Structuring your entities for anonymity is NOT asset protection

Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes

I am tired of reading about real estate investors seeking advice on where they should incorporate or how they should structure their entities for anonymity. Anonymity is NOT asset protection. To lay it out as simply as possible: if there is a viable claim, a plaintiff's attorney will pursue it regardless of whether you are incorporated in Wyoming, you believe you are hiding behind a management LLC or whatever other anonymity maneuver you believe is shielding you from liability.

All a plaintiff's attorney needs is the deed holder name to file a claim and this is public record everywhere. Once their claims are filed they can obtain your identity through discovery but in most cases they don't care who you are! This because they are most interested in your insurance. It's the path of least resistance and how they and their clients are compensated. In fact, I would make the argument when a plaintiff's attorney sees the $100K home in Detroit owned by a Wyoming LLC that attorney will be even more interested in you....exactly the response you were hoping to avoid. From a plaintiff attorney's perspective that is peculiar behavior and may actually believe you are hiding something. Congrats you just made discovery a more drawn out process than necessary and your insurance carrier's legal bills have gone up which I can assure you will impact your next year's premium.

I'm hoping investors allocate some of the resources and energy spent hiding in the cloaks of secrecy on being a good real estate operator who avoids claims from arising in the first place as opposed to falsely believing you have greater protection. I can assure you, your business will perform far better as well.

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V.G JasonPro Member

Investor · Member since 2022 · 3k+ posts · 3k+ votes

All this **** talk about it and not a single soul in this thread has experienced the need for it.

Coming from someone that has needed to set it up like this, it's worked. So take your hot take & flush it down the toilet.

Being truly, truly anonymous is never a reality but doing what it takes to create layers of protections absolutely exists and when it's all you have or part of what you have it's worth owning it.

Most times you don't hear people saying they've needed it, because they got it so it never escalated. Real facts.

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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y
@Stuart Udis
So how do a set up a LLC to protect myself from the chase glitch?
If I create a Wyoming LLC as a holding company, then a LLC for holding the stolen money and cash fake checks will I be ok and they won't find out about me?
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Nick Velez
Lender · Member since 2019 · 250 posts · 219 votes
2y
I love this topic, I have noticed a large uptick in investors pursuing this same exact legal structure. They have told me that the primary reason they do this, is to prevent their tenants from purposely trying to sue them. They tend to be very high W2 earners with significant assets, and they feel like they would be a target if they knew their identify. People would fake a slip and fall in a Walmart, but they likely aren't going to do that in an antique shop.
I always have wondered how much protection this actually provides. Like you mentioned, if an attorney wants to find you, then you will be found. With that said, I would imagine there would still be some form of shielding from your personal assets but whether or not this set up makes you an easier target is an interesting question.
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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y
@Nick Velez
That’s why you have insurance.
If someone slips, falls, burns themself etc.
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John MorganPro Member
Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
2y
I agree. People act like LLCs are bullet proof. Any attorney can easily pierce them and show you're behind it. Studies show people are more likely to sue a corporation vs a mom n pop operator. Just get extra liability and call it good. I do have an LLC to buy some properties with commercial or DSCR loans since I tapped out with 10 conventional loans a while ago. But I do all my leases in my personal name in case I ever have to go to court and evict. If the lease is in your LLC, you have to hire an attorney to represent you. But, if you have partnership (other than your spouse) then get an LLC.
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Steve K.
Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
2y
I think a big reason that many new investors feel that they need an overly-complicated legal structure for "protection" is that there are a lot of gurus selling courses. Those gurus need to make themselves sound smart to get people to buy their courses. For example there is one guy who is very popular on youtube who tells his followers "I won't take you seriously and won't teach you anything until you set up an LLC and start a business". Of course he's affiliated with an "LLC creation company" which he directs his followers toward to be charged way too much for services they don't need.

The more complicated your business structure becomes, the more problems it can actually cause such as when looking for lending options, getting the best interest rate, keeping clean accounting, filing taxes, opening bank accounts, getting credit cards, executing a 1031, making title insurance claims or even triggering a due on sale clause, etc. Plus over-complicating just adds expense for little benefit.

Most investors don't even need a single LLC, never mind a bunch of LLC's in different states or anonymity or privacy or an S-corp etc. Most would be better off with just a regular landlord insurance policy and an umbrella policy. Of course the gurus selling courses who also own LLC creation companies won't tell their students any of this.

