All Forum Posts by: Scott Smith

@Chaz Mathias asset protection attorney here. From a professional standpoint, it’s wise to draft a prenup to ensure you leave with what you entered the marriage with. This doesn’t HAVE to cause conflict with your partner but of course, it’s a tough conversation to have. Bounce it off of a qualified AP attorney or family attorney with AP experience to get the best agreement for you. Given that 50%+ marriages end in divorce, it’s just the smart move.

As a person with a heart, I understand this can be a difficult subject. Good communication is already vital to a relationship and will be important here. You want your spouse-to-be to understand what’s going on with the agreement. A conversation ahead of visiting an attorney together can go a long way so she doesn’t feel blindsided. If she raises helll or throws a fit in response to a calm, rational discussion of the issue...Well, frankly that would make me skeptical of her reluctance and motives for resisting the prenup.  Of course, this is a sensitive subject and she has every right to voice her feelings on the matter. And it’s generally a good idea to let a woman express how she feels in a constructive manner. When giving your perspective it may be helpful to keep things as rational as possible. Point out that this is a worst case scenario, not something  you expect to have to use. Keeping things as objective as possible should minimize the chance of arguments. Own your own feelings, be transparent about your motivations, and be open to collaboration with her and you may be surprised by a positive response. If someone truly loves you, they should not want any assets that they do not rightfully deserve.

You do not mention if you are in a community property state or if your spouse is also an investor. This is why you really should speak to an attorney licensed to practice wherever you plan to get married. There are ways to jointly own property that will protect your interest in assets while married as well. Land trusts can use a legal method called tenancy by the entireties for jointly owned property (again depending on state). You can also have a real estate attorney form a married couple LLC with an operating agreement that spells out terms you both agree to in any state.

I wish you the best of luck and congratulations. Hope you never have to use the agreement, but I do believe it’s wise to have one in place and carefully observe your loved ones reaction to the conversation. People can show you a lot about who they are during these conversations, and it’s better to have it ahead of time. Money is often a source of conflict in marriage even under the best of circumstances. So getting this potential argument out of the way before the marriage is probably the best course of action. Good luck to you and let us know how it goes!

@Greg Tom It’s great that you’re maxing out your accounts! Be sure you’re taking advantage of each fully to minimize your taxes. Roth accounts are wonderful to take advantage of provided you’re eligible. Don’t forget that there are deductions and sometimes even credits specific to retirement assets. The SoloK, for instance, allows you to use a Saver’s Credit up to $2,000 ($4,000 if married/filing jointly). Each account has the potential to lower your taxable income. Some investors have successfully dropped an entire tax bracket by exploiting their retirement savings’ tax status. Given you have three, if I were you, I’d have a professional give my financials a once over to be sure there’s nothing I’m missing or simply unaware of.

I’m sure you can get tons more feedback on this, but deduct, deduct, deduct...Knowing and taking advantage of deductions can save so much of your money from Uncle Sam. More tax pros will surely chime in, but it sure sounds like you’re on the right track.

@Brit F. I’m so glad you were able to successfully use the SDIRA to not just solve the cash flow problem, but truly provide for your parents! What an awesome success story!

Do you use one for yourself yet? It’s hard to go back to traditional accounts and custodians once you’ve experienced the SDIRA freedom. There are all sorts of cool things you can do with this investment vehicle, as I’m sure you are learning from your research and experience. One trick I like with the SDIRA is buying a retirement home ahead of time.

Hopefully your experience with your parents had given you some understanding for planning for your own retirement. Don’t forget about this account when you’re making arrangements for their estate plans. I’m hoping you have a good attorney to help guide your family with your parents in AL. The cost of that alone can be massive. Your folks are truly lucky to have you!

@Soh Tanaka thanks for sharing. Your experience does highlight the simple truth that asset protection is not one size fits all. All of us investors have to do cost-benefit analysis. It’s easy for those of us that are already super busy to forget to weigh in where our time is best spent. Time is a real cost, and you at least know what you are willing to trade off for it. The plan that you had may be awesome for a multi-unit investor or even you in five years, but sounds like it wasn’t what you need at this exact moment. What works for one investor won’t work for all. That is a nuance that gets lost when anyone—including people like me who handle AP for a living—makes sweeping generalizations about any strategy or structure. So much of good planning is about tailoring to the individual’s needs. I hope you have an attorney and CPA to help you out with making the best choice for your particular situation. I also hope your professionals help you capitalize more on your time. 

The other major lesson I see in your case is that any structure can become stressful if you go it alone or try to do it all. Ideally, professionals are there to help you manage these things so you can do what you do best—running your business. It sounds like yours could have been more involved with setting you up for simpler day to day operations. Don’t be afraid to ask for what you need, whether that is simpler banking, more involvement, etc. Really appreciate your insight here.

