—For Couples Only—
ALL ABOUT TENANCY
BY THE ENTIRETIES
How to Use It – How to Lose It
Alan S. Gassman, J.D., LL.M.
Thursday, July 28, 2011
5:30 p.m.
agassman@gassmanpa.com
Additional materials available at:
www.gassmanresourcecenter.com/previously.recorded.webinars.html
“My wife and I were happy for 20 years…then we met.”
- Rodney Dangerfield
“The secret of a happy marriage remains a secret.”
- Harry Youngman
“I love being married. It's so great to find that one special person you want to
annoy for the rest of your life.”
- Rita Rudner
“Marriage is a great institution, but I'm not ready for an institution.”
- Mae West
“Anyone who acts as his own lawyer has a fool for a client.”
- F. Lee Bailey
© 2011 – Gassman Law Associates, P.A.
2
WE WROTE THE BOOK ON THE NEW
ESTATE TAX LAWS
FOR 2011 AND 2012
To order a copy of the book please visit BNA Tax & Accounting at:
http://www.bna.com/estate-tax-planning-2011-2012/
© 2011 Gassman Law Associates, P.A.
3
Introduction
•
•
•
•
•
•
•
•
Tenancy by the Entireties TBE
TBE “immunity” & English Common Law
Hold property as an indivisible unit
Joint tenant presumed to have an equal share that is severable by
either spouse
Not divisible on behalf of one spouse alone
Creditors owed monies by both spouses have access to TBE
property
Recognized (at least to some extent) by: Florida, Arkansas,
Delaware, Michigan, Pennsylvania, Rhode Island, Washington,
D.C., Missouri, Tennessee, Hawaii & Vermont
If spouse lives outside of Florida, treatment subject to law of
where the other spouse resides
© 2011 – Gassman Law Associates, P.A.
4
Definition of TBE
• Law requires “the 6 unities”:
1.
Unity of possession
•
2.
Joint ownership and control
Unity of interest
•
3.
Same interest in the account
Unity of time
•
4.
Interests of both spouses originate simultaneously in the same
instrument
Unity of Title
•
5.
Ownership under the same title
Survivorship
•
6.
With one spouse left  one sole owner
Unity of marriage
•
Must be legally married under Florida law
© 2011 – Gassman Law Associates, P.A.
5
Joint Accounts
• Beal Bank, SSB v. Almand and Associates
– Florida Supreme Court: “What has been termed a
morass in the common law… We hope to bring greater
predictability and uniformity to the common law
governing accounts held at financial institutions and to
eliminate the confusion that has arisen from our prior
decisions.” … “Not only must the form of the estate be
consistent with entireties requirements, but the
intention of the parties must be proven.”
– The burden will be on the creditor to prove by a
preponderance of evidence that a tenancy by the
entireties is not created
Clients should be careful in simultaneously
establishing TBE accounts and labeling them as such
© 2011 – Gassman Law Associates, P.A.
6
© 2011 – Gassman Law Associates, P.A.
7
8 COMMON LLC PLANNING ERRORS
By: Alan S. Gassman, J.D., LL.M.
Steve
Leimberg's
Asset
Protection
Planning
Email
Newsletter
Archive
Message
#83
Date: 16-May-06
From: Steve Leimberg's Asset Protection Planning Newsletter Subject: 8 Common LLC Planning Errors
Alan Gassman of Gassman, Bates & Associates in Clearwater Florida is a frequent LISI contributor. Alan is on the Board of
Advisors of the Research Institute of America, Journal of Asset Protection.
Alan warns LISI members of 8 common asset protection planning mistakes made when setting up and running LLCs.
EXECUTIVE SUMMARY:
Limited liability companies are quite often the entity of choice for investment and business holdings.
Problems can arise, however, where structuring does not take important risks and federal and state law requirements into account.
FACTS:
Some of the most common problems we encounter in reviewing LLC arrangements for clients are:
1. TENANCY BY THE ENTIRETIES" DESIGNATION THAT WILL NOT QUALIFY AS TENANCY BY THE
ENTIRETIES.
Many married couples in states that protect tenancy by the entireties assets from the creditors of one spouse or the other have their
LLC interests titled jointly as tenants by the entireties.
