All Forum Posts by: Brian Bradley

Also, @James Haig Streeter To the extent that the DST would be vulnerable, we add the language that any person obtaining an interest by way of a lawsuit receives no control rights and is not entitled to distributions as a beneficiary.

For the BRRR strategy specifically that you mentioned, you either run the risk of the extent of any upgrades being impermissible as improvements, or rehab it while the property is held in your personal name first, and then transfer it in after done.

@James Haig Streeter good questions, and even lawyers and CPA's can get confused so don't worry that you are not one. Generally. You have to look at estate/trust law since the DST is a trust (business trust) and is legally treated as a trust. You are thinking of the DST as a Business Entity like a LLC or Series LLC, LP etc. It is an estate plan that has a benefits of a Series LLC by allowing placing assets into series. Think of Spendthrift provisions in estate plan trusts that prevent creditors from getting the assets in living trusts. A DST may be sued and may sue, just like a trust, and property held in the DST like a trust is subject to attachment or execution. Beneficiaries of DST do not enter into an agency agreement with DST or its trustee, nor does the DST trustee act as an agent. The suite must be attached to a specific property in the trust. So thats your asset protection issue and charging order issue.

A Delaware statutory trust is similar to a limited partnership and a limited liability company in that the Act leaves it to the parties to the governing instrument to craft many of the provisions regarding the governance of the trust. Unless the governing instrument provides to the contrary, the trustee, when acting in such capacity, is not personally liable to third parties for any act, omission or obligation of the trust. This is estate law we are talking about. 

A statutory trust is further similar to a limited partnership and a limited liability company in that the Act prohibits creditors of the beneficial owners from obtaining possession of, or otherwise exercising legal or equitable remedies with respect to, the property of the trust. As a result, a beneficial owner’s creditor may receive only what the beneficial owner is entitled to according to the terms of the governing instrument. The trustee’s liability to the Delaware statutory trust and to the beneficial owners is triggered if the trustee does not meet the requisite standard of care set forth in the governing instrument (subject to good faith and fair dealing limitations.) 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).

To your other question it goes to if you are recognizing gains or losses under 1031 exchange and pertains exclusively to 1031 exchanges. Beneficiary’s under Rev. Rule 92-105 retain the right to manage an control the trust property. What you can do will determine a lot on the TRUST AGREEMENT that you have drafted and what powers are listed in the agreement and if the trustee has power to vary and other additional powers under the trust agreement. So the details of power come down to what you are given in the trust agreement that you have drafted. A taxpayer may exchange real property for an interest in the Delaware statutory trust described above without recognition of gain or loss under § 1031, if the other requirements of § 1031 are satisfied.

@S Manns I am an Asset Protection attorney and Specialize in Series LLC. 17 states at this point have Series LLC's, and many other states like Florida have revised their LLC statutes and recognized Series LLC and even mentioned them in some recent case law. Their should be 20 states by next year that have Series LLC.

@Will Barnard and @Dawn Vought have gone over what is a Series LLC. It is a parent company LLC that then has children series LLC underneath it. As you add assets you add children / series to the parent Series LLC. This allows you to separate the liability out for each asset. And at the same time filing one tax return on the Parent Company.

CA is a state that is extreme and will tax with the franchise tax each child series $800 franchise tax per series. So we do not recommend these for CA clients. Rather we use DST's which are Delaware statutory trusts. They do not pay the franchise tax, since they are classified as estate tools, but allow you to separate assets into series.

Pertaining to the Series LLC, you need to look at the independent liability shield for LLC for each state that you invest in that do not have Series LLCs, That will tell you if that state recognize the separation of assets in series and will uphold the liability shield for members. You will also want to look at that states 'charging order' and if the SOLE remedy is a charging order or not. You want the sole remedy to be just a charging order.

You want to establish your Series LLC in a state that obviously has them, and out of those 17, that have strong Asset protection laws like TX, DE, NV. Then you file with each state that you start investing in and in your own state tax doing business as. Then start investing, and purchasing assets and transferring them via a legal trust into your S-LLC. The trust is the key component that works with the Series LLC to legally transfer the property and avoid any due on sale clause with banks or lenders.

Lets say you have a TX or NV or DE Series LLC, but have decided to invest in one of the states that does not recognize the Series LLC and have not updated their LLC Statutes, and their State Courts have not mentioned a Series. What do you do to protect yourself?

Try this.

Keep separate books and accounts, each series should have its own name, register only that series as the foreign entity doing business in that state, all contracts should be properly signed by that Series only giving notice. Document very well, capitalize adequately the name of the series that is doing business. 

Now, Lets say you have a TX Series LLC, but have invested in one of the states that does not recognize the Series LLC and have not updated their LLC Statutes, and their State Courts have not mentioned a series.

What do you do to protect yourself or your client if sued in that state?

Try this.

Keep separate books and accounts, each series should have its own name, register only that series as the foreign entity doing business in that state, all contracts should be properly signed by that Series only giving notice. Document very well, capitalize adequately the name of the series that is doing business. 

You want to demonstrate to the extreme your intent to separate the series. 

Just finished a Continuing Legal Education Course (CLE) specifically for Series LLC. Some really great updated info. For example, 17 states now have Series LLC. Should see 20 by next year.

