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Friday, May 31, 2013


Louis Steinmetz signed a personal guaranty of a $350,000 loan made to an LLC. The LLC defaulted on the loan. Steinmetz is a beneficiary of a multimillion dollar spendthrift trust that provides no distributions will be made to him if the distribution would be available to his creditors.

Wells Fargo Bank, N.A. is the trustee of the trust. Steinmetz defaults on his guaranty, and Wells Fargo refuses to make distributions to him from the trust. The lender sues Wells Fargo, seeking a ruling that sections 736.0501-.0507, Florida Statutes (2012), which recognize the enforceability of spendthrift trusts, violate article I, section 21 of the Florida Constitution by preventing access to courts. The lender contends that these statutes abolished a “common law” right “to execute a monetary judgment against any beneficial interest held by a debtor,” without providing a reasonable alternative or demonstrating an overpowering public necessity for the statute.

However, these statutes did not abolish a common law right – spendthrift trusts had been enforced under Florida common law even before the statutes were enacted. Thus, the creditor challenges were dismissed, and the spendthrift provisions provided the anticipated protection.

ROBERT ZLATKISS AND LINDA ZLATKISS  v. ALL AMERICA TEAM CONCEPTS, LLC, ET AL., 5th District. Case No. 5D12-3324. Opinion filed May 31, 2013.

Sunday, May 26, 2013



These rates are unchanged from the prior quarter.

Thursday, May 23, 2013


Several states have adopted asset protection trust statutes that allow a grantor to establish a trust that is protected from the grantor’s creditors, even though the grantor is a discretionary beneficiary. These states include Nevada, Alaska, and Delaware.
We have advised grantors that do not reside in one of these states that if they establish such a trust in one of these jurisdictions that the trust may not be effective for them. One possible line of challenge is that if a judgment is obtained in their state of residence, the Full Faith and Credit Clause of the US Constitution may allow for the enforcement of that judgment against the trust assets in another state, notwithstanding local law provisions in that state. Another line of attack would be to seek to apply the law of the grantor’s state of residence in bankruptcy to reach the trust assets. A recent bankruptcy decision indeed took that later approach, ruling that the assets of an Alaska asset protection trust are exposed to the creditors of a Washington grantor.
The court determined that under Section 270(a) of the Restatement (Second) of Conflict of Laws, the grantor’s choice of Alaska law designated in the trust should be upheld if Alaska has a substantial relation to the trust. Based on the facts, such a substantial relation was found lacking:
Conversely, it is undisputed that at the time the Trust was created, the Debtor resided in Washington; all of the property placed into the Trust, except a $10,000 certificate of deposit, was transferred to the Trust from Washington; the creditors of the Debtor were located in Washington; the Trust beneficiaries were Washington residents; and the attorney who prepared the Trust documents and transferred the assets into the Trust was located in Washington. Accordingly, while Alaska had only a minimal relation to the Trust, using the test set forth in Comment b, Washington had a substantial relation to the Trust when the Trust was created.
The opinion is not a paragon of clarity. Perhaps if the grantor and the trust had established more ties to Alaska, a different result may have obtained. Further, even if the Alaska law was allowed to apply, the trust assets were still exposed under the 10 year rule applicable to asset protection trusts in the Bankruptcy Code. Nonetheless, it is clear confirmation that grantors who do not reside in the asset protection trust jurisdiction in which the trust is established remain open to the risk that they may not be able to benefit by the creditor protection afforded by the asset protection trust jurisdiction.
Waldron v. Huber, 2013 WL 2154218 (Bk.W.D.Wa., May 17, 2013)

Monday, May 20, 2013




Wednesday, May 15, 2013


My partner, Rick Josepher, was involved through the Florida Bar in a major update to Florida’s limited liability company provisions which were recently enacted into law. The following is a summary regarding the new provisions that he prepared.

In its session which ended May 3rd, the Florida legislature  enacted legislation (herein, the “New Act”) which substantially amends the Florida’s existing Limited Liability Company Act.

