going I will keep going all right so uh what we've got here oh no stop stop sorry no problem hello Ernie how are you I'm doing good we got a sound issue what's your thought on that Josh okay candy Ernie wanna tell us a little bit about yourself I'm sure and turn it over and tuning in foreign I'm gonna have to interrupt you I think do you have a speaker on because if we're getting feedback huh I wonder Josh should he turn off his computer and just call us on his phone yeah sorry Ernie if you want to just call us call in if you want to maybe mute yourself and then call in and then can you want to cover a little bit more while we wait for Ernie or should I Josh I guess Ken left okay so can I share my screen okay am I sharing my screen okay so while we wait for Ernie and I apologize it's hard fall because we should have tested this but in any event um the charging order protection that we are very often looking for in which the Ritter refs were able to have both in Iowa and in Florida may be much better outside of the United States one important reason being that the Creditor would have to go to the jurisdiction where the LLC is to try to get into the LLC entity so the offshore jurisdictions including Nevis and the Cook Islands have put together with the assistance of Jonathan Goffman and others have put together some nice legislation which makes it difficult for a creditor to get into a Nevis LLC and Ernie Dover has been a trust Banker in Nevis for over 25 years and he and I have worked together quite a bit and hopefully his sound will work good soon I will also mention that Nevis the Cook Islands and at least 20 other jurisdictions have specialized legislation which basically says if you come to our jurisdiction and you open an irrevocable trust for the benefit of yourself and a creditor comes along later not necessarily at the time you set up the trust by the way but a creditor shows up later generally a creditor that you didn't know about or expect at the time you set this up then the law of the jurisdiction is not going to allow that creditor into the trust even though the client who sets up the trust and funds the trust is a beneficiary so one of the things that Ernie's firm does and that his prior uh firm that he was with does is enable U.S citizens and people from all over the world to set up these trusts and the advantage of an offshore trust over a Nevada South Dakota or Alaska or Delaware Trust is that we can't be sure whether for example a Florida judge would tell me Alan I know you set up this trust in Nevada I know you set it up before you expected a creditor I know that Nevada law says your creditors can't reach in but you're in Florida and the broker who handles the assets and the trust is in Florida and the creditors in Florida so I being a judge in Florida hereby declare that Florida law should apply not Nevada law so then there is something called the full faith in credit Clause of the U.S Constitution and the Full Faith and Credit Clause of the U.S Constitution says that if a Florida judge makes a decision called a judgment it is to be fully enforceable in the state where the situation is involved if it's a legitimate judgment so then you get into the question there we here I just heard something Bernie is that you okay you know there are five of you I can't really say too much about this whoa perfect now I hear you great so so as I was saying before I turn this over to Ernie if the question another question is for creditor enforcement purposes does the Full Faith and Credit Clause apply and when you go to the Cleopatra case and when you go to some older U.S Supreme Court cases there have been indications that even though Florida law May apply to me and my creditor and my assets Nevada law will apply for purposes of creditor rights so there's no case law on that so if you want to be more sure that your assets are going to be protected you would go offshore but the downside to going offshore is you have to deal with Ernie who's just a terrible person to have to deal with that's the main purpose reason but then secondly you've got a lot of IRS compliance and a lot of international trust compliance so Ernie this is I apologize for the sound problem this is a 60-minute program but everyone who's on this program is going to stay on probably another five minutes and then a lot of people are going to leave because there's not going to be continuing education credit going forward but a lot of people are going to say stay so Ernie as you know this is a presentation on llc's and you're an expert not a lawyer not an accountant but a practical expert on llc's what should we know um well I think you've hit the nail on the head a little earlier when you focus on things like creditor protection and in particular charging orders and a charging order in resp well first of all Nevis it's in the Caribbean we're part of the Federation of Saint Kitts Nevis the island of Nevis has a lot of autonomy from the federal government to allow us to promulgate laws locally here in Neighbors not dissimilar to the U.S federal model and leave us LLCs have been in existence since 1995 so they're certainly not a new product and Nevis is a jurisdiction entity quote unquote offshore arena in 84. and it was unashamedly gone down the road of