All Forum Posts by: Brian Bradley

@Jared Siddle yes we practice nation wide and represent clients all over. 

@Scott Palmer insert the benefits of a lawful trust into the strategy. Also, banks will not rock the boat on a mortgage being paid and use the clause/exercise it. I have not heard of it being done in decades. The use of a trust is the key. Transferring property into Trust has been done and recognized for a very long time in estate planning. Banks understand this. The collateral has not changed, you are moving the asset from your own personal name into your trust that is connected to your LLC. The entire reason for the due on sale clause is just so the banks know to whom they are loaning the money to. To enforce the due on sale clause the banks would have to show courts "impairment of security" California Supreme Court justices decided the Tucker v. Lassen Savings & Loan Association (12 Cal. 3d 629, 1974) and Wellenkamp (Wellenkamp v. Bank of America, 21 Cal 3d 943, 8/25/78).  

As a update for you Oregon investors, see Cortez v. Nacco Material Handling Group from the OR Supreme Court. 

https://www.constructionlawwatch.com/2015/08/recen...

The Cortez rule suggests that the LLC will afford no immunity when the member-managers personally participate in legally actionable conduct. In such cases, personal liability will be cognizable without an extravagant effort by plaintiff-homeowners to “pierce the veil.” The result is that Oregon law prevents individual or small groups of contractors from using undercapitalized LLCs–and the high standard for piercing the veil–to immunize themselves from the disastrous consequences of their negligent, unlawful conduct.

Though Cortez worked for the employer where he was injured, and was injured on the job, the employer tried to use the defense of his LLC protecting him from liability. The OR Supreme Court followed the trend of most states saying that you cannot hide behind the LLC structure even as a member-manager when you as the owner personally participate in the wrongful action. So this ruling is limited, but it still does go to show @Jay Hinrichs point of the corporate veil being dwindled down and to not just rely on one level or protection. 

Their is no such thing as one size fits all magic asset protection wand.

And thanks for everybody joining the forum. So far I feel it has been very encompassing over multiple layers of AP and its pros and cons of diff methods etc. I think everybody has been able to get something out of this from how to negotiate their insurance coverage more, to entity set up.  No one strategy or method is going to be the best. It will be personalized per investor. But the more we talk about it the better prepared we will all be. 

@Mike H. not sure about if his friend had an umbrella coverage. But we covered this topic I believe on another page. Insurance and an Umbrella coverage is good and a must have, but really read your ENTIRE policy and the fine print and have your lawyer read it for you and negotiate its terms just like @Jay Hinrichs said. Most don't realize you can negotiate the terms. But don't misconstrue what Jay said, he also has something like 11 LLC and runs everything through his business, and also has insurance, negotiates those terms, and lives in an Asset Protection friendly state for the majority of the year as his residency. So he is not just relying on insurance, but practices proper methods of multiple layers of protection, and uses his team (Layers, CPA, etc) to make sure he is protected.

Umbrella policies say they are their to protect you from large lawsuits and damage awards, but if you read the fine print, their are lots of outs for them to not pay. They are a business with an entire area of law called Insurance Law for them and insurance lawyers. They would not be in business if they have to pay every claim, or the full amount. They will not pay punitive damages, they will not pay for reckless or outrageous conduct, they will not pay for intentional acts and anything they deam as fraud, and that clause is the death clause since they can use any conversation you had as intent and fraud. They will go back to initial conversations you had when starting your policy to prove intent and fraud. They will not cover activities of an insured as a director or officer, or business activity since business umbrella policies are for business and different then personal ones. And the list keeps going on what they won't cover, let alone what their legal team will argue and decide. Remember, its a business. 

On piercing the veil, the point of a LLC or Business Structure is to keep separation from you personally, But that requires you to run it properly. The point is to create more damns to cross to get to you and more time, energy and expense of the person suing you. To try to pierce the veil it takes lots of time and money. Its just not a simple as saying, hey lets pierce the veil. Having a set up AP structure will generally facilitate faster settlements and at a cheeper amount, if not just prevent the suit from being filed since the lawyer deciding to file it will make a business decision on if his time, energy and resources will be awarded or not with the judgment? Yes, the corporate veil has been slightly deteriorated, but it still is regularly upheld and recognized in a structures integrated overall strategy where a LLC is used inside an overall plan holding a single asset. The courts typically give it the benefit of the doubt, and will force the plaintiff to show the company is a shame. Which it is not, since you are using your team to properly keep you up to regulations (CPA, Lawyer).

