Hi guys,
Could you please help me out?
Everybody keeps saying how if a husband and a wife own an LLC it is still considered as one member LLC.
Also, its easy to pierce the corporate veil of one member LLC, and courts sometimes treat a one member LLC as an individual.
So, I can put as a second member another LLC, but what if that LLC is a one member? In other words, in I own an LLC that is two member LLC (one is me and another member is another LLC that has ony one member, who happens to be me again) would not court consider it as one individual?
So is there a way around it?
Thank you!
If the issue is piercing the corporate veil, adding a member will not help you. There's a lot of other issues involved.
I had a business in an LLC, purchased it from the married couple who had it in an S Corp. The S Corp and them were personally sued. My involvement was my employees had to take time off the give court depositions on a lawsuit for over $2 million. They worked for them before I took over. Asked attorneys in the case if the corporate view was pierced. The answer was "NO", because the couple were personally involved in managing the business. Were they? I was allowed the opportunity to observe the business before buying it, and the husband spent most of the day strolling around the neighborhood and reading the papers while he was there. Be that as it may, the court allowed the case to proceed against them because of their personal involvement.
Outcome of the case? The couple retired to Florida from NY, put all the money into a home protected by the state's Homestead laws, so the plaintiffs settled for whatever they can from the insurance.
While I had the business in an LLC, there was a slip and fall at the business, and the customer got an attorney after me. He threatened lawsuits and all kinds of things. At first, I had the correspondence sent to me. But when the amount they're looking for went up to over $10,000, I told them to send everything to my insurance. I got liability insurance for my LLC and an endorsement that covers me personally. Nine months went by and the customer came back to me crying that his attorney stopped answering his calls. Reason why? It's too much work for a claim of measly $10,000. The insurance company had a case number, I checked, and they tell me they received correspondence from the attorney and it's being looked at. Haha. I told the customer to hire another attorney that's not so lazy. Never heard back.
Bottom line, the corporate veil will be pierced in any event. You're the alter ego of the LLC. All they have to ask is what this dummy partner in the LLC does, and it would be case over. With an insurance company, attorneys will not touch the case unless they get a big payday. Bottom line, you're wasting your time.
My experience is that insurance worked better than an LLC.
In my view, one of the pillar is also equity stripping where you diminish the value of the asset by attaching liens/notes on them from another third party or entity.
Ive heard about it too! The way Ive heard about it is do not pay property off. Keep the mortgage on it...
Is that what you mean? Or are you saying that a friend/relative can put a lien on your property?
In my experience, similar to Patrick and others, the structuring shenanigans going on behind the scenes of an LLC probably do not matter much to the judge looking at the case behind the bench. The questions the judge asks him or herself are more political and judicial and involve concepts like 'fairness' and 'equity'. So heck it could even hurt you in the courtroom to have elaborate veils over the ownership the judge can see right through--the judge might assume you are trying to defraud the public somehow and you need to be shut down! Better to just have a simple LLC, take any basic steps you can to increase anonymity, run a clean business, and have good insurance. Then you should rest easily enough at night as you can, having done your part to spread the risk around rather than leave it directly on your shoulders. Regarding couples, yes it depends on the state but also the couple. Some couples have totally separate finances and some do not. In Wisconsin there are even creditor avoidance strategies like putting everything in your spouses name before signing a personal guarantee, since one spouse can go bankrupt and live off the assets of the other. But that all varies based the specifics as always. Happy investing!
Wow! You guys know a lot about the subject!
Thank you so much all of you for teaching me!
Ryan, you mentioned to take steps to increase anonymity. What did you mean by that? To put an LLC into a trust? Or to have a registered agent with a different address?
That is a whole discussion to itself. Anonymity usually refers to keeping your name as far from association with ownership as possible, while maintaining said ownership. Trusts are indeed one way to do this, since you do not have to register trusts (generally) anywhere and the terms/beneficiaries of the trust can remain anonymous in the vast majority of cases. Also multiple layers of LLCs, partnerships, out of state entities, overseas entities even, escrows or constructive trusts... It really matters what you need to protect and why because costs and administrative burden may not be worth it, though it is all a matter of facts & circumstances.
So true! Ive heard one person spent 25K on all the structuring and then run out of money for investments
So what is the best way, in your opinion to structure for anonymity? Put a property into LLC and then that LLC is owned by the trust?