asset protection although we have IBC legislation as our primary legislation we also have loc legislation we have Foundation legislation and Trust legislation and about the LLC and the trust legislation are unashamed to be geared towards asset protection as it relates to Nevis LLCs and our charging order Provisions are pretty interesting and pretty useful I think here in that Nevis does not recognize foreign judgments or foreign orders in most instances if you want to get a charging order against the Nevis LLC mostly you will have to come to neighbors to apply for that charge in order even before you get in front of a judge you will be ordered to put up a bond secured by a local bank here in Nevis you can simply say I've got a million dollars at or deity can go in Tokyo you need to come get a bond in place the Quantum of the bond will be determined by the judge in Nevis and depending on the likely costs and expenses of the LLC or the LLC member um you have to overcome all of those hurdles to even look for a charging order in needless if you're lucky enough to get a charging order it's going to expire uh after three years with no Provisions to allow a charging order to be continued a charging order does not Grant the holder of the order any interest in the ELC in Nevis it does Grant an order where they may benefit from any distributions from DLC uh within that three-year period but of course if DLC is properly structured and properly managed um unless there's something within the operating agreement which is something which is pretty rare then you're going to find this simply by not making any payments from the LC and a charging order is going to be defeated and that in a nutshell is Nevis charging orders I think certain U.S states have certain Provisions but the whole idea of having to come outside the United States to Lodge a bond to try and find the local bank with whom you can work to put that bond in place there are a lot of hurdles and a lot of obstacles which are not necessarily put in place to be obstacles and hurdles but clearly as a jurisdiction we need to ensure that whatever entities we have here are well supported in legislation and Regulation and their charging order Provisions are certainly a significant component of that so Ernie for a client who may want to hedge their bets and not do everything in Nevis what other jurisdictions are notable for LLC legislation the Cook Islands and the others I'm in a curious position in that although my firm provides IBC loc trust and Foundation services um we are basically Guided by professional intermediaries and they will be the ones who will determine which is the best jurisdiction for their clients clearly the Cook Islands and Nevis for LLCs and trusts are probably regarded as the two preeminent jurisdictions other than that LLCs outside the United States they do exist in other places but probably don't have the same Quantum probably don't have the same legislative involvement in terms of making sure that the product is a competitive one I believe the Isle of Man may have LLC legislation I believe Belize may have went down the road of LLC legislation at one stage but the options outside the United States it's not as if an LLC is something you can pick up the same as a corporation wherever you go and LLC is a very specialized piece of legislation used almost exclusively by American clients because of the options on taxation and really the number of jurisdictions offering LLC services are pretty small it's okay and I just want to point out for the viewers if you go to the IRS form 8832 you'll see specifically a list of countries and entities that can elect to be disregarded for income tax purposes or can be Partnerships or C Corps you could use your offshore LLC you can use your form 8832 you have to fight you have to fall to file it unless you want that LLC to be treated as a C Corp you have to be knowledgeable in this area but it is not rocket science it's important to get it right but fortunately it is uh as I said not rocket science now Ernie I know at one point the economic Union in West Europe was pressuring Nevis to tax these llc's and there were there were I think bulletins from the government saying that that might have to happen did that go by the wayside um basically think its neighbors like a lot of jurisdictions we came to a Crossroads a couple of years ago because the European Union and the G7 Nation or however many there are in the g at the moment it's always difficult to know um they arrived at the concept of every entity should be taxable somewhere and for jurisdictions such as neighbors such as the British Virgin Islands and some others in the region we were faced with a choice of either taxing entities or having the entity submit a tax return within our jurisdiction which indicates that they're managed outside the jurisdiction and therefore are not subject to local taxation it's not a great situation at the moment in that although a Nevis LLC will be established a tax return will be filed the tax return is an informational return if the entity is not managed in Davis and you simply give the address outside the jurisdiction where the entity is managed and that information is not shared with tax authorities elsewhere we have gone down the road just