Knowing and following landlord-tenant laws will help you avoid 99.9% of the issues that people think they need LLC's for. Don't wrongfully evict, avoid violating any fair housing laws, don't be a slumlord, screen tenants well, avoid security deposit disputes, be professional with your tenants and take care of your properties. You'll be fine. You'll be extra fine if you only buy in good locations where tenants want to live. Invest that $10-20k you would have spent on a guru course and LLC creation BS into fixing the old rotten deck, keeping the sidewalk clear of snow, etc..

I though this thread was very interesting:

"Thank God I had an LLC!! --Said No One Ever!?"

https://www.biggerpockets.com/forums/926/topics/1151922-than...

Dozens of investors with decades of experience on here... very few of us has ever been sued (I was one of the few and my insurance was definitely more important than my LLC, which I only had because it was a requirement of getting a commercial loan). The best reason all of us could come up with to justify having LLC's was as a deterrent to being sued in the first place. But @Stuart Udis you make a good point that the lawyers will be going after insurance $ in a suit, not an individuals $ most of the time anyway so even that reasoning is questionable.
I can see the benefit in some cases, but for the majority of investors (especially those who don't even own a property yet or just have a few) the potential benefits of LLC's are 100% oversold by gurus. KISS: Keep It Simple Stupid.
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V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
2y
All this **** talk about it and not a single soul in this thread has experienced the need for it.
Coming from someone that has needed to set it up like this, it's worked. So take your hot take & flush it down the toilet.
Being truly, truly anonymous is never a reality but doing what it takes to create layers of protections absolutely exists and when it's all you have or part of what you have it's worth owning it.
Most times you don't hear people saying they've needed it, because they got it so it never escalated. Real facts.
6 Reply
Stuart UdisPro Member
OP
Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
2y
I want to add a few additional clarifications after reviewing some of the posts, particularly those by by @John Morgan & @V.G. JASON. I am not against owning real estate through LLC's, LP's or other structures. I apologize if my post was interpreted to suggest that position. In fact, there are many reasons to hold your real estate outside of your personal name for asset protection & business/ succession planning purposes. The first point I was hoping to get across is formulating your entity structures in a manner that will achieve anonymity does not prevent claims from arising.

To apply this in a practical manner, I volunteer myself. I own property in Philadelphia. Premises liability claims are one of the most common causes of action a real estate owner will face. If someone were to slip and fall or otherwise hurt themselves at one of my properties due to a premises liability issue, the plaintiff's counsel will file a claim against the deed holder regardless of whether I am incorporated in PA as a single member LLC or through an entity structure utilizing LLC's from states that may have better privacy laws, the deed holder entity is layered or any of the other strategies often discussed in these forums. None of these strategies will stop the claim from being filed.

The second part is what happens when the plaintiff or plaintiff's counsel knows you are a member or the sole member of the entity that owns the property? I will preface this question by adding an assumption and that's most who are seeking asset protection services, do so to protect against claims that could have significant financial repercussions, rather than being drawn into landlord tenant court over a rent payment dispute because the tenant alleges the boiler is defective, so lets focus our attention there.

How do these claims typically start? The "victim" calls a plaintiff's attorney. This attorney will lay out the following options: pay me hourly for the engagement, offer contingent fee representation, or a hybrid approach. In most cases, the contingent fee option is selected because litigation is expensive and most plaintiff's cannot front the costs. That leads to my next point which is how plaintiffs and equally as important their attorney are compensated? Can they obtain a judgment against the entity or you personally? Sure, but that judgment is nothing but a piece of paper. Do you know what is far more attractive? A settlement with an insurance carrier or a court decision and judgment where insurance proceeds are available. This is almost always the objective of plaintiff's counsel because of certainty of compensation. No plaintiff's attorney's want judgements that can be framed on their wall, they want to get paid! This is why it is important to have appropriate insurance and even more importantly making sure your actions are not listed under exclusions in coverage.

