LLC, revocable trust, holding company...What do I really need???

21 Replies

I spoke to an asset protection planner (part of an asset protection company that has attorney's and CPA's) and I got completely confused about how to set up a business entity for asset protection. So I'm wondering what do I really need?

I'm a buy and hold investor and I want to start an LLC to hold my properties. The advice that I got was to set up a holding company LLC in Wyoming that holds my other LLC's that are in each state that I own property in. Since I bought the properties in my name and have financing in my name, I was told to use a revocable living trust to hold the properties in, which will own the Wyoming LLC, which will own the individual state LLC's. The revocable living trust will prevent the infamous due on sale clause from being triggered. This seems like overkill. Is all of this really necessary to protect myself from a lawsuit? I should also mention the cost to set all of this up is outrageous.

From what I understand, the purpose of the Wyoming holding company LLC is for privacy, asset consolidation into 1 yearly tax return and the laws of Wyoming will override the individual state LLC's. Wyoming laws are favorable to business owners. (Again, I am still confused about all of this, so I may not have all my facts straight.)

I'd like to simplify if possible, but not too much that I'm not protected in the event of a law suit. 

Can't I just set up an LLC in each state that I own property in, transfer title to the LLC (even though there is a risk of triggering the due on sale clause, but it seems like that rarely happens anyway) and call it a day? I know that will mean more tax returns but who cares?

What have other buy and hold investors done to protect themselves?

I'd love to get a 2nd (3rd) opinion from a real estate attorney that can help me set up my business entity (and help me with estate planning).

Originally posted by @Kerry Mertz :

I spoke to an asset protection planner (part of an asset protection company that has attorney's and CPA's) and I got completely confused about how to set up a business entity for asset protection. So I'm wondering what do I really need?

I'm a buy and hold investor and I want to start an LLC to hold my properties. The advice that I got was to set up a holding company LLC in Wyoming that holds my other LLC's that are in each state that I own property in. Since I bought the properties in my name and have financing in my name, I was told to use a revocable living trust to hold the properties in, which will own the Wyoming LLC, which will own the individual state LLC's. The revocable living trust will prevent the infamous due on sale clause from being triggered. This seems like overkill. Is all of this really necessary to protect myself from a lawsuit? I should also mention the cost to set all of this up is outrageous.

From what I understand, the purpose of the Wyoming holding company LLC is for privacy, asset consolidation into 1 yearly tax return and the laws of Wyoming will override the individual state LLC's. Wyoming laws are favorable to business owners. (Again, I am still confused about all of this, so I may not have all my facts straight.)

I'd like to simplify if possible, but not too much that I'm not protected in the event of a law suit. 

Can't I just set up an LLC in each state that I own property in, transfer title to the LLC (even though there is a risk of triggering the due on sale clause, but it seems like that rarely happens anyway) and call it a day? I know that will mean more tax returns but who cares?

What have other buy and hold investors done to protect themselves?

I'd love to get a 2nd (3rd) opinion from a real estate attorney that can help me set up my business entity (and help me with estate planning).

If you have multiple properties I'd recommend a series LLC. Much easier than setting up a LLC in each individual state where you own property. In terms of cost, all LLCs are not equal and you get what you pay for. Personally, I'm happy to pay a few thousand upfront to avoid a potential lawsuit and mitigate losses.

You can do LLCs or you can do an umbrella policy... it really depends on how many properties you have. 

Series LLC's are only available in some states, not all.

Umbrella policies don't always protect you in a law suit.

Insurance is your first/best line of defence.

When a LLC is sued the principals are usually sued as well. If your insurance does not protect you your LLC is not going to do any better.

@Kerry Mertz , welcome to BP. Your problem is quite common. You get better interest rates and longer mortgages by owning the properties personally instead of an LLC. The bank may or may not make an issue of you transferring it into an LLC. Are you going to be operating the business yourself on any level or will you be using a property manager? If you operate the business yourself it is much harder to insulate yourself from liability. In other words if you work on the furnace and thye vent leaks and someone dies from monoxide poisoning you are in trouble regardless of whether you have the property in an LLC or not. If you hired a licensed plumber and he causes the furnace problem then you are much safer regardless of how you own the property. LLCs and other entities do reduce liability. You have to maintain corporate formalities like annual business meetings, not commingling money, don't under capitalize, etc. No entity can stop you from being sued, they just make it more difficult for someone to win. People can sue for dumb reasons and attorneys often try to bluff folks into a settlement or even get nuisance settlements to avoid having to litigate a case. You hear of frivolous lawsuits, but most folks win those. They can cause you a lot of stress even if you are in the right.

