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Puedo ponerlo igual:

Randall, if your client with the fleet of trucks gets sued because one of his trucks gets in an accident, and cripples a bunch of medical students, and he loses such a lawsuit, how will the LLCs that separate the trucks protect him? I am assuming that he “really” only has one business, and that his other memeber(s) in the various LLCs are very minor memebers with no separate trucking business. When he is standing before our favorite sleepy judge, and the plaintiff’s attorney asks him, “Why did you create 17 different LLCs to hold your 34 trucks and make your 3 year old niece a member of each of those LLCs?”, what is he going to say? Is anybody going to believe that his niece will be harmed by him being forced to liquidate his LLCs so he can pay his debt? Other than to prevent paying off the crippled med students, why would any rational person spend all that time and money to create all those LLCs? If the charging order does not make the sleepy judge throw up his arms and the tell the med students, “Sorry, but this truck driver was really smart and you guys are all going to have to go to law school or flip burgers”, then why bother with 17 LLCs? Shouldn’t he have just rented those trucks from a truly unrelated entity and put the left over cash in just one LLC with his neice?
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Posts: 72 | From: Florida | Registered: Nov 2005 | IP: Logged

Ryan
Member
Member # 628

Member Rated:
posted 04-23-2006 10:29 PM
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Dr. Mike,

You said: “Why did you create 17 different LLCs to hold your 34 trucks and make your 3 year old niece a member of each of those LLCs?”

Why do you assume a 3 year old niece would own the LLCs? The client can be a 99% or even 100% owner (limited member), and just have one of his employees be the manager. Better yet, have the manager be a PEO LLC that is owned by the client and managed by his HR or payroll person. I would use a PEO LLC (who hires and leases out the driver as an employee) because the employer (PEO LLC) will likely be sued as well as the LLC that held vehicles, anyway.

You have to understand, congress created LLCs, corporations, and other limited liability entities for the very purpose of limiting the risk of going into business. If you’re running a business in a normal manner, you don’t need to have an “estate planning” or other excuse for what you’re doing. Congress intended for LLCs and other entities to limit liability in such a manner. Furthermore, if the truck and driver get in a wreck, any lawsuit arising from this is an inside liability, so the charging order, which only pertains to outside liability, is therefore irrelevant.

The client may decide to make his child a member of the LLC to divert income to his child, thus spreading out income to other family members and getting everything into a lower tax bracket. When done right, this makes absolute sense from a tax perspective. This may also work if the client is old and wants to do estate planning. Check with a tax attorney before doing this, of course.

Regards,

Ryan Fowler
www.pfshield.com
wrf90@hotmail.com

[ 04-23-2006, 10:33 PM: Message edited by: Ryan ]
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Posts: 198 | From: SLC, Utah | Registered: Aug 2005 | IP: Logged

Randall K. Edwards
Member
Member # 792

posted 04-24-2006 09:26 AM
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I think that Ryan has pretty much covered the points that need to be made here.

My client with the different LLCs could show a valid purpose for each LLC, and, at the same time, managed to contain his liability within each one. I should also tell you here that he had a rather substantial liability insurance policy on each of the trucks he ran as well. He certainly didn’t have his three-year-old niece as a member of the LLC. Why should he? He was running a legitimate business. He had legitimate business partners, and was running an ongoing business with them (I guess I don’t get the reference to the three-year-old niece in your question).

I suppose the point here is that if you are working within the bounds of the law, within the structures the law has provided in a non-abusive way, and you’re following all of the legal requisities (having all of your shareholder/member meetings, keeping adequate minutes, maintaining the integrity of your separate bank account, paying all of your taxes when due, etc.), there’s no reason why the corporate veil should be pierced.
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Posts: 57 | From: Salt Lake City, Utah | Registered: Mar 2006 | IP: Logged

