[Disclaimer: This article does not constitute legal advice. To set up legal entities for your real estate business, be sure to consult an attorney who understands laws specific to your area.]
Some people get offended when we start talking about anonymity and immediately go on the defensive. So if you’re reading this, thinking about how you have nothing to hide and what an upstanding citizen you are, don’t stop here. We’re sure that you are honest, smart, and probably incredibly good-looking. Anonymity has nothing to do with all of that, so read this very carefully: The main reason you want to hide company ownership is to prevent lawsuits. With that being said, the purpose of this article is to introduce the concept of anonymity and one of the most effective tools for protecting your anonymity—the anonymous trust. The anonymous trust can be extremely effective at preventing you from being sued when setup right.
In fact, this is one of many tools used by the fabulously wealthy to protect their assets. You may not be there yet, but walk the walk, and you’ll be part of the way to doing as they do in other respects.
Here’s three simple steps you can follow to hide company ownership and prevent lawsuits!
3 Steps to Use an Anonymous Trust to Hide Company Ownership
Step #1: Form an anonymous trust.
The series LLC reduces your liability exposure, which effectively limits the potential damage a lawsuit can do to you. What it doesn’t do is stop the lawsuit from happening in the first place. On the other hand, an anonymous trust can! If you truly want to make your company litigation proof, you need an anonymous trust.
Related: The Pros & Cons of Using a New LLC for Every Property Purchase
The probability of a lawsuit happening is based on three separate components: legal, factual, and financial. An anonymous trust will attack each of those motivating factors. What this does is reduce the chance of a lawsuit happening in the first place.
Step #2: List your anonymous trust as a member.
Yes, believe it or not, you can do that, at least in America. (Remember, you have several options when it comes to structuring your business assets.) Anyway, in the case of anonymity, we want to target the financial component of a lawsuit.
Why? Because lawsuits only happen when a plaintiff believes they have a reasonable case for seizing assets to cover damages. If there’s nothing they think they can seize from you, they won’t sue you.
The anonymous trust structure enables you to hide company ownership by listing your company as a member in your LLC’s articles of incorporation. Another advantage of an anonymous trust is that you don’t have to file it with the state—which means the people who want to sue you won’t be able to access your ownership information in the public records.
There will be nothing to associate the assets with your name, shielding you from potential legal action.
Step #3: Allow uncertainty to work its magic!
To be perfectly blunt, people sue you because they want your money. Most of the time, the people suing you have little to no money in the first place. And if they don’t have enough money, they can’t pay a lawyer to sue you.
People usually get around this obstacle by offering their lawyers part of the settlement. That means it’s up to a lawyer whether or not you get sued. How does the lawyer make that decision? It’s got nothing to do with affection for the client, merits of the case, or the goodness of their hearts. (Yes, contrary to popular belief, attorneys do indeed have hearts.) It comes down to the numbers: how much cold hard cash will be in it for them.
If a lawyer is uncertain about whether you own assets worth anything, they won’t waste their time trying to sue you. After your anonymous trust is in place, it will be next to impossible for someone to determine what you own.
Related: Can Investors & Landlords Own Real Estate Anonymously (Or is Privacy Dead)?
No lawyer is going to spend months or years trying to figure out what you own, period. I should know—I loved a good lawsuit earlier in my career. But at no point in the practice of me or anyone at my company have any of us wasted time on skip-tracing without a guaranteed payday. And hey, even though we have hearts, lawyers have to eat too.
In short, an anonymous trust can keep your hard-earned assets from becoming our next meal.
Investors: How do you protect your assets? Do you use an anonymous trust or something else?
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.