if we do this if we have the empty assignment tax return indicators are not taxable in Nevis then nobody would want to be taxable and neighbors because if you opt for Taxation and maybe sure entity is going to become taxable at local rates of up to 33 on all worldwide income and so we've taken the view of if you will taking a step back from the fiduciary responsibilities within an LLC and reverting to being something of a corporate domicile whereas other jurisdictions like the British Virgin Islands are touting their zero tax regime that you can elect to have an entity in the BBI taxable as a local entity at zero percent tax provided you have substantive mind and management within that jurisdiction and you pay a quite significant price for your mind and management but of course as far as I'm aware of the British Virgin Islands does not have LLC legislation okay so Ernie I want to uh I want to make sure I cover your your economic citizenship or residency opportunities and just a very big 30 000 foot picture on asset protection trusts in Nevis but before we go to those two subjects is there anything else you want to mention in the LLC area besides telling us what what someone would expect to pay to at least pay the government of Nevis to set one up and then annually thereafter and what kind of information has to be disclosed okay well let me start by answering those particular questions um most providers in Nevis will work with you to establish an IVC or an LLC for a thousand to twelve hundred dollars maybe a little less the LLC tends to be a little less expensive because we know that our competitor is a very competitive domestic Market in the United States our firm will establish an LLC for eight hundred dollars which includes government fee and registered agent fee for the first year uh renewal is going to be 250 for government and an agency which is currently 450 sorry 400 a year with us you can also want to have us provide a service to assist in filing the tax return or a mail forwarding service but the bottom line is you can form an LLC and leave this for less than a thousand dollars you can maintain the LLC in Nevis for seven or eight hundred dollars a year there is a tax return to be filed but it's an informational return doesn't include any financial information when you're filing your LLC you leave us the names of the members and managers are not declared or disclosed on the public record nor is your LLC operating agreement to form an entity in Nevis you simply put together a two or three page set of Articles which in the most generic sense allowable by law allows the LLC to do anything which is legal The Only Name on the LLC is that a deorganizer which is typically one of the staff within our office okay now I don't think it's necessary but some lawyers in the United States think that a Nevis lawyer or Nevis Law Firm should bless the arrangement and an operating agreement what would you expect to pay a Nevis Law Firm to send an email saying yes this is okay um you that is a very very good question not something I have done because we find that in most instances I mean our legislation is pretty generic in a lot of areas it's more important to most clients that the LLC and the operating agreement and the provisions work for them from a domestic perspective rather than the Nevis perspective if somebody wanted a set of Articles or an operating agreement uh blessed or reviewed by Anita's attorney I think a set of Articles you could probably get a legal opinion for eight hundred to a thousand dollars in operating agreement maybe about twice that but in reality the key to the whole thing is making sure that it works for the client from a domestic perspective right you're dealing with a lot of templates articles here when entities are formed they've been tried and tested over so so many years if a client wants something a little bit different in an operating agreement or if they want the Articles to be something rather than the general generic and then a lot depends a three page set of Articles might cost eight hundred of a thousand dollars if you decide that you want your articles to run pretty much like a private placement memorandum and run to 100 Pages then you're likely to be paying hourly rates of three to four hundred dollars an hour however long that takes how many law firms or how many lawyers are there in any of us um I would say in terms of lawyers and neighbors maybe about 25 or 30. but you probably only have about three or four law firms and Neighbors which have any more than two attorneys um Saint Kitts is the larger of the two islands and although Nevis has its own uh laws um any lawyer admitted to practice in needless is administered practice in Saint Kitts and vice versa the lawyers in Saint Kitts are also very familiar with the Nevis uh legislation near this quote-unquote offshore legislation so you do have possibly a couple of slightly larger firms over in Saint Kitts but I can only think of a couple of firms here that have more than two or three lawyers you have quite a few in the individual soul practitioner situations but we don't have any Global names here in terms of law firms but yet we do have some law firms that have been here upwards of 100 years and am I correct that law lawyers are not