All Forum Posts by: Mitchell Zoll

The due on sale clause was really started in the 70s and 80s when interest rates shot up and folks were trying to hold onto lower mortgages as they transferred property. They were tested in the Courts and found valid and enforceable.  We have been in an era of low and lower interest rates, so there was no incentive for a bank to call a 5% loan if the current rate was 3%. However, we are now in an environment when interest rates are rising.  We are also in a time when Banks can simply run reports and crunch data on ownership mismatches across their entire portfolio with a click of a button (not researching each and every property one by one, state by state). Are banks going to start massive waves of calling loans? Probably not. Banks don't want to own the real estate - they just want their notes paid. But the days in which it was not to their advantage to do so are behind us at least for the foreseeable future and it is a very real consideration.  Folks blindly putting properties in LLCs for "asset protection" may actually be creating liability.

Quote from @Luke Perrin:

@David M.@Michael Plaksand @Mitchell Zoll

Thank you all for your responses. Your comments have helped me process the decision, but this still seems like a complicated issue. 

I setup these LLCs with Prime Corporate Services based on Pace Morby's recommended structure as of the beginning of 2023. Colorado LLC law is weak when it comes to asset protection, and that is part of the reason I wanted to have a Wyoming LLC holding company. I've never worked with an attorney, and that is clearly a problem. Would I be better off just having an umbrella insurance policy instead of LLCs?

@Christian Block and @Michael Plaks

I'm confused about your comments on filing a partnership return in Wyoming. I understand that it may not be a community property state, but they have no state income taxes and I'm not doing any business in Wyoming. Do I still need to file a return there?

How you operate is more important than how you set it up. Get with someone you can call to teach you how to operate your LLC and answer these questions. Walk through this structure you have created and find out if it is really what you need or if you have created more problems for yourself. Check your local bar association if that helps you find someone local.

I would make sure to go back to the lawyer who set up your entities to make sure you have an understanding of how to operate the business and to make sure the LLCs operate separately. You have set up a complicated structure and if you need that type of setup, you need to keep that lawyer in the loop. But simply filing a tax return with entities that have an SCorp pass through election does not "comingle" the funds (I assume that's the concern). Think of it like income from three employers on a single tax return. Just because they are all there doesn't mean they have any relationship to each other other than the same employee. Tax returns are also rarely relevant to a case and thus exchanged in litigation (check with your state's rules).

Quote from @Adrian Brown:

Quote from @Mitchell Zoll:

Single Member LLCs have generally had the same protections as "multi-member" LLCs in Texas before the bill. (Senate bill 2314 was a clarifying bill in response to attempted charging orders of an LLC in a divorce case. You can see the case is cited in the bill analysis). But to answer your question, the election you need to make for tax purposes is with your CPA. First work with your lawyer to make sure your LLC & Company Agreement are set up to support the election (equal distributions, single class of member, etc.), but then your CPA can work on filing the election with the IRS.

 @Mitchell Zoll I've got the LLC formed as of yesterday, and I'm filing for my EIN on the IRS website, and they have it very clear with regards to husband & wife in a community state and still declaring the Single Member status. However, I do not have an attorney as it relates to the Operating Agreement, is this part of your practice and if so, maybe we can have a call to understand your cost to create a proper OA, thoughts?

@Adrian Brown - Yep!  Sent you dm with my information. Feel free to reach out if I can help! 

Single Member LLCs have generally had the same protections as "multi-member" LLCs in Texas before the bill. (Senate bill 2314 was a clarifying bill in response to attempted charging orders of an LLC in a divorce case. You can see the case is cited in the bill analysis). But to answer your question, the election you need to make for tax purposes is with your CPA. First work with your lawyer to make sure your LLC & Company Agreement are set up to support the election (equal distributions, single class of member, etc.), but then your CPA can work on filing the election with the IRS.

Always make sure your signature line shows your representative capacity of the entity.

So it would read "NewCo, LLC" x__________ by [printed name], it's authorized representative/manager/ CEO-whatever your title.

Don’t put “owner” as an “owner” can refer to a sole proprietor or unincorporated entity. (Source: I’m litigating against that claim right now)

As for who must/can sign -check your organizational docs for who has authority to bind the entity.

Check the original filing documents of your LLC. You declared a "purpose" when you filed it. Most are a general statement of purpose such as "all lawful business.." If the purpose isn't limited and you are the only member, you should be good to operate your LLC for any business purpose - pet care, real estate, and even real estate for pets (very niche market). If you are getting into multiple properties as a real estate business, please visit with a CPA and a lawyer to come up with a game plan on how to arrange the LLCs. The most important step is to make sure you have a plan on how to operate the business that is specific to your situation.

Quote from @Marcus Holloway:

What happens, beneficiary wise, if one of the members pass away in a 2 man LLC and no operating agreement is in place? (We have an operating agreement, I'm just curious) Thanks.

State laws will control. Most states have “default” provisions for entities such as LLCs.  While the statues provide guidance on what to happen upon death or divorce, it is good to craft your own so to know what will happen when an event occurs. A company agreement can also provide insurance and other protections for the company and the owners family. 

Hello Tom -happy to connect you to a friend of mine that sets up physical locations for entities when I help clients form new LLCs. Send me a note through the bp messaging if you are still looking and I can connect you. 

Mitch

Quote from @Dakota Mivshek:

Owner of an operating company looking for REI Friendly CPA for a long term fit.

We do business (Brokerage, Flips, rentals) in CO, FL, and Texas.

Also looking for attorney to help streamline our current LLC setup and readiness for JV deals on flips.

 Hello Dakota - I’m also in Austin and happy to connect if you are looking for help. Www.zollfirm.com 

Mitch