Legal Note - Choice of Law

One of the most powerful elements of asset protection planning is the right to choose from the variety of asset protection vehicles offered by the different states. For example, highly protective LLC and trust structures may be utilized outside the particular state offering the protection.

The ability to utilize the protections offered by the various states is derived from the “Full Faith and Credit” clause of the U.S. Constitution. The text of the Full Faith and Credit Clause generally requires the states to give full faith and credit to the public acts, records, and judicial proceedings of every other state.

The language of the clause, however, fails to mention the “laws” or “statutes” of other states. Although the full faith and credit clause forces states to respect the judgments of other states, the constitution is less clear in forcing states to apply the laws enacted outside the state of the presiding court. As the Constitution binds state courts only to “judgments”, other state courts may, under certain circumstances, apply the law of their home state in determining the validity of creditor protections. A poorly prepared asset protection plan may therefore become subject to the substantive law of a debtor friendly state. However, with the proper drafting, exposure to a court applying unfavorable law to an otherwise protective structure can be minimized. If only to avoid the “choice of law” issue, care should be taken in choosing a seasoned professional to organize an asset protection

Gary Forster is a Florida native practicing in all areas of business transactions, personal planning and tax matters, both domestic and international. Gary handles a variety of corporate, personal and tax planning matters, ranging from wealth protection and corporate structuring to complex business reorganizations. Mr. Forster has designed and drafted hundreds of asset protection plans involving domestic and foreign corporate and trust structures. Gary is a member of both the Florida Bar (admitted October 8, 1993) and District of Columbia Bars (admitted February 6, 1995), including bar sections for international and tax law. Gary is also a member of the U.S. Tax Court. Gary earned an undergraduate degree from Tufts University in 1990, graduating cum laude, with majors in Spanish Literature and Economics. Gary graduated from law school at the University of Florida in 1993 with honors. Gary earned the Masters in Taxation degree in 1994 from the University of Florida where he was a graduate fellow. Mr. Forster writes and lectures frequently on international tax, corporate law and asset protection issues. Gary speaks Spanish fluently.

Circular 230 Disclosure: PURSUANT TO INTERNAL REVENUE SERVICE CIRCULAR 230, WE ARE NOT PERMITTED TO RENDER CERTAIN TAX OPINIONS UNLESS WE CONDUCT AN INDEPENDENT INVESTIGATION OF THE RELEVANT FACTS OF A TRANSACTION. AS THE ABOVE NOTE WAS PREPARED TO PROVIDE GENERAL INFORMATION TO OUR CLIENTS AND CONTACTS, WE HAVE NOT COMPLETED THIS INDEPENDENT INVESTIGATION. THIS ARTICLE MAY NOT THEREFORE BE RELIED UPON AS LEGAL ADVISE OR FOR THE PURPOSE OF AVOIDING FEDERAL TAX PENALTIES OR PROMOTING, MARKETING, OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED MATTERS ADDRESSED HEREIN. ANY TAX ADVICE CONTAINED HEREIN IS NOT INTENDED OR WRITTEN TO BE USED AND CANNOT BE USED BY A TAXPAYER FOR SUCH PURPOSES.