Separate Your Children Or Assume All Risk
Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
The fact is that not all LLCs are the same. Some are just better for asset protection then others. The best LLC structure is the Series LLC. Like any good parent, we want to protect our children. This is accomplished with the Series LLC by isolating each asset into individual series called "children series" for liability purposes inside a holding company, the parent Series LLC. And then we protect our children even more by hiding those children from being connected to the holding company with an anonymity land trust. This system (Series LLC with Anonymity Land Trust) allows you to stop a lawsuit before it is started, by taking away the chance of recovery. Though the Series LLC is one company, with one filing with the state, and one tax return, each child ‘series' is treated as if it were its own LLC for liability protection.
@Brian Bradley, I agree LLCs are a very important asset protection device. I am not as convinced that Trusts by any name that folks slap on them are of much benefit. If you own property and run it through a management company it is almost impossible to pierce it if you do any kind of proper protocol. I see no point in doing a trust where you are so well protected. Now if you are in fact a hands on investor as probably 98% of the folks on BP are using a "blind " trust is practically useless. You are the guy negotiating the purchase, you are the guy signing the closing papers, you are the guy hiring the contractor or even doing the work yourself. You are the guy interviewing the tenant, you are the guy they call if things need repaired, you are the guy negotiating the sale, you are the guy signing the deed, you are the guy writing the checks, etc. To think putting the property into a blind trust will "hide " your identity is absurd. I have had several lawsuits where folks who did wrong tried these little games and it only took a few interrogatories to sort it out and I can assure you it would not remain hidden in a deposition. I am aware of one guy who lied in a federal lawsuit I was involved in, he went to prison AND lost all of the assets. The claim about using a lien to take the equity out of a property is actually the second best way to get the corporate veil pierced in my experience, it is called under capitalization, and fraud. The money you pull out is very easy to trace in the banking world. While I also like the series LLC in theory, the book keeping can be a nightmare for those with a lot of rentals. I only have a little over 30 doors and maybe 5 entities and it is already getting to be a pain to keep them all separated. While Wyoming has the series LLC now we do not have an actual case on them yet. We do have some very strong case law on upholding the LLC shield however. There is actually a fair number of cases on real estate LLCs, although the first LLC in Wyoming was a partnership between two oil companies. I also love how the IRS removed many of the limitations on LLCs about 20 years ago so you no longer have to limit their life to no more than 30 years or meet the 5 bullet test to keep your LLC status. Now in Wyoming even the meeting requirements are pretty much done away with, but not corporations unless you are a limited corporation. I really like limited LLCs. I suspect they are really better than a plain LLC for protecting assets. Thanks for talking about LLcs, I think it is important for folks to have them, unfortunately many have to buy in their own name for the first few properties because of the better terms that personal loans get through things like Fannie May or Freddie Mac.
The point of asset protection, with any system, is not to hide assets or avoid taxes, it is to create dams or road blocks, as many as you can, to make the other party, the plaintiff's lawyer have to keep jumping through. To make it very expensive for them to get a judgment or settlement. To make case settlements happen faster and for less since the opposing side will see how .much time, labor and expense they will have to put into the case to begin with for an uncertain award that will be less. To limit the maximum amount you can loose. But limiting the max amount is the last result. The real result is to stop the lawsuit before filed. This is done by taking away the three essential pillars of a lawsuit. (what is needed to make a case worth a lawyers time) DAMAGES. Law and facts are easy to fabricate and anyone can find a basis to sue. This is why you attack the third leg, DAMAGES. Unless its a self-righteous lawsuit for vindication, the case is worthless. That is how insurance, umbrella policies, LLCs, trusts etc all work. they are the dams or road blocks.
Brian, hate to break this to you, but you are not the only lawyer posting on this forum. I stand by my legal - - lawyerly or not -- analysis, and note that your hystrionic responses do not address the merits of my analysis. Series LLCs and other corporate entities are easily broken, and liability depends on corporate/individuals ties. I have seen it done for over the past thirty years. You?
Like I said -- hystrionic responses that fail to address the merits of the case against you.
I notice that "100s" of years of experience" is not the same as 100 years of experience. 50 years of 1st year lawyers rumbling through motion practice is not, AS YOU WELL KNIOW, the same as two 25 year experience lawyers doing litigation and discovery.