But it gets even better.... Even if your actions would be considered an exclusion under your policy, the plaintiff's attorney will more than likely ignore those facts and frame the claim in a manner that will be covered. You acted grossly negligent? Ok, chances are the plaintiff's attorney will include in their complaint just the "negligent" behavior or actions. To crystalize this point many years ago I was involved in a dispute with an architecture firm. They performed their services negligently and on top of that forged my signatures on permit submission documents. When all was said and done, the design firm cost me north of $100K in losses , some of which was caused by the drawn out design process resulting from being in the dark due to the forgery. I could have filed a claim for $100K and easily won in court. The facts were clear. However, fraud is an exclusion in all insurance policies and had the option of focusing on their negligence and completely ignore the forgery where I would receive cooperation from their insurance carrier or alternatively go for the $100K and hope I can someday turn that judgement into cash. I opted for the insurance cooperation and received a $50K check I was able to deposit in my bank account. Sure it sucked being out the $50K, but I would rather have $50K in my bank than a $100K judgement I then had to figure out how to collect on.

Unfortunately, most focus on preparedness for when claims arise rather than running their business in a manner that can prevent or reduce the likelihood they come to light. The problem with the preparedness approach is a lack of understanding of the litigation process and objectives of the claim participants. Understanding this should help real estate investors make more informed decisions when it comes to entity formation structures.

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Sean O'KeefePro Member
CPA | Accepting new clients | 50 States · Member since 2022 · 1k+ posts · 871 votes
2y
Quote from @Stuart Udis:

I am tired of reading about real estate investors seeking advice on where they should incorporate or how they should structure their entities for anonymity. Anonymity is NOT asset protection. To lay it out as simply as possible: if there is a viable claim, a plaintiff's attorney will pursue it regardless of whether you are incorporated in Wyoming, you believe you are hiding behind a management LLC or whatever other anonymity maneuver you believe is shielding you from liability.

All a plaintiff's attorney needs is the deed holder name to file a claim and this is public record everywhere. Once their claims are filed they can obtain your identity through discovery but in most cases they don't care who you are! This because they are most interested in your insurance. It's the path of least resistance and how they and their clients are compensated. In fact, I would make the argument when a plaintiff's attorney sees the $100K home in Detroit owned by a Wyoming LLC that attorney will be even more interested in you....exactly the response you were hoping to avoid. From a plaintiff attorney's perspective that is peculiar behavior and may actually believe you are hiding something. Congrats you just made discovery a more drawn out process than necessary and your insurance carrier's legal bills have gone up which I can assure you will impact your next year's premium.

I'm hoping investors allocate some of the resources and energy spent hiding in the cloaks of secrecy on being a good real estate operator who avoids claims from arising in the first place as opposed to falsely believing you have greater protection. I can assure you, your business will perform far better as well.

@Stuart Udis has some very solid, and in some cases contrarian, feedback on asset protections and entity structures for real estate investors.
[email protected]628-241-0888
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V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
2y
Quote from @Stuart Udis:

I want to add a few additional clarifications after reviewing some of the posts, particularly those by by @John Morgan & @V.G. JASON. I am not against owning real estate through LLC's, LP's or other structures. I apologize if my post was interpreted to suggest that position. In fact, there are many reasons to hold your real estate outside of your personal name for asset protection & business/ succession planning purposes. The first point I was hoping to get across is formulating your entity structures in a manner that will achieve anonymity does not prevent claims from arising.

To apply this in a practical manner, I volunteer myself. I own property in Philadelphia. Premises liability claims are one of the most common causes of action a real estate owner will face. If someone were to slip and fall or otherwise hurt themselves at one of my properties due to a premises liability issue, the plaintiff's counsel will file a claim against the deed holder regardless of whether I am incorporated in PA as a single member LLC or through an entity structure utilizing LLC's from states that may have better privacy laws, the deed holder entity is layered or any of the other strategies often discussed in these forums. None of these strategies will stop the claim from being filed.

The second part is what happens when the plaintiff or plaintiff's counsel knows you are a member or the sole member of the entity that owns the property? I will preface this question by adding an assumption and that's most who are seeking asset protection services, do so to protect against claims that could have significant financial repercussions, rather than being drawn into landlord tenant court over a rent payment dispute because the tenant alleges the boiler is defective, so lets focus our attention there.

