Good morning BP nation,
I have just become aware of the Series LLC, which appears to afford much better asset protection than a standard LLC due to the ability to essentially nest entities within each other. Based off some quick preliminary research, it would appear I can not create a Series LLC in my home state of Arizona however could I not just form the Series LLC in let's say, Texas, and just go through the process of domestication to move it to AZ? Or does the fact that Arizona doesn't allow the formation of Series LLC's prevent me from even moving one in? As always, I appreciate the help BP.
@Joseph Lucas Jr I will IM yu. Short of it you can form one in lets say TX, NV, Delaware, and use them everywhere. You can incorporate a Texas series LLC and use it everywhere you want to invest in.
But could I domesticate to Arizona and still keep the Series LLC intact? Or would it have to stay in Texas to keep the protection of a Series LLC? Because I would rather move it here and avoid having to operate as a foreign entity in Arizona and file in two different states. Just less hassle.
@Joseph Lucas Jr as of now AZ does not recognize the series LLC, so you would have to operate as a foreign entity doing business as in AZ. But it is not very difficult tax wise filing. AZ will eventually have a Series LLC option I think since AZ is competing for Asset Protection business with Nevada, Texas and Delaware. AZ does offer something like the series LLC that we use with L&L called a family limited partnership that acts as a holding company which you then can have similar set up of child LLC set up under it. I do this with Lodmell and Lodmell who really specialize in Bridge Trusts. The AZ Family Limited Partnership is the base level for scalability for clients who then grow into the Bridge Trust. So many options exist. I would say if the goal is AP, the more important thing is the Jurisdiction of where you create your company, not if I have to file one more document. TX, NV and DE are the best. AZ is coming along. If you use the correct structure and clauses. Why a phone call is a lot more informative way to talk options per situations then just quick forum post being taken at face value.
My comment below is a question, not a professional advice, because I'm not an attorney and am not qualified in legal matters.
From a layman's perspective, if I have properties in AZ and am sued by a tenant - would not I be going thru AZ court system to defend myself? If so, why AZ courts would care about the TX or NV statutes at all? Would not they simply treat it under the AZ statute and therefore ignore the Series aspect of that LLC? Thus negating any benefits of my setup? Interested in an attorney's answer to this one.
Also, from what I understand as a non-attorney, FLPs (family limited partnerships) suggested by @Brian Bradley are very complex and expensive and would be an overkill for most small landlords with modest net worth and no estate planning needs?
Incredible follow-up question @Michael Plaks .
I'd also like to see an attorney's take on that.
I second @Michael Plaks question (I think NV, WY, DE LLC's for RE are amusing but not really useful, holding companies excepted in certain circumstances) and will add one:
What is the benefit of a Series LLC over a regular LLC, other than cost savings? I think that the asset protection of Series is actually inferior to that of regular LLC's. Why? Because regular LLC's have been tested, whereas Series LLC's (especially in states where the statutes are not well drafted) are untested. Why risk it for a fairly minor cost savings?
Also: Isn't it silly that some states would create a Series LLC, including a whole new statute, instead of just dropping the price on regular LLC's?
@Michael Plaks , as toFLP's & FLLC's - we only recommend them for clients with either $1M+ net worth or in situations where a trustee is needed because the beneficiaries might do Bad Things with the money.
@Michael Plaks you seem to make conclusion statements hidden in the disguise of being a laymen. Just ask the questions without the sarcasm or passive aggressiveness. They are good questions to ask, but your sarcasm distracts from it.
@Michael Plaks they are actually great holdings companies and superior to the LLC since it allows for separation of assets under one LLC into individualized children companies. All while being under one parent company structure. So if one series gets sued, lets say series A then they cannot go after ALL the assets in the other series b-z, unlike in a standard LLC where all assets are held under one entity and subject to the judgment. seems like a heck a lot more protection. The series LLC was created originally to improve upon the limitations of LLC in the state of Delaware an AP friendly state to compete for business. so should structures not improve? They improved upon a weakness of the standard LLC pertaining to investors. They were created for investors and catered originally to the mutual fund and asset securitization industry. They then went to REI to sort out multiple assets into separate compartments that are isolated and insulated from one another.
