All Forum Posts by: Brian Bradley

@Adam Harper do you want tax benefits or asset protection? that you big decision. An Asset Protection setup is tax neutral, but may give secondary tax benefits. But that is not the goal of AP. Talk to your CPA and AP Attorney. Or get one. DO NOT set up an LLC and operating agreement on your own. You will have no idea what clauses to put in and words to use in the initial filing and articles of incorporation to even start the process. Standard language is not used for AP. And the operating agreement has to be done correct to maintain the separation.

For AP purposes, set up an LLC or Series LLC if looking to keep investing. And transfer your property into your LLC/SLLC via a legal trust that is a member of the LLC. Again, an attorney is needed to do this properly and smoothly for you. The timing is not very long, We do this for clients nationwide. You can set up your LLC or SLLC in a AP strong state like TX, NV, DE. then invest wherever you want in whatever state you want. Then after you purchase the asset, you have your attorney quickly and easily transfer the property for you.

The cost of this is not much at all. For example, a simple Series LLC with anamynity trust would run around $3k or less.

@Dylan P. I am an AP attorney. AP is tax neutral. You may have some tax benefits from a LLC, but that is secondary to the AP part of it.

Purchase the property in your own name first. That way you get a better finance rate. Then transfer the property into your LLC or Series LLC via a legal trust that is a member of the LLC/SLLC. Then you are creating anamynity and asset protection.

@Linda Weygant is partly correct on the CPA tax side of things. But if you are investing, you are a target so it does not matter if you own one property or 100 properties. And it is the small guy like you with 1-5 properties who is not set up who has the most to loose. I prefer Series LLC's if you are going to be investing in more than one property. It is streamlined for filing just one tax filing, but allows to create child series for each asset that are treated for liability purposes as their own entity. This means that if series 1 house is sued, they cannot reach into series 2 assets to cover damages.

Have this set up by an experienced attorney and talk to your CPA. @Scott Smith is a very experienced an knowledge attorney on Series LLC and AP. If you don't reach out to me, definitely consider reaching out to Scott.

Hey @William Huston like @Scott Smith I am also an AP attorney. You want nothing in your own name. You are a target. As the common saying goes, "the rich own nothing, but control everything." Their is a reason for that. Lawsuits, especially in todays society happen regularly and predatorily. 

Yes, one LLC can be set up in just one state, and that one LLC can own / hold the property for you. It would be very messy and expensive to keep setting up multiple LLC's and spending the holding costs on each one in different states. You want to be as simple and streamlined as possible, and a system that reflects your current investments, but gives you option / room to grow without restructuring. That is why I also am a fan of the Series LLC. The location of the property is irrelevant, numerous states have recognized the series LLC as legislative option of an LLC. And states that do not have series llc, do have LLCs, and what is measures in those states that you are sued in that don't have series LLCs are that states internal liability shields. We represent clients from all over the nation using Series LLC. The idea of AP is to pick a AP strong state like TX or NV or DE and register your company in that state, purchase the property in your own name so that you get better financing options, then transfer the property into your Company by using a legal trusts that is a member of the company LLC/SLLC.

Just one LLC/SLLC and if you use a SLLC place each property in its own series.

@CJ Lee thanks fro writing. A lot would depend on your over all assets, what you invest in beyond notes, and what you are protecting. The DST is a Business Trust. Some benefits of using a DST is you get Holdover on capital gains, 1031 exchange eligible, save on franchise taxes over an LLC and you can compartmentalize each note. Compartmentalization is big in the sense say you get sued for wrongful foreclosure or a dodd frank violation, etc, then only that note is exposed thanks to the series nature of the DST. How many notes do you plan to hold at a time etc.

Being in CA, CA does recognize business trusts like the DST. A business trust doing business in CA is treated as a corporation under CA Law so would get the benefit of the lower corporate tax rate. And since the DST is not a statutory entity in CA you are exempt from paying the annual $800 franchise tax (See CA Franchise Tax Board). Depending on how many shareholders will depend on if you are taxed like a individual or a partnership. But you can elect to be taxed like a corporation. Talk to your CPA and lawyer. Using a Business Trust in conjunction with your SDIRA allows for more control and saves you on taxes.

Lots of other options exist also.

Some prefer investing in notes via a Self Directed 401K and invest in notes passively. This can be set up through the DST or LLC or SCorp. Talk to @Scott Smith  who sets up DST Business Trusts and SDIRA’s, and/or @Brian Eastman who sets up SDIRA 401ks etc. 