"nuff said. when you want to address the merits, stop whining and do so.
@John Clark already had. Go back up and read. Collective learning and using network. And not first year. Been around long enough to be ranked top 100 high risk trial lawyers and super star lawyer, Hmmm must be really good at what I do for that. But maybe we should hire you and your google law degree to teach and consult all of us your insight into the legal field and how 100s of years of knowledge of the largest and best asset protection firms does not compare to your google knowledge and 30 years of genius life experience. You attack and ramble. How much for your rate? Nuff said. You provide zero actual experience or knowledge on the topic, so stop your uneducated rambling and learn something. But know it alls and google lawyers and doctors and cpas like u accomplish ...? "Son" What a joke.
As a recap. We have been talking about how not all LLCs are equal, and some structures are better than others. The benefit of an LLC is the limited personal liability unless the corporate veil is pierced. Now, one such structure that is an upgraded LLC is the Series LLC.
The Series LLC acts as the parent company, and you protect your assets and limiting the max damages by placing each asset into individual child series for liability purposes. The assets are protected further by using anonymity land trusts. The system is to attack the most important legs of a potential lawsuit, damages.
Some common misconceptions are in regards to Series LLC's and states that recognize them or not, the issue comes down to each specific state recognizing the LLC "internal liability shield." Not if they have a Series LLC. Every state has an internal liability shield for LLCs and that is what is analyzed in every state.
Another misconception is the Series LLC being new or young. to put perspective of the misconception of the Series LLC being a new entity, it is not. It was first created in 1996 in Delaware. 22 years ago. 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 in 1991 to enact the LLC. In 1994/5 CA. It was not until 1996 that all states had a LLC. The same year the Series LLC was statutorily crested. Since the Series LLC is an LLC, the law is just an extension of state specific LLC internal liability shield law.
Another misconception is not understanding how Trusts work. Trust work by separating the grantor / settlor (you) from ownership of the assets. It is easy to explain a land trust and how it is used. A real estate land trust is just one of the many types of trusts. A Trust, be it your estate trust or land trust, is any agreement where one party holds property for another party's benefit. The owner of the property never gives up control of the assets, but the trustee becomes the owner of the property. The function of the land trust is to shield the asset owners by separating the grantor from ownership. The anonymous land trust owns the Series LLC as well as serve as the Title Holding Trusts for your real estate assets. This is the power of trusts and why trust are so strong and vastly used. When assets are placed into a trust, they are separate from the settlor, therefore if the settlor is sued, only the individual's personal assets can be pursued. Even the trust assets that are being distributed to the beneficiary are off limits through protective provisions (legal language) in the trust deed.
An added power of anonymous land trusts is that these Anonymous Trusts can own the LLC itself as well as serve as Title Holding Trusts for the real estate asset. Yes, The LLC typically must disclose the members of the LLC on the filing instruments called the Articles of Incorporation. However, the member listed on the filing can be an Anonymous Trust. It's does not have to be your name. Since the Anonymous Trust is a private document and it is not filed with the State, anybody researching the Owner or Beneficiary of the Trust will be unable to find that information in the public records. Additionally, anyone researching the owner of the real estate asset by searching the County Clerk records will only find the name of the Anonymous Land Trust. Since the Owner of Trust and the beneficiary is not registered with the state, they cannot find out that the Series LLC is the beneficiary of that Trust. If they wanted to fight this in court it would take again substantial amount of more time, billable hours, discovery, labor, manpower and money.
Another Misconception. This is only available for the rich. Not true, some firms like mine offer bundle packages and every man Joe affordable rates and family enrollment plans. Firms have modernized and moved away from crazy billable hour rates. Some firms charge just under $3k for this and then a monthly family enrollment fee. Firms are now modernizing their billing structure to compete.
Another misconception. Asset protection is to avoid taxes and hide property. No, that is not the point of asset protection. That is fraud and your system will be destroyed. Asset Protection has to be tax neutral, and cannot be fraudulent transfers. But you may get tax benefits by using lawful systems.
Ok, but my name is still on the mortgage right. The Mortgage will say whatever it's going to say, but the title wont match the public records which produces doubt, and it will look like an investor acquired the property as a credit sponsor to in turn sell it to investors through a trust.