In my experience, similar to Patrick and others, the structuring shenanigans going on behind the scenes of an LLC probably do not matter much to the judge looking at the case behind the bench. The questions the judge asks him or herself are more political and judicial and involve concepts like 'fairness' and 'equity'. So heck it could even hurt you in the courtroom to have elaborate veils over the ownership the judge can see right through--the judge might assume you are trying to defraud the public somehow and you need to be shut down! Better to just have a simple LLC, take any basic steps you can to increase anonymity, run a clean business, and have good insurance. Then you should rest easily enough at night as you can, having done your part to spread the risk around rather than leave it directly on your shoulders. Regarding couples, yes it depends on the state but also the couple. Some couples have totally separate finances and some do not. In Wisconsin there are even creditor avoidance strategies like putting everything in your spouses name before signing a personal guarantee, since one spouse can go bankrupt and live off the assets of the other. But that all varies based the specifics as always. Happy investing!
Wow! You guys know a lot about the subject!
Thank you so much all of you for teaching me!
Ryan, you mentioned to take steps to increase anonymity. What did you mean by that? To put an LLC into a trust? Or to have a registered agent with a different address?
Asset protection is essentially a bottomless well of structures, but the most applicable strategies would fit within the main "five pillars" of protecting your assets. The first pillar is avoiding unnecessary and risky activities (don't drink and drive, insurance generally won’t cover your poor decisions) and take good care of your investments - these simple steps will help you prevent lawsuits before they even occur. The second pillar is a good insurance policy as that cover the majority of your exposure. However, it only protects you from one type of liability: accidents.
After that you want to compartmentalize your assets, which is often accomplished through the use of LLCs or corporations. I personally find the Series LLC to be a great tool for the individual investor who is planning to expand their operation, as it allows for you to scale infinitely - check out this article to learn more. The fourth pillar is somewhat similar - you want to separate your operations from your assets. That means you establish a Traditional LLC to carry out the operations of your investments, in order to separate the liability from your assets, including: paying property management, paying contractors, collecting rent, marketing, etc. Finally, with the use of Trusts while establishing these structures you can add a level of anonymity by removing your name from public record.
When you establish a trust you can have your attorney sign as a "nominee trustee," and after the signing is complete you become the "trustee" per the language used to establish the trusts. This way when people look up the property or LLC that the trust holds, they only see your attorney's name. When they want to dig deeper they will have to deal with attorney-client privilege, immediately increasing costs for anyone looking to sue you. This is a great deterrent for many potential suit filers.
That is interesting. Do you put a property into LLC? Or you put a property into trust?
I often work with investors who have multiple properties and utilize the Series LLC. For this type of setup it would look like this.
.....................................................................Series LLC................................................................
....................................................................Agent Trust...............................................................
..........................Series A................................Series B.............................Series C..................... etc.
.......................Land Trust.............................Land Trust........................Land Trust.................. etc.
.......................Property A.............................Property B........................Property C.................. etc.
You can do the same thing with a regular LLC, it is just more work for an entity that does not scale.
This isn't legal advice, just my opinion as a real estate investor.
In my experience, similar to Patrick and others, the structuring shenanigans going on behind the scenes of an LLC probably do not matter much to the judge looking at the case behind the bench. The questions the judge asks him or herself are more political and judicial and involve concepts like 'fairness' and 'equity'. So heck it could even hurt you in the courtroom to have elaborate veils over the ownership the judge can see right through--the judge might assume you are trying to defraud the public somehow and you need to be shut down! Better to just have a simple LLC, take any basic steps you can to increase anonymity, run a clean business, and have good insurance. Then you should rest easily enough at night as you can, having done your part to spread the risk around rather than leave it directly on your shoulders. Regarding couples, yes it depends on the state but also the couple. Some couples have totally separate finances and some do not. In Wisconsin there are even creditor avoidance strategies like putting everything in your spouses name before signing a personal guarantee, since one spouse can go bankrupt and live off the assets of the other. But that all varies based the specifics as always. Happy investing!
Wow! You guys know a lot about the subject!
Thank you so much all of you for teaching me!
Ryan, you mentioned to take steps to increase anonymity. What did you mean by that? To put an LLC into a trust? Or to have a registered agent with a different address?
Asset protection is essentially a bottomless well of structures, but the most applicable strategies would fit within the main "five pillars" of protecting your assets. The first pillar is avoiding unnecessary and risky activities (don't drink and drive, insurance generally won’t cover your poor decisions) and take good care of your investments - these simple steps will help you prevent lawsuits before they even occur. The second pillar is a good insurance policy as that cover the majority of your exposure. However, it only protects you from one type of liability: accidents.