But they don't realize that there are provisions in the operative documents which are inconsistent and would thus annul tenancy by
the entireties characterization and protection..
Common examples of this are:
(a)
By the rules of tenancy by the entireties, the joint interest must pass outright solely by the surviving spouse in the event of
the death of the surviving spouse. Oftentimes an operational document will provide that on the death of a member, the interest of
that member must be sold. Agreements are commonly not drafted to explicitly provide that on the death of a spouse, the other
spouse will be the owner of the joint interests, without any inconsistent member agreement provisions.
© 2011 – Gassman Law Associates, P.A.
8
(b) Similarly, provisions under an operative document which restrict transfers may actually be read to prevent
one spouse from owning the entire member interest on the death of another spouse.
(c) While the certificate of ownership may be issued to both spouses as tenants by the entireties, oftentimes the
Operating Agreements or Articles of Organization will provide for only one spouse or the other to be an owner.
2.
ENTITY DOCUMENTS CAN DISQUALIFY S ELECTION.
Limited liability companies may be treated as S Corporations under the federal income tax law if certain very strict
requirements are met and an S election is made.
If the S election is made but the S Corporation requirements are not met, then the company will be taxed as a "C
Corporation," therefore exposing properties and income to double tax.
Common causes of this catastrophic treatment are as follows:
(a)
An operating agreement does not provide for all income to be distributed pro rata to ownership. Commonly
"partnership style" clauses assure members that they will recapture their original investment or have some sort of
an income sharing that would reflect a "second class of stock," which is not permitted under the S Corporation
Rules.
(b) Although state law permits a limited liability company to have non-citizens, corporations, and other entities
own LLC interests, these and certain other entities are not permitted owners of S Corporation stock, and will thus
cause disqualification.
(c)
Too high of a debt equity ratio could cause disqualification from S Corporation status.
© 2011 – Gassman Law Associates, P.A.
9
Stock Certificates
• Cacciatore v. Fisherman’s Wharf Realty Ltd. Partnership,
2002
– Presumption of TBE extends to shares of stock held in
certificate form titled in the joint names of spouses
• What if the choices are:
 Tenants By The Entireties
 Joint With Right of Survivorship
 Other
• In re Matthews, 2009
• The choices were:





Individual
Tenants in Common
Other
Joint Tenants with Rights of Survivorship
Uniform Gift to Minor
© 2011 – Gassman Law Associates, P.A.
10
Tax Reporting Consistency
• Ownership of entities often reflected for
federal and state tax reporting purposes
– Often inadvertent inconsistencies
– Ex. IRS instruction: TBE owners of a
partnership interest should receive 2 separate
K-1 forms.
• No harm in issuing a single K-1 form to the spouses
as TBE, and listing one of their SSNs, particularly
where the spouses file a joint return
© 2011 – Gassman Law Associates, P.A.
11
Contracts to Purchase Real Estate
• Husbands and Wives
often put their names
on contracts with
deposits without
clearly designating
TBE
• Safest to have contract
explicitly state it is
held by spouses as TBE
© 2011 – Gassman Law Associates, P.A.
12
US Treasury Bonds
• US treasury bonds cannot be placed in TBE.
• May be owned by one individual or
revocable trust of one individual
© 2011 – Gassman Law Associates, P.A.
13
Tax Refunds
• In re Kossow: A federal tax refund resulting
from a joint tax return would be considered
TBE property, unless affirmatively
disclaimed as such by the spouses
• Refund must be deposited into a TBE
account!
© 2011 – Gassman Law Associates, P.A.
14
Tangible Personal Property
(Physical Non-Real Estate Assets)
• In re Matthews: “If all the unities are
present, a presumption should arise that a
married couple owns personal property as
tenants by the entireties.”
• Appears that tangible personal property is
not protected as TBE assets if physically
located outside a non-recognizing
jurisdiction
© 2011 – Gassman Law Associates, P.A.
