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Diane Tycangco
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Wyoming LLC owns CA land trust, lawsuit is in CA, how does Wy LLC protect CA property

Diane Tycangco
Posted Apr 24 2023, 21:00

Hi everyone, I am contemplating asset protection strategies for my California and Memphis properties and a real estate guru says to hold the California properties in land trusts owned by a Wyoming LLC. This WY LLC would have another WY LLC as the trustee. Also, he suggested a Tennessee Series LLC for the Memphis properties, owned by another WY holding LLC.

I was wondering if you have had experience with this type of arrangement and what you thought. Also, if a tenant sues me in California and my California land trust is owned/protected by a WY holding LLC, I presume that California rules prevail and so how will having a WY LLC protect me? Will California pierce the WY corporate veil?

Any LLCs would have to be single member since I don't have any co-owners.

How would this type of arrangement compare with forming a single member LLC in WY with California property in a land trust whose beneficiary is a WY LLC owned by a family limited partnership whose general partner is a corporation 1% controlled by me and limited partner 99% is me. If the lawsuit were in California or Memphis and those LLCs and/or family limited partnership is in those other states, how will those WY LLCs protect me?

This is so confusing and so I hope you experts can share your advice.

Thanks so much.

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Chris Seveney
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Replied Apr 25 2023, 04:13

@Diane Tycangco

It’s confusing because personally I think the advice you were provided is the equivalent to wearing four seatbelts when driving to the store in a tank.

Unless you are stupid rich, anonymity is over rated. People don’t care who you are (sorry but it’s true) and if someone wants to find out who you are they can.

Regarding LLC's all over the place, we have one in our home state and file as foreign entities.

Even an LLC may not be needed if you have a good insurance policy

Right now you are probably paying a few thousand dollars per year extra in fees and taxes for setting up your entity like this.

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Nathan Gesner
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Nathan Gesner
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ModeratorReplied Apr 25 2023, 05:48
Quote from @Diane Tycangco:

I agree with Chris. The only reason anonymity is important to me is that I am in a small community where everyone knows everyone, and I don't want anyone knowing what I own or what I am worth.

Everyone pushes the LLC route for protection, but they don't explain the complexity, the work involved, or the cost to set up and maintain. It's typically not worth it, particularly when you consider how rare it is for a Landlord to be successfully sued for an amount that wouldn't be covered by their insurance. If you are that worried about being sued, go buy an umbrella insurance policy of $2 million and call it a day.

The best way to protect yourself is to know/obey the law and treat your tenants honestly and fairly. I manage 400 rentals, 13 years experience, and haven't been sued once. I haven't even had a Tenant sue me over a security deposit dispute, despite being threatened hundreds of times.

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Katie Balatbat
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Katie Balatbat
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Replied Apr 25 2023, 10:24

@Diane Tycangco

In addition to what everyone has said above, you may want to look into the definition of "doing business" in CA to see if all those LLCs are considered doing business in CA and subject to the $800 min tax.  If so, you've just cut into a lot of your cash flow.  The definition is very broad, especially for CA residents.  Note that CA does not recognize series LLCs either.

*This post does not create an attorney-client or CPA-client relationship.  Readers are advised to seek professional advice.

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John Mocker#1 Insurance Contributor
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John Mocker#1 Insurance Contributor
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Replied Apr 26 2023, 09:17

Diane,

I would also suggest reviewing this with your Insurance Agent. Find out if your existing Insurance Carrier will write a policy and include all the LLC's for coverage. If so, will they show on the policy (may defeat the anonymity). Will you need to write sepparate policies to make sure all entities are covered and preserve anonymity. If so, that will certainly increase your costs.

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Jerry W.
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Jerry W.
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ModeratorReplied May 2 2023, 22:26

@Diane Tycangco, I do believe in the benefit to owning property in an LLC. They do provide a lot of protection if run properly. An LLC only protects your other assets, not the property that is the subject of the lawsuit. Any property owned by the LLC is at risk if you lose. LLCs do not protect you from personal things you do. If you drive the LLC car to do LLC business and run a stop sign and hit someone they will sue you as well as the LLC. It probably would protect you if it was an employee driving the car unless you had reason to believe they were not a safe driver.

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Diane Tycangco
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Diane Tycangco
Replied May 17 2023, 07:01

Thanks everyone.  I just talked to a lawyer and he was going to charge me $8500!  The reason I am looking for asset protection is because od what happened to a fellow landlord I know. He had a tenant who was working buf who was a little mentally retarded.  One day he was walking around the property with a gun and was shooting into the air.  One of the other tenants came out and told him, you can't do that!  He said I'm sorry and then later did it again!  Police came to the property and arrested him!  What if he hit someone!  Then the landlord would have gotten sued!  What would you suggest in this scenario? 