After that you want to compartmentalize your assets, which is often accomplished through the use of LLCs or corporations. I personally find the Series LLC to be a great tool for the individual investor who is planning to expand their operation, as it allows for you to scale infinitely - check out this article to learn more. The fourth pillar is somewhat similar - you want to separate your operations from your assets. That means you establish a Traditional LLC to carry out the operations of your investments, in order to separate the liability from your assets, including: paying property management, paying contractors, collecting rent, marketing, etc. Finally, with the use of Trusts while establishing these structures you can add a level of anonymity by removing your name from public record.
When you establish a trust you can have your attorney sign as a "nominee trustee," and after the signing is complete you become the "trustee" per the language used to establish the trusts. This way when people look up the property or LLC that the trust holds, they only see your attorney's name. When they want to dig deeper they will have to deal with attorney-client privilege, immediately increasing costs for anyone looking to sue you. This is a great deterrent for many potential suit filers.
That is interesting. Do you put a property into LLC? Or you put a property into trust?
I often work with investors who have multiple properties and utilize the Series LLC. For this type of setup it would look like this.
.....................................................................Series LLC................................................................
....................................................................Agent Trust...............................................................
..........................Series A................................Series B.............................Series C..................... etc.
.......................Land Trust.............................Land Trust........................Land Trust.................. etc.
.......................Property A.............................Property B........................Property C.................. etc.
You can do the same thing with a regular LLC, it is just more work for an entity that does not scale.
This isn't legal advice, just my opinion as a real estate investor.
Thank you!
In my experience, similar to Patrick and others, the structuring shenanigans going on behind the scenes of an LLC probably do not matter much to the judge looking at the case behind the bench. The questions the judge asks him or herself are more political and judicial and involve concepts like 'fairness' and 'equity'. So heck it could even hurt you in the courtroom to have elaborate veils over the ownership the judge can see right through--the judge might assume you are trying to defraud the public somehow and you need to be shut down! Better to just have a simple LLC, take any basic steps you can to increase anonymity, run a clean business, and have good insurance. Then you should rest easily enough at night as you can, having done your part to spread the risk around rather than leave it directly on your shoulders. Regarding couples, yes it depends on the state but also the couple. Some couples have totally separate finances and some do not. In Wisconsin there are even creditor avoidance strategies like putting everything in your spouses name before signing a personal guarantee, since one spouse can go bankrupt and live off the assets of the other. But that all varies based the specifics as always. Happy investing!
Wow! You guys know a lot about the subject!
Thank you so much all of you for teaching me!
Ryan, you mentioned to take steps to increase anonymity. What did you mean by that? To put an LLC into a trust? Or to have a registered agent with a different address?
That is a whole discussion to itself. Anonymity usually refers to keeping your name as far from association with ownership as possible, while maintaining said ownership. Trusts are indeed one way to do this, since you do not have to register trusts (generally) anywhere and the terms/beneficiaries of the trust can remain anonymous in the vast majority of cases. Also multiple layers of LLCs, partnerships, out of state entities, overseas entities even, escrows or constructive trusts... It really matters what you need to protect and why because costs and administrative burden may not be worth it, though it is all a matter of facts & circumstances.
So true! Ive heard one person spent 25K on all the structuring and then run out of money for investments
So what is the best way, in your opinion to structure for anonymity? Put a property into LLC and then that LLC is owned by the trust?
I think something like Scott Smith illustrated in the post above is pretty close. If someone like him has a cookie cutter setup they can plug you into with minimal fees it would be ideal, along with the other concepts of course (ie keeping your name associated with the properties by self-managing). But yes for one property the solution that gets you maybe 85% of the way without the geometric progression in costs is probably an LLC owned by a trust. Now this may not even be that impractical either. Because trusts can also be helpful for estate planning, if a bit excessive IMO for the average person. But if you have one anyways for your business, you should also be able to use it for ancillary benefits such as keeping things out of probate, structuring inheritances in complex ways to kids, family or charity, etc. So in one sense it could get two birds with one stone. But I would just caution you to watch out for lawyers that appear to be merely in the business of selling high price/volume trusts. Trusts are a tool like hammers are. You do not use a hammer for everything, as versatile as they might be.
In my experience, similar to Patrick and others, the structuring shenanigans going on behind the scenes of an LLC probably do not matter much to the judge looking at the case behind the bench. The questions the judge asks him or herself are more political and judicial and involve concepts like 'fairness' and 'equity'. So heck it could even hurt you in the courtroom to have elaborate veils over the ownership the judge can see right through--the judge might assume you are trying to defraud the public somehow and you need to be shut down! Better to just have a simple LLC, take any basic steps you can to increase anonymity, run a clean business, and have good insurance. Then you should rest easily enough at night as you can, having done your part to spread the risk around rather than leave it directly on your shoulders. Regarding couples, yes it depends on the state but also the couple. Some couples have totally separate finances and some do not. In Wisconsin there are even creditor avoidance strategies like putting everything in your spouses name before signing a personal guarantee, since one spouse can go bankrupt and live off the assets of the other. But that all varies based the specifics as always. Happy investing!