How do these claims typically start? The "victim" calls a plaintiff's attorney. This attorney will lay out the following options: pay me hourly for the engagement, offer contingent fee representation, or a hybrid approach. In most cases, the contingent fee option is selected because litigation is expensive and most plaintiff's cannot front the costs. That leads to my next point which is how plaintiffs and equally as important their attorney are compensated? Can they obtain a judgment against the entity or you personally? Sure, but that judgment is nothing but a piece of paper. Do you know what is far more attractive? A settlement with an insurance carrier or a court decision and judgment where insurance proceeds are available. This is almost always the objective of plaintiff's counsel because of certainty of compensation. No plaintiff's attorney's want judgements that can be framed on their wall, they want to get paid! This is why it is important to have appropriate insurance and even more importantly making sure your actions are not listed under exclusions in coverage.

But it gets even better.... Even if your actions would be considered an exclusion under your policy, the plaintiff's attorney will more than likely ignore those facts and frame the claim in a manner that will be covered. You acted grossly negligent? Ok, chances are the plaintiff's attorney will include in their complaint just the "negligent" behavior or actions. To crystalize this point many years ago I was involved in a dispute with an architecture firm. They performed their services negligently and on top of that forged my signatures on permit submission documents. When all was said and done, the design firm cost me north of $100K in losses , some of which was caused by the drawn out design process resulting from being in the dark due to the forgery. I could have filed a claim for $100K and easily won in court. The facts were clear. However, fraud is an exclusion in all insurance policies and had the option of focusing on their negligence and completely ignore the forgery where I would receive cooperation from their insurance carrier or alternatively go for the $100K and hope I can someday turn that judgement into cash. I opted for the insurance cooperation and received a $50K check I was able to deposit in my bank account. Sure it sucked being out the $50K, but I would rather have $50K in my bank than a $100K judgement I then had to figure out how to collect on.

Unfortunately, most focus on preparedness for when claims arise rather than running their business in a manner that can prevent or reduce the likelihood they come to light. The problem with the preparedness approach is a lack of understanding of the litigation process and objectives of the claim participants. Understanding this should help real estate investors make more informed decisions when it comes to entity formation structures.

Anonymity is a farce. Anyone selling that is just putting one over on their client. You do it for protection.
1 Reply
Steve K.
Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
2y
Trusts seem to be the best entity for asset protection, especially for high net-worth individuals. Do you agree?
2 Reply
Joe S.Pro Member
Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
2y
Quote from @V.G Jason:

All this **** talk about it and not a single soul in this thread has experienced the need for it.
Coming from someone that has needed to set it up like this, it's worked. So take your hot take & flush it down the toilet.
Being truly, truly anonymous is never a reality but doing what it takes to create layers of protections absolutely exists and when it's all you have or part of what you have it's worth owning it.
Most times you don't hear people saying they've needed it, because they got it so it never escalated. Real facts.
The man…
0 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
2y
Quote from @Stuart Udis:

I am tired of reading about real estate investors seeking advice on where they should incorporate or how they should structure their entities for anonymity. Anonymity is NOT asset protection........