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Diane Tycangco
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Diane Tycangco
Replied May 17 2023, 07:07
Quote from @Katie Balatbat:
Hi Katie, yep if I have LLCs, even in other states, I would have to pay $800 yearly for each LLC.  

@Diane Tycangco

In addition to what everyone has said above, you may want to look into the definition of "doing business" in CA to see if all those LLCs are considered doing business in CA and subject to the $800 min tax.  If so, you've just cut into a lot of your cash flow.  The definition is very broad, especially for CA residents.  Note that CA does not recognize series LLCs either.

*This post does not create an attorney-client or CPA-client relationship.  Readers are advised to seek professional advice.


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Diane Tycangco
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Diane Tycangco
Replied May 17 2023, 07:09

Hi everyone, Another lawyer suggested just to have an LLC for each CA property, then a series LLC for the Memphis properties. But, he said that single member LLCs do not offer great protection and so to make it multimember I can have an irrevocable trust own 1% with a charity as the beneficiary since I don't want relatives to be involved. 

What do you guys think? This doesn't offer anonymity but i don't care about the anonymity part. 

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Diane Tycangco
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Diane Tycangco
Replied May 17 2023, 07:17
Quote from @Chris Seveney:

@Diane Tycangco

Hi Chris, thank for telling me about the 4 seatbelts! Could you recommend a real estate lawyer who is realistic, can provide good advice, honest and reasonably priced? Do you have one Property per LLC in the state where you have the property?

t’s confusing because personally I think the advice you were provided is the equivalent to wearing four seatbelts when driving to the store in a tank.

Unless you are stupid rich, anonymity is over rated. People don’t care who you are (sorry but it’s true) and if someone wants to find out who you are they can.

Regarding LLC's all over the place, we have one in our home state and file as foreign entities.

Even an LLC may not be needed if you have a good insurance policy

Right now you are probably paying a few thousand dollars per year extra in fees and taxes for setting up your entity like this.


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Melissa Nash
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Melissa Nash
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Replied May 17 2023, 15:44

@Chris Seveney is 100000% correct. 

This is how I do it the easy way. 

Main LLC Wyoming. (bc the laws favor RE, and its cheap and easy)

Then each state I own a property in I file as foreign entities to the LLC in Wyoming.

I have several LLC's in Wy. 1 is for my CA properties, 1 is for a partnership property, 1 is for my AL properties, 1 is for my OH properties, 1 is for my TN properties, etc. etc.

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Diane Tycangco
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Diane Tycangco
Replied May 17 2023, 19:12
Hi. Melissa, thanks for your input. 
To clarify, you have 1 Wyoming LLC for each state that you own properties - 1 WY LLC for all CA properties, 1 WY LLC for all AL properties, etc... And then another big WY LLC that owns all the other baby LLCs?  But if you get sued, you are going to be sued in the state where the property is, so won't they use the laws of the state where the property is located?  Plus for someone living in CA, I would have to Pay $800 yearly for each LLC no matter where it is located.   What do you think? 

Quote from @Melissa Nash:

@Chris Seveney is 100000% correct. 

This is how I do it the easy way. 

Main LLC Wyoming. (bc the laws favor RE, and its cheap and easy)

Then each state I own a property in I file as foreign entities to the LLC in Wyoming.

I have several LLC's in Wy. 1 is for my CA properties, 1 is for a partnership property, 1 is for my AL properties, 1 is for my OH properties, 1 is for my TN properties, etc. etc.


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Replied Jun 3 2023, 13:17
Quote from @Melissa Nash:

@Chris Seveney is 100000% correct. 

This is how I do it the easy way. 

Main LLC Wyoming. (bc the laws favor RE, and its cheap and easy)

Then each state I own a property in I file as foreign entities to the LLC in Wyoming.

I have several LLC's in Wy. 1 is for my CA properties, 1 is for a partnership property, 1 is for my AL properties, 1 is for my OH properties, 1 is for my TN properties, etc. etc.


 I've heard that owning property under a wyoming statuary trust is better because then you wont be subject to the 800 ca tax. 

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Chris Seveney
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Replied Jun 3 2023, 14:43

@Diane Tycangco

Why would the landlord be sued? And even if they did they would have insurance to cover this.

