Do you put your rental properties into Anonymous LLC?
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Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
7y@Lingo Lin, very creative name. I am an attorney, but am not your attorney, so I am speaking about laws and my training, not becoming your attorney or giving you legal advice. I am licensed in Wyoming, not New York. First putting your primary home in an LLC, as a trustee for you or someone else to avoid liability is a hugely bad idea in nearly every case I can imagine due to a slip and fall, or other liability on the property.
First LLCs and anonymous trusts are more fiction than fact as to reliability. The folks touting their greatness are almost always the ones selling them. Like snake oil if the only one saying it is great is the one selling the snake oil you might get concerned about how great it is. Now I am not saying those attorneys are snake oil salesmen I just pointing out tactics that are common. Now it is almost impossible to keep something anonymous if you use it. Drive a car belonging to an LLC and have an accident and see how long it takes an attorney to find out who is really the actual owner. A few interrogatories or a deposition will slice through the "anonymity" like a hot knife through butter. If you could really truly protect your assets from ever being sued and taken, don't you think every person in the United States would have done it and no one could ever sue anyone ever again? Look at the truly big real estate developers and movers on this site. Not a single one of the true professionals use these anonymous blind trust things, not a single one.
As to your private home, nearly every state has a thing called homestead exemption laws of some type. For example in California, the king of stupid law suits state the exemption is the entire home, I think Florida, and many others have the law too. That means if someone sues you and gets a huge judgement and goes to collect it, your equity in that home is protected from being taken up to the amount of the states exemption law. So in California, and Florida if you have a million dollar house and they have a million dollar judgement against you, they cannot take a dime of it. Wyoming has one of the worst exemption laws, only $10,000. However that amount can never be taken from you. Now if you are married and the house is owned jointly with your spouse it is considered to be tenants by the entirety. That is a special form of ownership that means that both you and your spouse own it entirely. This means if they sue you and win, but your spouse is not liable, they still cannot take a single penny of the value of your house if both of you own it. I don't know if that applies to every state, but I have heard it is common. put the property in an LLC or trust and you lose every protection I just mentioned. Next lets suppose that you move everything into an LLC just to hide it to protect yourself from lawsuits. LLcs have protection that protect the owners from lawsuits. In order to get through that protection the attorney must do something called piercing the veil. Basically it asks the court to ignore the LLC or corporate status because of wrong doing by the defendant. Intentionally making yourself broke in order to avoid liability is a great way to get the protection dropped by a court. Next try doing business, getting a loan, networking, or even a credit card if you don't own anything. Why would some bank take a chance on loaning you money if you have no assets?
Example, you are sued, lose and owe $10,000 or even $1 million no difference. You are put under oath and they ask you questions. First where do you live? You tell them. They ask do you own it? If you say no and they found out later you did, you might go to prison. lets pretend you say no because you think you don't. they next ask how much rent do you pay? Well do you pay rent? Who do you pay it to? You mention the LLC, assuming you do pay them rent. Who owns the LLC they ask. What do you say? Someone has to. you say ABC Trust owns it. They ask who owns ABC trust? you say what? Do you know who created that trust? Someone has to sign the document to create it. Was it you? Maybe your attorney signed it. Do you have a lease from the LLC to you? Who signed it for the LLC? You? Really who did? A friend? They depose your friend. they ask him are you are the owner of the LLC? Think he will risk going to prison for you by lying? Lets say your attorney signed it, that would horribly expensive, but they ask him do you own it? Guess what an attorney can get grieved for doing a business deal with a client. Think he will risk being disbarred? Say you put the property in a friends name. What if he gets sued? His creditors can take it. Maybe your friend takes it and won't give it back? You cannot sue him and force him to give it back, you have "unclean hands" It prevents you from suing because you were committing a fraud and cannot ask the courts help to protect an illegal act. Lets say this guy would never steal from you. What if his wife divorces him, she could get it. They could take it for unpaid child support or if he is in an accident. What if he dies in a wreck, his kids don't know the deal.
I could go on for hours like this. Your insurance on your home won't protect you if you don't own it. now you lost your insurance protection. Gah.
Just have insurance, do business the right way. Don't drive drunk, be responsible, etc. I have not even touched the accounting nightmare and tax issues you will create.
Hopefully this will make you think a little bit. look up the exemption amounts in your state. they cannot take equity that doesn't exist. Your mortgage is an offset to any item they can garnish.
47 Replies
- Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes7y
@Lingo Lin
Check what are your state protection for homestead and also the property tax implication too... putting it in an LLC may make you loose many benefits.
Usually you will want to put your rentals in different LLCs and keep your primary home either in a trust for probate avoidance or use a Lady Bird deed in some state in case of Medicare limitations.
- Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes7y
@Lingo Lin You don't list what state you're in, but most state's LLC's are not anonymous by themselves.
- Member since 2019 · 38 posts · 7 votes7y
@Simon W. The home not paid off yet, I heard that putting it under an LLC controlled by a Trust as to not trigger the banks "due on sale" clause. Its for asset protection, not due to a slip and fall which the insurance will cover but liability outside with my name on it that puts my home at risk as its something of value that I own that can be taken away in a lawsuit. Thats just my train of thought.
- Member since 2019 · 38 posts · 7 votes7y
@Kyle J. I'm in NY but from my research, still seeking RE Attorney and CPA advise on this. I hear you can use Wyoming LLC place property under that, managers name can be the Attorney in WY.
Family Trust owns - Family Holding Company - Series LLC has real property.
Owning real property does not constitute doing business so an LLC in NY wont be required at least thats what I hear, still need to verify this with Pros.
- Member since 2019 · 38 posts · 7 votes7y
@Jason D. Why do you believe its a bad idea, vs leaving it in your own name open to liability?
What would happen if you are in a lawsuit, nothing to do with something that happens on or in your property but a lawsuit nonetheless. Your home would be up for grabs if you lose the lawsuit and are forced to pay a hefty fee no?
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes7y
Sounds like you've been listening to 109 ways to scare yourself or something.
The title question was about rentals. Different than your primary.
Up for grabs could be your capital gain exclusion everybody else gets when you sell your primary. Even if you were in a lawsuit, primary residences I doubt are thrown into the asset pool.
Why are you so convinced you are going to be sued 109 times?
- Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes7y
Originally posted by @Lingo Lin:
Its for asset protection, not due to a slip and fall which the insurance will cover but liability outside with my name on it that puts my home at risk as its something of value that I own that can be taken away in a lawsuit.
Which state are you in?
- Rental Property Investor · NJ · Member since 2019 · 109 posts · 83 votes7y
@Lingo Lin Moving personal assets such as your primary home under an LLC exposes it to liabilities associated with your RE business. Example, somebody sues for damages and they go after the LLC, your home will be included as part of what can be awarded to the parties suing. Therefore, there would no longer be any limited liability against your house. And, in this situation there can be a "piercing of the corporate veil" where the LLC can be looked at as tied to "you personally" and all other assets you own can be also exposed. I would advise to keep your personal separate from the LLC.
Asset protection from creditors is a whole different ball game. I have a friend that moved all of his assets to someone else’s name (someone he trusts) so he technically didn’t own anything under his name.
- Member since 2019 · 38 posts · 7 votes7y
@Steve Vaughan Its asset protection concerns everyone should have. I’m not scared of being sued and losing my home in a lawsuit, I just like to be prepared, set it and forget it kinda guy. If your home is under your name, and you are sued and your home ends up in the asset pool (it is an asset) what then? may be too late. The first thing a lawyer will look for is what you own so they can take it or part of it? home equity?? Just saying, any Lawyers care to chime in on this? Thank you for responding Steve.
- Member since 2019 · 38 posts · 7 votes7y
@Rex Celle Thank you Rex, I'll cross check your response with a RE Attorney. From my understanding and LLC is its own entity so they can't just sue you and the judge will automatically piece the vail, its not that easy...now having your home in your own name offers no vail at all, so why not put it in an LLC, that's my reasoning.
- Rental Property Investor · NJ · Member since 2019 · 109 posts · 83 votes7y
@Lingo Lin Hi Lingo, if the LLC gets sued (not you) and the house is under the LLC, then the house is vulnerable. If it is determined that the house is a personal asset sitting under an LLC, then the corporate veil can potentially be pierced and all personal assets can be exposed as well. I think what you were trying to do is protect your personal assets from creditors, which is why you want to put your house in the LLC, so yes, make sure to check with your RE attorney to see if that is advisable. Would be great if you can share your learnings with the BP community.
- Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes7y
@Lingo Lin, very creative name. I am an attorney, but am not your attorney, so I am speaking about laws and my training, not becoming your attorney or giving you legal advice. I am licensed in Wyoming, not New York. First putting your primary home in an LLC, as a trustee for you or someone else to avoid liability is a hugely bad idea in nearly every case I can imagine due to a slip and fall, or other liability on the property.
First LLCs and anonymous trusts are more fiction than fact as to reliability. The folks touting their greatness are almost always the ones selling them. Like snake oil if the only one saying it is great is the one selling the snake oil you might get concerned about how great it is. Now I am not saying those attorneys are snake oil salesmen I just pointing out tactics that are common. Now it is almost impossible to keep something anonymous if you use it. Drive a car belonging to an LLC and have an accident and see how long it takes an attorney to find out who is really the actual owner. A few interrogatories or a deposition will slice through the "anonymity" like a hot knife through butter. If you could really truly protect your assets from ever being sued and taken, don't you think every person in the United States would have done it and no one could ever sue anyone ever again? Look at the truly big real estate developers and movers on this site. Not a single one of the true professionals use these anonymous blind trust things, not a single one.
