In Michigan, as well as other states, all corporate directors face risks. As fiduciaries of their corporations they have numerous obligations and assume a myriad of duties they are required to carry out. However, due to the regulatory environment under which they operate, bank directors have significantly greater exposure than directors of non-financial institutions. But there is one thing all directors have in common, personal liability for breach of their duties. Accordingly, bank directors should consult an asset protection planning attorney and complete and implement a plan for asset protection, along with confirming the adequacy of their director’s and officer’s liability insurance coverage, before agreeing to serve on the board.
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As discussed in my December 24, 2010 blog, Michigan has just enacted legislation which catapults it into first place when deciding which state has the best law for limited liability companies if asset protection issues are present. In Michigan, it is now beyond doubt that the charging order is the exclusive remedy for judgment creditors of LLC members.
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With the signature of Governor Granholm on December 16, 2010, Michigan moved to the front of the line when choosing states with the most debtor friendly limited liability company provisions in the country. State of the art asset protection planning with the use of LLC’s has arrived in Michigan.
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I suppose the first question is whether creditors can reach IRA’s owned by the participant or the participant’s spouse when rolled over. Statutes in many states specificly exempt IRA’s from creditor attachment,levy and sale. In Michigan, the statute is very clear that outside of bankruptcy the IRA is exempt from the creditor’s reach. Another statute exempts IRA’s when the debtor takes advantage of the state exemption in a bankruptcy filing. Nonetheless there are examples of cases where IRA’s have been successfully attacked.
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This blog site focuses primarily on sophisticated issues in the asset protection arena. I address new developments, strategies and legal issues. However, I have never used this blog to discuss the fear, anxiety and depression that many new clients exhibit when I first meet them and how attorneys should deal with this.
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Client presents with a single member limited liability company. The emerging case law is that single member LLC’s are not entitled to charging order protection. This makes sense since the original purpose of the charging order remedy was to protect partners in a partnership from being forced to accept a bankrupt partner’s creditors as their new partner. However, since a single member does not face that risk, there is no need for the charging order remedy and courts in several states have held that creditors can foreclose the interest and sell the LLC’s assets to pay debts. Although no case in Michigan has yet held that creditors of a single member LLC can foreclose on the assets of the LLC to pay the member’s debts, it is this author’s opinion that it is only a matter of time and Michigan asset protection planners need to figure out how to protect the single member’s membership interest from creditor claims.
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Although their styles may differ, most asset protection planners will approach their initial client meetings in much the same way. We will listen to the client’s concerns and determine if the client has existing or identifiable future creditors or if the client, with no creditor issues at all, simply desires to be prudent and adopt a plan that will protect his assets from unknown future creditors. We will also carefully review the client’s assets and income streams to ascertain which ones are free from creditor claims and which may be vulnerable.
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A Private Letter Ruling (PLR 200944002) issued by the Internal Revenue Service states that under the facts and circumstances discussed in the ruling the property of a self-settled domestic asset protection trust is not included in the Grantor’s estate even though he is a discretionary trust beneficiary. Many commentators were surprised that Grantor could retain this right and keep the property of the trust out of his estate. This ruling opens the door for Michigan residents to utilize the trust laws of a state such as Delaware in order to create a trust in which they are discretionary beneficiaries yet the property of the trust is both protected from creditors and not included in their gross estates for estate tax purposes.
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Inevitably, in connection with developing an appropriate strategy for a client who is seeking asset protection planning, the issue of fraudulent transfers is front and center. An experienced Michigan asset protection planning practitioner will be able to quickly identify that certain proposed transfers will indeed violate the Michigan Uniform Fraudulent Transfer Act (“UFTA”).
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My April 20, 2010 blog discusses how the IRS avoids being subject to the charging order remedy when seeking to collect from an LLC in which the debtor taxpayer is a member. Unfortunately, the IRS has still another offensive weapon when chasing members of LLC’s for money.
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