Rental Property Investor · Adirondack, NY · Member since 2019 · 20 posts · 16 votes
Trying to decide if it's time to incorporate as an llc. Share accounts when having an LLc has worked to your benefit. Moments when you said, "soooo glad I incorporated!"
@Scott Smith What makes Wyoming the most anonymous of states?
When you establish a Wyoming LLC they set it up so that your name does not appear on public record. People can still go through discovery to establish you as the owner of the LLC, however, that involves discovery costs and deters some law suits. Each state has different requirements and will treat their own LLCs a little bit differently, which means some states are more appealing than others in regards to real estate investors. This article can explain some of the benefits of a few of the states.
Accountant · Minneapolis, MN · Member since 2018 · 81 posts · 21 votes
7y
I haven't said that yet, but I will if I ever get sued. The overall process of organizing my first LLC was actually quite a hassle. Took awhile to find a lawyer who would work with me for such a small transaction (I recommend asking for a referral from an established real estate lawyer). Conveyance of my property to the entity took longer than anticipated. Name changes on my insurance policy and automatic withdrawals, new business checking accounts. Lots of busy work, but nothing difficult about it, just time consuming. Ultimately, protecting my families personal assets was job one, so that made it worth it.
Attorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
7y
There are a few perks to incorporating, but the main benefit isn't until you deal with a lawsuit. The other benefits can be streamlining your finances, a good CPA can help you figure out tax write-offs, and if you establish the LLC anonymously (through Wyoming or with the use of Land Trusts) then you likely lower the chances you will be sued.
This isn't legal advice, just my opinion as a real estate investor.
@Scott Smith What makes Wyoming the most anonymous of states?
When you establish a Wyoming LLC they set it up so that your name does not appear on public record. People can still go through discovery to establish you as the owner of the LLC, however, that involves discovery costs and deters some law suits. Each state has different requirements and will treat their own LLCs a little bit differently, which means some states are more appealing than others in regards to real estate investors. This article can explain some of the benefits of a few of the states.
I'm a NY resident that invests in NY real estate, would I get any privacy or tax benefit from a Nevada, Texas, or Wyoming LLC?
I work with quite a few NY investors. The strategies would be different between using a WY LLC (due to it's inherent anonymous nature) and the Nevada and Texas LLC. The first hurdle most investor would run into is that they would have to pay foreign filing fees - essentially paying both the state of origin and NY state for the LLC. You can work around this with the Land Trust, though.
The main reason investors from NY establish an entity from another state in my experience is for the use of states that can create a Series LLC, which is detailed in this article. It takes out a lot of the hassle of establishing so many different entities and bank accounts, allowing investors to streamline their operations.
I've been using NY LLCs and have never asked for my personal info. Would a Wyoming LLC add any anonymity?
My understanding of your response is that a WY LLC owning real estate in NY would be subject to fees and filings in both states. Is my understanding correct?
New York doesn't have a Series LLC Law - in event of a lawsuit, would a New York court honor the segregation of liabilities created under Texas LLC law? (A Google search turned up many webpages about this, for example: https://eminutes.com/why-roll-the-dice-with-series-llcs)
Attorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
7y
The WY LLC would offer you an added layer of privacy. You name wouldn't be publicly listed, so in order to prove that you own the property individuals would need to go through discovery in order to prove that. This initial stop-gap is a deterrent for small claims and provides much more privacy for people who don't want it public how many properties they own.
The WY LLC would be subject to those foreign filing fees if not used with a Land Trust. To work around the foreign filing fee you would transfer the property into a land trust, then assign the LLC as the beneficiary. This way the land trust is conducting the property in New York and the proceeds are passed through to the LLC.
I have a short and long answer to this question - I will stick with the short one. In regards to Series LLCs and states that recognize them or not, the issue comes down to each specific state recognizing the "internal liability shield." Not if they have a Series LLC to create in that state or not--an investor in any state can form a Series LLC in a different state if he or she wants one. Every state has an internal liability shield for LLCs and that is what is analyzed in every state: the LLC Internal liability shield of the state you're being sued in. There is a misconception that the Series LLC is a new entity. It is not. It was first created in 1996 in Delaware, over two decades ago. While the Traditional LLC is more established, it is not much "older." The Traditional LLC first became available in Wyoming in 1977, but most other states did not follow suit until the 1990s. The next state was Delaware, which enacted LLC legislation in 1995, followed by California in 1994/5. It was not until 1996 that all states had an LLC option. The same year, the Series LLC was statutorily created. So it's interesting how people quickly fall in love with the Traditional LLC thinking it's been around forever. But the reality is that after the creation of the LLC in most states, the Series LLC immediately came into the game. Just one year after California codified the traditional LLC. This is a quick timeline of the Series LLC's history and doesn't dive into much case law - but that is because there isn't much against it, otherwise everyone would point you to cases where it fails to be upheld. The lack of case-law is a sign of it's strength, if it were a weak entity there would be many lawsuits against them all the time since it is an entity that is quite popular with investors of scale (AKA great lawsuit targets.)