Regarding the Series LLC not being tested, that is a misconception. Just not legally true or factual. These have been in existence for more than 20 years created in 1990 and tested in court and withheld court scrutiny over and over again. They have been so successful that at least 13 states now have them and others have different variations of them. Otherwise they would not be in existence anymore and more states would not adding them. It is not the Series LLC's fault that it has not had a judgment against it since the courts upheld them and their structure time and time again its structure and legal status. I guess shame on it for actually working? Is that what you are saying? It works to good?
@Joseph Lucas Jr and @Michael Plaks Regarding states that don't recognize them and just ignoring the status all together the question is a very good one, and the answer is very simple and is established in the backbone and structure of the American Legal System "reciprocity" of other states legal entities. This is very well established in case law in every state and the Supreme Court. Otherwise the system would be destroyed.
Regarding AZ Family Management Companies, define expensive? Everybody and every firm will charge what they charge and make that determination for themselves. It is not very complex at all to set up and manage, very streamlined. So you seem to just be opining to just type. I don't see where you get complex
@Brian Bradley , what is the difference between a having two "regular" LLC's and two series?
Comparing 5 Series to 1 regular LLC strikes me as a loaded comparison. A better comparison would be "how do series a - e" compare to 5 regular LLC's. Apples to apples.
If the best case for Series is that the asset protection is the same as for "regular" LLC's (tell me if I'm mistaken - do two Series somehow provide better protection than two regular LLC's?), then the sole reason to have a Series is cost savings when compared to regular LLC's - right? Or am I missing something?
If I am correct (Series asset protection is at best the same as for equivalent number of regular LLC's and sole advantage of Series over regular is cost), then it's a question of "Are the cost savings worth the risk that the newish Series may not function as planned?". That strikes me as both an open and subjective question.
I have read a number of articles as to attorneys' doubts about how Series LLC's will fare in various states.....is there a place where I can find this plenitude of law you mention? I have not seen it (doesn't mean it's not out there, I just haven't seen it), nor have I seen credible articles that lay out the history, much less the pattern of victories for Series LLC's. I'd be especially interested in how states without Series statutes are treating foreign Series. Reciprocity is not a cut & dried thing....as a recent Alaska trust case (Toni 1 Trust v. Wacker) demonstrates.
I would agree with Michael as to foreign LLC's: In 99.9% of cases, issues will be tried under the law of the state where the issue occurred, and not the state where the LLC was created. For example, a trip & fall in an Ohio rental owned by a NV LLC would be tried under OH law for almost all issues. Do you disagree?
I think Michael asked some legitimate questions. I do not see why you got so defensive.
@John Hyre you are still off the mark a lot. What is the definition of newish? 28 years of existence and case law is not new. Sorry to burst your bubble. That is well vetted. 4 years of vetting in court and legal system dictates well vetted. 20+ is icing on the cake.
Those 5 series are all operated under 1 parent company that only has to file one tax form. Having multiple LLCs means tax filings and fees for each LLC which can cost a heck of a lot of money and time vs just one. Series A-e each are separated out under the parent llc so they exist independently of each other, but then tax related you are only filing for 1 parent LLC.
And again, no one LLC does not provide the same protection to all your assets if you are holding all your assets in one LLC that are not separated out since they can all be used to settle one judgment since not separated out in a series LLC. So lets say you have a standard LLC, and you have 4 properties all in that LLC. You get sued for 180k. The first house sold to settle the judgment does not settle the judgment, then they can go to the next, and the next, etc and your car, etc until settled since the properties all all under the LLC. NOW, if you had them in the series llc, all that they can sue under is that one series that the injury or lawsuit happened. The judgment stops at that property. The rest of the properties are safe each in their own independent protected series in their own safe ziplock bag protected.
yes this "plenitude of law" I mention is called hire a lawyer to do legal research for you and give you a legal memo. Or go to the law library and ask the librarian to point you in the direction of the law books and how to use westlaw and help you do "legal research" for the "plentiful law that exists". Hear is one of MANY legal text book with tons of law you can purchase that is for lawyers "Real Estate Law and Asset Protection" for Texas Real Estate Investors 2018 edition attorney edition. TONS of case law and legal mumbo jumbo that you pay lawyers for. Or you can go hire a lawyer to give you a research memo. And each state NV, DE, WY, etc all have such legal books with case law that "don't exist" and all the case law are on legal research sites lawyers use called westlaw and lexisnexis that don't exist.