And their is a misconception of what asset protection actually is. The point of asset protection, with any system, is not to hide assets or avoid taxes, it is to create dams or road blocks, as many as you can, to make the other party, the plaintiff's lawyer have to keep jumping through and spending more money, time and resources. To make it very expensive and labor intensive for them to get a judgment or settlement. To make case settlements happen faster and for less. To limit the maximum amount you can loose. And to make the case not be filed from the onset when possible.
This is the importance of your team and not DIY this. This is attainable and affordable. You would be working with your lawyer and CPA. When transferring title, your lawyer would be doing the transfer etc for you and consulting you’re your lender if needed and CPA.
@Brian Bradley, now the conversation gets interesting. I noticed you took a few shots at @John Clark because you thought he was being disrespectful of you, but I noticed you had no problem being disrespectful to me by stating are you a lawyer? Do you know how law practices are run? No. Do you know how cases are evaluated? No. I have been a practicing attorney for over 30 years. You I bet less than 10. At about the 5 to 10 year most young attorneys get very cocky and think they know it all. At about 15 to 20 years of experience they learn they know less than they should. I have done 100s of jury trials, thousands of trials. I have done many asset protection planning plans, and have done wrongful death lawsuits, personal injury, medical malpractice, even slip and fall. You don't impress me by saying you work with hundreds of attorneys, big deal, I have a friend who worked for one of the biggest multinational companies in the world hiring hundreds of thousands of workers. It was called McDonalds, he cooked hamburgers. You can make it sound as big as you want you still need to provide cogent argument and answer intelligently and clearly. Hyping yourself up impresses no one. I want to hear more but you just state how impressive of a person you are so how do we dare confront you tell us facts. So do you want to trade insults? I haven't started yet but wouldn't mind getting into it if you would rather do that than have a candid honest debate with facts and ideas being presented.
First here is my scenario. A client comes in and her husband died of carbon monoxide poisoning in their home and one of their children has brain damage from it. She cannot work and care for her child. I go to the courthouse. The owner of the house is some trust. What do I do? First I look up the title history. There is a trustee named on the trust. Now if that trustee is a person I file suit against him and I name about 3 or 4 John Does as additional defendants as I smell trickery. If the LLC is the Trustee someone must still sign a document. Only a person signs documents in my state. I find that person and depose him, and I find the guy on the mortgage and depose him. lets say I just declare my lawsuit as a Res Ipsa Loquiter lawsuit and don't allege a particular person did the wrong at this point. I put in the usual "reserve the right to amend and and more facts as I get more discovery" clauses. Now the insurance proceeds of at least a couple hundred thousand or even a few million help load up my war chest for the trial. If I pull in the guy who signed the check to the Treasurer of the county and the guy who signed the lease on behalf of the tenant and the guy on the mortgage they MUST answer my questions and truthfully or they can potentially go to prison and I ask questions like do you have any beneficial interest in this property in any way? Then have them explain it. I ask them who the Trustee is and demand a copy of the trust document via a Subpeone Duces Tecum for the interrogatory. I ask where the rent money goes, I ask find out who owns that bank account, then i FOUND OUT WHERE THE MONEY WENT FROM THERE. Sorry caps lock. You can always follow the money. What is the use of owning rentals if you never get the money to buy groceries or take a vacation? I demand a copy of these trusts and a list of the members of the LLC and who makes the decisions. Who is in charge of keeping these properties safe? you think a judge won't order that to be answered along with a few sanctions? A lawyer is protected from answering questions about a client due to privilege, but not with accountants, book keepers, property managers, or even trustees. If the lawyer actually makes the decisions on managing the property bang he is added to the lawsuit, but that never happens. I guarantee I will find the owner.
I will now add claims for punitive damages for setting a scheme designed to hide evil people from the their heinous acts against my poor working class family. I always ask for a jury trial so they get to hear this horrible thing and grant massive damages. You have done exactly that I bet.