As to your private home, nearly every state has a thing called homestead exemption laws of some type. For example in California, the king of stupid law suits state the exemption is the entire home, I think Florida, and many others have the law too. That means if someone sues you and gets a huge judgement and goes to collect it, your equity in that home is protected from being taken up to the amount of the states exemption law. So in California, and Florida if you have a million dollar house and they have a million dollar judgement against you, they cannot take a dime of it. Wyoming has one of the worst exemption laws, only $10,000. However that amount can never be taken from you. Now if you are married and the house is owned jointly with your spouse it is considered to be tenants by the entirety. That is a special form of ownership that means that both you and your spouse own it entirely. This means if they sue you and win, but your spouse is not liable, they still cannot take a single penny of the value of your house if both of you own it. I don't know if that applies to every state, but I have heard it is common. put the property in an LLC or trust and you lose every protection I just mentioned. Next lets suppose that you move everything into an LLC just to hide it to protect yourself from lawsuits. LLcs have protection that protect the owners from lawsuits. In order to get through that protection the attorney must do something called piercing the veil. Basically it asks the court to ignore the LLC or corporate status because of wrong doing by the defendant. Intentionally making yourself broke in order to avoid liability is a great way to get the protection dropped by a court. Next try doing business, getting a loan, networking, or even a credit card if you don't own anything. Why would some bank take a chance on loaning you money if you have no assets?
Example, you are sued, lose and owe $10,000 or even $1 million no difference. You are put under oath and they ask you questions. First where do you live? You tell them. They ask do you own it? If you say no and they found out later you did, you might go to prison. lets pretend you say no because you think you don't. they next ask how much rent do you pay? Well do you pay rent? Who do you pay it to? You mention the LLC, assuming you do pay them rent. Who owns the LLC they ask. What do you say? Someone has to. you say ABC Trust owns it. They ask who owns ABC trust? you say what? Do you know who created that trust? Someone has to sign the document to create it. Was it you? Maybe your attorney signed it. Do you have a lease from the LLC to you? Who signed it for the LLC? You? Really who did? A friend? They depose your friend. they ask him are you are the owner of the LLC? Think he will risk going to prison for you by lying? Lets say your attorney signed it, that would horribly expensive, but they ask him do you own it? Guess what an attorney can get grieved for doing a business deal with a client. Think he will risk being disbarred? Say you put the property in a friends name. What if he gets sued? His creditors can take it. Maybe your friend takes it and won't give it back? You cannot sue him and force him to give it back, you have "unclean hands" It prevents you from suing because you were committing a fraud and cannot ask the courts help to protect an illegal act. Lets say this guy would never steal from you. What if his wife divorces him, she could get it. They could take it for unpaid child support or if he is in an accident. What if he dies in a wreck, his kids don't know the deal.
I could go on for hours like this. Your insurance on your home won't protect you if you don't own it. now you lost your insurance protection. Gah.
Just have insurance, do business the right way. Don't drive drunk, be responsible, etc. I have not even touched the accounting nightmare and tax issues you will create.
Hopefully this will make you think a little bit. look up the exemption amounts in your state. they cannot take equity that doesn't exist. Your mortgage is an offset to any item they can garnish.
- 7yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
@Lingo Lin, Asset protection, while often worth it, ALWAYS comes at a cost. Most plans that try to hide assets under different entities, etc, are not very successful, as so much information is so readily available for investigators to trace assets, and judges are fed up with debtors who lie under oath.
The best type of asset protection is having your wealth in assets that are exempt from creditor attachment or exempt in bankruptcy, either by Federal or state law. As an example, a qualified retirement account is fully exempt from creditor attachment by Federal law. Further, Federal law protects IRAs and Solo 401Ks up to $1 million. Some states exempt any retirement account with no maximum, as long as all contributions followed Federal guidelines. So someone worried that they are a magnet for a lawsuit might consider making maximum contributions to retirement plans. A self employed person in their 50s can often contribute in excess of $250,000 per year in a qualified benefit plan (you need an actuary).
States such as Texas and Florida have unlimited homestead exemptions, (under Federal law to use this exemption you must have resided in the state and owned a personal residence there for 39 months). So, someone who fears a lawsuit can sell non exempt assets and use the proceeds to pay off their mortgage in these states, thereby moving assets beyond the reach of creditors.
