All Forum Posts by: Brian Bradley

@Morgan Klein @Scott Smith @Richard Sherman First there is a big misconception in what a Series LLC is. It is not a new LLC. The Series LLC is first and foremost an LLC. It is not an LLC until an actual child series is created. This is the first confusion people need to realize.

So, the Series LLC being an actual LLC means that the same LLC case law will generally apply regarding liability shields and piercing the veil. This is because the Series LLC is just a continuation of existing LLC statute and law. When a state legislature enacts a Series LLC, they are not creating an entirely new statute, they are just adding another clause to their existing LLC Statute. So for example they would just be adding section (c) of the existing statute that permits seriezing out of assets into individual compartments. The rest of the LLC statute is the same. Its just an add on.

What courts are going to look at if sued in any state is the existing LLC member liability shields and the "independent liability shield" laws of that particular state. That will be a state by state evaluation. And then that states charging orders will come into play. So when I client comes in, it is not relevant what state they are residence of. You can live in any state and incorporate a business in any other state or country.

But as of now the general consensus is that the courts will use those state independent liability shields of where the law suit was brought. This is from the ABA Journal and opinion letter form various state and federal courts and agencies. Since the existence of the LLC much case law exists piecing the corporate veil, and we still use traditional LLCs. The Series LLC is still a LLC and the way to attack the Series LLC will be the same, to first pierce its veil. Once the veil is pierced, the issue is then will the independent series hold up and stop the bleeding. That will be a case-by-case state by state evaluation into those states independent liability shields and charging orders. Every state has limited personal liability independent shields to one degree or another protecting its members, since every state has LLCs.

Clients should be comfortable that the Series LLC is an LLC and there is lots of existing case law for LLCs and piecing the veil standards that first must be meet.

The principle of separating out assets into compartmentalized series was established way before the existing of the Series LLC. The Tax Court has recognized that the several series of an investment fund may be considered distinct taxable entities. SeeNational Securities Series- Industrial Stock Series v. Commissioner, 13 T.C. 884 (1949), acq., 1950-1 C.B. 4. So has the IRS. Remember that Series LLCs were originally created for mutual funds and series mutual funds. Section 18(f)(2) of the Investment Company Act and SEC Rule 18f-2 (17 CFR § 270.18 f-2). These were then created typically under Business Trusts or Corporations.

PLR 200803004 (the separate portfolios of a series LLC will be individually classified as a partnership, disregarded entity, or association); PLR 200544018. (Separate portfolios of a series business trust are classified as business entities and not trusts; and each one with two or more members that does not elect association classification is a partnership); PLR 200303019; PLR 9847013 (if each series is treated as a separate trust and the creditors of one series of the trust may not reach the assets of any other series of the trust, each is a separate entity for tax purposes.) Rev. Rul. 55-39, 1955-1 C.B. 403, make it likely that the Service will take the same view in the case of an LLC series. Bishop and Kleinberger, Limited Liability Companies ¶ 2.11 (May 2006).

The point of the above cases, and rules is to show that the IRS, SEC, Tax Courts etc have been making rules and case law and guidelines for Series of assets and Series LLC. This is not new. The confusion is most don't understand the legal system, and the testing of the Series protection structure has not been tested in all state courts. But then go back above to what we talked about regarding LLCs and independent liability shields.

History

Just to put perspective of the misconception of the Series LLC being a new entity, it is not. It was first created in 1996 in Delaware. 22 years ago. The traditional LLC first became available in Wyoming in 1977, but most other states did not follow suit until the 1990s). The next state was Delaware in 1991 to enact the LLC. In 1994/5 CA. It was not until 1996 that all states had a LLC. The same year the Series LLC was statutorily created.  

So it's interesting how people quickly fall in love with the traditional LLC thinking it's been around forever but fairly after the creation of the LLC in most states, the series LLC immediately came in the game and was added into the existing LLC Statute. In fact just one year after CA codified the traditional LLC.

Just a quick timeline of history and the LLC relating to the misconception of the "novelty" of the Series LLC.

@Rajesh P. A land trust is not a business trust that allows for separation of assets into individual series. It is a trust that you can transfer property into out of your name and into the name of the trust. Generally you would use a land trust in connection with a Series LLC. But if using just a land trust alone by not separating the assets into individual series, you do not stop the bleeding. 

SO for CA investors who want a Series LLC,  you can create a Series LLC even if a resident of CA, nothing is stopping you, BUT CA will exercise a franchise tax on each child series you create. $800 per child series. So as you grow your assets and add more properties into that Series LLC and have more 'children' in CA, you keep paying more and more in franchise tax.  