Tell it to the Biden's....
Seems to be working pretty dang well for them.
0 Reply
Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
2y
Great posts -
Asset protection is a legitimate way to guard against personal liability and contain liability to a single entity. It is a mistake to think that an entity (corporate) veil can be easily pierced. Corporations, LLCs and Limited partnerships exist for the reason of limiting liability to the entity. Absence fraud, the success of the limitation will often depend on action which regard the entity as separate from the individual and other entities; separate bank accounts, attention to organizational structure, filing of entity documents, non commingling of funds, etc. Trouble starts when owners “live off” the entity, instead of taking a salary or owner draw. I have been sued two or three times, and NEVER have the plaintiffs even attempted to “pierce” the entity veil. Of course I keep entities separate in all legal and financial aspects.
A full asset protection plan probably isn't cost effective unless the assets protected total $1 million or more. Some of the simpler asset protection solutions would include the following: having max funds allowed in qualified retirement plan or IRA rather than personal as retirement plans are exempt assets in Federal and most state bankruptcies; investing through an annuity if your state (Florida and Texas for example) exempts insurance policies and defines annuities as an insurance policy; taking advantage of maximum homestead exemption in your state; use of corporations or more popular LLC or Series LLC to limit liability to the entity holding the asset; reasonable liability insurance if available; separating asset ownership from asset management; etc.
I can design a simple, cost effective asset protection strategy of up to about $5million with little cost IF the individual resides in Texas or Florida. Other states would be more costly, offer less protection, and would require a “riskier” strategy.
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James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
2y
@Stuart Udis let's run down the rabbit hole of a "what-if" scenario like you started.
So, let's say "Johnny Slip-n-Fall" goes to attorney to file claim suite on the client exercising strategy I know.
As you pointed out, an attorney want's to know they will get compensated for there work. So first thing they notice is the "landlord" operating property is not the same as entity on deed. And digging in, can't find ANY deeded property to this Landlord entity.
Turns out the Landlord entity, operating property, doing leases, doing all the activities, is themself leasing the properties on an enhanced NNN basis from a separate entity.
So now, the one your targeting has no assets other than operational revenues. And if/when dig deeper, come to find that entity is barely making a net profit end of day. So no giant pile of cash to target sitting around somewhere.
Now if try tailing the entity on deed "up-stream" come to find it's a meandering trail of breadcrumbs, come to find they themselves are debt loaded via notes on properties to other entity, that again is a meandering trail ending in WY entity behind a wall of ownership interest in such so never get peoples names.
It's called the Asset Island method, long used by HNW persons to great effect.
Because the entity you could go after, who has little capital to go after, sure you could put them out of business, and wouldn't ya know it 24hrs later that property is now under a new same/similar enhanced NNN lease arrangement to a new separate operational party who took over for the now bankrupt entity.
And what attorney is going to burn through thousands of hours, trying to go after "dry wells"?
Now, of course they have insurance and strive to operate in a legal legitimate manner, it's NOT a strategy to facilitate slum-lording.
But it IS a strategy to defend against the "Slip-n-Fall Johnny's" of the world who target those who are NOT protected, and are sitting on piles of $$$$, where it can be presented to settle because the cost to settle is less than the legal fee's to prove ones innocence.
Bifurcating the asset and operation, putting the wealth behind an "iron curtain" and arranging the public facing side of things in a manner where it is a conveyor belt of throw-away entities with little to no value stored themself, IS a viable approach.
Is it complex, YES, of course. Is there expense to such, well DUH. So, it should be obvious to people that your asset/wealth protection strategies evolve as your assets/wealth to protect evolve. When have little, little is needed. Just simple common sense.
Bidens are a great example as they are about as high profile as it comes, and as of yet nobody has been able to untangle the weave of exactly how all there entities work, what $ comes from where, and that's with arguably hundreds of thousands of people-hours into trying to untangle it to clearly point to where the $ is originating and who it's going to.
But again, it's at least hundreds of millions there protecting, maybe billions, nobody really knows, because nobody's untangled the weave as of yet. And that's the entire point, right.
1 Reply
Steve Smith
Member since 2020 · 217 posts · 167 votes
2y
I like trusts better, much easier to "hide" behind, however, insurance is your first line of defense.
Also, doing simple, smaller deals where less can go wrong is not a bad idea.

Trusts won't stop a lawsuit, but it's often VERY hard to find out who the beneficiary is, and they are normally not liable for anything that they did not personally cause. The Trustee is protected by law. But the trust can be sued and be attached and sold to satisfy the judgment.

BUT, being sued, and loosing is extremely rare if you're reasonable careful. I've had a few over the year and the numerous properties I've had. Never lost a dime, even with one that was not insured!
You need to make it look like there's nothing to get an no lawyer will pursue it if there's no money in it for them.

1 Reply
Nate Marshall
Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 736 votes
2y
Quote from @Steve K.:

I think a big reason that many new investors feel that they need an overly-complicated legal structure for "protection" is that there are a lot of gurus selling courses. Those gurus need to make themselves sound smart to get people to buy their courses. For example there is one guy who is very popular on youtube who tells his followers "I won't take you seriously and won't teach you anything until you set up an LLC and start a business". Of course he's affiliated with an "LLC creation company" which he directs his followers toward to be charged way too much for services they don't need.

The more complicated your business structure becomes, the more problems it can actually cause such as when looking for lending options, getting the best interest rate, keeping clean accounting, filing taxes, opening bank accounts, getting credit cards, executing a 1031, making title insurance claims or even triggering a due on sale clause, etc. Plus over-complicating just adds expense for little benefit.

Most investors don't even need a single LLC, never mind a bunch of LLC's in different states or anonymity or privacy or an S-corp etc. Most would be better off with just a regular landlord insurance policy and an umbrella policy. Of course the gurus selling courses who also own LLC creation companies won't tell their students any of this.