there are several things you might consider. First the income from the rentals msut be high enough to support the type of entity you form or it is not worth it. If you have a 250 unit apartment building it justifies more protection than 5 houses. Always buy insurance, then run your rentals in a responsible manner. If you can put the properties into an LLC without triggering the due on sale clause do it. Talk to your accountant on the best method of taxing you will declare on it. Do a little research and read up on LLCs and other forms of corporate ownership. If you don't run them right they are worthless. You can file your LLC wherever you want. I would probably go with the state where you will own the most rentals at. You can incorporate in your home state and register it in the state you choose to buy in. I have done that myself. You can form an LLC in a state like Wyoming or Nevada and have that LLC own your LLC in a different state. The laws of the state the property is in will be the laws applied to the lawsuit regardless of where the LLC is domiciled in. I don't see how putting the property in the Trust gets you the protection of the LLC. Once you transfer the property to the LLC it triggers the due on sale. I am not a big fan of the multiple entities and anonymous blind trust schemes. I have not seen where they are any better than a well run LLC, but I suppose it is matter of personal preference. If you run the place poorly you might be sued. I just use my corporation and try to be careful on what I do. I have been doing this for about 20 to 25 years and have never been sued, but WY is a very landlord friendly state. The filing fee here is only $100 and the annual fee is usually only $50 unless you own a LOT of property.

Hope that helps a little.

I wanted to say thank you to everyone that offered advice and to give an update on what I decided to do. I ended up calling Royal Legal Solutions (podcast guest #109 on asset protection). Scott Smith himself was not available but I spoke to his colleague, Kellie who has gone above and beyond to help me understand everything and to answer my questions. 

They recommended setting up a Series LLC in Texas (where they are located) which will hold all the other properties. What I did not know, was even though the Series LLC is set up in Texas, I am still able to put other properties from other states within the Texas Series LLC. The properties that are in my own name are held in a land trust within the series LLC to prevent the due on sale clause and to give anonymity. The Series LLC is owned by my revocable living trust (which provides another level of anonymity). Even though this is still more complicated than I preferred from the beginning, I'm confident that my assets are protected this way. If I ever got sued, it would take a lot of digging for the lawyer to find out who I am and what I own. The price is reasonable at around $3000 and an additional $300 for every new property that I transfer into the series. The Series LLC also allows you to do 1 tax return for everything.

The other asset protection company that I spoke to (Anderson Advisers) wanted to charge me $5000 for the initial set up and wanted me to set up an LLC for every new property at a price of $1500 each, which I think is outrageous. Not to mention, they rushed me through the initial conversation and would not return my calls to answer my follow up questions.

I just wanted to put this information out there for anyone else who is confused. I think the price is worth it for peace of mind and protection.

@Kerry Mertz I’m really glad you posted this. I have thought about calling Scott myself in the past. Is that 3000 you were quoted a flat fee or an estimate based on hourly billing?

Do you own any properties currently or are you just getting started?

It was $2950 to be exact for them to file the paperwork to set up the series LLC and $300 for each property getting transferred in. I also had to do some estate planning (which I used legal zoom to do) to set up a revocable living trust.

@Kerry Mertz , is your LLC held with another person or is it a single member LLC? That makes a difference in most states as to your ability to restrict creditors to charging orders.

Originally posted by @Kerry Mertz :

I wanted to say thank you to everyone that offered advice and to give an update on what I decided to do. I ended up calling Royal Legal Solutions (podcast guest #109 on asset protection). Scott Smith himself was not available but I spoke to his colleague, Kellie who has gone above and beyond to help me understand everything and to answer my questions. 

They recommended setting up a Series LLC in Texas (where they are located) which will hold all the other properties. What I did not know, was even though the Series LLC is set up in Texas, I am still able to put other properties from other states within the Texas Series LLC. The properties that are in my own name are held in a land trust within the series LLC to prevent the due on sale clause and to give anonymity. The Series LLC is owned by my revocable living trust (which provides another level of anonymity). Even though this is still more complicated than I preferred from the beginning, I'm confident that my assets are protected this way. If I ever got sued, it would take a lot of digging for the lawyer to find out who I am and what I own. The price is reasonable at around $3000 and an additional $300 for every new property that I transfer into the series. The Series LLC also allows you to do 1 tax return for everything.

The other asset protection company that I spoke to (Anderson Advisers) wanted to charge me $5000 for the initial set up and wanted me to set up an LLC for every new property at a price of $1500 each, which I think is outrageous. Not to mention, they rushed me through the initial conversation and would not return my calls to answer my follow up questions.

I just wanted to put this information out there for anyone else who is confused. I think the price is worth it for peace of mind and protection.

 Thanks for the update and that you're happy. that is a good setup and I recommend it for my clients in Texas as well. If you are owning property out of state, what are the foreign entity registration requirements? I wonder if the costs are <$500...

@Ronald Rohde -- The Foreign nonprofit corporation fee is $750 in Texas.  Here is a list of the entity filing fees!  Enjoy.  https://direct.sos.state.tx.us/help/help-corp.asp?....

Disclosure: Bret Allen is an attorney licensed in Texas and California but he is not your attorney. The information shared here is for general education purposes only and does not create an attorney client relationship. You should seek the advice of your own attorney before making any decisions from information found here.

@Kerry Mertz , indeed, due on sale with LLC seems to have happened though very seldom. So you deed to yourself as trustee of the living trust, and then assign beneficary to your LLC?

https://www.biggerpockets.com/forums/311/topics/18...

http://www.creonline.com/beat-the-due-on-sale-clau...

https://www.nolo.com/legal-encyclopedia/making-liv...

