@S Manns I am an Asset Protection attorney and Specialize in Series LLC. 17 states at this point have Series LLC's, and many other states like Florida have revised their LLC statutes and recognized Series LLC and even mentioned them in some recent case law. Their should be 20 states by next year that have Series LLC.
@Will Barnard and @Dawn Vought have gone over what is a Series LLC. It is a parent company LLC that then has children series LLC underneath it. As you add assets you add children / series to the parent Series LLC. This allows you to separate the liability out for each asset. And at the same time filing one tax return on the Parent Company.
CA is a state that is extreme and will tax with the franchise tax each child series $800 franchise tax per series. So we do not recommend these for CA clients. Rather we use DST's which are Delaware statutory trusts. They do not pay the franchise tax, since they are classified as estate tools, but allow you to separate assets into series.
Pertaining to the Series LLC, you need to look at the independent liability shield for LLC for each state that you invest in that do not have Series LLCs, That will tell you if that state recognize the separation of assets in series and will uphold the liability shield for members. You will also want to look at that states 'charging order' and if the SOLE remedy is a charging order or not. You want the sole remedy to be just a charging order.
You want to establish your Series LLC in a state that obviously has them, and out of those 17, that have strong Asset protection laws like TX, DE, NV. Then you file with each state that you start investing in and in your own state tax doing business as. Then start investing, and purchasing assets and transferring them via a legal trust into your S-LLC. The trust is the key component that works with the Series LLC to legally transfer the property and avoid any due on sale clause with banks or lenders.
Lets say you have a TX or NV or DE Series LLC, but have decided to invest in one of the states that does not recognize the Series LLC and have not updated their LLC Statutes, and their State Courts have not mentioned a Series. What do you do to protect yourself?
Try this.
Keep separate books and accounts, each series should have its own name, register only that series as the foreign entity doing business in that state, all contracts should be properly signed by that Series only giving notice. Document very well, capitalize adequately the name of the series that is doing business.
Two of my LLCs are series LLCs. I believe primarily Delaware and Nevada offer these structures. The biggest advantage is that the LLC is structured so that each property can be kept separate by putting it into a separate series for liability purposes even though it is under one main LLC. Keep in mind that this is based on DE and NV law and is relatively new. I haven't heard of any cases where this structure was tested in court in any states outside of DE and NV.
A Series LLC is available in only the following states: Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee and Utah.
Because the Series LLC is a relatively new entity, its benefits are still largely theoretical. Protecting assets by separating them into LLC series is an approach that has not yet been tested and proven by case law. Because case law on the Series LLC is uncertain, this entity type should be established under the guidance of a legal professional familiar with its requirements.
How it works:
You only pay the main series llc state filing fees and all the "sub series LLC's" fall under the main LLC. This saves $, rather than forming individual LLC's for each property you own.
Keep in mind that this only works if the properties are in the states that the Series LLC is recognized. You could not put propertyt in CA into a Series LLC, or you would be taxed by the state franchise board for each series, just as you would if you had filed seperate LLC's for each property.
The only reason to even need this is if you have enough equity in multiple properties that need protection. Also remember that asset protection from any LLC is only one way, that is, it protects the property from being sued by a tenant, but does not protect you from being sued if you were drunk and killed someone's child. They could get the assets in all of your LLC's in that case.
I am not an attorney, but have been advised on this subject by my legal team of experts.
I agree with what Will indicated above, except for the part that you can't put properties into a Series LLC in states that don't utilize them. I know CA usually has some out of the norm rules than other states, and I don't know about CA in general so I will defer to him as a local investor, but I can tell you that I have not run into that situation in the other states that I invest in (not CA). The Series LLCs have their own (single) EIN, and were each approved as a foreign LLC in each state with no issues. One tax return is filed for the main Series LLC with the state. All has gone well so far, but again, as stated originally, there has not been a lot tested in the courts on this yet.
There was one case (in CA I believe) related to the legitimacy of the Series LLC in a non-Series state. If you Google that topic you should be able to find the details.
And no, I'm not an attorney or CPA either, but I did consult with investor-knowledgeable ones familiar with the Series LLC before opening them.
Dawn,
While you may be correct that you have not run into any problems, I can tell yoiu that there has not been enough or any case law yet to make a final decision as to pursue this format.
That said, I do know that CA will charge you the $800 franchise fee for the sub series LLC you have which holds the CA property. Therefore, you might as well just start an individual LLC for that CA property.
I can not claim to know th erules and laws in each of the rest of the states, but I can tell you that if a state can earn fees, they are certainly not going to pass up the opportunity, particularly in this environment.
My advice to everyone here is to consult an experienced attorney on this subject BEFORE proceeding to make a decision. If you do not have or know one, send me a PM or email and I will get you in touch with mine.
Will B
@Will Barnard, great tip on the series LLC. That is a great way to set up the business.
I see this post started 9 years agon. While there is little case law on how series LLC's would withstand a direct assault, there is plenty of logic for using them. One reason for the lack of litigation is that in Texas, the law that created the series LLC states plainly that the creditors of one series may not attach the assets of the other series - so it makes sense to me that plaintiffs would avoid attempting to do so - resulting in a lack of precedent. Similarly, Texas law states that a homestead, IRA accounts etc. are protected from creditors. Just my opinion and that of experts I have consulted, when a statute is unambiguous, it is less important to have case law. It is true that comingling, lack of proper accounting, faulty or non-existing operating agreements can cause any entity to fail - it is no different for series of a series LLC.
