Asset Protection

Boots on the Ground in “Queen of the Caribbees,” Home of the Best LLC Laws

As the ferry from St. Kitts to Nevis pulls into Charlestown Harbor, you see a sign welcoming you to the “Queen of the Caribbees.” Nevis earned this nickname in the 18th century, when British plantation owners generated enormous wealth cultivating sugar cane. While the sugar industry shut down for good in 2005, remnants of Nevis’s colonial past persist island-wide.

I’m writing from the porch of the villa I’ve rented while I’m attending to matters relating to Fortress Trust Ltd. My business partner, Trey Wyatt, and I formed Fortress in 2015 to create and administer Nevis trusts, LLCs, and corporations. Fortress must submit audited financial statements to the Nevis regulator by April 1, so our visit dealt with pulling together the records necessary for its completion. We also met with lawyers, our auditor, government officials, and friends we’ve made over the years in this tropical paradise.

Nevis has some of the world’s strongest asset protection laws. It’s the smaller part of the Federation of St. Kitts & Nevis. Former colonies of Great Britain, these sister islands have been independent since 1983. Each island has its own parliament with authority to enact laws over its respective territory. There’s also a national parliament with representatives from both islands.

Once St. Kitts & Nevis achieved independence, the two islands took somewhat divergent paths. St. Kitts focused on creating a tourism industry. Nevis chose to mold itself into an international financial center.

A key part of the development of the Nevis economy thus was the enactment of laws to support this focus. The Nevis Parliament duly enacted a business corporation statute in 1984; an international trust law in 1994; and an LLC ordinance in 1995.

By far the most popular corporate entity in Nevis is the LLC. The Nevis LLC is one of the world’s most flexible and protective international business entities. It’s especially suitable for US citizens and green card holders. This is true for several reasons:

  • Judgments outside Nevis against Nevis LLCs or their members (owners) or managers aren’t automatically enforced. To bring a judgment, a creditor must first retain a Nevis attorney, who under local rules may not work on a contingency basis. The creditor must also post a cash bond to cover any damages or court costs incurred as the result of any counter-claim the debtor may be awarded. Nevis is also a “loser pays” jurisdiction: The prevailing party in litigation is generally entitled to have its legal fees reimbursed by the loser.
  • The “charging order” is the exclusive creditor action permitted against Nevis LLCs. An LLC shields assets from claims against its owners (referred to as “members”) by limiting the legal remedies available to creditors. In Nevis, the only legal remedy is to obtain a “charging order” from a local court. This order gives a creditor the right to receive only future distributions made from the LLC to the liable member. Creditors of individual members can’t force the LLC to liquidate, nor can they seize the interests of the liable member or members.

LLCs formed in US states also have charging order protection. However, many states have watered down its effectiveness. Creditors in those states – especially in the case of single-member LLCs – can often bypass the charging order. They may be able to foreclose on the owner’s membership interest or seize assets owned by the LLC. These exceptions don’t exist under the laws of Nevis. And because US judgments aren’t enforced in Nevis, charging order protection in Nevis LLCs is stronger than in any US state.

  • Enhanced burden of proof is required to assert “fraudulent transfer” claims. Challenges to asset protection planning often focus on the legitimacy of transfers into a legally protected structure such as an LLC. Let’s say you owe a debt. Instead of paying the debt, you transfer the funds to an LLC or other legally protected entity. That transfer can result in a fraudulent transfer claim. Most US states employ a “preponderance of the evidence” standard for a creditor to prevail in a fraudulent transfer claim. In general, if a creditor can demonstrate that you transferred assets in order to “hinder, delay, or defraud” a creditor, a court can void that transfer.

However, once you create a Nevis LLC, you will receive a document demonstrating that you (and any co-owners) own the membership interest in the entity. Under Nevis law, the transfer of assets to an LLC is not considered a fraudulent conveyance if you receive an equivalent interest in the LLC. In other words, if your registered agent made a valid transfer of organizational rights to you, that alone will defeat a fraudulent transfer claim in Nevis. This is true for both single-member and multiple-member LLCs.

What’s more, the LLC ordinance requires proof “beyond a reasonable doubt” that the transfer was fraudulent, unlike the burden of proof in most US states. If a Nevis court finds a transfer fraudulent, it will be set aside only to the extent necessary to satisfy actual damages. The court may not award punitive damages, and such awards from other jurisdictions are not enforceable.

  • No taxation in Nevis. There is no taxation in Nevis on a Nevis LLC that generates its profits outside St. Kitts & Nevis.

There are several ways you can use a Nevis LLC:

  • To hold an offshore portfolio. A Nevis LLC is an ideal vehicle to hold a portfolio of passive assets. After deciding which offshore bank or asset manager you’d like to work with, you form a Nevis LLC to hold the account; this creates a tax-compliant and asset-protected structure. Once the Nevis LLC is formed, you open the account and fund it in the name of the Nevis LLC.
  • In conjunction with an offshore trust. An offshore trust that owns a Nevis LLC can offer state-of-the-art asset protection, estate planning, and investment flexibility. You can be appointed asset manager of your LLC to manage a self-directed portfolio, or you can choose an offshore asset manager.
  • For estate planning purposes. A compelling tax-savings strategy for high-net-worth people involving LLCs is to gift minority membership interests to family members or others. Those interests have a market value less than the value of the underlying assets. Since the interests aren’t publicly traded, nor do they represent a controlling interest in the LLC, the market value of the underlying assets is significantly less than their nominal value. A gifting strategy utilizing valuation discounts can increase the effective value of the unified gift tax/estate tax ceiling of $5.49 million (2017 limit) by 30% or more. It also augments asset protection. (While the IRS issued regulations in 2016 to crack down on this technique, it remains viable for now.)
  • To operate a bona fide offshore business. In certain circumstances, you can defer the profits from a bona fide non-US business indefinitely. A Nevis LLC can be the centerpiece of this arrangement. In addition, US persons operating such a business while living full time outside the country may exclude salary payments up to $102,100 (2017 limit) annually from US income, social security, and Medicare taxes.

As you can see, a Nevis LLC is an ideal vehicle to employ for a variety of purposes. In my view, the formation and maintenance costs of a Nevis LLC can be justified if you have $250,000 or more of liquid assets that can be conveyed into it. In this case, the maintenance cost of the LLC (including all government and registered agent fees and preparation of an annual IRS disclosure form) comes to about $2,500 annually, which is 1% of $250,000.

Changes are sure to come over the next four years in the US with our new president. There has never been a better time to create or modify your Plan B. Perhaps a Nevis LLC could be part of it.

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Like How to Go Offshore in 2024, for example. It tells the story of John and Kathy, a couple we helped from the heartland of America. You’ll learn how we helped them go offshore and protect their nestegg from ambulance chasers, government fiat and the decline of the US Dollar… and access a whole new world of opportunities not available in the US. Simply click the button below to register for this free program.

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