ALOS, FL now recognized the Series LLC and will uphold another states Series LLC.

Also, Know which states require Notice for Series LLC. Some states like IL requires customers to be on notice to uphold the Series. Know what the state you created your series in what their notice laws are. An good example and practice of Notice for Series LLC's is: Leases should say "ABA, LLC – Series A" (this is the name of the company the tenant is contracting with. Same with vendor contractors, etc.

And, don't forget that when you create your Series LLC, just like any LLC, you MUST elect how yo are going to be taxed by the government. Partnership, SCorp, etc. Don't forget to talk to your CPA about what to elect.

Just finished a Continuing Legal Education Course (CLE) specifically for Series LLC. Some really great updated info. For example, 17 states now have Series LLC,

ALOS, FL now recognized the Series LLC and will uphold another states Series LLC.

Also, Know which states require Notice for Series LLC. Some states like IL requires customers to be on notice to uphold the Series. Know what the state you created your series in what their notice laws are. An good example and practice of Notice for Series LLC's is: Leases should say “ABA, LLC – Series A” (this is the name of the company the tenant is contracting with. Same with vendor contractors, etc. 

And, don't forget that when you create your Series LLC, just like any LLC, you MUST elect how yo are going to be taxed by the government. Partnership, SCorp, etc. Don't forget to talk to your CPA about what to elect.

@Abi Wegman The DST is your parent, and it can have as many children as it wants. The DST is not a Series LLC. The DST is like an estate plan, that allows you to series out assets. The way you avoid the CA $800 franchise taxis because the DST is an ESTATE PLANNING TOOL, hence not subject to CA State Franchise Tax. The DST itself is the parent company, the tip of the umbrella. And then underneath it, it can have as many child DST's as it wants. Each of those DST children are called Series. The DST is technically one company with one filing and one tax return. Each child series has its own letter for example REI Asset Holding DST - Series A

The key piece is the Trust. You have a grantor, a trustee, and a beneficiary. Th Trust will have REI Asset Holding DST - Series A as the Grantor, you the client will serve as the Trustee, and the beneficiary is the DST Child Series. The property is held in the name of the title holding trust, and is controlled by the company while you received the disbursements. 

Connect with me on BP and once we are connected I can then send you a detailed attachment of the DST how it works with visual aids.

@Johnny Duke talk to your Real Estate Investment CPA about how Oregon will tax each series of a Series LLC. Not all CPA are created equal and focus on different aspects of taxes, just like doctors specialize and lawyers. Make sure you talk to a CPA that works with Real Estate Investors. You will want to ask your CPA will the state of Oregon tax just the Parent Series LLC as one individual entity, or will they tax each series individually? I stay away from tax advises since I am not a CPA or Tax Lawyer. I just focus on the legal / liability side and entity structure and work with CPAs in creating systems. Since you are a OR resident and will be doing business in the state of Oregon you would want to know if you did create a Series LLC lets say in TX and then did business in Oregon, and separated out other assets in different child series, how will the State of Oregon tax you? Will they just tax the parent Series LLC or will they tax each child series like the State of California. CA is one of the very rare states that we do not use Series LLC for because of the franchise tax $800 per series. For CA investors we use Delaware Statutory Trusts (DST) to get around that.

@Johnny Duke AP stands for Asset Protection. The bottom line is that when you set up a business you want to talk to your Attorney and CPA and find out how strong are the jurisdictions in the state I currently live in to protect me if I am sued compared to the business I am in and what I am doing and growth plans. Then look at other strong Asset Protection States and see if it is more beneficial to organize in those other states. Then, talk to your CPA and get a dollar amount of the taxes to maintain the entity. States are competing with each other to attract business in their state when it comes to protection and taxes. The strongest states have the best limited personal liability for the member/owner and lower state franchise tax's. The worst states like CA don't care about business owners and want to take as much money away as they can. 

If you are an OR based GC yes you can base your company in a different state, then file a company doing business in form. Just have your CPA do this for you. 

So since you have your current carpentry business, and then are going to be doing flipping, remodels etc, a Series LLC like in TX would work for your business entity. This would allow you to series out each business and project into its own Series. For example (Carpentry Subcontractor - Series A) - (Flix n flip Series B) - (Fix n Flip Series C), (Remodel Series D) and you can have different operating agreements and partners with each series project, all while keeping the overall parent structure Series LLC streamlined. Feel free to IM me or @Scott Smith if you want to talk in more detail. And listen to podcast 109 on BP for more information. Best. 

The same goes for Florida. See  Title XXXVI Business Organization FL 605.04093. 

The interesting thing about FL is the State Legislature just recently took a vote to not add a Series LLC as an option in FL. BUT, the reason for it is that they did not think that the small business owners were "competent enough to use them yet." So, I see within the next election cycles this will be revisted and we will soon see FL as being another state competing for Series LLC business.

Though Florida does not have a statutory Series LLC to create in the state, it does recognize the internal liability shield offered by LLCs on its members.

So, though Florida does not have a Series LLC, the State of Florida does recognize the internal liability shield principle, and that is what the courts would be looking at if you created an out of State Series LLC lets say in TX or NV or DE, or any of the 13 states, and owned a property in FL and were sued in FL. The personal liability shield of the Series LLC would still be upheld so long as its formalities were followed. Just like a standard LLC.