Knowing and following landlord-tenant laws will help you avoid 99.9% of the issues that people think they need LLC's for. Don't wrongfully evict, avoid violating any fair housing laws, don't be a slumlord, screen tenants well, avoid security deposit disputes, be professional with your tenants and take care of your properties. You'll be fine. You'll be extra fine if you only buy in good locations where tenants want to live. Invest that $10-20k you would have spent on a guru course and LLC creation BS into fixing the old rotten deck, keeping the sidewalk clear of snow, etc..

I though this thread was very interesting:

"Thank God I had an LLC!! --Said No One Ever!?"

https://www.biggerpockets.com/forums/926/topics/1151922-than...

Dozens of investors with decades of experience on here... very few of us has ever been sued (I was one of the few and my insurance was definitely more important than my LLC, which I only had because it was a requirement of getting a commercial loan). The best reason all of us could come up with to justify having LLC's was as a deterrent to being sued in the first place. But @Stuart Udis you make a good point that the lawyers will be going after insurance $ in a suit, not an individuals $ most of the time anyway so even that reasoning is questionable.
I can see the benefit in some cases, but for the majority of investors (especially those who don't even own a property yet or just have a few) the potential benefits of LLC's are 100% oversold by gurus. KISS: Keep It Simple Stupid.

Does he have a 'method' and a legion of cult like followers who refer themselves as a creature often used to make boots, wallets and belts?
2 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
2y
Quote from @Nate Marshall:

Does he have a 'method' and a legion of cult like followers who refer themselves as a creature often used to make boots, wallets and belts?

0 Reply
Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
2y
There seems to be three “camps” of opinions and experiences when it comes to asset protection.
1. Asset protection doesn’t work, any entity veil can be pierced, you’re fooling yourself if you think you’re protected. The only thing that may work is insurance.
2. The best asset protection is hiding your assets; second best is hiding your ownership identity behind numerous entities
3. Holding EXEMPT (from bankruptcy forfeiture) assets, holding assets in exempt entities (retirement accounts, pensions, IRAs, in some states insurance and annuities), homestead exemption, remote entity protection (LLC, Serial LLC, Corporations, Limited Partnerships,) Asset Protection Trusts, using separation of assets for married individuals (in certain states) charitable remainder trust, etc. can be very effective though can be costly.

We have heard from all three camps in this thread. While all the posts have at lease some legitimate points, I personally believe camp 1 is missing the opportunities present to protect assets under US law mostly because they don’t either understand asset protection, or don’t want to bother with it, so rather than do a proper evaluation they dismiss it as something that won’t work to justify their unwillingness to entertain the idea.
Camp 2 is deluding themselves - which delusion has been enhanced by charlatans writing books, giving seminars, and selling packaged plans all of which either attempt to hide your assets or hide the ownership of your assets. And, 20 years ago, IF you were willing to break US laws, it had a good chance of working. But, now laws are much stronger, identity much more difficult to hide.
I will say however, that there may be an indirect benefit to not APPEARING to hold many valuable assets. If someone is looking for candidates to sue, having the appearance of wealth can make you a target. And while someone paying a professional to do a detailed and relatively costly search may be able to ascertain your wealth status; a superficial search would probably leave the potential plaintiff believing you lacked the assets to make a lawsuit worthwhile.
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Patience EchemPro Member
Member since 2024 · 68 posts · 50 votes
2y
Based on the recommendations I get from reading REI books and listening to podcasts, I went to the Legacy lawyer that drafted our Trust documents years ago to form an LLC. Instead, he recommended that I update the Trust first. This alone cost over $3000. The LLC is now on hold as I am wondering if I need it. Everything is in the trust including my 2 rentals. I am new to REI.
0 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
2y
Quote from @Don Konipol:

There seems to be three “camps” of opinions and experiences when it comes to asset protection.
1. Asset protection doesn’t work, any entity veil can be pierced, you’re fooling yourself if you think you’re protected. The only thing that may work is insurance.
2. The best asset protection is hiding your assets; second best is hiding your ownership identity behind numerous entities
3. Holding EXEMPT (from bankruptcy forfeiture) assets, holding assets in exempt entities (retirement accounts, pensions, IRAs, in some states insurance and annuities), homestead exemption, remote entity protection (LLC, Serial LLC, Corporations, Limited Partnerships,) Asset Protection Trusts, using separation of assets for married individuals (in certain states) charitable remainder trust, etc. can be very effective though can be costly.

