The Offshore Limited Liability Company

The Offshore LLC may be most appropriate for those in high-risk medical specialties and those for whom insurance coverage is inadequate or unavailable.  

Advantages

• Creditor can’t reach assets
• Offshore LLC is disregarded for tax purposes. No returns or informational filings are required.
• Estate tax advantages are the same as the Family Limited Partnership.

Creditor Can’t Reach Assets
Assets in the Offshore LLC can’t be reached by a creditor because of the “charging order” limitations and the legal and practical inability to collect against the Offshore LLC in a foreign jurisdiction.

A “charging order” against an LLC membership interest, giving the creditor a right to receive any actual distributions to the debtor member, will not be an effective remedy, since no distributions will be made under those circumstances. Neither the Offshore LLC nor it’s manager can be compelled to liquidate assets or distribute funds - even if the collection litigation is attempted in the foreign jurisdiction where the Offshore LLC is formed.

No Tax Burdens
In an effort to combat tax evasion through the use of offshore entities, substantial IRS filing and reporting requirements are imposed on foreign trusts, offshore corporations and foreign partnerships.

But the Treasury Regulations treat the Offshore LLC, just like a domestic LLC. If intended to qualify, it can elect to be disregarded for federal tax purposes. That means no tax returns or informational filings are required other than the initial election to be treated as a disregarded entity. All income is reported directly on the owner’s personal return and the existence of the Offshore LLC is ignored for tax reporting.

Estate Tax Savings
As we discussed with the FLP, membership interests in an Offshore LLC can be transferred to family members at a discount for significant estate tax savings.

Example of the Offshore LLC
Form a Family Limited Partnership to hold your savings and brokerage accounts. The limited partnership interests in the FLP will be held by the Offshore LLC. We will protect the ownership of the Offshore LLC by holding membership interests in the Family Savings Trust.

Under this arrangement, savings and brokerage accounts are well insulated in the FLP. But we opened up new tactics and levels of protection with the Offshore LLC.

To combat a perceived threat, or to take advantage of investment opportunities, at any point in the future, assets of the FLP can be moved into an overseas account in the name of the Offshore LLC. If there is a subsequent judgment against you, even a charging order is unlikely since you do not own interests in the FLP or Offshore LLC. Any collection order would be without enforcement capabilities in the U.S.

If litigated in the jurisdiction where the Offshore LLC is formed, it is likely that the creditor would have to prove that any transfers were a violation of the applicable Fraudulent Transfer laws and such a claim would have to be initiated within the Statute of Limitations period (generally one or two years). The obstacles presented by this arrangement, and other features which can be added, provide an excellent legal shield against even the most aggressive and determined plaintiffs  

The Offshore LLC is a fairly simple and effective asset protection tool. It reinforces the available domestic protection, supplementing available malpractice insurance, for those with significant lawsuit risks. Tax filings and returns can be eliminated. Administration and money management issues only arise at the time, if ever, that the Offshore LLC is funded with bank or brokerage accounts.