15
Automobiles and Other
Registered Vehicles
• In Florida, automobile titles can be held under “AND” or
“OR”
– AND: both signatures required to transfer TBE applies
– OR: either spouse can sign  TBE does not apply
• DMV will require a probate when one spouse dies with
an “AND” title
• Vehicles that don’t require a title are titled to TBE by a
formal bill of sale, or intent
• Federally documented vessels can be held as TBE
• Dangerous instrumentalities (attack dogs, probably
automobiles) should not be owned or controlled jointly
in most cases
© 2011 – Gassman Law Associates, P.A.
16
Real Estate Owned
Outside of Florida
• If state does not recognize TBE, ownership of real
property should be converted to an intangible asset
so Florida law applies
– Most States (including Georgia, Colorado and
Washington) do not recognize TBE
– Some States recognize TBE, but don’t provide “full
protection” for those assets (Alaska, Tennessee)
– Some states recognize TBE law (Delaware, North
Carolina) and in these states the creditors of one spouse
cannot touch TBE property owned by the other spouse
• Make sure organizational documents are consistent
with the law of TBE
© 2011 – Gassman Law Associates, P.A.
17
Other TBE Notes
• Three-way account cannot be TBE
• TBE property can be freely transferred from a
debtor spouse to a non-debtor spouse
• Transfers to non-resident alien spouses
• IRS can invade TBE assets where only one
spouse owes taxes
• Fraudulent transfers and using money
borrowed on TBE property to purchase more
TBE property
• Consider the Alaska Community Property
Trust
© 2011 – Gassman Law Associates, P.A.
18
Joint Debt and Bankruptcy
• If investing in real estate or other leveraged
assets, do so under a business entity which
becomes the obligor, rather then personal joint
debt
• Strategies:
1. Maintain sufficient liquidity or access to liquidity
2. Investment assets other than homestead to be
secured by debt may be purchased under an
LALC or FLP
3. Before one spouse files for bankruptcy, transfer
TBE assets to the other spouse – eliminates joint
debt at the time of filing
© 2011 – Gassman Law Associates, P.A.
19
Joint Revocable Trusts
• Possible to establish a TBE trust with careful
drafting
• Each spouse must be given the right to
disinherit the other spouse of all the joint
assets without notice, effective upon the
moment of their death
– Using this will “mess it up”
© 2011 – Gassman Law Associates, P.A.
20
PROTECTIVE TRUST LOGISTICAL CHART
During both
spouse’s
lifetimes:
Upon first
death in
2011:
During
surviving
spouse’s
remaining
lifetime:
Upon
second
death:
After
deaths of
both
spouses:
First Dying Spouse’s
Revocable Trust
$5,000,000*
(Adjusted upward for
inflation after 1/1/2011)
Family
(By-Pass)
Generation Skipping Trust
(Not taxed in surviving spouse’s
estate)
Remaining
Assets
QTIP NonGST Trust
(Marital Deduction
Trust that is not
generation skipping)
Surviving spouse
can have the
right to redirect
how assets are
distributed on
second death.
Generation Skipping
Trusts for Children
Benefits children and
grandchildren.
Not estate taxable in their estates.
Surviving Spouse’s
Revocable Trust
Surviving Spouse’s Revocable Trust
(Will include assets owned jointly on first
death)
$5,000,000*
(Adjusted upward after
1/1/2011)
Children’s
Trust (or
outright
distributions)
Benefits children.
Taxable in their estates.
Generation Skipping
Trusts for Children
(Can merge with first dying
spouse’s Generation Skipping
Trusts shown on left)
Benefits children and
grandchildren.
Not estate taxable in their estates.
Remaining
Assets
Children’s
Trust (or
outright
distributions)
Benefits children.
Taxable in their estates.
*Assumes first spouse dies in 2011 and that the surviving spouse dies in a later year when the estate tax exemption is still $5,000,000.
*The Unified Credit Exemption is $5,000,000 in 2011 and 2012, and is scheduled to go back to $1,000,00021in 2013.
© 2011 – Gassman Law Associates, P.A.
21
Funding a By-Pass Trust
with TBE Property
• First dying spouse able to fund assets to a
By-Pass trust to benefit surviving spouse
– Not subject to federal estate tax on their estate
– Present allowance is $1,000,000
• IRS regulations allow surviving tenant to
disclaim survivorship interest in joint
tenancy property if certain steps are
followed and in compliance with state and
tax rules
© 2011 – Gassman Law Associates, P.A.
