LLCs in Wyoming for Asset Protection
Rental Property Investor · Clearwater, FL · Member since 2015 · 112 posts · 29 votes
I have been offered ( by a CPA and Legal Buffet ) a reestructuring of my business with LLCs in Wyoming as they apparently offer the best asset protection as you can have a Nominee manager
The scheme sounded great but at the end of the day I would be tied to that cpa /accounting studio as I will always need an adress in Wyoming and the Nominee Manager that steps in an out every year.
Has anyone here been offered the same and what were your thoughts about it ?
The benefit of the WY LLC is it allows for the setup of your state-specific LLCs with anonymity. Yes, WY does provide strong charging order protections versus a state like Florida that does not offer any protections for single-member LLCs. I would not undervalue the benefit of privacy. Many lawsuits are just shakedowns designed to intimidate deep pockets defendants into paying to make the case go away. I know some people argue against structuring in favor of insurance, but many real estate related lawsuits are not covered by insurance, so you are left to defend yourself. Keeping your ownership of business entities off the secretary of state's database helps discourage the shakedown lawsuit. I have structured many people with this type of setup, and it served them well when the lawsuit hit. The approach I take is my business is my business, and the public does not have any interest in knowing how many entities or properties I own. Second, you mention that you must use a nominee manager that steps in and out on an annual basis. This is not required for WY or DE, only Nevada. Wyoming does not ask for either the members or the manager's information on the initial or annual filing. My firm establishes 1000 or more WY LLCs every year, so I am well versed in their setup. A few last points to consider:
Anonymity is not appropriate in all circumstances, I.e., I would not use it if you are running an active business
Anonymity is just a smokescreen; if a creditor sues, wins, obtains a judgment and drags you into a debtor examine, you will lose the smokescreen which is why you need the LLCs
Once an entity is set up with your name (manager or member), then you can not unring the bell which is why if you want the anonymity you should set up the WY LLC before you create any other LLCs
@Clint Coons Brilliant ! Thank you for your answer, I learnt a lot and will look into that
@Chris K. You answering that way not only doesn’t help and it is only meant to scare but also does not enrich or enlighten or inform anyone. You are making a mistery scary cloud without providing ANY specific.
What are the hassles you refer to of owning all of them in a C Corp ?
What are the serious issues that I have that you mention ?
I apologize if it came across that way but this is why you need to talk to a CPA. Here are some articles that summarize some of the concerns. As one of the authors mention, there is very little in the tax world where the answer is "never." But from what I understand, owning real-estate investments in a C-Corp gets about as close as you can get to "never."
https://www.forbes.com/sites/anthonynitti/2014/01/28/tax-geek-tuesday-why-you-should-never-hold-real-estate-in-a-corporation/#13b90027693e
https://krscpas.com/do-you-hold-real-estate-in-a-c-corporation/
https://www.taxlawforchb.com/2017/10/thou-shalt-not-hold-real-property-in-a-corporation/
Setting aside the tax aspect, you must also comply with the legal requirements of owning a corporation. I have no idea what Florida law says on the matter. But in Pennslyvania, having a corporation requires you to hold shareholder meetings, board meetings, election meetings, and more on at least on an annual basis. You need to document all the above with minutes, bylaws, and other corporate formality documents. You also need to deal with payroll even if you are the sole owner.
Long story short, no one can answer these questions for you except a CPA and an attorney that actually sits down and review your entire situation. In my experience as a real-estate lawyer working with CPAs, people who make this mistake typically end up having to pay a ludicrous tax bill to fix the problem. Hopefully, that's not the case for you. But you won't know until you sit down with professionals to deal with your situation.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.
@Marisa Alvarez I'd love to use bullet-points for clarity, but you know what the last attempt looked like :) Since BP made same changes a while back, can't quite see the bullet-points as I type - with the results showing only once you hit "post reply."
There are 2 distinct components to entity structuring - (1) legal and (2) tax.
Tax
@Chris K. has linked to some solid resources that cover the tax pitfalls of using a corps (S-corp or C-corp) to hold real estate or other appreciating asset. No need for me to rehash all that, but in a nutshell: getting an appreciated asset out of a corporation - for whatever reason you may have to do that - can be very painful.
2 points on this (just can't resist those bullet points):
The bigger question is, why would someone place real estate in a C-corp to begin with ? What was the benefit of doing so? You must have had a reason to use a C-corp, and perhaps those reasons were important enough and outweighed the potential pitfalls.
There must have been a reason, though, because by using a C-corp you give up many of the tax benefits of real estate ownership - the depreciation losses flowing through to your personal tax return and potentially offsetting other income on your 1040 (Speak to @Yonah Weiss!).
How is your CPA proposing that you get all these assets into new LLCs from the C-corp?! That's exactly where the achilles heel of C-corps are! Also, if your assets on are in Fl the real estate transfer tax from C-corp should be punishing.
I've been in this game long enough to know that every scenario is unique and that each individual needs a tailored approach. As I wrote above, if your CPA is truly a pro, there must be good reason for your structure - and I can use conjecture to guess what those reasons are.