Now as to banking. What bank will loan on this structure? if you start with the mortgage in your name you can transfer it into a testamentary trust and not trigger the due on sale clause due to federal legislation, but that does not apply to a non testamentary trust. The bank has a right to call the mortgage due. Am I correct? Now the bank can ask for a copy of the trust. lets say the bank doesn't care. Lets go to the trust. If it has provisions that prohibit the beneficiary from being able to demand all of the money or property from it, it will have a spendthrift trust provision right? Now who will that trustee be? Really who? Your lawyer? You really want to turn over all of your assets with no right to ever get them back to a lawyer? He gets to charge a lot for running this right? Who will be the trustee? Your spouse? What if the spouse divorces you? There is a lot to go wrong here. Now keep in mind you cannot use these assets to buy more houses someone else is in control. you only get to put the money in the bank they allow. that is a huge step right? You no longer control your money, someone else does. Lets say the trust does not have spendthrift provisions, then they get to attach those assets, right?
Now lets assume that you have an LLC own the property and you insured it properly and you had a holding company collect the income. You can still be found liable if you worked on the furnace and the vent fell off flooding the house with carbon monoxide. No matter how many LLCs no matter how many blind trusts, no matter how many attorney's or accountants you used. Now if you had a property manager or hired a reputable plumbing company to work on the furnace they won't be able to pierce the veil.
I can see this complex structure stopping a $10K claim, but your insurance will pay for that. it won't stop a multimillion dollar claim.
if i am wrong please explain how your secret sauce never fail formula fixes these issues.
I am not attacking you I am asking for an answer. if there is a sure fire way to never be sued I don't see why there would ever be a successful lawsuit ever again. Everybody would just do this special thing you do and lawsuits are a thing of the past. Right?
I am willing to be proven wrong in public on this forum. I welcome the chance to learn something new about asset protection. I look forward to your reply.
@Jerry W. I shot back at you after you took your polite shot at me. John was just rude to be rude and not even provoked. You don't call somebody "son" as if lecturing somebody. That is just like saying "right boy".
I do not think I know it all. More assumptions. That is why I seek education and learning and affiliate with the best firms and pass down education, systems, structures, plans and ideas. FYI, more than one exists, Hence why you have client consults to know your clients situation, assets, risks, and life. More than one way to skin a cat. A Series LLC and Land Trust is just one of the many.
You are not open or receptive. That is fine. Please tell me When did I say my "secret sauce formula" bla bla bla? I did not. So again you place words in my mouth not used. Causing me to correct you, again. So stop doing that. Its foolish.
You can't avoid lawsuits. Thats the point. But you make it so hard, time consuming and expensive the case gets settled very fast and cheeper, or not filed at all.
I can trade insults all day long if somebody wants to insult me and or putting accusations in the form of questions for furthering education. But its not productive. You have a history and pattern of making an argument wrapped in a indictment. I just show it.
Yes, I always ask for punitive damages, always ask for a jury, always do layers of discovery etc. The point is that all that adds up to hours, and manpower and labor etc that makes cases not valuable any longer. I have tried cases fo free pro bono, on commission, or in $40 million dollar lawsuits. The method is basically the same. This is what the evaluation of a case on the business side is. Asset search into the defendant, likelihood of recovery, amount of expected recovery compared to labor and upfront costs. etc. Even if a plaintiff lawyer on commission, the manpower hours and up-fronts costs can't be more than the projected recovery. Your doors will close fast. Hence why bleeding heart lawyers go out of business.
Relying on insurance is a false security. Insurance is a business. They don't stay in business by paying claims. They challenge them, reduce them, minimally, pay, or claim fraud and force you to sue them. That is how insurance companies stay in business. That is why their is an area of law called insurance law and insurance lawyers.
We have 2,000 existing clients in our firm, the other firms we affiliate with that are the largest in the nation, have their own thousands, how can you make an accusation that banks don't loan to investors who have LLC and Trusts? all our our thousand of clients have no issue.
When you transfer into a land trust most banks say nothing, and if the lender has a question, they talk to the lawyer, you tell them it is being transferred into a land trust for asset protection purposes, we handle any issue for the client on our end, and are fine with that. Even if you did not talk to the lender/bank, have you seen a bank rock the boat and call a performing note due? No. Its performing. And they see its a transfer into a land trust for asset protection reasons. Its a non issue.
When Holding title to property in a land trust is a very secure way of holding title. Land Trusts have been used for centuries. Literally centuries. In this use, with a Series LLC, the child series of the series LLC is grantor and beneficiary. The clients job is to just make sure to get a lawyer that knows how to do it right.