22
BUYING CONVERTIBLE TERM INSURANCE
• You can ask an independent agent who writes for many carriers to
have the client take the physical so that they can get quotes from
several carriers.
• You can ask that all results and quotes be confidential and not given
to the bureau that all carriers belong to and share information with.
Once a carrier turns the client down or "rates" the client all other
carriers know.
• This is called an "informal application" and then the carriers can each
give informal quotes for term coverage. If the client likes the quote
then he or she can buy it.
• You might spread this among 2 or 3 carriers in case one goes under.
• Sample term rates for "preferred", "standard" and "standard smoker"
individuals at ages 35, 40, 45, 50 and 55 are as follows:
© 2011 – Gassman Law Associates, P.A.
23
BUYING TERM INSURANCE
AGE 30
PREFERRED
MALE
STANDARD
FEMALE
MALE
FEMALE
STANDARD SMOKER
MALE
FEMALE
10 Year Term
$378
$328
$658
$518
$1,548
$1,218
15 Year Term
$458
$398
$768
$688
$1,918
$1,438
20 Year Term
$608
$478
$968
$738
$2,278
$1,638
30 Year Term
$938
$768
$1,518
$1,218
$3,908
$3,018
AGE 35
PREFERRED
MALE
FEMALE
STANDARD
MALE
FEMALE
STANDARD SMOKER
MALE
FEMALE
10 Year Term
$375
$345
$735
$565
$1,685
$1,345
15 Year Term
$515
$415
$915
$805
$2,135
$1,775
20 Year Term
$665
$565
$1,105
$945
$2,885
$2,265
30 Year Term
$1,015
$825
$1,735
$1,375
$4,705
$3,555
© 2011 – Gassman Law Associates, P.A.
24
BUYING TERM INSURANCE
AGE 40
PREFERRED
MALE
STANDARD
FEMALE
MALE
FEMALE
STANDARD SMOKER
MALE
FEMALE
10 Year Term
$505
$435
$925
$785
$2,405
$2,005
15 Year Term
$655
$575
$1,215
$1,035
$3,125
$2,485
20 Year Term
$865
$745
$1,505
$1,255
$4,345
$3,185
30 Year Term
$1,495
$1,135
$2,465
$1,985
$7,175
$5,275
AGE 45
PREFERRED
MALE
FEMALE
STANDARD
MALE
FEMALE
STANDARD SMOKER
MALE
FEMALE
10 Year Term
$805
$705
$1,405
$1,095
$8,935
$3,055
15 Year Term
$1,065
$875
$1,985
$1,445
$5,275
$3,815
20 Year Term
$1,415
$1,105
$2,355
$1,755
$7,195
$4,895
30 Year Term
$2,355
$1,765
$2,845
$2,825
$11,625
$7,555
© 2011 – Gassman Law Associates, P.A.
25
BUYING TERM INSURANCE
AGE 50
PREFERRED
MALE
STANDARD
FEMALE
MALE
FEMALE
STANDARD SMOKER
MALE
FEMALE
10 Year Term
$1,235
$1,025
$2,145
$1,625
$6,435
$4,295
15 Year Term
$1,785
$1,235
$2,805
$2,065
$7,825
$5,725
20 Year Term
$2,225
$1,625
$3,425
$2,715
$10,425
$6,865
30 Year Term
$4,025
$2,645
$6,245
$4,785
$13,719
$10,109
AGE 55
PREFERRED
MALE
STANDARD
FEMALE
MALE
FEMALE
STANDARD SMOKER
MALE
FEMALE
10 Year Term
$2,025
$1,495
$3,315
$2,235
$8,935
$5,905
15 Year Term
$2,895
$1,835
$4,655
$2,985
$12,055
$7,995
20 Year Term
$3,505
$2,465
$5,955
$3,985
$14,875
$9,985
30 Year Term
Not Available
Not available
Not Available
Not Available
Not Available
Not Available
AGE 60
PREFERRED
MALE
FEMALE
STANDARD
MALE
FEMALE
STANDARD SMOKER
MALE
FEMALE
10 Year Term
$3,098
$2,198
$4,808
$3,278
$13,028
$8,308
15 Year Term
$4,488
$3,048
$7,088
$5,218
$17,658
$12,978
20 Year Term
$5,798
$4,078
$9,488
$6,668
$22,048
$15,058
30 Year Term
Not Available
Not Available
Not Available
Not Available
Not Available
Not Available
26
Practical Considerations
• Practical considerations with respect to TBE
1. What if both spouses get sued?
2. What if the non-debtor spouse dies while the
debtor spouse is waiting for the jury to come in?