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Replied Jun 3 2023, 16:15

1 Wyoming Holding LLC with two child LLCs underneath it

2 State LLCs- One to Hold property title, one to serve as management. Each state gets it's own combo.

Ideally always buy nonQM/DSCR keep property bought under LLC, if not, yes can go conventional and warranty deed over this does NOT pierce the corporate veil. This was unanimous with every piece of legal advice/retention I have for over 15 properties + 7 still under contract in each & every state. Piercing corporate veil requires much more substantial issues, but a lot of you guys do it here cause you cheap out on the PM and actually interact with tenants and set yourself up. With that said there is a max for conv loans, so I recommend DSCR higher paydown on downpayment or interest rate to fit ratio IF need be. I was shocked to know all of my properties have DSCRd at 20% down, at 1:1. So make sure you really understand the rental market, not a bad problem just found that interesting.

All transactions-- with property manager, with contractor, with pest control dude, with lawn dude, everything, utilities, etc., ALL go through the management LLC. And there's a contract between holding company-management company that spells it out. Anonymity is almost impossible, but there are measures that can get done to certain degrees. Some law firms will even sign all notarized documents for you then immediately draft a resolution letter. Yes, I do this for all my transactions. The lawyers sign on my behalf, then immediately do a resolution so there's no dispute who actually owns if I have to go turn around and sell it. I do it cause it's actually cheaper for me to do that than hire a notary and give an hour of my time. I just line up closing firm with my legal team.

If you behave legally, almost no pro bono lawyer will help a tenant out. If you communicate diplomatically, that lowers the chance even more. Separate your management company from your title holding company. Make sure management company has very well written contracts with anyone it does business with, this is paramount even if you're doing this for your own house. Don't get screwed by contractors, and what not.

Make sure your LLCs are separated with bank accounts, you document EACH and EVERY transaction with something business related no sharing accounts. 

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Replied Jun 3 2023, 16:16
Quote from @Chris Seveney:

@Diane Tycangco

Why would the landlord be sued? And even if they did they would have insurance to cover this.

Hey there’s actually a lot of things landlord policy’s don’t cover. Like Mold lawsuits. 

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Chris Seveney
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Replied Jun 3 2023, 16:24

@Horacio Castillo

Ok stopped after watching the first two as yea you have a flood and tenants stuff is not covered, same thing if property burns down. That’s why your lease has renters insurance clause

The second about discrimination- again LLC won't protect you because you will be named because you were responsible…

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Replied Jun 3 2023, 16:45
Quote from @Chris Seveney:

@Horacio Castillo

Ok stopped after watching the first two as yea you have a flood and tenants stuff is not covered, same thing if property burns down. That’s why your lease has renters insurance clause

The second about discrimination- again LLC won't protect you because you will be named because you were responsible…


Watch the whole video, there’s a way to structure your properties correctly and all your personal assets. You just need someone to help you do it properly. You can make yourself seem broke, there’s always a way but you have to be willing to educate yourself. Check out more of his videos.

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Mike S.
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Mike S.
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Replied Jun 3 2023, 18:28

There are a few concepts that need to be clarified regarding asset protection.

You are facing two kinds of liabilities. Inside liability and outside liability.

Inside liability is when a claim arise from one of your asset, and it is threatening all your other asset (for instance a mold problem in one of your property and a tenant claiming major health issue resulting from it).

Outside liability when you are personally attacked for your personal actions or your kids through vicarious liability (think your son is involved in a DUI and kill someone whose family is suing you for damage). All the asset you own personally are at risk.

The goal of asset protection is to insulate all your assets in different boxes to contain the spread of an attack only to that box, and protecting all the other boxes.

For years, Limited Partnership was one of these boxes that was commonly used in the asset protection field. Today Limited Liability Companies are the most used entities as they are offering the same level of protection than LP in some states, but with much less formalities and cost. All states will offer inside liability protection for LLC, but only a few states are offering outside liability protection. WY is one of these states that have the charging order protection that limit the reach of outside liability claims. FL for instance also has charging order protection for multi-member LLC, but not for single-member LLC anymore (see Olmstead vs FTC). WY also does not publish the list of its LLC members, giving anonymity. Anonymity by itself is not asset protection, but is a preventative measure against contingency ambulance chaser attorney. If they can't see your assets, they don't know if it is worth to spend tens of thousands of dollars in a lawsuit where there is maybe nothing to collect.

On the other side of the spectrum, when you have a property in one state, you need your entity to also be legally existing in that state to be able to act in court. So you will need an LLC in the state where the property is located. Using a WY LLC that is foreign registered in another state is probably not a good solution as not only will you have to pay an LLC registration in both states, and more importantly, a judge may decide to apply the LLC laws of either state the most unfavorable for you.

So the most often used setup is to have a single member LLC in the state where the property is located. This LLC is then owned by a WY holding LLC. You get the best of both worlds. You keep the anonymity and the charging order protection of WY, while your local LLC can go to court.