Since you are specifically asking about notes and your business entity, @dan van horn has a great set up for note investors. You should read his book if you have not already. He does not get into the overall business structure but how to invest in notes and how he started his note investing and service business. He has also answered this question of business systems for note investors in the past via a Delaware LLC since it is a strong corporate and banking law state, and the LLC structure as a note investor gives you the personal pass through you want. Other states beyond Delaware also offer strong laws like TX and NV.

Whatever business entity you decide to use, you want to own the notes in your business entity, then have the notes serviced by a licensed servicer. Just depends on what your current assets are, total assets, what you are investing in, future plans, and must talk with your CPA and Attorney to find the best marriage. Business Trusts definitely have their place. Especially for states like CA. 

So what is the DST? The DST is a statutory business trust. If you are a California investor, then this is something to listen up and research up on. The DST (Delaware Statutory Trust Act 12 Del.C. section 3801 (1988) allows for a series structure like a Series LLC. Think of a parent-child relationship. The DST is your parent, and it can have as many children as it wants. Each child is a ‘series'. The benefit of this for CA investors is the ability to avoid the Franchise Tax imposed upon LLC's. The DST is one company with one filing, and one tax return. Each child is treated as if it were its own company for liability purposes.

It is structurally analogous to other business entitles where management and control is separated from equitable ownership. The DST is similar to a corporation in that the beneficial owners of the trust have no greater liability than that of a stockholder in a corporation. A DST is similar to a LP and LLC in that it leaves it to the parties to the governing instrument to craft many of its governing provisions, and prevents creditors from only collecting what the beneficial owner is entitle to according to the germs of the governing instrument. This has to be done in its creating documents so you must have an experienced attorney do this for you.

Think of the DST like a trust. It will have a Grantor, a Trustee, and a beneficiary. The Trust will have the REI Asset Holding DST - Child Series as the Grantor, the client will serve as the Trustee, and the beneficiary will be the series. The property is held in the name of the holding trust and is controlled by the company while the client (you) receives disbursements from the title holding trust.

To keep the DST from being pierced you MUST maintain compliance or the structure will collapse and all series would then be treated as one. You must have a valid trust agreement, be filed with the state of Delaware, maintain a Delaware Registered Agent, and abide by certain rules of the IRS, and maintain accurate accounting of money to each series. Hence, have an attorney experience with DST set this up for you. This is not a DIY project. And talk to your CPA. 

DST's are commonly used for:

asset-backed securities transactions – also consult a SEC Attorney

collateralized mortgage obligations

real estate investments

leveraged leasing transactions

mutual funds and investment companies

liquidating trusts

1031 exchanges

trust preferred securities transactions

private investment funds

This is obviously just the tip of he iceberg. 

Thank you for visiting this forum. If you are hear you have heard about the Delaware Statutory Trust (DST) and are looking for more information on what they are, what they are good for, how do they work in protecting me and my assets, and its scalability etc. Or you are a CA resident investor looking for asset protection and have come across the DST in bloggs / some forums on BP or other investors who have a DST System established already.

The point of this forum is to be a direct point of references for information, education, and professional resources on the DST, particularly for California investors looking for asset protection options. I have not found a specific forum yet addressing this topic, but some specific posts directed to individual needs. @Scott Smith @leslie  @leslie pappas and @bill exeter have been very useful professionals for those posts. So I hope you bring your knowledge to this forum for those investors who are looking for and or considering a DST.

This is not for legal advise but education. So do not take what me or anybody else says as legal or professional advise. But opinion and a starting point for you to use. Always go and hire an Attorney and CPA.

My next post on the DST will be about what it is, who can benefit from it etc. I plan to get that up later tonight. Look forward to hearing from you, your questions, comments, experiences, knowledge. The great thing about BP is it vast community to learn from and with.

@Justin R. both @Scott Smith and @Leslie Pappas are great contacts for the Delaware Statutory Trust for investors. Especially CA Investors. I have affiliated with Scott, so know how he works personally. I have not worked with Leslie, but from what I have read from her, along with others, she is very knowledgeable with the use of DST's.

@Hugh C. we use them for our clients who live in CA and invest. 

@Mike S. to just add onto what Mike said, I had a recent question of why not just bypass the transfer into the trust and transfer the property right into the LLC. The reason is that the Garn St Germain Act does not protect such a transfer from personal directly into the LLC, BUT it does protect the transfer of property from personal into a trust/land trust. That is the reason for the combination of the Trust & LLC. @Scott Palmer

@Account Closed you should be fine setting up an AP system around what you currently have. We tend to like to work with what is already established, if no issues. If you want to chat in more detail about your situation IM me.