3. What if the spouses are divorced and the debtor
spouse receives an outright disposition?
4. What if the law changes?
–
Common solution: Establish a Family Limited
Partnership or Limited Liability Company to own
the TBE assets
© 2011 – Gassman Law Associates, P.A.
27
Determining Best How To Allocate Assets As Between A Married Couple
Part I
General Rules:
-Typically want each trust funded with at least $3,500,000 worth of assets on death for estate tax planning.
- May be funded from ½ of tenancy by the entireties assets via disclaimer and probate or by life insurance/pension/IRA assets.
Protected life
insurance and
annuity
contracts
“owned by the
insured.”
1.
2.
Husband
Wife
Husband’s
Revocable
Trust
Wife’s
Revocable
Trust
1.
Assets held directly by
revocable trust are subject to
husband’s creditor claims.
Direct ownership of limited
partnership or LLC not in TBE
may have charging order
protection (meaning that if a
creditor obtains a lien on the
2.
limited partnership or LLC,
the husband cannot receive
monies from the limited
partnership or LLC without
the creditor being paid).
Wife could be Trustee if
Husband is sole grantor
(or vice versa)
Trustee other than
Husband or Wife
Gifting Trust
(Irrevocable)
Lifetime ByPass Trust
(Irrevocable)
TBE
(Tenancy by the
Entireties)
Only exposed to creditors if
1.
both spouses owe the
creditor or if one spouse
dies and the surviving
spouse has a creditor, the
spouses divorce, or state
2.
law or the state of residence
changes.
On death of one spouse,
surviving spouse may disclaim
up to ½ (if no creditor is
pursuing the deceased
spouse) to fund By-Pass Trust
on first death.
Safe from creditors of husband
but exposed to creditors of wife
(Maintain large umbrella liability
insurance coverage to protect
these assets.)
On wife’s death, can be held
under a protective trust,
which will continue to be safe
from creditors of husband and
subsequent spouses and “future
new family”
1.
2.
3.
Safe from creditors of
both spouses.
If divorce occurs,
should not be subject
to rules for division of
property between
spouses.
May be controlled by
the “entrepreneurial
spouse” by using a
Family Limited
Partnership.
1.
2.
3.
Safe from the creditors
of the Grantor’s spouse.
If funded by one spouse,
may benefit other spouse
and children during the
lifetime of both spouses.
Otherwise can be identical
to gifting trust pictured to
the left.
SEE NEXT PAGE FOR SECOND TIER PLANNING
A COMMON SOLUTION - to use a limited partnership or similar mechanisms and have no assets directly in the “high risk” spouse’s
trust, half to two-thirds of the assets held as tenants by the entireties, and half to two-thirds of the assets directly in the “low risk”
spouse’s trust.
© 2011 – Gassman Law Associates, P.A.
28
Determining Best How To Allocate Assets As Between A Married Couple
Part II
Subsidiary Entity Techniques:
-Limited partnerships can be used to facilitate discounts, for estate tax purposes, and for charging order protection.
-Limited partnerships and LLCs can also be used to provide “firewall protection” from activities or properties owned.
Husband
Wife
Husband’s
Revocable
Trust
1.
2.
1.
Assets held directly by
revocable trust are subject to
husband’s creditor claims.
Direct ownership of limited
partnership or LLC not in TBE
may have charging order
protection (meaning that if a
creditor obtains a lien on the
2.
limited partnership or LLC,
the husband cannot receive
monies from the limited
partnership or LLC without
the creditor being paid).