permitted to take a creditor's case on a contingency basis and that it's difficult to find a law firm to pursue a cause of action when they've represented the trust company involved yeah well certainly in terms of the a contingent fee Arrangement that is something which is not permitted by the local bar association um most lawyers will either charge by the hour or will enter into an arrangement where they will do a matter for an agreed fixed fee now what's the difference between an agreed fixed fee and a percentage I leave it to the lawyers to sort that one out another lawyer I don't want to get into those Waters and but look because it is a small community because we have a small number of lawyers quite often you will find there's a lawyer or a law firm is going to be conflicted on a matter if they've represented the registered agents then some lawyers will say that they can't represent an LLC account represent a creditor because they've represented the registered agent others will say it's a step removed so we're okay I guess it's not dissimilar to anywhere else it's really up to you to decide what you're comfortable with okay all right anything else you want to say about llc's or you want to switch to economic citizenship or Truss well you know if you would have asked me about economic citizenship two weeks ago I would have had a scale about how wonderful economic citizenship is it needs us and how much better we are than everywhere else and then the European Union issued a directive a couple of weeks ago which basically said that any jurisdiction which is offering citizenship as a product or citizenship for sale really needs to ensure that the citizenship is not just a passport for sale that the country is gaining some real substantive benefit from the investment of the economic citizen but also from the input of the economic citizen so the result of that is that our government at the very end of July turned around and significantly increased the fees and prices payable for each and every economic citizenship option within Saint Kitts Neighbors at the moment we're out of line with the other four jurisdictions in the East Caribbean region because the others have yet to swallow the poison pill but we all think it's basically going to be a state of flux over the next couple of months while everybody comes to terms with the fact that the European Union wants us to do this and if we don't do this there are going to be consequences we really don't know whether at the end of the day we're going to be competitive as competitive more competitive we need to see how everybody else changes the rules within their jurisdiction so for now if I'm trying to sell economic citizenship in saying kids need this I don't know that they would necessarily be able to do that anyway well so if I can't do it well I'm not going to do it so so what would it cost if I'm absolutely convinced that I want to be an economic citizen of Nevis and Saint Kitts because I want a European passport what how much would I budget and what do I need to do well being a citizen of Saint Kitts Nevis will give you Visa free access to most of Western Europe but certainly won't give you a European passport um at the moment as an individual if you want to make a donation to our country the minimum donation has now gone to 300 000 US dollars for an individual and you're going to pay probably about 20 to 25 000 in fees on top of that you also have the option of investing through real estate where you can buy a condominium with a minimum value of 400 000 or a home with a minimum value of eight hundred thousand or you can invest in a new scheme which is basically a scheme to invest into developing areas of our economy uh one of which is the fact that we have a film industry which started developing here about four or five years ago if you wish to invest into the film industry and if you're investing into an approved product then you can start a minimum investment into that is as low as two hundred and fifty thousand dollars is there a possibility of a return on that yes it is a commercial uh decision to go into that government will allow citizenship to be applied for based on that investment on the basis that the movie industry is not a traditional industry and it's something which is bringing significant economic benefit to the country I'm sure as time goes on we will find further schemes like that and anybody who hasn't been to the Caribbean or hasn't been to Saint Kitts Nevis you will see particularly in neighbors that it is one of the more unspoiled areas in the Caribbean there is a real push towards ecotourism green tourism uh Health tourism medical tourism and whatever down here no doubt you will have some entrepreneurs who will manage to get some of their product and schemes approved under the citizenship uh regime okay so let me I I got a little bit confused so for three hundred thousand paid to the government and 25 000 paid to a law firm or you or somebody I can get an economic citizenship which would allow me to live there visit there and have uh travel rights throughout Europe is that is that what you said yeah pretty much so I mean the additional 25 000 it's not all for the agent or the lawyer there is a ten thousand dollar fee to government for diligence the