And you keep for some reason speculating and making up these random cost numbers that don't exist. Not all law firms charge like how you say. You speculate a lot in what you say and make huge assumptions.
the contracting you do with plumbers etc contractors, etc are through another company called and operation company that holds no assets and you are a sole managing member not a CEO or president etc. You are not contracting with anybody personally, your operating company is, and all documents are singed with the company name, and by the managing member. Again, more layers of separation to force more time and costs and expenses on the opposing side.
And I have said many times in my replies which you do not seem to understand is the pillar of asset protection. To attack the damage leg of a lawsuit. You are not hiding anything. They are just called anamynity anonymous trusts. What you are rally doing is Just making it very time consuming and expensive to get a judgment.
@Doug Orchard no problem. you are welcome.
@Brian Bradley Amazing this blanket advice is coming from an attorney. Certainly not one well-versed in asset protection. Series LLC isn't recognized by the federal gov't, good luck after one of the series has to file bankruptcy (federal court) after loosing a liability lawsuit.
@Matthew Olszak first states create state recognized business structures like LLC, LP, Corps, SLLC etc. Hence state legislative law that makes them available in that state. I guess @Scott Smith is not well versed, or any other the other firm nation wide that use them. What fools.
Branches of the federal government most certainly have recognized Series LLC and given guidance and their role in relation to state legislative law such as the IRS and Tax Courts and case law from tax courts. Lots of IRS Notices and Rev Rul, IRC codes. So sorry you are just WRONG on that one. Way wrong. But you are a Broker, not a lawyer. Makes sense. Their are even federal tax consequence codes from the IRS relating to Series LLC. So, how can they have tax codes, rules, notices, case law and statute if not recognized. Oh wait and more, even bankruptcy opinions and Courts have characterized LLCs as corporations under the Bankruptcy Code that generally are eligible to file a Chapter 7 or Chapter 11 case. I think what you are trying to poorly say is that courts and the law of financially-troubled series LLC is still developing. Not that they don't exist.
Changing the person/entity on title, in an environment where interest rates may well be rising fairly quickly in over the next few years, seems like a good way to trigger the due on sale clause. Doesn't seem like a good long term plan to me, when interest rates are double or more the rate on a mortgage, banks are going to have a lot more incentive to consider the due on sale clause option.
@John D. I prefer to work with the bank and lender. Maybe they will change 50 years of doing business. I mean all things in life change it is inevitable. All we can do is look at what has been going on and what are they doing. But like I said, I would much rather communicate with the lender and bank then just bypass. Some of our clients even tell the bank while getting the loan their intent to transfer after closing right up front and in writing. Then the bank lender calls us, its a quick call.
@Matthew Olszak first states create state recognized business structures like LLC, LP, Corps, SLLC etc. Hence state legislative law that makes them available in that state. I guess @Scott Smith is not well versed, or any other the other firm nation wide that use them. What fools.
Branches of the federal government most certainly have recognized Series LLC and given guidance and their role in relation to state legislative law such as the IRS and Tax Courts and case law from tax courts. Lots of IRS Notices and Rev Rul, IRC codes. So sorry you are just WRONG on that one. Way wrong. But you are a Broker, not a lawyer. Makes sense. Their are even federal tax consequence codes from the IRS relating to Series LLC. So, how can they have tax codes, rules, notices, case law and statute if not recognized. Oh wait and more, even bankruptcy opinions and Courts have characterized LLCs as corporations under the Bankruptcy Code that generally are eligible to file a Chapter 7 or Chapter 11 case. I think what you are trying to poorly say is that courts and the law of financially-troubled series LLC is still developing. Not that they don't exist.
You lost me when you attacked my title (as a broker, and you as an attorney) vs. what I've stated. You can type all the paragraphs of yap you want to, but here is the key:
[...C]ourts and the law of financially-troubled series LLC is still developing. Not that they don't exist.
So your asset protection plan is based on theory, and not well established case law. Hope you have a large malpractice policy to back that up if you're wrong. I prefer to refer my high net-worth clients to a firm which utilizes well-established asset protection methods and doesn't use them as a guinea pig in potential trials..