SECOND TIER
PLANNING:
97%
FLP
Wife’s
Revocable
Trust
TBE
(Tenancy by the
Entireties)
Only exposed to creditors if
1.
both spouses owe the
creditor or if one spouse
dies and the surviving
spouse has a creditor, the
spouses divorce, or state
2.
law or the state of residence
changes.
On death of one spouse,
surviving spouse may disclaim
up to ½ (if no creditor is
pursuing the deceased
spouse) to fund By-Pass Trust
on first death.
3%
1%
Lifetime ByPass Trust
(Irrevocable)
Gifting Trust
(Irrevocable)
Safe from creditors of husband
but exposed to creditors of wife
(Maintain large umbrella liability
insurance coverage to protect
these assets.)
On wife’s death, can be held
under a protective trust,
which will continue to be safe
from creditors of husband and
subsequent spouses and “future
new family”
96%
Wife could be Trustee if
Husband is sole grantor
(or vice versa)
Trustee other than
Husband or Wife
1.
2.
3.
Safe from creditors of
both spouses.
If divorce occurs,
should not be subject
to rules for division of
property between
spouses.
May be controlled by
the “entrepreneurial
spouse” by using a
Family Limited
Partnership.
3%
1.
2.
3.
Safe from the creditors
of the Grantor’s spouse.
If funded by one spouse,
may benefit other spouse
and children during the
lifetime of both spouses.
Otherwise can be identical
to gifting trust pictured to
the left.
100%
Husband,
Manager
FLP
LLC
FIREWALL
LLC
Leveraged
Investment
Property or activity
A COMMON SOLUTION - to use a limited partnership or similar mechanisms and have no assets directly in the “high risk” spouse’s trust, half to two-thirds of
29
the assets held as tenants by the entireties, and half to two-thirds of the assets directly in the “low risk” spouse’s trust.
Moving More Value Out
Of Taxable Estates by Using
Discounted Limited Partnership
Or LLC Annual Gifting
Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Permitted Annual
Gifting
$26,000.00
$26,000.00
$26,000.00
$26,000.00
$26,000.00
$26,000.00
$26,000.00
$26,000.00
$26,000.00
$26,000.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
© 2011 – Gassman Law Associates, P.A.
10 Year Gifting Period
$26,000 Annual Exclusion Allowance
35% Valuation Discount
Cumulative Value
with 7% Growth
$26,000.00
$53,820.00
$83,587.40
$115,438.52
$149,519.21
$185,985.56
$225,004.55
$266,754.87
$311,427.71
$359,227.65
$384,373.58
$411,279.73
$440,069.31
$470,874.17
$503,835.36
$539,103.83
$576,841.10
$617,219.98
$660,425.38
$706,655.15
$756,121.01
$809,049.49
$865,682.95
$926,280.76
$991,120.41
$1,060,498.84
$1,134,733.76
$1,214,165.12
$1,299,156.68
$1,390,097.64
Gifting Equivalent Amount
Applying 35% Discount
$40,000.00
$40,000.00
$40,000.00
$40,000.00
$40,000.00
$40,000.00
$40,000.00
$40,000.00
$40,000.00
$40,000.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
Cumulative Value
with 7% Growth
$40,000.00
$82,800.00
$128,596.00
$177,597.72
$230,029.56
$286,131.63
$346,160.84
$410,392.10
$479,119.55
$552,657.92
$591,343.97
$632,738.05
$677,029.71
$724,421.79
$775,131.32
$829,390.51
$887,447.85
$949,569.20
$1,016,039.04
$1,087,161.77
$1,163,263.10
$1,244,691.52
$1,331,819.92
$1,425,047.32
$1,524,800.63
$1,631,536.67
$1,745,744.24
$1,867,946.34
$1,998,702.58
$2,138,611.76
Value Added By
Discount Phenomenon
$14,000.00
$28,980.00
$45,008.60
$62,159.20
$80,510.35
$100,146.07
$121,156.30
$143,637.24
$167,691.84
$193,430.27
$206,970.39
$221,458.32
$236,960.40
$253,547.63
$271,295.96
$290,286.68
$310,606.75
$332,349.22
$355,613.66
$380,506.62
$407,142.08
$435,642.03
$466,136.97
$498,766.56
$533,680.22
$571,037.84
$611,010.48
$653,781.22
$699,545.90
$748,514.12
30
Multiple Owned Doctor
Medical Practice
© 2011 – Gassman Law Associates, P.A.