If your CPA is not a real pro, or you followed internet mis-information, that's another story altogether. Internet misinformation and misdirection abound - caveat emptor. Often, the folks that spend the least proportion of resources - time and funds - on acquiring true expertise, invest the most heavily in marketing their "expertise."
Asset-protection/Anonymity
@Chris K. also referenced some of the asset-protection disadvantages of corporations. However, those presume that you truly have a corporation - which you don't seem to have confirmed anywhere. You did mention that you have a "C-corp" - which is a tax concept, not a legal entity concept. An LLC can be a C-corp.
There are actually additional drawbacks to using a corporation, but no need to to go there if what you have is an LLC taxed as a C-corp. What do you have, an LLC taxed as a C-corp or a corporation taxed as a C-corp?
Your scenario
Bottom line, you may be able to benefit for single-member LLC asset-protection provided by the domiciles that offer that - and there may be ways to achieve that without a tax hit. That would require a single LLC only, as only ownership of the corporation would be changing, not the individual properties.
A FL land trust, which actually does provide some true asset-protection (in contrast with just about every other domicile), would not acheive much in your scenario - at the moment.
There are:
In my work, I've had cause to see the LLC statutes of most states and have been part of the formation of LLCs in every domicile. I see, daily, the good and "not-so-good" in the entity set-up space and - unless you have expertise in this field - you can't possibly tell them apart. Hopefully, all the feedback shared on this forum will give you a discerning eye.
@Clint Coons I welcome your feedback on all this.
Very good point about a corporation taxed as a C-Corp versus an LLC taxed as a C-Corp! I read her to mean that she has an actual corporation but I think that was just an assumption.
In my experience, the most common --- and understandable --- reason for owning real-estate in C-Corp is that someone has owned the property for a long time. It's odd to think about, but folks neither had S-Corp or LLCs in the old days. Not particularly unusual for smaller family businesses that have managed to operate for many, many years.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.
@Chris K. Thank you for this answer. Totally professional, thank you indeed. I read thoroughly all the links.
Yes, I was aware of the tax problem.
I ended up having all this properties in a C Corp by mistake. 7 years ago before coming to the US I contacted an attorney I was told was excellent and I trusted him and he did it. I was not living in the US back then and he told me that as a non resident, that was the only kind of corporation I could have.
Today I live in the US, I kept acquiring properties under that C Corp with no idea 💡 of this problem.
My intention is to never sell them anyways.
Yes I beed to look 👀 into hiring a different CPA now, more knowledgeable of Real Estate Investors.
I am doing the minutes and all the formal requirements and yes, it is a burden taxwise because I pay myself a salary though Paychex and then I pay a lot of Income Tax because I also own stocks personally and the C Corp does not pass the depreciation loss to me.
My idea is to form an LLC that will be the property manager of all the properties held under my C Corp and any other rental property I might buy in the future which this time will be put into an LLC of course. I need to buy more rental property but in LLCs to mitigate with depreciation the earnings from the stocks.
And you are right, I need to sit with a good CPA 👨💼 which I am searching for.
Any comments on this will be wellcome.
Also my question on this discussion was more on the subject of Asset Protection. I wanted to know if a C Corp and an LLC provided the same Asset Protection.
Thank you !
Marisa
@Bernard Reisz
Thank you thank you thank you. I am completely list and SOS 🆘!!! Looking for a good CPA or CPA and law firm.
1) How do I find out if it is a Corp taxed as a C Corp or an LLC taxed as a C Corp ?
2) I sort of explained in my answer above how I ended up with all these properties in a C Corp.
I was from outside the US, didn't even know the language yet, this was 6 years ago. I was put in contact with this CPA 👨💼 who told me that I could not own an LLC being from outside the US.
Today I live in the US. I am learning all this which I am trying to solve.
Plus as I own a lot of stocks, I pay 💰 a lot of extra income tax because I don’t have the benefit of the depreciation of the assets as they are owned by the C Corp.
I am not planning to sell my Real Estate ever.
I need to buy more Real Estate but in an LLC in order to pay less income tax ( stocks vs depreciation of the Real Estate 🏡)
My idea is to set up an LLC to be the property manager of all my properties and this way take out some of the earnings from the C Corp.
Your ideas and opinions are more than wellcome.
Thank you !
Your entity is a corporation, not an LLC (don't ask how I know🕵️♂️😉).
The info you've shared belies even more misinformation and misconceptions than we saw up to this point. You are not to blame, as you trusted people that were referred to you and were not in a position to perform due diligence yourself.
Sometimes referrals are great, sometimes they aren't. When you are dealing with something that requires technical expertise, only value referrals from other technical experts. Your referrer may have meant well, but lacked the tools to assess professional competence. Too often, referrer's judgements are also blinded by "affiliate commissions" or "kickbacks."
You do need true expert guidance to navigate this for optimal outcomes. Even moderately competent advisors can steer clients from major trouble by applying general rules of thumb, such as "never have real estate in a corporation" - even if they don't fully grasp the logic. However, once mis-steps have been made, you need true expertise to navigate.