We have heard from all three camps in this thread. While all the posts have at lease some legitimate points, I personally believe camp 1 is missing the opportunities present to protect assets under US law mostly because they don’t either understand asset protection, or don’t want to bother with it, so rather than do a proper evaluation they dismiss it as something that won’t work to justify their unwillingness to entertain the idea.
Camp 2 is deluding themselves - which delusion has been enhanced by charlatans writing books, giving seminars, and selling packaged plans all of which either attempt to hide your assets or hide the ownership of your assets. And, 20 years ago, IF you were willing to break US laws, it had a good chance of working. But, now laws are much stronger, identity much more difficult to hide.
I will say however, that there may be an indirect benefit to not APPEARING to hold many valuable assets. If someone is looking for candidates to sue, having the appearance of wealth can make you a target. And while someone paying a professional to do a detailed and relatively costly search may be able to ascertain your wealth status; a superficial search would probably leave the potential plaintiff believing you lacked the assets to make a lawsuit worthwhile.

I think the failure of thought is to think any 1 singular approach alone is any kind of "silver-bullet" sure thing.
Is there value in not making oneself a ready target? Of course, there is very literally entities out there who make there living via filling frivolous lawsuits than offering settlements at cost savings vs one fighting to prove innocence, and they target those "marks" based on such searches. I know this because I was once a victim of exactly this, so my knowledge is via experience. And, ironically, I got them to teach me all about this and how to not be a target going forward.
So in that same vein does bifurcating assets from operations help? If what you have to protect is above a certain threshold where expense to do such is justified, your dang right it makes sense. Because it assists in the first degree of action, not being a ready target. And in second, setting up a "plan Z" where if all else fails what does get "burned to the ground" is replaceable, and the wealth center is protected on it's "asset island".
And lastly insurance, as a front line defense against life's various "what-if's". I hope this would be a readily obvious one to most, and to be considered as front-line defense, as it should be.
But any 1 alone, is ignorance, it is.
Insurance is for the "normal" what-if's. The rest, is really just predator protection, how to not be a juicy rib-eye out wandering the savannah tempting a lion to pounce, and/or putting a moat around things so it's a whole lot harder to near impossible for them to do so.
3 Reply
Rob K.
Encinitas, CA · Member since 2011 · 191 posts · 252 votes
2y
Quote from @Don Konipol:

There seems to be three “camps” of opinions and experiences when it comes to asset protection.
1. Asset protection doesn’t work, any entity veil can be pierced, you’re fooling yourself if you think you’re protected. The only thing that may work is insurance.
2. The best asset protection is hiding your assets; second best is hiding your ownership identity behind numerous entities
3. Holding EXEMPT (from bankruptcy forfeiture) assets, holding assets in exempt entities (retirement accounts, pensions, IRAs, in some states insurance and annuities), homestead exemption, remote entity protection (LLC, Serial LLC, Corporations, Limited Partnerships,) Asset Protection Trusts, using separation of assets for married individuals (in certain states) charitable remainder trust, etc. can be very effective though can be costly.

We have heard from all three camps in this thread. While all the posts have at lease some legitimate points, I personally believe camp 1 is missing the opportunities present to protect assets under US law mostly because they don’t either understand asset protection, or don’t want to bother with it, so rather than do a proper evaluation they dismiss it as something that won’t work to justify their unwillingness to entertain the idea.
Camp 2 is deluding themselves - which delusion has been enhanced by charlatans writing books, giving seminars, and selling packaged plans all of which either attempt to hide your assets or hide the ownership of your assets. And, 20 years ago, IF you were willing to break US laws, it had a good chance of working. But, now laws are much stronger, identity much more difficult to hide.
I will say however, that there may be an indirect benefit to not APPEARING to hold many valuable assets. If someone is looking for candidates to sue, having the appearance of wealth can make you a target. And while someone paying a professional to do a detailed and relatively costly search may be able to ascertain your wealth status; a superficial search would probably leave the potential plaintiff believing you lacked the assets to make a lawsuit worthwhile.
I agree with the op that for the most part the idea of privacy as an effective or meaningful concept in asset protection planning is a fallacy.