Dr Mike
Member
Member # 689

Member Rated:
posted 04-24-2006 03:14 PM
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Randall, the point I was trying to make, is that it might be hard for a doctor, who works 70 hours per week in the office to justify the use any entity to hold his assets. For instance, say a doctor has accumulated 1-3 million dollars in assets over the last 20 years. Hardly a large estate by some standards, but medicine is not what it used to be, and is all that he has. So he has a 1/3 in liquid assets, 1/3 in a vacation home, some small “toys” such as a boat, and his home is paid off. No kids, a loving wife and really great dog round out his assets. The standard one size fits all asset protector will create one LLC for each asset, add minor member to each LLC and tell the doc he can sleep well at night because of the charging order protection. Well that ain’t likely gonna fly if the judge gets pissed off. The doc can’t really justify taking off time from work to rent out his boat and vacation home to make the LLCs at least look legitimate. Assuming his house is in Florida or Texas, at least he does not have to worry about losing the home. So what can he do? He could create a debt shield by getting a loan against all of the assets and put the cash into an annuity, but the loan will likely cost more than the annuity is yielding. Not a very good strategy and the judge is probably going to think he did all that just to protect his assets. Not everybody has multiple businesses that appear to justify multiple LLCs. If the laws are designed to prorect businesses and business purposes, then how do you protect a client that only has 1 (high risk) business?? I don’t think this applies to just doctors. Some folks spend their whole lives saving what they can working as employees–they can barely file their tax returns much less run a business. How do they justify any planning as anything but purely for the purpose of asset protection??
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Posts: 72 | From: Florida | Registered: Nov 2005 | IP: Logged

Jay Adkisson
Member
Member # 391

Member Rated:
posted 04-24-2006 03:52 PM
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That was, in fact, the basis for the Ehmann court’s December 7, 2005, ruling: An entity which has no significant other purpose than asset protection will not be respected for creditor-debtor purposes. This is the “sham entity” theory, which is just one of several theories that a court can use to circumvent charging order protection. Reverse alter ego is another.

That is why planning has to be carefully integrated with other planning, and serve demonstrable other purposes. It is also why asset protection that works is so much more expensive than cookie-cutter schlock that doesn’t.
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Posts: 210 | From: Dallas, TX | Registered: Jun 2004 | IP: Logged

Randall K. Edwards
Member
Member # 792

posted 04-24-2006 05:09 PM
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You’be asked a whole bunch of good questions, but they all seem to get down to one basic question: What can I do to absolutely guarantee that nobody — especially some judge — can ever grab my hard-earned assets? The answer to that is that there is no iron-clad, “bullet-proof” one-size-fits-all shield. There’s simply not. And, much as we all wish there were (and as much as the promoters out there push the idea that they’ve got the one true answer), there ain’t. I’ve talked about a lot of tools you can use, (although I haven’t applied them to your specific situation, because I don’t diagnose and treat asset protection issues over the Internet, anymore than as a doctor, you’d diagnose and treat diseases over the phone — well, OK, Bill Frist thinks he can do that, but real doctors don’t), but all I can do is tell you that if you use the tools there are in the right way, you’ll do far better than if you don’t use the tools at all, or if you use the wrong tool.

In fact, while I’m using medical analogies here, let me gove you the best shot I can: Suppose a patient says to you, “Doctor Mike, what’s the one thing that I can do to absolutely guarantee that I’ll never, ever get cancer? I’m scared to death of it, and it runs in my family, and I’ve been looking everywhere for the answer. My buddy turned me onto a website where I can get apricot pit extract treatments really cheap, and it looks really good. In fact, they guarantee that I’ll never get cancer as long as I buy their tried and true, tested apricot pit extract product that works on the molecular level, unlike any of the other apricot pit extract treatments out there. In fact, they guarantee that if I have cancer now, I’ll be able to get better on their treatment alone.” What would you say?

There are several responses you can give to your patient. You can look over his medical history, and his family history. You can tell him to stop smoking, to stop eating barbequed meats, to start exercising, to get a colonsocopy, to eat more broccoli, to stay out of the sun, and on and on, but in the end, you’ll have to admit that after all of that, you simply can’t guarantee that he’ll never get cancer. You wish you could, but you simply can’t in good conscience make that kind of guarantee. The best you can do is to say that he’ll be better off if he does what you tell him than he would be if he did nothing, and that if he cares enough, he’ll start now. One thing you can probably tell him without reservation: The apricot pit extract definitely isn’t going to help him keep from getting cancer. In fact, if he focuses his time and efforts on that treatment to the exclusion of the stuff you’ve told him to do, he’ll pretty much guarantee that he won’t have much of a shield against his biggest fear: the BIG C.