The Delaware Act expressly provides that “[n]o creditor of the beneficial owner shall have any right to obtain possession of, or otherwise exercise legal or equitable remedies with respect to, the property of the statutory trust.” 12 Del. C. §3805(b). The title to trust property may be vested in one or more trustees, but shall not be subject to claims against the trustee which are unrelated to the statutory trust. 

@John Clark just calling you out o all your BS and unprovoked anger and attacks. Grow up. But you are to old for that. Stay angry. Good luck. No whining. Just responding to attacks from a very angry rude person. 

@John Clark and yet you are the one insulting and speculating. Great 30 years spent. You sound just angry and still don’t have reading comprehension since this is a system of many options, as stated, and the fact is everybody has used some form of asset protection in one way or another. Insurance, trusts etc. So then if you Hebe insurance for damage prevention and an umbrella policy then the courts automatically will day you commute fraud by getting insurance and so it should not be honored. You seem to exercise reverse ageism. Interesting since you just keep attacking me being younger then you. Age is not a precursor to intelligence and ability. You seem to think it it. Some view asset protection planning with a skeptical eye. They believe there is a moral obligation to pay one’s debts. They think that asset protection planning is immoral because it prevents a creditor from collecting on a judgment entered by a court. That may be you. And it may be some judges. the U.S. justice system is unpredictable. Defendants are faced with ever-expanding theories of liability, being sued just because they appear to have “deep pockets,” and judgments entered against them based on desired outcomes instead of the law. Attorneys may ethically and legally help clients protect their assets from future creditors, predators, and lawsuits. Asset protection planning is a legitimate form of wealth planning. Attorneys who engage in asset protection planning help their clients preserve and protect their property in advance of a claim or the threat of a claim. Again it’s about setting up the system in advance, before, a threat. Nothing wrong or fraudulent about that. We have discussed the goal of asset protection planning in detail and @scott Smith laid it out on great detail. You attack the incentive and damages and make it not worth the time to get to you and through the system. to provide an incentive for settling a claim, improve the client’s bargaining position, offer options when a claim is asserted, and, ultimately, deter litigation. On the other hand, asset protection planning is not about avoiding taxes, keeping secrets, hiding, or fraud .

@Kristopher Orr theirs a good article in the ABA Journal about courts in states that don’t have a statutory Series LLC yet and you are sued in that state. the court should apply the internal liability shield protection of the Series LLC. Good Faith and Credit. But what if they don’t, and some judges just won’t. That’s obvious. Especially now days and activist judges. Then the should apply the internal liability shield of that state. But what if they still don’t. The ABA recommends that the prudent course for an attorney advising a series LLC that wants to do business in a non-series state would be to advise that the series LLC form a single-member LLC subsidiary to carry out business activity in the non-series state. This is what we do. Set up traditional LLC that is the operation company. The Series LLC is only the asset holding company.

@Matthew McNeil thanks. I think Jerry and I are mostly saying the same thing. Their are benefits of LLC and Series LLC. benefits of insurance, and more than one way and options on how to set something up for protection. The Series LLC and land trust is one of them. We are now just talking about land trust and their benefits.

A real mind blower is then Self-Settled Irrevocable Spendthrift Trusts. That topic alone is worth its own thread. 

@Jerry W. There are lots of types of trusts. So all the different provisions etc that can be used for different trusts add up. The devil is really in the detail in the overall drafting of the land trust and series llc or any trust type. The basic gist of it with the land trust and series LLC is that in the land trust, the grantor of the trust is the Child Series of the Series LLC (Company zyx Series A) and then the named beneficiary is (company xws Series A) and then the client is the trustee. The attorney with the firm is the initial trustee for the filing, and then automatically resigns upon transferring of title of the property into the trust and is replaced by the subsequent named trustees. If the trust is sued, the asset of the child series is the one that they can get to. I can't copy and past our land trust or specific provision since it's like asking somebody at IBM or Apple to copy and past some of their code and send to you to see how they code their computers.

@Nicholas Aiola thanks for the kind words. @Jared MontBlanc the DST has lots of benefits for investors for asset protection, and since it is a trust, it also has tax benefits.

@Mark S. it implies nothing but states a truth about insurance. Is insurance important? Absolutely. Should you have it. Absolutely. Should you negotiate your own terms, a must. (though most don't or even know they can), Should you rely only on insurance as a protection method? NO absolutely not. Depending on the damages alone the policy will have a max, and if the claim is challenged or denied, OHH boy, you now wish you had something in addition to that 'security blanket.' it is not patently false to state the business structure and methods of the insurance industry. 

@Jerry W. Yes I agree. That is a good set up and essentially the way we do things, The only additional add on, which is not necessary, but adds an additional layer, like insurance, is the use of a land trust. Because it adds another layer of separation of ownership. You and I are not at all far apart on what we are talking about. It is just the use and benefit of a land trust or any other type of trust that are typical of asset protection firms.