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 · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes7y
@Lingo Lin, Tenants by the entirety is available ONLY to married couples as far as I know, you are mixing the homestead exemption I think with it. As to insurance, what I am saying is that if your name is NOT on the title to your house you will not be covered for loss of personal items due to theft or flood, etc., and in a slip and all or other suit it will not protect you if you sue them personally. Lets say they sue you claiming you knew the tree branch was rotten and didn't cut it off and it fell on them or their car. They can sue you for negligence and the property owner, but if you are not the owner the insurance policy for the LLC will not protect you in the lawsuit. Anyway just pointing things like that out so you can plan to mitigate them. Remember when you rent for yourself you can actually create a taxable event of oncome from yourself. Be sure you structure things to avoid that.
- Member since 2019 · 38 posts · 7 votes7y
@Jerry W. thank you will work with NY and NJ RE Attorney and CPA to make sure this all makes sense or if I should just keep it under personal name and “wing it”. A well-crafted additional insured endorsement on the insurance policy would be required (researched)
- Attorney · Austin, TX · Member since 2019 · 128 posts · 98 votes7y
@Lingo Lin @Jerry W. I think Lingo has his head in the right place in terms of protecting his assets. Using entities can provide you with peace of mind that insurance cannot. They prevent you from ever being "easy money" for a lawyer and can protect you personally if some claim against you or your assets isn't covered by insurance. Setting up an LLC and a Trust with anonymity is fairly simple and inexpensive too, and if you choose the right state for your LLC, it's very cheap moving forward.
Are you familiar with the Series LLC as well? It's a model that allows an investor to keep growing their real estate portfolio without having to continue spending on high quality protection. - Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes7y
This subject had been discussed often on this board. I agree that for your own home, for all the reasons mentioned, keep it under you name.
As I mentioned before on this board, I bought a business from someone who had it in a corporate entity, an S-Corp. An accident happened, he himself and his S-Corp was sued for negligence in the amount of $3 million. His S-Corp only had insurance for one million.
I know the details of the case as I took over his employees and they had to go for depositions. After the sale of the business, they also sold their home here and moved to Florida.
His attornies in NY tried to dismiss the case against him and was unsuccessful, so he was personally liable for $2 million. At the deposition, they ask the employee where the owners went. The answer "they moved to Florida". They then asked "did they buy a home?" The answer "yes".
When the lawyers heard that, one said to the other "we scr*wed". Florida had one of the best homestead laws at the time, and the home can't be touched.
The case went on for a while, but when they moved to Florida, it was case over. The litigants settled for the insurance. In the end, it was the Florida homestead laws and the insurance that saved them. The corporate shell did nothing. I discussed the case with my insurance agent and was told the business owner when he bought liability insurance for the S-Corp should've bought a endorsement that covers themselves. In this case, they only got $1 million and was sued for $3 million.
From what I understand, couples in business often has the business under the husband's name, and the home under the wife's and even better if you live in a state with good homestead laws. In the case where they're suing for $3 million, they'll spend good bucks finding out who you are, anonymous or not. They'll find 3 million ways to pierce the corporate veil.
In the end if having the LLC makes you sleep better, then OK. That's it. I have LLC's for business, but it's mainly for other reasons, but it doesn't make me sleep better. My LLC insurance covers me personally because lawyers always sue you personally.
- Member since 2019 · 38 posts · 7 votes7y
@Frank Chin thank you. What if their home was under a Florida Series LLC and the company under Series LLC #2 owned by his family trust in Florida
Given how Lawyers reacted after being told he moved to Florida then if someone lives in a state with terrible homestead protection laws in cases of lawsuit then the property should be owned in a state with great homestead protection and controlled by “the owner”.
I’m not a lawyer and am new to all of this, but would this make sense?
A lawyer that does not represent you (free advice online) will of course say no, as this would make their job harder in court.