Now, in my prior posts, I’ve listed a whole bunch of tools that I (and others) have used: Domestic LLCs, offshore LLC’s, FLPs, offshore trusts (don’t get me wrong, I still believe that the properly devised offshore trust has some definite asset protection advantages — in fact, after all was said and done, the Andersons, after spending some time in the pokey, walked away with some bucks because their trust never was broken by the courts), and on and on. Now, with all of that, can I absolutely guarantee that a court will never get through all of those? Uh … no. I can tell you that you’re well-served by doing some asset protection, though, and doing it right. I can tell you one other thing, as well. Neither apricot pit extract nor Nevada C corporations with “bearer shares” nor most of the schlock out there that passes as asset protection is gonna do what you want it to do.

After all is said and done, that’s about the best I can give you. I wish I had the one true answer, but I don’t. What I can tell you is that the folks who are out there promoting their stuff as the one true answer are wrong.
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Posts: 57 | From: Salt Lake City, Utah | Registered: Mar 2006 | IP: Logged

Ginger
Junior Member
Member # 821

posted 05-04-2006 09:43 AM
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What a bunch of baloney. You guys really enjoy spewing useless information… to one another no less. Not one of you have even tried to answer my original question. First you ranted and raved at me, then you go off on a tangent about physicians and off-shore accounts. Not all of us are doctors or lawyers or engineers, but we all need asset protection. Some of us have to buy “kits” to understand the very basics of this subject because the “professionals” (like you) look down their noses at us. That’s okay, because I’ve learned more from the “kit” about my situation than any of you have provided in this forum. Please don’t bother replying to this post as I’ve heard enough from the professionals. Enjoy your lives in the ivory tower.
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Posts: 3 | From: California | Registered: Apr 2006 | IP: Logged

Jay Adkisson
Member
Member # 391

Member Rated:
posted 05-04-2006 10:22 AM
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And enjoy the collection process when you finally discover that the kit wasn’t worth the value of the paper it was printed on.

‘Tis no different from those who think they can beat cancer with herbal cures; sure, you’ll learn a lot about herbs . . .
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Posts: 210 | From: Dallas, TX | Registered: Jun 2004 | IP: Logged

Randall K. Edwards
Member
Member # 792

posted 05-04-2006 11:09 AM
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Ginger, I’m sorry if we seemed to get a bit sidetracked from your original questions. Nonetheless, I’m a little puzzled by your hostility, even if we concede that the replies to your post have gotten a bit off track (in reviewing this thread, I’d have to admit that a couple of hypotheticals that got thrown into the mix weren’t particularly on point to the questions you asked, and were used as a springboard for some rather esoteric discussion).

Getting back to the main point, however, (as I hoped I had done earlier) is the fact that in the end, asset protection planning, like any other planning, can be done right or it can be done wrong. Usually, anyone who promises you a one-size-fits-all simple plan is doing it wrong … sort of like a doctor who prescribes aspirin for every ailment, whether it be hangnails or brain cancer.

Ginger, I suppose that you can take your chances that the kit you’ve been sold will protect your assets, and you can continue to try to convince yourself that you didn’t get ripped off. From your post, it seems that that is the path on which you are heading. For your sake, I hope you’re right.

Nonetheless, you still might be well-served by sitting down with a good, qualified asset protection planner who will consider all of the nuances of your needs, rather than rely on a kit that may not do what you think it will. As I mentioned in a prior post, you will need to consider a lot of issues, such as what are you trying to do with the property? Is your primary concern asset protection? Smooth estate transition at death? Tax savings? All of the above? Something else? If you want to do an asset protection plan that will actually keep you out of trouble in the event that either (or both) of you are sued, you’ll probably need something a bit more complicated than a simple living will and a couple of LLC or LP structures — something that won’t necessarily come from a kit.

Again, I suggest that you spend the money to sit with a pro for an hour, explain what your primary goals are, put it into the context of an overall asset protection and estate plan, and go from there. It will cost you a bit more than the kit cost you, but in the end, it will be worth it.

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