Some states exempt annuities and whole life policies from creditor attachment. The thing about asset protection is that there is a cost - you'll need to move assets to types of investments that might not be ideal and that you wouldn't otherwise do if asset protection was not a consideration.
Moving assets to specially designed trusts can be effective, but it is a radical move for many reasons. First, the transfer of assets to the trust has to occur long before even the hint of a lawsuit exists. Second, the person utilizing an asset protection trust must effectively give up control of the asset and use of the asset. It works for people who want to transfer their assets to their children and won't be using the asset personally. All attempts at make believe transferring control - such as using "a protector" or moving the trust 'off shore' have not stood the test of time. Some of these strategies are effective however in getting creditors to settle for less to avoid the time, hassle and expense associated with unraveling the asset protection device.
Finally, the reason that transferring asset ownership to a friend, selling your assets for 25C on the dollar to your brother, selling your assets to someone and receiving an annuity in exchange, do not work is because they will be considered by a court to be a fraudulent transfer.
Having your wealth in exempt assets, such as we discussed (retirement plans, personal residence, annuity and insurance in certain states) is the most effective asset protection strategy, and the most likely to prevail in court. Everything else is either designed to make it so difficult for creditors that they will be willing to negotiate a more favorable settlement; a crap shoot; or designed to give the client a false peace of mind while getting him to pay top dollar for legal and accounting fees.
- Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes7y
Originally posted by @Lingo Lin:
@Jason D. Why do you believe its a bad idea, vs leaving it in your own name open to liability?
What would happen if you are in a lawsuit, nothing to do with something that happens on or in your property but a lawsuit nonetheless. Your home would be up for grabs if you lose the lawsuit and are forced to pay a hefty fee no?
I didnt say it was a bad idea, I said terrible idea....
Very simply, is it worth losing all of the tax benefits (potentially hundreds of thousands of dollars) for the off chance that you are named in a lawsuit that wouldnt be covered by some type of insurance?
You lose the capital gains exclusion, you lose writing off property tax and interest on your taxes. And You lose any homestead exemptions.
And make sure its a multi member LLC, because a personal residence in a single member will likely provide no protection at all. So if your not married, do you have someone that you want to give partial ownership of your home to?
The best asset protection for your primary residence and personal assets is a good insurance policy.
- Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ votes7y
Take care of your property and tenants and you should be fine. If there’s ice on the driveway, throw salt down. If you have exposed wires, call and electrician... that sort of thing.
Look into added umbrella policies for extra liability coverage.
- 7yScott SmithPro MemberAttorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
@Lingo Lin Hi Lingo, I think that you are definitely on the right track and protecting your hard earned assets is most important. For your personal home I would research the homestead laws of your state to see if there is a need or not.
I would also recommend researching a Series LLC as a possible method for asset protection - you can hear more about the benefits here on BiggerPockets Podcast #109, but this is exactly what we are talking about. Placing assets into a Series LLC with anonymous land trusts so that your assets can be held anonymously. I use this asset protection strategy for my personal assets as well as many of my clients. You can also check out this article for more information to consider as you journey through and find the best fit for you: https://www.biggerpockets.com/blog/pass-through-entities-real-estate-investors/
If you have any questions please feel free to leave a reply or DM me. Always happy to help!
- Scott
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes7y
@Lingo Lin LLCs don't provide near the protection many people think they do. They are a good idea but as @Don Konipol says it comes at a cost.
I suggest you go back and re-read @Jerry W. at least two more times. One of the best posts I have read on the subject.
- Member since 2019 · 38 posts · 7 votes7y
@Jason D. maybe so, additional liability for frivolous lawsuits is an option. The concern is when you have a nice property and your name is easily found on public records, there’s always those people looking for the low hanging fruit, if it looks like a maze to get to the owner, lawyers won’t bother.
- Member since 2019 · 38 posts · 7 votes7y
@Jerry W. thats a lot of runaround for a lawyer, I just prefer that to standing out in the open? Less likely for a lawyer to continue the pursuit. I've done the research on insurance and if its under a Series LLC owned by Anonymous Family Trust they will cover it and it wont cost me a penny more for the coverage. It's not about hiding my name from IRS or Banks (thats not possible) its about hiding it from Lawyers and the average Joe looking for that low hanging fruit. As far as homestead laws in NY and NJ where I own property, NY is $82k-$165 single $165k-331k married, in NJ is Zero, ouch! Survivorship interest of a spouse in property held as tenancy by the entirety is exempt from creditors of a single spouse (but i'm married), a bit worried about property in NJ. Please understand I sleep well at night, this doesn't keep me up, I just like to tighten loose ends just in case. But further research is needed especially with insurance to make sure that absolutely nothing is affected if coverage is every needed due to it being in a Series LLC.
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