Michael Ioane

Article IV

Summary Guide Article

Guide: Jurisdiction Strategy in Asset Protection

This guide provides a practical reference for jurisdiction strategy in asset protection planning. The frameworks here reflect Michael Ioane’s approach to evaluating jurisdictions based on specific legal characteristics, selecting the appropriate jurisdiction for each structural component, and maintaining compliance with the reporting obligations required by multi-jurisdiction structures.

LLC Jurisdiction Evaluation Framework

Evaluate potential LLC formation jurisdictions against the following criteria:

• Charging order exclusivity does the statute specify the charging order as the exclusive remedy for personal creditors of a member, with no alternative remedies available
• Single-member coverage: Does the exclusive charging order remedy apply to single-member LLCs, or only to multi-member entities
• Creditor rights limitation: does the statute prohibit charging order creditors from participating in management, compelling distributions, or forcing dissolution
• Veil-piercing standard does the jurisdiction’s case law apply a demanding standard for veil-piercing that gives appropriate weight to formal governance compliance
• Formation disclosure: Does the jurisdiction require minimal public disclosure of member or manager identity in formation records

Nevada and Wyoming currently provide the strongest combination of these features for LLC-based protection planning.

Trust Jurisdiction Evaluation Framework

Evaluate potential trust administration jurisdictions against the following criteria:

• Domestic asset protection trust statute does the jurisdiction have a specific statutory provision permitting self-settled trusts where the settlor is a discretionary beneficiary without full creditor access to the trust assets
• Fraudulent transfer look-back period: how long after a transfer to the trust can a creditor challenge the transfer as fraudulent; shorter periods are more protective
• Creditor burden of proof: Does the applicable statute require the creditor to prove fraudulent transfer by clear and convincing evidence, or by a preponderance of the evidence
• Spendthrift provisions: how strongly does the jurisdiction’s law protect a beneficiary’s interest from the beneficiary’s creditors before distribution
• Rule against perpetuities has the jurisdiction abolished the rule against perpetuities, allowing dynasty trusts to continue indefinitely

South Dakota and Nevada currently provide the strongest combination of these features for trust-based protection planning.

Compliance Requirements for Multi-Jurisdiction Structures

Maintain full compliance with the following reporting obligations for multi-jurisdiction structures involving U.S. persons:

• FBAR: annual Report on Foreign Bank and Financial Accounts for foreign financial accounts exceeding an aggregate of $10,000 at any point during the year
• Form 3520 and 3520-A: annual reporting for U.S. persons who create foreign trusts, transfer assets to foreign trusts, or receive distributions from foreign trusts
• Form 5471: annual reporting for U.S. shareholders in controlled foreign corporations
• Form 8865: annual reporting for U.S. partners in controlled foreign partnerships
• Corporate Transparency Act: beneficial ownership reporting for domestic entities formed in all U.S. jurisdictions, regardless of the protective features those jurisdictions offer

These obligations apply regardless of any privacy features of the formation or administration jurisdiction, and failure to comply creates penalties that may substantially exceed any protection benefit the structure provides.

Jurisdiction Selection Decision Guide

Apply the following decision guide when selecting jurisdictions for protection planning components:

• For operating entities conducting active business: form in the state where the business primarily operates; operating entities typically cannot be formed in a distant state and then operated locally without subjecting the entity to local jurisdiction
• For holding entities holding passive assets: form in the jurisdiction with the strongest charging order and veil-piercing protections; Nevada and Wyoming are the leading choices for domestic holding LLCs
• For domestic asset protection trusts: administer in the jurisdiction with the strongest DAPT statute, shortest fraudulent transfer look-back period, and most favorable spendthrift and creditor burden-of-proof provisions; South Dakota and Nevada are currently the leading choices
• For dynasty trusts: select a jurisdiction that has abolished the rule against perpetuities; South Dakota, Nevada, Delaware, and several other states permit perpetual or extended duration trusts
• For international structures: evaluate the specific statutory protections available in each candidate jurisdiction against the specific U.S. reporting obligations that will apply; select the jurisdiction providing the strongest protection consistent with full compliance with all applicable reporting requirements

Jurisdiction selection is the planning decision that captures the strongest available legal protection for each structural component. Making it deliberately, based on a comparative analysis of the specific protections each jurisdiction provides, is one of the most cost-effective planning steps available.

The information in this article reflects general structural principles and practical observations from consulting experience and is provided for educational purposes only. It should not be interpreted as individualized legal or tax advice.

Michael Ioane | MichaelIoane.com