But the idea that folks are of different “camps” in asset protection planning is unfortunate as it is not a useful dialogue IMHO.

From my perspective, as a California litigation attorney for nearly 35 years, most folks completely focus on the wrong things, especially if they have never seen the inside of a courtroom.

The op has posted from the perspective of a property owner seeking protection from tort type liability claims. This is only one area of real estate that should be addressed, and it typically involves premises liability/property management type claims. Real estate involves far more than this activity depending on whether you are a developer, wholesaler, property manager, flipper, lender, broker/agent, etc. The issues regarding asset protection in real estate differs depending on, among other things, one’s activities. There is never a one size fits all asset protection planning strategy. Doing nothing may be correct for one person, and engaging in a complicated entity structure may also be correct for another person depending on the situation.

Each real estate investor/professional has different risk tolerances, different levels of savvy, different abilities in terms of bookkeeping, different estate plans, if one has an estate plan at all, and different relationships. From what I have seen, it is more common for a litigation claim to arise from a partnership relationship, employee relationship, or other business relationship than a claim by a tenant against a property owner. Privacy is of zero help in these situations.

Litigation claims commonly arise from situations where resentment in a relationship builds or when individuals get into situations they don’t understand and don’t read and understand the documents they sign. Missing from the kind of back and forth typical of this thread is the importance of not letting resentment build and understanding the transactions and relationships folks get into. How many folks with complicated entity structures sign contracts containing broad obligations to indemnify and hold harmless don’t even read the language because “it is standard”.

So it is unfortunate that folks break out into camps in these kinds of discussions. So much is missing for anyone truly wanting to learn about asset protection planning IMHO.

5 Reply
Nicole Koch
Member since 2024 · 6 posts · 3 votes
2y
I think that most people looking for anonymity are basically trying to keep their name off public records so that if they own rental units some psycho cant just look up who owns the property, whats their FB, who is the wife/husband, kids etc.. It's just to keep a bit of privacy from the renters. If there is a law suit yes the lawyer can find you, of course. But who wants weirdo stalker renter finding Mrs. Smith who owns the 10 unit property and then start stalking her.
Also, it is kind of hard for me to believe that it is not helpful at all to have the property in an LLC that only has that one asset in it and is not highly profitable. (Also with insurance at all times!)
1 Reply
Pierre E.Pro Member
Washington, DC · Member since 2016 · 123 posts · 42 votes
2y
Quote from @James Hamling:

Quote from @Nate Marshall:

Does he have a 'method' and a legion of cult like followers who refer themselves as a creature often used to make boots, wallets and belts?

LOL we ALLLL know who this is referring to... maybe even a BP author... hes kinda like dave... love him or hate him... or a little bit of both.
0 Reply
Pierre E.Pro Member
Washington, DC · Member since 2016 · 123 posts · 42 votes
2y
Quote from @Nicole Koch:

I think that most people looking for anonymity are basically trying to keep their name off public records so that if they own rental units some psycho cant just look up who owns the property, whats their FB, who is the wife/husband, kids etc.. It's just to keep a bit of privacy from the renters. If there is a law suit yes the lawyer can find you, of course. But who wants weirdo stalker renter finding Mrs. Smith who owns the 10 unit property and then start stalking her.
Also, it is kind of hard for me to believe that it is not helpful at all to have the property in an LLC that only has that one asset in it and is not highly profitable. (Also with insurance at all times!)

Agreed. People write essays on their position, instead of bullet points on the facts, pros, cons etc.

Things to consider: daily internal operations, external branding and operations, lending, in addition to inside out *legal protection and outside in** legal protection, privacy/anonymity/identity protection and security...Prevention measures at different levels, preventing the attack from being initiated vs preventing the attack (lawsuit) being successful vs reducing the damage of a successful attack.... there are many elements and I see people pick one and argue about it without looking at the whole.

* your real estate being sued getting to your other assets (tenant falls and sues for all of your properties which had been your retirement plan)
** you getting sued and it affecting your real estate (car accident where you hurt or killed someone)

0 Reply
Nicole Koch
Member since 2024 · 6 posts · 3 votes
2y
Agreed there are so many factors to consider. In the end each person has a different situation and outlook so there is not one real answer.
1 Reply

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