I believe the same lawyer will advise their client a similar setup. I’m taking keywords out of the “legal advise” in previous threats...such as “I am not your lawyer”, which my gut tells me was code for “Since i’m not your lawyer i’ll tell you this, but if I was your lawyer i’ll tell you something totally different” :))
Am I on the right track?
- Rental Property Investor · Idaho Falls, ID · Member since 2018 · 67 posts · 78 votes7y
@Lingo Lin
Read this book. Will answer all your questions.
Covers Wyoming and Nevada LLCs and why or why not to use them. Answers your question about asset protection. Gives some real good examples. Easy read. Learned a lot from it.
Garrett Sutton
Start Your Own Corporation: Why the Rich Own Their Own Companies and Everyone Else Works for Them (Rich Dad Advisors)
- Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes7y
Originally posted by @Lingo Lin:
@Frank Chin thank you. What if their home was under a Florida Series LLC and the company under Series LLC #2 owned by his family trust in Florida
Given how Lawyers reacted after being told he moved to Florida then if someone lives in a state with terrible homestead protection laws in cases of lawsuit then the property should be owned in a state with great homestead protection and controlled by “the owner”.
I’m not a lawyer and am new to all of this, but would this make sense?
A lawyer that does not represent you (free advice online) will of course say no, as this would make their job harder in court.
I believe the same lawyer will advise their client a similar setup. I’m taking keywords out of the “legal advise” in previous threats...such as “I am not your lawyer”, which my gut tells me was code for “Since i’m not your lawyer i’ll tell you this, but if I was your lawyer i’ll tell you something totally different” :))
Am I on the right track?
I am not a lawyer. Before you place your home in an LLC, check with local attorneys as to what the exact estate circumstances are. I mentioned LLC's to my dad years ago, he checked with his attorney and was told not to because of the estate issues. It was a mixed use property he also lived in. That was over 25 years ago, laws may have changed, his situation could be different than yours, so don't rely on someone's word on the internet. He passed a few years ago, his property he bought for $25K went up to $1.1 million. No capital gain due to stepped up basis. Imagine if we screwed that up?
Normally, homes are placed in trusts, rather than LLCs. I remember reading in the papers, a convicted hedge fund manager, Paul Bilzerian, had the SEC running in circles with his homes placed in trusts and even the SEC couldn't get to it. This was also in Florida with it's excellent homestead protections. Just dug up the article: Paul Bilzerian article
Click on the video about his ostentatious home in the article.
They mention trusts, nothing about LLC's. If your want people chasing after your running in circles, do what Paul Bilzerian does. Sounds like they finally gave up on him. And he's even out there prominently, not anonymous at all.
- Member since 2019 · 38 posts · 7 votes7y
@Frank Chin simply Wow!
Not to get off topic as I dont know the facts of his case, I don’t condone fraud of any kind, but Wow!, how he had/has those investigators unsuccessful in trying to pin him to any property, and how authorities resorted to what seemed like kidnapping and holding him in jail for ransom, which is completely unconstitutional BUT effective as the family gave up just a tiny piece, enough to satisfy the authorities so they could call it “a win” in the eyes of the public.
That was pretty extreme, but it does show how well asset protection, when done right (within the letter of the law) can be very effective at protecting asset. This rabbit hole goes pretty deep.
So many people say leave it under your name, now what wealthy or famous person has their personal property under their own name?
I think i’m pretty satisfied as to this journey on BP with regard to this topic, there is clearly no consensus, it speak to a RE Attorney and CPA in NY and NJ who knows the laws to the letter.
- Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes7y
@Weston Couch, I see you are in the business of selling the LLC anonymous trusts. You have a financial interest in getting folks to buy these things, please disclose that. That doesn't mean that you have nothing meaningful to add. Business must be going well for Scott here on BP if he is adding staff to posting on here. There is a place for the kind of security that you guys sell. The problem is that a large number of folks on here want to actively engage in real estate investing and do it hands on. Investing like that can never really be anonymous. You cannot be the guy looking at houses, and making offers, and interviewing contractors, and interviewing tenants and hope to be anonymous. In the event of a real and serious lawsuit like death or serious injury I have never heard of anonymous holding up, ever. Now setting up corporate entities I have seen work hundreds of times. The laws are made to create the protection and if done right, at least in my state they hold up wonderfully. The problem comes in if you are the person who worked on the furnace and the error resulted in carbon monoxide poisoning and killing someone you cannot prevent liability by any of the methods discussed here as the law is made to hold folks personally accountable for things they do personally. Folks selling LLC and anonymous trusts only point out how they are saved by them, but never how they don't work. A fair and balanced evaluation will get you more credibility than a one sided argument.
Welcome to BP by the way. I see you are new to here.
- Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes7y
@Lingo Lin I've heard myriad reasons as to why or why not you should put your rentals under LLCs. I've never heard anyone advocate putting your primary residence in one. I HAVE, however, heard both attorneys and accountants advocate AGAINST doing so. I think you'd be well advised to listen to those who've counseled you against doing so. Think about it this way, if there's a reasonable way to sell someone something in America there's probably SOMEONE preaching it. How many primary residences are there in America? How many of them are owned by LLCs? Have you heard of anyone pushing that as a new-fangled asset protection plan?
- Member since 2019 · 38 posts · 7 votes7y
@Odie Ayaga , I think from the surface, following the crowd is never the way to go. Just like you may not see many personal homes owned by an entity, try to up the price point of the homes and you will see the opposite is true.
High income individuals, millionaires, celebrities, don't have their homes in their names...it may be "name LLC" but that's still not under their name, its protected inside an entity. If I have the option of putting on a vail or not, I would like to choose the vail...why not?
Why not choose the vail?
If its an insurance issue, there are ways to get the coverage, and if placed in the proper entity the insurance will cover as if it was under persons name.
I understand people will sell you things, but so long as that is noted and you make sure you get a second opinion from another RE Attorney if needed, things will boil down to the truth.
I’m understanding Homestead laws more thanks to this thread on BP, and the state you have property in really determines if its really needed to place personal home in an entity to protect from outside lawsuit judgements.
Its slowly becoming clearer to me as I do more research that owning 100% of what you own through entities is the way to go. The Rich own nothing, they control everything, is said for a reason.
Just because someone is Rich by their own definition of the word, does not mean they should not act and do as the Rich do.
At least that is my train of thought in all of this.
Those that say don’t do it, I think are protecting their interests and professions.
Those that say do it, may very well be selling something, but who cares so long as what they are selling actually protects the consumer.
The thread about the man that had the SEC in a maze trying to get his assets should put light on the matter...not saying to commit fraud if thats what he did, i’m saying to look at how hard it was to get to his assets, even his personal property.
- Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes7y
@Lingo Lin for some reason you seem to overly be considering the benefit of a "veil of protection" for your assets. As many have already mentioned it isn't as hard to maintain as some would tell you especially considering when it's your personal residence. If you're a multi-millionaire I'm sure there might be other options and considerations that would lead you to not have your own home in your name such as people just flat not being able to easily find out your personal address. If that's your situation I would strongly advise you to consider the advice of paid advisors and not free advice from this site. If that's not the case, are you willing to pay potentially thousands in taxes just to POSSIBLY have a veil of protection over your personal residence IN CASE you do something wrong that an umbrella policy won't cover? You appear to be jumping through a lot of hoops to spend a lot of extra money for something that you'll never need. Consider just a very basic case where you live in your primary residence for 5 years and move out. You won't even be able to claim the capital gain exception for your primary because it's owned through an LLC. I think you're paying way to much attention to the asset protection and not nearly enough to the tax consequences.
- Member since 2019 · 38 posts · 7 votes7y
@Odie Ayaga I am seeking Paid pro advice on this and will update BP to all pros and cons of moving personal property to an entity..from tax side, legal side, insurance side, etc. Every pro has their view on this, the bigger picture will give better more concrete answers.
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