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CHART #1
PROFESSIONAL PRACTICE LIEN STRUCTURE
LOGISTICS
Gives
Lien
© 2011 – Gassman Law Associates, P.A.
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CHART #2
PROFESSIONAL PRACTICE LIEN STRUCTURE
LOGISTICS
© 2011 – Gassman Law Associates, P.A.
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TO:
CLIENTS AND ADVISORS
DATE: JUNE 3, 2011
RE:
CHARGING ORDER REPAIR BILL SIGNED BY GOVERNOR
******************************************************************************
Concerns over the Florida LLC charging order law have been resolved in favor of
multiple member LLCs and their owners.
On Tuesday, Governor Scott signed the new bill which took into account the Florida
Supreme Court Olmstead case, which will no longer be pertinent for multiple
member LLCs.
It will still be important that LLC Operating Agreements and other documents be
appropriately worded and structured.
Single member LLCs will not have charging order protection.
Our 18 page article on the new law and matters associated therewith will appear in
the LISI financial advisor system shortly, but if you would like an advance copy,
please let us know.
© 2011 – Gassman Law Associates, P.A.
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By way of background, Charging order protection means that upon receiving a
judgement against an LLC member a creditor cannot take over part ownership or take
assets out of the LLC, but is instead limited to being paid as and when the LLC makes
distributions, with the LLC not having any obligation to make any distributions at any
time.
Last summer, the Florida Supreme Court held in the case of Olmstead v. Federal Trade
Commission that a charging order was not the sole remedy for a judgment creditor of the
sole member of a single member LLC. The Court’s reasoning also indicated that
charging order protection may not apply for multiple-member LLCs.
The new legislation makes it clear that charging order protection will apply in a properly
structured multiple-member LLC situation. The legislation is retroactive to the initial
passing of the LLC statute in the 1990s. Single member LLCs will not be accorded any
substantial treatment, although the new legislation provides that a creditor of a single
member LLC owner will not be able to seize assets or control of the LLC if the Court is
convinced that the creditor will be paid in full within a reasonable time.
It is important to note that an improperly drafted or structured multiple-member LLC
arrangement may not qualify for charging order protection. Many LLC members and
managers may, therefore, want to have their LLC operating agreements reviewed to be
certain that the legislative fix will be beneficial to them.
© 2010 - Gassman, Bates & Associates, P.A.
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“It wasn’t raining when Noah built the ark.”
© 2011 – Gassman Law Associates, P.A.
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Biography
Alan S. Gassman is an attorney practicing in Clearwater, Florida with the firm of Gassman Law Associates,
P.A. Mr. Gassman’s primary practice focus over the past 26 years has been the representation of high net
worth individuals, physicians and business owners in estate planning, taxation, and business and personal
asset structuring. Mr. Gassman speaks often for national and state sponsored continuing education
programs and publishes several articles each year in publications such as such as BNA, Estates and Trusts
Magazine, Estate Planning Magazine, The Florida Bar Journal, Leimberg Estate Planning Network (LISI),
and Medical Economics, and has presented dozens of Webinars for professionals on a variety of topics.
Mr. Gassman has a law degree and a Masters of Law degree (LL.M.) in Taxation from the University of
Florida, and a business degree from Rollins College. He is board certified by the Florida Bar Association in
Estate Planning and Trust Law, has the Accredited Estate Planner designation for the National Association
of Estate Planners & Councils, has been and is a commentator for the Leimberg LISI Estate Planning
Network, past President of the Pinellas County Estate Planning Counsel, and co-chair and lecturer for two
annual Florida Bar Tax Section conferences (Wealth Conservation and Physician Representation). Mr.
Gassman holds a prestigious AV rating from his peers on the Martindale Hubbell attorney listing.
Mr. Gassman can be contacted at agassman@gassmanpa.com, or by phone at 727-442-1200. The Gassman
Law Associates, P.A. website is www.gassmanlaw.com.
© 2010 - Gassman, Bates & Associates, P.A.
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