I'd be especially interested in how states without Series statutes are treating foreign Series.
In California, the state Franchise Tax Board treats each series as a separate entity for tax and filing purposes.
California is very aggressive in its position that California residents who have out of state entities need to register their foreign entities in state. With Series LLCs, that means minimum franchise tax fees of $800 a year for each series. Not a practical solution for most real estate investors here. Not sure about other states.
@Rob K. their are ways to work around that with the use of different trusts.
@Rob K. on such option of a few is the use of the Delaware Statutory Trust since it is NOT subject to Franchise tax. So for CA investors you would use the DST with the Series LLC. so it is a practical solution for most real estate investors in CA since you would not be paying those franchise tax's. If you were to simply create a Series LLC as a CA resident then yes you are correct. But AP goes farther then that and it is the combination of multiple tools that make it effective and work and going into more detail. Not just boilerplate. It is the COMBINATION of the tools. Not just one tool.
Another method besides mentioned above for CA residents, though very convoluted and many steps is to put those properties into land trusts for privacy of ownership. Then record home-equity lines of credit against them payable to an entity the client was privately. Then have a third-party entity buy those mortgages and put proceeds into an inaccessible account in their international trust. Then put mortgaged properties into land trust. Then assign the beneficial interest in the land trust to individual LLCs. Then do the equity stripping program mentioned above. Not my most desirable method, but one I learned form the first and most established AP firm in the nation created over 100 years ago and still going strong.
What is a DST? I am glad you asked. As early as the 16th century, the concept of property being held in trust by one person for the benefit of another was part of the English Common Law. Trust have been around for a very long time. The Delaware Statutory Trust (DST), however, is a statutory entity, created by filing a Certificate of Trust with the Delaware Division of Corporatios and governed by Chapter 38, Part V, Title 12 of the annotated Delaware Code (See 12 §§ 3801 through 3862).Delaware is one of the few states in America to have a statutory trust law. Most states still rely upon common law trusts. This is a HUGE advantage. The Statutory Trust Act, similar to the Delaware LLC law, relies on the legal principle of freedom of contract (See 12 § 3823(b)). The trust agreement is a contract and therefore enforceable. It may create various classes or groups of trustees and/or beneficial owners (See 12 §3806), and it determines the nature of distributions of the trust's assets for the benefit of the beneficial owners (See 12 §3805).There is no Franchise Tax and no Delaware income tax on statutory trusts formed in Delaware. Under the United States' Internal Revenue Code, a business trust may be treated as a grantor trust, a partnership or an association, just as a corporation, depending on the wording of the trust agreement.
Don't know where you found sarcasm in my question, @Brian Bradley .
And I do not believe you answered the question. The question was: if I form a TX Series LLC which is doing business in AZ, and I get sued - will AZ treat it under Texas law (i.e. each Series is a separate entity) or under AZ law (i.e. all combined)?
You referred to reciprocity - which I'm not familiar with, in legal context. Are you saying that AZ courts will spend time researching TX statutes and afford me an equivalent protection? I doubt it - which is why I'm asking you lawyers.
Updated almost 3 years ago
Follow-up: Here is an opinion of one lawyer: "1) Choice of Law. If a series LLC is sued by a third party in a state that does not authorize the formation of series LLCs, then it is possible that the law of that state would be applied. If that state does not respect the liability shield of the series LLC structure, the lawsuit could potentially put the assets of all series and the master LLC at risk. " http://huckbouma.com/blog-149-Series+LLCs%3A+Could+a+Uniform+Protected+Series+Act+Be+Coming+Soon%3F+-+Part+I
Updated almost 3 years ago
And one other article: https://eminutes.com/does-a-series-llc-provide-extra-protection-against-piercing-the-corporate-veil
He asked: how does one Series LLC with 5 Series provide a better protection than five separate non-Series LLCs? The only advantage of a Series LLC over multiple non-Series LLCs seems to be the cost. Any advantage from the legal protection angle?
@Michael Plaks that was answered above. Multiple times. It is not just the costs, which is one benefit, but it offers BETTER protection because of the compartmentalization and separation of the assets into children series. Now if costs and functionality are not important to you as an investor that is fine. The legal protection angle is the separation of assets into individual children companies which a typical LLC does not do, so all your property in the LLC is then subject to a judgment, unless you get a separate LLC for each property which is expensive and the maintenance cost of each LLC is ridiculous.