Wow! You guys know a lot about the subject!
Thank you so much all of you for teaching me!
Ryan, you mentioned to take steps to increase anonymity. What did you mean by that? To put an LLC into a trust? Or to have a registered agent with a different address?
That is a whole discussion to itself. Anonymity usually refers to keeping your name as far from association with ownership as possible, while maintaining said ownership. Trusts are indeed one way to do this, since you do not have to register trusts (generally) anywhere and the terms/beneficiaries of the trust can remain anonymous in the vast majority of cases. Also multiple layers of LLCs, partnerships, out of state entities, overseas entities even, escrows or constructive trusts... It really matters what you need to protect and why because costs and administrative burden may not be worth it, though it is all a matter of facts & circumstances.
So true! Ive heard one person spent 25K on all the structuring and then run out of money for investments
So what is the best way, in your opinion to structure for anonymity? Put a property into LLC and then that LLC is owned by the trust?
I think something like Scott Smith illustrated in the post above is pretty close. If someone like him has a cookie cutter setup they can plug you into with minimal fees it would be ideal, along with the other concepts of course (ie keeping your name associated with the properties by self-managing). But yes for one property the solution that gets you maybe 85% of the way without the geometric progression in costs is probably an LLC owned by a trust. Now this may not even be that impractical either. Because trusts can also be helpful for estate planning, if a bit excessive IMO for the average person. But if you have one anyways for your business, you should also be able to use it for ancillary benefits such as keeping things out of probate, structuring inheritances in complex ways to kids, family or charity, etc. So in one sense it could get two birds with one stone. But I would just caution you to watch out for lawyers that appear to be merely in the business of selling high price/volume trusts. Trusts are a tool like hammers are. You do not use a hammer for everything, as versatile as they might be.
Very wise! Thank you!
1) So if I put a house into LLC, but then one of the members of that LLC is a trust (with 5% ownership of LLC) , does it also avoid probate?
2) Another scenario: Me and my mom are both members of LLC (I own 95% and my mom owns 5% of LLC) , lets say I die, does everything just go to my mom automatically? Or there will be still probate?
In my experience, similar to Patrick and others, the structuring shenanigans going on behind the scenes of an LLC probably do not matter much to the judge looking at the case behind the bench. The questions the judge asks him or herself are more political and judicial and involve concepts like 'fairness' and 'equity'. So heck it could even hurt you in the courtroom to have elaborate veils over the ownership the judge can see right through--the judge might assume you are trying to defraud the public somehow and you need to be shut down! Better to just have a simple LLC, take any basic steps you can to increase anonymity, run a clean business, and have good insurance. Then you should rest easily enough at night as you can, having done your part to spread the risk around rather than leave it directly on your shoulders. Regarding couples, yes it depends on the state but also the couple. Some couples have totally separate finances and some do not. In Wisconsin there are even creditor avoidance strategies like putting everything in your spouses name before signing a personal guarantee, since one spouse can go bankrupt and live off the assets of the other. But that all varies based the specifics as always. Happy investing!
Wow! You guys know a lot about the subject!
Thank you so much all of you for teaching me!
Ryan, you mentioned to take steps to increase anonymity. What did you mean by that? To put an LLC into a trust? Or to have a registered agent with a different address?
Asset protection is essentially a bottomless well of structures, but the most applicable strategies would fit within the main "five pillars" of protecting your assets. The first pillar is avoiding unnecessary and risky activities (don't drink and drive, insurance generally won’t cover your poor decisions) and take good care of your investments - these simple steps will help you prevent lawsuits before they even occur. The second pillar is a good insurance policy as that cover the majority of your exposure. However, it only protects you from one type of liability: accidents.
After that you want to compartmentalize your assets, which is often accomplished through the use of LLCs or corporations. I personally find the Series LLC to be a great tool for the individual investor who is planning to expand their operation, as it allows for you to scale infinitely - check out this article to learn more. The fourth pillar is somewhat similar - you want to separate your operations from your assets. That means you establish a Traditional LLC to carry out the operations of your investments, in order to separate the liability from your assets, including: paying property management, paying contractors, collecting rent, marketing, etc. Finally, with the use of Trusts while establishing these structures you can add a level of anonymity by removing your name from public record.