Also - in Texas at least, the asset protection of LLC's is bi-directional. Using the example posted by the gentleman above. If you caused an injury that resulted in a claim against you - the plaintiff may not foreclose on LLC ownership. At most, they can get a charging order. I am only familiar with Texas it may be different in each state.
@S Manns I am an Asset Protection attorney and Specialize in Series LLC. 17 states at this point have Series LLC's, and many other states like Florida have revised their LLC statutes and recognized Series LLC and even mentioned them in some recent case law. Their should be 20 states by next year that have Series LLC.
@Will Barnard and @Dawn Vought have gone over what is a Series LLC. It is a parent company LLC that then has children series LLC underneath it. As you add assets you add children / series to the parent Series LLC. This allows you to separate the liability out for each asset. And at the same time filing one tax return on the Parent Company.
CA is a state that is extreme and will tax with the franchise tax each child series $800 franchise tax per series. So we do not recommend these for CA clients. Rather we use DST's which are Delaware statutory trusts. They do not pay the franchise tax, since they are classified as estate tools, but allow you to separate assets into series.
Pertaining to the Series LLC, you need to look at the independent liability shield for LLC for each state that you invest in that do not have Series LLCs, That will tell you if that state recognize the separation of assets in series and will uphold the liability shield for members. You will also want to look at that states 'charging order' and if the SOLE remedy is a charging order or not. You want the sole remedy to be just a charging order.
You want to establish your Series LLC in a state that obviously has them, and out of those 17, that have strong Asset protection laws like TX, DE, NV. Then you file with each state that you start investing in and in your own state tax doing business as. Then start investing, and purchasing assets and transferring them via a legal trust into your S-LLC. The trust is the key component that works with the Series LLC to legally transfer the property and avoid any due on sale clause with banks or lenders.
Lets say you have a TX or NV or DE Series LLC, but have decided to invest in one of the states that does not recognize the Series LLC and have not updated their LLC Statutes, and their State Courts have not mentioned a Series. What do you do to protect yourself?
Try this.
Keep separate books and accounts, each series should have its own name, register only that series as the foreign entity doing business in that state, all contracts should be properly signed by that Series only giving notice. Document very well, capitalize adequately the name of the series that is doing business.
Hi All! I just joined Bigger Pockets a few days ago. I'm at the setting-up stage for a new business in Real Estate Investing. I am initially looking into Northern Westchester, Putnam and Dutchess Counties in NY and then expanding into Western Connecticut (which is geographically near-by) and Arizona (where we plan to have a second/retirement home) as well as other attractive markets. I plan to start with Wholesales and Multi-Unit Rentals (Commercial and Residential) and then expand into Flips as I acquire knowledge and contacts in Construction. I would be interested in any updates on Series LLC's in general as well as any suggestions you may have wrt using Series LLC's in setting up my business. Thank you so much in advance!
@Brian Bradley This is a great post! Thanks for sharing this insight!
There is a new Uniform Protected Series Act that many states are adopting. Iowa passed it in April 2019, set to take effect July 1, 2020.
@Brian Bradley I have a Question? I Wanted to use a series llc-sub llc as the beneficiary of a land trust of each of my properties in a non series state and register the master llc in the state where the series will be used as a foreign llc. Would this be good for asset protection the master will be a Texas series and will register in Louisiana. I will set up a different management company for management of the properties in Louisiana. So it shouldn't matter if the sub llcs are from another state
@Roy Jones I like s-llc and use them but only recommend them for people who live in a state that recognize the S-LLC and the asset that might blow up and have liability on it is located in a state that recognize S-LLC. States are now drawing lines in the sand with how they view asset protection and competing against each others. Remember, if you get sued in a state, you are going to sued with the tort and damage laws of that state. In non S-LLC states I would create an LLC in that State, and then you can grow into an asset management limited partnership (AMLP) and place that LLC into it to smooth-line taxes etc. Then as you grow to a HNW client, you can then add an asset protection trust to the minority ownership portion of the AMLP, And keep in mind, a S-LLC is just a LLC. LLCs veils are easily pierced by any new attorney who passed the bar exam. They are more used as entry level protection and a deterrent to hopefully drive up litigation costs and cut some of the legs off of any money the PL will get. they are good, they get the asset out of your personal name, which is what you want, but you also have to look at perception and what a judge will say if you are challenged in court in a state with no S-LLC legislation. they won't give two cents.
I know this is an older post but I just got approved for a series LLC. I have one question.
Which EIN should I use for my business credit card? The umbrella EIN or should I use the one I will be applying for tomorrow, as a series 1 of the umbrella LLC? (since you can only apply for one a day,) I won't be acquiring another property until 2 years, minimum but I do like the idea of separating expenses for tax purposes. Thanks!
I just learned about "series LLC" which seems like something I want to pursue. But if I had already set up traditional LLCs for my properties not knowing that this thing called "series LLC" existed, what do I need to do? Can I create a Master LLC and just have these traditional LLCs feed into it (by creating a new operating agreement explaining the series)? (Sorry if you saw my post already...I'm posing the question in multiple discussion forums)
@Afrothiti Manolis did you get any insight on your question?
I just learned about "series LLC" which seems like something I want to pursue. But if I had already set up traditional LLCs for my properties not knowing that this thing called "series LLC" existed, what do I need to do? Can I create a Master LLC and just have these traditional LLCs feed into it (by creating a new operating agreement explaining the series)? (Sorry if you saw my post already...I'm posing the question in multiple discussion forums)
Hi Cody, did you get the answer to your question? I'm wondering the same thing?