The New Act creates a new portion of ch. 608, F.S., which it delineates as part II of the LLC act. The existing LLC statutes are designated as part I of the chapter. Until January 1, 2015, part I remains in effect as to LLCs in existence before January 1, 2014. As of January 1, 2015, all LLCs are subject to part II, and part I is repealed.

A summary of the provisions of the New Act is contained in the Florida Senate’s Bill Analysis and Fiscal Impact Statement (the “Senate Statement”). Below are portions of the Senate Statement, modified in part.

The New Act is the result of efforts by representatives of the Business Law Section, the Tax Section, and the Real Property, Probate, and Trust Law Section of The Florida Bar, which included members of our firm. The New Act is substantially based on the Revised Uniform Limited Liability Company Act of 2006 as amended in 2011 (RULLCA) with deviations to reflect unique situations present in Florida.

The New Act:

  • Expands the list of nonwaivable default rules in s.608.105, F.S., which cannot be “trumped” by the operating agreement;
  • Modifies rules for the power of members and managers to bind the company;
  • Modifies provisions addressing the LLC’s management structure (including the elimination of the term “managing member”);
  • Modifies default management and voting rules;
  • Modifies provisions relating to member dissociation and company dissolution;
  • Modifies provisions for service of process on LLCs;
  • Modifies provisions for derivative actions;
  • Modifies appraisal rights provisions, including adding events that trigger appraisal rights, and   provides clarifications to the procedural aspects of the appraisal rights provisions, particularly in dealing with organic transactions approved by way of written consent.
  • The New Act does not change the rules regarding charging orders, and therefore the 2011 amendments to s. 608.433, F.S., made as a result of the Olmstead Patch continue unchanged; and
  • Adds provisions to permit interest exchanges and in-bound domestications by non-U.S. entities.

Below is a description of some of the changes in the New Act:

Operating Agreement

The New Act retains many similarities to current law. Like current law, the New Act provides a gap-filler provision for when the operating agreement does not provide a specific rule. Additionally, the New Act delineates matters that the operating agreement may not alter. This is a far more extensive list than exist under current law.


Currently Florida law contains the concept of a “managing member,” who is elected from among the existing members. The term “managing member” is fairly unique to Florida and is not used in the statutes in any of the more prominent states. The New Act changes existing law by eliminating the concept of a “managing member.” This change was made to eliminate the confusion and disparate interpretations under existing law as to the ramifications that having a managing member has on the nature of the management structure of the LLC. 

Interest Exchange

Current law does not apply the concept of interest exchange to LLC’s. The New Act applies this concept from corporate law to LLCs. In an interest exchange, the separate existence of the acquired entity is not affected and the acquiring entity acquires all of the interest of one or more classes of the interests in the acquired entity. An interest exchange also allows for an indirect acquisition through the use of consideration in an exchange that is not provided by the acquiring entity, such as consideration from another or related entity.


The new act, for the first time, allows domestications of non-U.S. entities who wish to become domestic LLCs in Florida. A domestication allows the domesticating entity to retain its status and existence in the non-U.S. jurisdiction in which it currently exists. The New Act allows domestication of all non-U.S. entities. Much like a merger, the New Act requires a plan of domestication and approval of domestication and allows amendment or abandonment of the plan. The plan becomes effective upon the passage and filing of the articles of domestication.

Saturday, May 11, 2013


Most states will suspend or involuntarily dissolve a corporation if it does not pay local taxes or fees. Such suspensions and dissolutions can typically be reversed after the corporation files to be restored and pays any back taxes and fees (and probably a penalty).