When you establish a trust you can have your attorney sign as a "nominee trustee," and after the signing is complete you become the "trustee" per the language used to establish the trusts. This way when people look up the property or LLC that the trust holds, they only see your attorney's name. When they want to dig deeper they will have to deal with attorney-client privilege, immediately increasing costs for anyone looking to sue you. This is a great deterrent for many potential suit filers.
That is interesting. Do you put a property into LLC? Or you put a property into trust?
I often work with investors who have multiple properties and utilize the Series LLC. For this type of setup it would look like this.
.....................................................................Series LLC................................................................
....................................................................Agent Trust...............................................................
..........................Series A................................Series B.............................Series C..................... etc.
.......................Land Trust.............................Land Trust........................Land Trust.................. etc.
.......................Property A.............................Property B........................Property C.................. etc.
You can do the same thing with a regular LLC, it is just more work for an entity that does not scale.
This isn't legal advice, just my opinion as a real estate investor.
That is a very interesting scenario...
Thank you!
In my experience, similar to Patrick and others, the structuring shenanigans going on behind the scenes of an LLC probably do not matter much to the judge looking at the case behind the bench. The questions the judge asks him or herself are more political and judicial and involve concepts like 'fairness' and 'equity'. So heck it could even hurt you in the courtroom to have elaborate veils over the ownership the judge can see right through--the judge might assume you are trying to defraud the public somehow and you need to be shut down! Better to just have a simple LLC, take any basic steps you can to increase anonymity, run a clean business, and have good insurance. Then you should rest easily enough at night as you can, having done your part to spread the risk around rather than leave it directly on your shoulders. Regarding couples, yes it depends on the state but also the couple. Some couples have totally separate finances and some do not. In Wisconsin there are even creditor avoidance strategies like putting everything in your spouses name before signing a personal guarantee, since one spouse can go bankrupt and live off the assets of the other. But that all varies based the specifics as always. Happy investing!
Wow! You guys know a lot about the subject!
Thank you so much all of you for teaching me!
Ryan, you mentioned to take steps to increase anonymity. What did you mean by that? To put an LLC into a trust? Or to have a registered agent with a different address?
That is a whole discussion to itself. Anonymity usually refers to keeping your name as far from association with ownership as possible, while maintaining said ownership. Trusts are indeed one way to do this, since you do not have to register trusts (generally) anywhere and the terms/beneficiaries of the trust can remain anonymous in the vast majority of cases. Also multiple layers of LLCs, partnerships, out of state entities, overseas entities even, escrows or constructive trusts... It really matters what you need to protect and why because costs and administrative burden may not be worth it, though it is all a matter of facts & circumstances.
So true! Ive heard one person spent 25K on all the structuring and then run out of money for investments
So what is the best way, in your opinion to structure for anonymity? Put a property into LLC and then that LLC is owned by the trust?
I think something like Scott Smith illustrated in the post above is pretty close. If someone like him has a cookie cutter setup they can plug you into with minimal fees it would be ideal, along with the other concepts of course (ie keeping your name associated with the properties by self-managing). But yes for one property the solution that gets you maybe 85% of the way without the geometric progression in costs is probably an LLC owned by a trust. Now this may not even be that impractical either. Because trusts can also be helpful for estate planning, if a bit excessive IMO for the average person. But if you have one anyways for your business, you should also be able to use it for ancillary benefits such as keeping things out of probate, structuring inheritances in complex ways to kids, family or charity, etc. So in one sense it could get two birds with one stone. But I would just caution you to watch out for lawyers that appear to be merely in the business of selling high price/volume trusts. Trusts are a tool like hammers are. You do not use a hammer for everything, as versatile as they might be.
Very wise! Thank you!
1) So if I put a house into LLC, but then one of the members of that LLC is a trust (with 5% ownership of LLC) , does it also avoid probate?
2) Another scenario: Me and my mom are both members of LLC (I own 95% and my mom owns 5% of LLC) , lets say I die, does everything just go to my mom automatically? Or there will be still probate?
1) It depends, not on the trust, but on the LLC in that case. The LLC can work to avoid probate of anything it owns by designating a beneficiary or a preferred order of heirs as a part of the LLC documents. At least in my state this is allowed by law to go around probate. If the LLC does not do this, than no, the 95% of LLC shares not owned (and thus presumably transferred outside of probate) by the trust would have to pass by testate or intestate succession through the probate court as part of the deceased person's estate.
2) Again you need to write that into the LLC documents. But if you do then yes the shares can be designed to pass to your mom rather than some probate process. If you simply create an LLC and divide up shares, then no, probate will step in to 'help' the shares pass on to your mom or your other beneficiaries by will or by statute.
I hope that helped answer your question.