@Justin R. You live in CA so r in a tough spot fOR AP. hence why the attorney you went with set up the DST. https://www.americanbar.org/publications/probate_property_magazine_2012/2016/january_february_2016/2016_aba_rpte_pp_v30_1_article_nenno_practitioner_guide_delaware_asset_protection_trust.html This is a good basic article on the DST by the ABA. DST offer both tax and AP benefits, but cost more money to set up, maintain and manage. I think you have talked to @scott smith about the DST. Scott Is a great resource.

@Account Closed the cost very per client needs, situation, investments, goals, level of risk (high or low), jurisdiction, location of properties, etc. Firms will very in what they charge state by state and firm by firm. I will IM you. Setting up an LLC/Series LLC, and a land trust with your operating agreement is not as much as you would expect. Generally I would say the average is ($2-3K) for that kind of set up. If you do not have a Living Trust (aka estate plan then add on 2-3K more to get your estate trust (like your will etc in order). What you want is layered protection (Insurance, Umbrella Insurance, LLC/Series LLC, Land Trust, Estate Plan). But it should all be appropriate to where you are in your net worth, assets etc. A person starting out with little assets and not much to loose should not be set up with the level of protection as somebody with 100 units. That is not rational. You stage it and have it flexible as you grow.

@James Miller I use the Series LLC a lot also out of TX. I affiliate with a few TX firms and really like the set up of them. Its interesting in your dialog with @Christopher Smith  but you mentioned hitting a person with your car. I just had a client who came to me because one of his doctor friends who also invests in real estate just lost a few of his investments properties due to being sued for an accident he was not even involved in. He lent his car to a friend. The friend went to dinner, had some drinks at dinner, then on his way back home and to drop the car off T-boned another vehicle killing a few of the passengers inside and paralyzing another. Completely unexpected. The owner of the vehicle, was named in the lawsuit (even though he was not in the car) simply because he was the owner of the vehicle. His part of judgment was just over $1M Dollars. He had to sell a few of his investment properties that he worked so hard for to pay the settlement. The point is that Chris is just as James said and you, the world keeps spinning, and life / **** happens that is not expected. But, with a little planning and thought and education you can help prevent a total unexpected loss, or minimize it. Negligence just happens, accidents just happen, **** just happens. It is not self-interest driven to help investors and to pass down knowledge to protect them from the unexpected. It is not the CPA's fault to help you with the IRS, it is not the doctors fault to talk to you about preventative health measures. It is just part of life. And part of modern life is a very litigious society.

@James Miller I have noticed the same trend with clients starting the LLC on their own or going to legal zoom, then calling me soon after or right before a deal closes to fix their LLC and then create the operating agreement for them. Like you said, most of the legal issues we do are done in the way we incorporate the company from the beginning. So now the client has spent more money by being cheep or thinking they can DIY it themselves. Then they realize the LLC is no set up properly for the desired intent, and that the lack of operating agreement leaves them vulnerable. I am all for supporting the entrepreneurial spirit, but that is where they need to budget for the team they create and us them. Budget for your Lawyer and CPA. Then they can focus on deals.

Do your homework. Know before you do something why you are doing it. I have come across a lot of post lately about investors creating their LLCs on their own, then deciding not to use them, having no operating agreement and still paying the maintenance fees. 

Why did you start the LLC to begin with? Who did you talk to that is an actual licensed professional for advice? Meaning your CPA and Attorney. Not blogs, not google, not forums. But your actual team members CPA and Attorney.

Know before you create a legal entity why you want to create it, its tax and financial implications pros and cons, and your other legal entity structures and why you are picking that specific one vs the others. If you cannot do this basic level of homework, just like you would do your homework and analyzing before you purchase your investment property, then do not create the entity. Nothing that cost money and has tax and legal implications should just be done on a whim.