@Matthew Olszak no you mentioned specifically bankruptcy. as the reply was to bankruptcy. And then the other part was your uneducated reply of federal government not recognizing it yet the Tax courts and IRS specifically have as one example etc. Calling you a Broker is not an attack but a truth of fact. You are a Broker. Who is stating fact an attack? you as a broker are giving 'legal opinion' but are wrong since you are not a lawyer and I just point blank showed you the exact federal agencies that you can look up and find recognition. IRS, Tax Courts, Bankruptcy Courts.
Just curious, what are a few factors in piercing the LLC veil? I have been a RE investor for almost 40 years and only known one case where the LLC/corporate veil was pierced....environmental.
Thanks in advance
@Brian Bradley, I actually have not intentionally insulted you in any way. It is hard to turn off what we do during the day, but I intended no insult as of yet. I very much like that you are talking about some of the nuts and bolts finally. You have very much touted the anonymity factor of these things, that is the part that concerns me. I agree whole heartedly that LLCs and series LLCs are important liability tools. I do not deal with land trusts for anonymity and the claims that they will stop lawsuits concerns me greatly. Especially claims that Plaintiff's attorneys will get frustrated and go away. I would actually be afraid to make that claim for ethical reasons. It seems that saying that it can deter some of the smaller nuisance lawsuits would be more appropriate. You have not addressed my scenario in the least. Part of what I do on these forums is to try to keep people who are virtually advertising their services in every post from making outrageous claims that lack merit or seem to be misleading. you are clearly advertising your wares on virtually every post I have seen. On my first vote for one of your posts you sent me a solicitation email which I understand to be a violation of the rules. I don't really care about that. I just want to make sure that your advertising and claims are factually supported and I have concerns yours promise a bit more than they deliver. I obviously got concerned when you implied you had to be right because your firm or one you work with is over 100 years old and hundreds of old attorneys invest time in this. You should be able to articulate your position based upon it's merit. Throwing the flag over top of you saying since I am in this firm I cannot be wrong doesn't cut it.
You have failed in any way to address the example I set out. Why is that? the reason I mention the secret sauce is that I have seen lots of attorneys just like you make these same claims many times. they never seem to be willing to actually talk about how they work. To be honest you seem to be the most open so far, and I like that. I really am curious how these work based upon the claims I hear.
You very clearly made it known I was not capable of understanding because I was not an attorney and did not know how these things work. I hope I have showed you otherwise. I know what a lot of attorney's charge, but not all. I have seen asset protection plans for under $500 and for over $50K. I can assure you that your lawyers don't work for the $44 fee you mentioned in part of the costs. If your firm is as prestigious as you claim no attorney there is working for under $100 per hour and I doubt many are less than $200 per hour.
this is an interesting forum and a great one to find clients for your business. you need to be open about how your plan works if you don't want confronted about it. You are here looking to get clients. that is obvious, and I don't care particularly if you are transparent about what your service can and cannot do. I am willing to debate the merits. If your solicitation gets out of hand I will hide or block your posts, but I see no reason to do that at this time. I understand that you are employed in a firm that makes money from doing things like this and you want to be valuable to them. However saying your firm affiliates with the largest firms in the country to useless fluff. discuss the merits if you want credibility. I have never by the way blocked any post for attacking me. that is not the reason I block posts. I just want to make sure that people are fairly informed about the service they are being pitched. I have seen many , many such posts here on BP. just be clear about what they can and cannot do.
I truly would like the answers to some of my questions. if you chose not to I obviously cannot compel you to.
@Rodney Blackwell yea. Undercapitalization, commingling assets, fraud, failure to maintain separate identities and formalities. Those are the main. That is why you do not DIY any corporate structure but use our lawyer and CPA and always work with them to make sure you are in compliance and have minutes, and separation, have minutes, and separate bank accounts etc and just do everything on the up and up.
You stated in your reply that the law surrounding series LLC is still developing at the federal level. Now you state its well-established. Can't be both.
You can say I don't know what I'm talking about because I'm not a lawyer, but if anything that makes you appear even less educated being that a simple layman like myself is able to debunk your claims. Present the case law which supports that a series LLC child entity is completely separate from the parent in bankruptcy court. Tax law is CPA territory I'm not interested in. Present the case law about bankruptcy and liability specifically stating a child entity and parent are completely separate.
I'm not here to convince you, or allow you to convince me; I'm simply posting to caution others reading these self-promotion threads to tread carefully w/ who they trust.