For liability purposes and protection angle, each child Series is its own LLC! This is ideal for clients with multiple pieces of property or types of assets. John's question was "What is the benefit of a series LLC over a regular LLC other than cost savings" I think asset protection of series is actually inferior to that of a regular LLC."
So to answer his question it is not inferior due to the separation of assets into their own companies for liability purposes. And your question is of the only advantage being the cost has been answers now a few time. The advantage is NOT just costs, that is a byproduct of having just one LLC with the Series LLC, the advantage is the separation of assets in one structure, into children structures, that are treated separately for liability purposes, without having to have multiple separate LLCs and maintenance costs which is an ADDED benefit. You both save on costs, and separate liability of multiple properties all with one company. Not 5.
These colleagues of yours seem to disagree:
And unlike you, they site some research, not just proclamations.
Maybe you're right, and they're wrong. I can't tell.
No need to get personal with people you don't know.
Jay Adkisson is a well-known asset protection attorney. He is thoughtful, thorough, and sharp. He is an expert on Series LLC's, more on that in a later post. According to his website, there is one Series LLC case. Hmmmm. Doesn't sound like a lot of authority.
More later. Gotta bill some hours & get some work done before coming back here to play.
@John Hyre @Michael Plaks go buy the law book I told you to get. Hmm. or ur lazy. don't need to like it or agree. Go read. Sounds like you have something personal about a legal entity. Strange. Don't care if you like saving money or not. Or want to try to understand it or not. Seems like pessimism with sarcasm and hidden agenda is driving you. Top Asset protection firms in nation Lodmell & Lodmell use them along with other corporate structures, Asset Protection Planners the oldest and most establish firm in asset protection use them and others and they have been around for over 100 years. Royal Legal Solutions uses them, Willcox & Savage, PC, Holland & Hart LLP, snell & Wilmer LLP, etc, etc and etc so please stop your pettiness. Sorry it works bro. Apparently when somebody actually even gives you the title of a law book with case law that is not even good enough for you. Go read. An entire half section of the law book is devoted to the topic of AP and specifically the Series LLC. Not worth re-typing a book when you can get it yourself.
Also look at DEL. CODE ANN. tit. 6, § 18- 215(b).; V.T.C.A., Bus. Org. Code § 101.606(a). G Management LLC v. Young Brothers and Co., Inc., 2007 WL 551761 (D. Me. 2007); GxG Management LLC v. Young Brothers and Co., Inc., 2007 WL 1702872 (D. Me. 2007); National Securities Series- Industrial Stock Series v. Commissioner, 13 T.C. 884 (1949), acq., 1950-1 C.B. 4. ; and the list goes on and on and on.
So this is a waist of time. you want me to email you a 50 page information legal docket then email me and I will send it to you. and You can go purchase the book i mentioned yourself though
What a great thread. Bottom line, every client is different, talk to an attorney in your state and make a decision.
I have no problem with Series LLC, particularly Texas Series LLCs in my state. My clients use them. You don't need to convince me of their benefits, as I'm not against them. The cost saving factor is important, and it is the primary reason I support them.
@Joseph Lucas Jr, the original poster, was considering forming a Texas Series LLC and using it for his AZ business. I thought it might not work as intended (and still think so). But I'm an accountant, not an attorney. So I asked a legal question, hoping that attorneys like yourself would clarify it. Regrettably, you continue with personal attacks.
If I understood your position - you're saying that AZ or any other state would simply honor the statute of the state where the Series LLC was formed, Texas in this case. I doubt so. Apparently, I'm not alone in my doubts, as these lawyers specifically said:
"1) Choice of Law. If a series LLC is sued by a third party in a state that does not authorize the formation of series LLCs, then it is possible that the law of that state would be applied. If that state does not respect the liability shield of the series LLC structure, the lawsuit could potentially put the assets of all series and the master LLC at risk. " http://huckbouma.com/blog-149-Series+LLCs%3A+Could...
You're also recommending creating FLPs, DSTs etc. These vehicles certainly have a place in asset protection, estate planning and tax planning. However, they're complex and expensive and need to be justified. I believe you and I agree that cost is an important factor. So, recommending them should probably come with a disclaimer of when it is and when it is not justified.