If you have multiple properties in the same state, you can have all of them in the same LLC. But remember that if you have an inside liability claim arising from one of these properties, you are putting the totality of LLC's asset at risk. So it is probably better to have multiple LLCs to divide your properties in small chunk that you are comfortable to risk losing.

Now you raised another question regarding properties in CA. CA is a state where the franchise fee is $800 per LLC per year, while in most other state the yearly cost of an LLC is between $50 and $200. CA will also assess that franchise tax on LLC in other states doing business in CA. However this franchise tax is not assessed on trust. So for CA it is sometimes suggested to use a land trust (with some caveats) or a WY Statutory Trust to avoid this franchise tax.

Creating these complex structures has a cost, and if you are not familiar with some technicalities, it is probably not a DIY setup. Creating the LLCs is not difficult, what matters is their operating agreements that need to be drafted by an experienced asset protection attorney. This document is what will make or break your asset protection if you have to go to court.

Also operating these structures have recurring cost (annual LLC fees, registered agent). You also need to have proper bookkeeping, separate account, and proper operation procedures to avoid piercing its veil.

Taxwise, these structures are tax neutral and could even not require any other tax reporting if your WY holding is disregarded for tax purpose.

However, you can also improve the basic structure by adding some other features, like a management corporation in the middle, that can offer you some tax advantages and ancillary benefits.

Also, when creating such a structure, it is often recommended to have estate planning in mind as it is easily incorporated in it.

So ideally you would like to talk to an asset protection, tax, and estate planning attorney as all three fields should work together to make a comprehensive solution. One expert matter on only one field may have an excellent solution for that part, but be disastrous for the other.

I would highly recommend that you check the Youtube Channel of Clint Coons. I have found his very detailed videos excellent and I am in agreement with most of his advice. By educating yourself you will not become an expert, but you will know enough to assess what you need and if what is offered to you meet your goals.

At the end of the day, the level of asset protection you need is a personal choice. Some people are happy with $250k umbrella insurance. Some wants $10M. Some wants one single LLC. Some wants one LLC per property. It is whatever makes you sleep at night.

Personally I am using insurance and I have one LLC per property and a WY holding LLC. In the big picture, the cost of these LLC is negligible compared to all the other insurances I am already paying. I see it as another cost of doing business. But I am also confident that if I am unlucky and find myself on the receiving end of one of these rare, but catastrophic lawsuits, my family asset will be protected.

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Bob Floss II
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Bob Floss II
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Replied Jun 7 2023, 09:13

@Diane Tycangco The structure first recommended to you would be designed for a client with $50 million in assets. If you have a few rental houses, this is way too complicated. I'm a big fan of LLC's and Trusts, and I utilize Wyoming LLC's regularly. However, each situation is different and I typically spend about a half hour talking to clients about operations and assets before recommending an asset protection plan. Anyone talking you into an asset protection plan without actually looking at your assets is trying to upsell you.

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V.G Jason
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Replied Jun 7 2023, 09:18

It doesn't need to be $50mil in assets, these arbitrary rules are just that.

If it's a sizable portfolio relative to your net worth --protect it. Whether that's $1mil or $50mil. The only sliding scale on it, is if you lost it does it change the way you operate it? If so, protect it. That goes for the person with just 1 rental and that's their bet on freedom. Well even if the investment pays off, but you didn't protect it from liability who cares if it was a tremendous financial play?

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Replied Jun 7 2023, 10:42

@Bob Floss II

The amount of asset is irrelevant. In fact, the less asset you have, the more you need to protect it.

Everyone has a different threat model and acceptable loss threshold.

For me l would have no problem using these structures with only $50,000 of asset. But again no one here can tell you what YOU need. That is a decision that you should make for yourself based on YOUR own specific situation. That is why you need to educate yourself on the different aspects of asset protection to assess what will fit you.

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Jeet Sangha
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Replied Jun 7 2023, 12:43
Quote from @Diane Tycangco:

Thanks everyone.  I just talked to a lawyer and he was going to charge me $8500!  The reason I am looking for asset protection is because od what happened to a fellow landlord I know. He had a tenant who was working buf who was a little mentally retarded.  One day he was walking around the property with a gun and was shooting into the air.  One of the other tenants came out and told him, you can't do that!  He said I'm sorry and then later did it again!  Police came to the property and arrested him!  What if he hit someone!  Then the landlord would have gotten sued!  What would you suggest in this scenario? 

In this scenario, Having umbrella insurance makes sense. It's simpler and cost-effective. 

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Replied Jun 7 2023, 13:16

@Jeet Sangha

Yes an umbrella insurance is cheap and simple. It is a must and I also have one. However have you read all the fine print exclusions? And are what happens when you are sued for more than the coverage?

If you can live with that, then great, it is all you need.