Discouraged because I live in CA-FTB

[Tiffany Maloch]

Good afternoon everybody, i've been doing a lot of research on starting a Wyoming holding company and subsequent state specific LLC's beneath it as I am very cautious about protecting my personal assets. I've looked at federal common law super wazoo trusts. But because I live in lovely California, I am feeling extra stressed out about even being able to move forward with the FTB $800 per LLC threat over my head since it's so broad any semblance of managing anything at all is ripe for audit even with RA. I've read most people just say it's unavoidable then I ask how does anybody get anything done when they are just starting if that is the case? I was wondering, what has worked for those of you who do live in California and invest outside of California. Is umbrella insurance enough on the rental properties Ditch the LLC all together? And then is there some other way, that you protect your personal assets here in CA? I want to start investing. I'm looking for some guidance on a successful path through entity set up if at all? Any suggestions would be more than welcome and greatly appreciated.

[Katie Balatbat]

@Tiffany Maloch

There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc. Same goes for number of LLCs and what to fund them with, since bear in mind that CA tends to be more cumbersome and expensive to have LLCs than other states.

California is generally more involved than other states when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you may be deemed to be "doing business" in California and therefore maybe subject to CA taxes. California charges a minimum tax of $800 a year per LLC doing business in the state, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you may need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you may need to pay registration and filing fees in at least 2 states if you don't buy CA property as a CA resident.

Any lawsuits should in theory be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced, some debate as to SMLLC). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. Or, a charging order may be granted. If you have a loan, you may wish to look into due-on-transfer clauses.

If you're going the umbrella insurance route, perhaps see if it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.

Creating an LLC in California could cost you a minimum tax of $800 every year. You would have ongoing filing requirements with the State and would need to keep business records and documentation. California does not recognize series LLCs. You'll also want to coordinate with your estate plan, and consider getting an estate plan if you do not yet have one in place.

These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.

*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.