Law Offices of Givner & Kaye Newsletter | February Issue 

Greetings!
         

       California law changed effective January 1, 2014, regarding limited liability companies (LLCs).  As a result, LLCs are not as effective as they had been previously in putting a hurdle between your valuable assets and some future (currently non-existent) creditor.  The elimination of old Corporations Code Section 17302(c)(2) and its replacement by new Section 17705.03(d) is nothing short of a disaster.  As a result, limited partnerships are going to be used more often than they were in the past because their comparable creditor provision - Section 15907.03(c)(2) - retains the old "poison pill" language. 

 

          Limited partnerships are a fairly inexpensive way to put a relatively effective hurdle between your valuable assets and some future creditor.  However, the most important element is timing: the older the hurdle, the better it is.  The time to act is now to ward off the harm caused to you, your heirs and your assets by some future plaintiff.

 

          So please call us now at (310) 207-8008 to set up a discussion about protecting your valuable assets.  A limited partnership is, of course, not the right vehicle for every asset.  But there is a "right" vehicle for every asset.

 

                    Best regards,

 

                    Bruce Givner

                    Owen Kaye

                    Kathleen Givner

                    Neda Barkhordar

Featured Article: The Fall Of LLCs, The Rise Of Limited Partnerships
Before January 1, 2014, a judgment creditor of a member of an LLC would, first, get a "charging order" against the member's interest.  Then, after some indeterminate time period during which the "charging order" had not "discharged" the creditor's judgment, the creditor could ask the court to "foreclose" on the membership interest.  Note that foreclosing on the membership interest is not the same as foreclosing on the underlying assets of the LLC.

 

However, former Section 17302(c)(2) of the Corporations Code provided that at any time before foreclosure, another member could buy the charged member's interest with other assets.  The beauty of this provision is that it did not state the price or the terms of the purchase.  Therefore we were able to draft the LLC agreement to allow another member, typically an irrevocable trust for the benefit of the children, to buy the charged member's interest (the parent's interest) for a 30 year, interest-only installment note at a value which took into account valuation adjustments for lack of control and lack of marketability.  The purpose of this provision was not to actually have the parent's interest purchased but to motivate the creditor to settle for pennies on the dollar. 

 

Effective January 1, 2014, that section was replaced by Section 17705.03(d) which provides that, instead, another member can buy the charged member's interest by "pay[ing] to the judgment creditor the full amount due under the judgment...."  As a result of that change, an LLC is not an attractive vehicle to discourage some future creditor.  (Of course we never want to discourage a current creditor as that would be a fraudulent transfer.)

 

However, the comparable provision for creditors of limited partners has not changed.  Section 15907.03(c)(2) provides precisely what the prior LLC law provided: another partner may buy the charged partner's interest with other assets, and that law does not prescribe the price or terms.  So the artful drafting of the partnership agreement and structuring of the partnership interests is the key to the positive result.

 

Of course you also need a significant non-creditor purpose for the existence of the partnership.  Otherwise, it may be viewed - in a future action - as being merely a creditor protection device.  Most importantly, you want the structure in place now so that 4 years - preferably 7 years - passes by before you have a problem.  Both tax planning and creditor planning are like a fine Madeira: the older it is, the better it tastes.


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Tax Tip of the Month
It is not too late yet to make changes to your tax qualified employee retirement plans for 2014.

If your plan is on a calendar year, your employees have not yet achieved 1,000 hours of service (which constitutes 1 year of service).  Therefore, if you wish to explore reducing the cost of the rank and file by, for example, trying the representative cross-section test, now is the time to talk to us. 

Upcoming Thursday Insights Series Seminar: Fisher Investments' 2014 Capital Market Outlook
 
Feb. 20th
 
John Seibel and Michael Weston will present the 2014 Capital Markets Outlook by the highly respected Fisher Investments, founded by Ken Fisher. Ken has written the Forbes Portfolio Strategy column since 1984 and has been recognized as one of the 30 most influential industry figures in the last 30 years. The firm has almost $50 billion under management.

This presentation includes unique insights into recent economic and financial developments, and the opportunity to provide answers to participants' investment questions.

Call (310) 207-8008 or sign up online to join the seminar in-person or via webinar!
Recent Posts


Attorney Spotlight: Owen Kaye, Esq. 

     Owen Kaye, Esq. has, once again, been called on to be an expert witness in a trial regarding the validity of a qualified personal residence trust ("QPRT").  Owen is sought out to be an expert witness, in part, because he is the co-author of the chapter (17) in the two volume CEB (California Continuing Education of the Bar) treatise on Irrevocable Trusts on QPRTs and because he is the co-author of a major article on QPRTs appearing in the prestigious California Trusts & Estates Quarterly (Winter, 2008) entitled "The Curious Case of QPRTs: Underused and Underappreciated." 

 

      Owen continues to appear in Probate Court on behalf of trustees in cases brought by disappointed people who thought they should have been beneficiaries, and by beneficiaries who think that the trustees are not treating them fairly.  Owen has on more than one occasion been retained by children whose parent has been kept from them by another child (with the other child siphoning the parent's assets into the child's own pockets).  He recently represented the children of marriage #1 against the claims of spouse #2 in the deceased parent's estate.  It is an unfortunate truth that as wealthy people die, probate litigation proliferates.  Happily Owen is both good at it and enjoys it.

For over three decades, our experienced Los Angeles estate planning, asset protection and expert tax attorneys have met each client's unique planning needs by collaborating with our longtime partners - attorneys, accountants, business managers, financial planners, stockbrokers and insurance professionals. Contact Givner & Kaye today!

Givner & Kaye, A Professional Corporation | bruce@givnerkaye.com 
www.GivnerKaye.com
12100 Wilshire Blvd.
Suite 445
Los Angeles, CA 90025

February, 2014


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