There are also a few benefits of using land trusts beyond anonymity and foreign filing fees, foremost being that it is mainly used as an estate planning tool - an experienced attorney can set up your entire investment portfolio to integrate with estate planning so that investors can pass down their wealth easily and reliably.
"Share accounts when having an LLc has worked to your benefit."
This subject has been brought up many times in the past. You will not get any responses siting benefits. None yet reported. I guess the hype over the advantages are only hype.
How does the WY LLC offer an an added layer of privacy? New York never asks me who owns or manages my LLCs, so what privacy would a Wyoming LLC add?
In response to the issue of multiple fees incurred by having multiple tiers of entities, you're suggesting that rather than have a New York LLC own my properties, I should have my New York properties in a land trust of which a Wyoming LLC would be the beneficiary. Some states have land trust statutes and some states don't. Does New York have a land trust statute?
I linked to one of many resources on the internet that question whether the segregation of liabilities (under Texas LLC law) of a TX Series LLC that owns multiple real estate assets in New York would be followed by a NY judge presiding over a case involving NY real estate - and a New York judge would likely be the one to adjudicate a case involving NY real property. My understanding of your response is that there is in fact little-to-no precedent to go by, but that this in-and-of-itself serves as precedent of sorts.
Asset protection is something that we investors use as a form of insurance - in the majority of cases, the asset protection structures will never be tested in court. However, we nevertheless pay the big bucks to the attorneys to put in place protections "just in case." Why would I use a Series LLC that has so much more uncertainty in New York, rather than used the tried-and-true "old fashioned" LLC whose protection I can be confident about? I mean we really have no way of knowing what a New York judge would say and there's no precedent or statute that a New York court would be required to follow. Would I want my asset protection strategy to be subject to the whims of a single judge?
Thanks for keeping this discussion going! As asset protection is a high priority to real estate investors (or at least is should be), this is of great value to all of us of us on BP.
How does the WY LLC offer an an added layer of privacy? New York never asks me who owns or manages my LLCs, so what privacy would a Wyoming LLC add?
In response to the issue of multiple fees incurred by having multiple tiers of entities, you're suggesting that rather than have a New York LLC own my properties, I should have my New York properties in a land trust of which a Wyoming LLC would be the beneficiary. Some states have land trust statutes and some states don't. Does New York have a land trust statute?
I linked to one of many resources on the internet that question whether the segregation of liabilities (under Texas LLC law) of a TX Series LLC that owns multiple real estate assets in New York would be followed by a NY judge presiding over a case involving NY real estate - and a New York judge would likely be the one to adjudicate a case involving NY real property. My understanding of your response is that there is in fact little-to-no precedent to go by, but that this in-and-of-itself serves as precedent of sorts.
Asset protection is something that we investors use as a form of insurance - in the majority of cases, the asset protection structures will never be tested in court. However, we nevertheless pay the big bucks to the attorneys to put in place protections "just in case." Why would I use a Series LLC that has so much more uncertainty in New York, rather than used the tried-and-true "old fashioned" LLC whose protection I can be confident about? I mean we really have no way of knowing what a New York judge would say and there's no precedent or statute that a New York court would be required to follow. Would I want my asset protection strategy to be subject to the whims of a single judge?
Thanks for keeping this discussion going! As asset protection is a high priority to real estate investors (or at least is should be), this is of great value to all of us of us on BP.
These are great questions. I have been wondering a lot about the series llcs as well. Years ago with a RE business operating in NJ, PA, and NY, I consulted an attorney, and we considered opening llc's in different states, weighing all of the options. Ultimately we incorporated in PA, and I'm wondering now, based on the above what advantage I would or would not have incorporating in WY or otherwise.