The lawyers are really expensive, I'd advise to self learn about living trust before talking to one. 

Originally posted by @Bret Allen :

@Ronald Rohde -- The Foreign nonprofit corporation fee is $750 in Texas.  Here is a list of the entity filing fees!  Enjoy.  https://direct.sos.state.tx.us/help/help-corp.asp?....

Disclosure: Bret Allen is an attorney licensed in Texas and California but he is not your attorney. The information shared here is for general education purposes only and does not create an attorney client relationship. You should seek the advice of your own attorney before making any decisions from information found here.

Thanks, I'm familiar with Texas. I assume the OP needs other states' foreign corp if he is using a Texas LLC. Is that not what he's asking?

Originally posted by @Kerry Mertz :

I wanted to say thank you to everyone that offered advice and to give an update on what I decided to do. I ended up calling Royal Legal Solutions (podcast guest #109 on asset protection). Scott Smith himself was not available but I spoke to his colleague, Kellie who has gone above and beyond to help me understand everything and to answer my questions. 

They recommended setting up a Series LLC in Texas (where they are located) which will hold all the other properties. What I did not know, was even though the Series LLC is set up in Texas, I am still able to put other properties from other states within the Texas Series LLC. The properties that are in my own name are held in a land trust within the series LLC to prevent the due on sale clause and to give anonymity. The Series LLC is owned by my revocable living trust (which provides another level of anonymity). Even though this is still more complicated than I preferred from the beginning, I'm confident that my assets are protected this way. If I ever got sued, it would take a lot of digging for the lawyer to find out who I am and what I own. The price is reasonable at around $3000 and an additional $300 for every new property that I transfer into the series. The Series LLC also allows you to do 1 tax return for everything.

The other asset protection company that I spoke to (Anderson Advisers) wanted to charge me $5000 for the initial set up and wanted me to set up an LLC for every new property at a price of $1500 each, which I think is outrageous. Not to mention, they rushed me through the initial conversation and would not return my calls to answer my follow up questions.

I just wanted to put this information out there for anyone else who is confused. I think the price is worth it for peace of mind and protection.

@kerry, wish I reaed those earlier, anderson has my money and won't return it to me.

I think their plan for you is standard and a good idea aside from the revocable living trust. I agree with you too and think this is overkill. The individual single purpose LLCs that hold property can also be Wyoming LLCs. They do not have to be incorporated in the state in which the property is located in.

@Liz C. Sorry to hear that Liz. Maybe you can take what Anderson started and bring it to another attorney who can fix it? Best of luck.

Very Informational thread...Brilliant!

I'm not at all familiar with a Texas Series LLC...

Pardon my ignorance, but I am unable to grasp this concept...

How are you able to put a property from another state into a Texas LLC?

For Example: if Jane Doe has a property in Colorado...putting the title of the Colorado property into a Texas Series LLC won't do anything from and asset protection stand point of view, unless you have a Colorado LLC that holds the title of the property and then have the Texas Series LLC own the Colorado LLC. From my understanding the Colorado property will still adhere to Colorado law, since the property is physically in the state of Colorado. I am not sure if a property titled in a Land Trust will be able to protect Jane Doe if she is still personally the beneficiary of the Trust. From my understanding the Beneficiary of the Land Trust from another state is not going to make a difference, because the Courts are going to use State law (Colorado in this example) of the physical property. Especially since the property is dong business (earning income) in the state of Colorado.I believe if the property gets successfully sued in Colorado, it will be up for grabs by creditors unless a Colorado LLC is the beneficiary of the Land Trust, which is turns has the Texas Series LLC as it's beneficiary.

Pleas tell me your thoughts...

Sorry to hear that... @Liz C.

My two CENTS!:

I had a similar experience with Anderson Advisors... except I opted to not use them after doing more research, so I never gave them any money. 

Like Kerry Said they Charge $1500 to set up an LLC, which is approximately double what the rest of the competition charges from my experience and can add up substantially if one has the need for multiple LLC's. I found their other services like Land Trusts to be very expensive as well. They do however have some very useful and informational videos on YouTube. Anderson Advisors also claim to be the best in the business, but IMHO such a theory can only be tested in actual litigation...and that is not a place you want to be.

Jerry, Thank you for the detailed answers. @ Jerry W.


Hi Mika'ele,

For ease of understanding, we will call the Texas Series LLC 'parent' and the property transfers 'child.' When the property is transferred correctly, the property will be owned by the Land Trust, which in turn flows to the individual child Series, as Beneficiary of the Land Trust, and then finally flows to the parent Series LLC, as Member of the individual child Series.

The trust agreement is a private document and will not be recorded or filed in the public records. Since the trust agreement specifies the ownership structure of the Trust and that trust agreement is not made public, the Client's name remains anonymous. This process is how the clients name remains anonymous for each property transfers no matter the location. 

I hope that clarifies things. Please send me a personal message if you need further clarification! I would be happy to explain more!

Regards,

@Kerry Mertz I actually just had a basic consultation with Anderson Advisors. Didn’t feel great about them either. Sounds like they sell the same type of advise regardless of the individual’s situation. Will definitely get in touch with @Scott Smith

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