NEW LEGISLATION (Good News for a Change!)
The busy beavers in the Florida Legislature have passed several bills this year which affect our clients in the estate planning and asset protection areas. This newsletter will be our first report on new legislation and focuses on two new bills which were passed to either overturn or clarify recent decisions of the appellate courts. Both of these new laws became effective on May 31, 2011 and contain good news.
First is an act relating to individual retirement accounts (IRAs), amending Florida Statute Section 222.21. This new law provides that inherited IRAs are exempt from claims of creditors. An individual’s IRA (to which he/she has contributed) clearly has been exempt from claims of creditors. However, once the IRA accountholder died and passed those assets to a spouse or children, even if the assets remained in a “rollover” or inherited IRA, they no longer were exempt from creditor’s claims. This law overturns the court case which decided that inherited IRAs were not exempt from the beneficiaries’ creditors and has retroactive application to all inherited individual retirement accounts without regard to the date such account was created.
The second bill relates to limited liability companies (LLCs), amends Florida Statute Section 608.433 and provides that a charging order against a member’s limited liability company interest is the sole and exclusive remedy available to enforce a judgment against a member of a multi-member LLC. This new law clarifies the primary asset protection benefit of an LLC.
This new law was passed because in 2010, the Florida Supreme Court held in the case of Olmstead v. Federal Trade Commission, 44 So.3d 76 (Fla., 2010), that a charging order is not the exclusive remedy available to a creditor holding a judgment against the sole member of a Florida single-member limited liability company. This ruling caused uncertainty in the business community about its breadth and questions arose as to whether businesses were better off organizing LLCs under the law of other jurisdictions where a charging order is clearly the exclusive remedy available to a judgment creditor. The legislature has now made it clear that the major asset protection benefit of organizing as an LLC remains intact, so long as there is more than one member of that LLC.
In the case of a single-member LLC, the ability to protect that member’s assets is not as strong. A charging order is not the sole and exclusive remedy by which a judgment creditor may satisfy the judgment against a judgment debtor who is the sole member of an LLC. If a judgment creditor establishes to the satisfaction of a court of competent jurisdiction that distributions under a charging order will not satisfy the judgment within a reasonable time, then, upon such showing, the Court may order the sale of that member’s interest in the LLC pursuant to a foreclosure sale. Accordingly, the asset protection benefits of a single-member LLC in Florida remain limited. However, if an LLC can be established with multiple members, the asset protection benefits of an LLC are much stronger.
This newsletter is only intended to provide a general overview of these two new laws. As always, if you have any specific questions or concerns about these laws, please do not hesitate to contact me.