Taxpayers are permitted to contest IRS proposed deficiencies by filing a timely petition in U.S. Tax Court. In a recent Tax Court case, a corporate taxpayer filed a Tax Court petition to contest a proposed tax deficiency. Because the California Franchise Tax Board had suspended the powers, rights and privileges of the corporation and such suspension was in effect when the Tax Court petition was filed, the Tax Court dismissed the petition for lack of jurisdiction. Citing a procedural rule that provides that the "capacity of a corporation to engage in such litigation...shall be determined by the law under which it was organized," the Court found under California law the corporation had no authority to litigate during the suspension, and thus the Court could not take jurisdiction. In 2000, the Tax Court similarly ruled in David Dung Le, M.D., Inc. v. Commissioner, 114 TC 268 (2000).

Thus, tax practitioners are cautioned to check the good standing of any entity filing a Tax court petition, and to bring the entity in to good standing before filing the petition if needed.

John C. Hom and Associates, Inc. v. Commissioner, 140 T.C. No. 11

Tuesday, May 07, 2013


The first step a taxpayer with undisclosed or unreported offshore accounts or assets undertakes in seeking to enter the Offshore Voluntary Disclosure Initiative (OVDI) is to apply for pre-clearance from the IRS Criminal Investigation Lead Development Center. If a pre-clearance letter is issued, the taxpayer then submits a Voluntary Disclosure Letter that discloses substantial information regarding the offshore items and underreporting.

In a recent article in the Journal of Taxation, author Brian P. Ketcham notes that earlier this year, the IRS took the unusual step of withdrawing pre-clearance letters previously issued to certain Bank Leumi customers. The author was troubled by this because the initial pre-clearance letter encourages applicants to make self-incriminating statements when they proceed with the next step in the OVDI process of submitting a Voluntary Disclosure Letter – statements that the government could use in a future criminal prosecution of the applicant if one is undertaken.

Mr. Ketcham’s article discusses case law that perhaps could be used to dismiss any future criminal indictment of such applicants. However, Mr. Ketcham goes on to point out that by withdrawing the pre-clearance letters, presumably based on criteria for rejection that was not previously disclosed to applicants, the IRS raises issues whether it will fully deal in good faith both under the OVDI or other future amnesty programs. By not acting in good faith, the IRS may be causing long-term damage to such programs based on taxpayer distrust which will lead to fewer taxpayers entering such programs.

Ketcham, Brian P., Can IRS Be Trusted? A Troubling New Development in the Offshore Voluntary Disclosure Program, Journal of Taxation, Apr 2013


For anyone that is interested, I will be speaking on the above topic on Thursday afternoon on May 18. Since the Bar now broadcasts its CLE live on the Internet, you can watch it online if you register (and pay!). Below is the full program. For more information or to register, go here and search in May for course number 1461R.



Saturday, May 04, 2013


If a taxpayer does not file a tax return, the statute of limitations for most federal taxes never commences. Thus, in theory, the IRS can go back as many years it wants to such an “open” year to audit and assess tax.

In practice, the IRS rarely goes back too far. In the income tax arena, six years is the general rule of thumb. In a recent case, the IRS has raised eyebrows by seeking to assess gift taxes on a transfer that occurred 41 years ago.

In 1972, Sumner Redstone transferred stock in a family company to other family members in settlement of a family dispute. The IRS is now seeking $1.1 million in gift taxes and penalties, plus interest per its view that the transfer was a gift. A Tax Court petition challenging such treatment was filed in April, 2013. The taxpayer is asserting that the transfers were nontaxable settlement payments and not taxable gifts. The interest on the tax amount has been estimated by some to at least equal the tax due, given 41 years of interest.

Our firm does a substantial amount of estate and trust litigation. Since most of these cases eventually settle, issues arise whether settlement payments are taxable gifts or are instead non-gift settlements. I will be interested to see how the Redstone issue is resolved by the Tax Court, if it gets to trial.

The Tax Court docket sheet can be viewed here. I have been unable to locate an online copy of the Petition itself (the above information has come from other online sources) – if anyone has a link feel free to email it to me at and I will post it in an update. Thank you to my partner, Jordan Klingsberg for bringing this case to my attention.

Redstone v. Commissioner, T.C., No. 008097-13