One of the best parts of my job is doing boots-on-the-ground research, coming up with exciting new ways to help my clients protect their wealth. And I’ve got a great new solution I can hardly wait to share.
I’ve just returned to the US after a week on the Caribbean island of Nevis. My colleague P.T. Freeman and I were there on a fact-finding mission to better understand the dynamics of this island, which sports some of the world’s strongest asset protection laws.
We also began the process of putting together a project that I believe will be hugely beneficial for our clients. I can’t share the details yet, but once it’s complete, we’ll be able to offer a comprehensive menu of Nevis-based legal and financial services.
Nevis is an island with a population of approximately 12,500. It’s located 225 miles east-southeast of Puerto Rico. Nevis is half of the Federation of Saint Kitts and Nevis, which achieved independence from Great Britain in 1983.
Why Nevis? Simply stated, it has highly protective legislation for international LLCs and trusts. These entities also provide for great flexibility in international tax planning.
I’ll describe the many advantages of Nevis in a moment. But first, let me share with you some details of the insider briefings we received from high-level bankers, attorneys, and government representatives:
- We met some of the highest officials in the current government, who described some of the initiatives that Nevis has taken to increase its competitiveness as an international financial center. The most important initiative is a recent agreement signed by Nevis with the IRS regarding FATCA, the Foreign Account Tax Compliance Act. Once this agreement comes into effect, US citizens and residents won’t be subject to the 30% withholding tax on transfers from the US to Nevis financial institutions other international transactions may face. In addition, the agreement gives Nevis banks and service providers the ability to deal with US clients without fear of running afoul of US tax rules.
- We met with the managing director of the only bank in Nevis that focuses on international financial services to non-resident investors. Unlike the vast majority of non-US banks, this institution welcomes US business. The director gave us a clear blueprint to help provide US depositors with international banking services. That’s a refreshing change from the “no Americans allowed” attitude in so many other offshore jurisdictions.
- In a meeting with an attorney from one of Nevis’ oldest and most politically connected families, we learned of some of the legislative initiatives that Nevis has planned for 2014 and beyond. The most exciting plan is to develop a “series LLC” regime. This type of LLC is ideal if you own numerous properties or investment accounts you’d like to protect from frivolous litigation. With a series LLC, you can segregate the LLC’s assets into “cells” or “series” without the expense of setting up multiple entities. A judgment against one cell can’t be satisfied by the assets of another.
So… what can a Nevis LLC or Nevis trust do for you?
State of the Art Asset Protection
1. Judgments against Nevis LLCs and trusts from a court outside Nevis aren’t automatically enforced. Instead, the creditor must first retain a Nevis attorney, who, under local rules, can’t work on a contingency basis. That means the creditor is paying legal fees from day one.
2. Nevis is a “loser-pays” jurisdiction. The party prevailing in a lawsuit is entitled to have their legal and court fees reimbursed by the loser.
3. Anyone seeking to recover assets from a Nevis LLC or trust must post a cash bond with the court. The required bond is 100,000 Eastern Caribbean dollars – a little more than US$37,000. The bond covers legal and court costs incurred by the defendant LLC or trust if it prevails in court or prevails in a counter-claim against the creditor.
4. Nevis has extraordinarily strong “charging order” protection for its LLCs. I discussed the charging order concept and how you can use it to protect your assets here. This means that a creditor can’t force your Nevis LLC to cease operations or to seize your ownership interest in it. A creditor who obtains a charging order against a Nevis LLC is entitled only to the right to attach future distributions from it. The creditor can’t force you to make distributions. Nor can it disrupt the business of your LLC.
5. An enhanced burden of proof is required to prevail in a fraudulent conveyance action against a Nevis LLC or Nevis trust. Creditors may attempt to challenge transfers to LLCs (and especially trusts) as being designed to “hinder, delay, or defraud” the creditor. This is called a “fraudulent transfer” or “fraudulent conveyance.”
The burden of proof in US courts to sustain a fraudulent transfer claim is that the transfer is “more likely than not” to violate whatever rules are in effect in that court. In contrast, Nevis law requires proof “beyond a reasonable doubt” that a transfer was fraudulent for a creditor to prevail in a fraudulent conveyance claim.
6. Receipt of membership interest is an absolute defense to a fraudulent conveyance claim. US courts often can invalidate a transfer of assets to a LLC if a creditor can assert that it has a claim to those assets. But under the laws of Nevis, such transfers can’t be challenged as long as you can prove you received a corresponding ownership interest in a Nevis LLC.
7. Only the LLC may be named as a defendant in any lawsuit. A lawsuit brought against the members or managers of a Nevis LLC must be dismissed. This makes the process required to seize your interest in a Nevis LLC much more difficult.
8. No punitive damages. In the unlikely event that a Nevis court finds your transfer of money or property to a Nevis LLC or Nevis trust fraudulent, it will be set aside only to the extent necessary to satisfy actual damages (not punitive damages) suffered by a particular creditor. Each creditor must bring a separate action in the local court.
Unsurpassed International Tax Planning Flexibility
A Nevis international trust is also an ideal estate planning option. Not only does it provide unsurpassed asset protection, it also lets you set up a “dynasty trust” that can last for generations – potentially, forever. That’s because Nevis has abolished what’s called the “rule against perpetuities” that in most US states – and many countries – strictly limits the duration of a trust.
That’s just the beginning of the planning possibilities. Another compelling estate planning strategy is to gift minority membership interests in a Nevis LLC to your children or other family members. Those interests have a market value less than the value of the underlying assets, because they don’t represent a controlling interest in the LLC. For gift tax purposes, you may discount the value of these interests by 20% or more. If you have a large estate, such “valuation discounts” can lead to huge savings in estate tax.
What if you’re operating an international business and want to legally defer tax on the profits? Traditionally, you’d use a foreign corporation in this situation. However, for greater asset protection, you can use a Nevis LLC to operate the foreign business and get the same tax deferral benefits! Even if you own more than 50% of the foreign business, with proper planning, you can defer tax on its profits and maintain greater asset protection than if you organized the business as a foreign corporation.
As you can see, Nevis LLCs and trusts provide enormous opportunities for asset protection and estate planning. While they’re not suited to every situation, they’re amazingly versatile entities you should strongly consider for your offshore dealings.
Mark Nestmann
Nestmann.com