@Joseph Lucas Jr You are absolutely correct that for most investors, a Series LLC is a superior entity structure. I can go on for days with reasons, but the main perk for us RE investors is that you can easily incorporate new assets into the structure and ensure they're totally protected within their own child Series. Creating a new series takes a few minutes on the computer and a couple of signatures. You will want to get the help of a qualified real estate attorney in the area you form your entity in. An attorney in your destination state can also serve as your Registered Agent--a legal requirement for all LLCs that I wrote about here on BP recently.

May I ask exactly why you'd be concerned about moving the Series structure to AZ? In most cases I can't imagine why this would be necessary. Your TX Series LLC could hold properties from any state. You are NOT prohibited from forming an LLC in Texas. Arizona not offering one just means there isn't an AZ Series LLC--but you're free to pick from any of the states that do permit its formation. My fellow asset protection attorney colleague Brian Bradley is correct and made great suggestions for formation states. Each has its own perks, though I may be partial to my own state (Texas), NV, and DE, for tax, operational, and judicial benefits respectively. 


I must respectfully disagree with @Michael Plaks on the use of a TX Series LLC outside of Texas. I form these entities for clients all over North America, and provided they call when they need help, rarely have issues. There can be charges for foreign entities, but my firm can't be the only one that offers flat rate Series LLC set-up. Check with real estate attorneys near you if that's a concern. Most of us are happy to explain pricing during a cheap initial consultation.


Please feel free to ask any additional questions you may have about the TX Series LLC or asset protection in general. Yes, I'm clearly in favor of this entity, and I do believe you sound like the type of investor it could be extremely useful for. But happy to help! 

@Soh Tanaka May I ask what made the Series LLC more complicated for you? It's unclear from your post, but if it's the tax situation I have a resource about simplifying taxing the Series entities that may help you out. The thing to be wary of with multiple properties in one LLC is that if you are hit with a lawsuit, all of your properties could be vulnerable. There's little case law involving successful suits of Series LLCS (because most lawyers won't even bother), but cases in every state of an LLC structure alone being pierced. If you go with this plan, it might be worth considering using Anonymous Land Trusts in conjunction with your Traditional LLC to maintain an additional layer of protection. There are a couple of ways to structure such a system (one per property, or Trust owning the LLC) that you could ask your attorney who assists you with these matters about.

@Kevin Auyong

The issue you're referring to is called "piercing the corporate veil" in legalese. Investors who pool all assets inside of one Traditional LLC are particularly vulnerable to this type of legal attack. One liability issue with one property puts everything on the line. But there are a few things investors can do to avoid this. Regardless of which path you choose, the most important thing is to make sure that your assets and operations are separate. You don't want the company that's holding your assets to also be the company that's doing business. Ideally, your name shouldn't be on either. Your name and personal assets should be in a separate "basket" from your business assets. Below are a couple of strategies an investor can use to solve the problem you're alluding to ahead of time.

One simple solution is to create a multi-member LLC with a trusted partner. This makes it much harder to argue that your LLC is just you in disguise. I strongly prefer the Series LLC, because it makes separating assets easier. The Series LLC has a "parent" company, and each asset can have its own "child" or Series. The job of the Series structures is to hold the assets. These Series won't touch the company that does your operations; they're just there to hold assets and nothing more. You can then use a separate company or a Traditional LLC as a shell company to conduct business with the public. This is the company you want to use to do things like collect rent, move money around, or sign documents. Basically, anything that could incur liability should go through the shell company. The asset-holding companies should never conduct business, because this exposes them to potential lawsuits. You want them nice and out of sight. This way, if someone sues you, they're suing the company that owns nothing.

You can also use multiple companies and structure them in such a way that avoids this issue. There are many different ways to do this with LLCs and Series LLCs alone, but of course there are other options. Trusts can also play a role. If an anonymous trust owns your LLC, that's technically a three-party agreement (the trust). You can be the beneficiary, but the use of a Trustee (someone you can literally trust, like your attorney) makes it harder to argue that the entire system is just you in disguise. With an Anonymous Land Trust, you have the added benefit of anonymity--your name is nowhere to be found, giving you an additional layer of protection.

There are, of course, other ways to anticipate and prevent piercing the corporate veil. Those are just a couple of methods. But the basic premise remains the same: separate business and personal. Within business, keep your assets away from your operations.  The best method for you is a conversation that you should have with a qualified real estate attorney licensed to practice in your area.

Thanks @Costin I.!

@Geoff Cavender It sounds like you're off to a great start and have a solid plan for cashflow in place. It's also good from an asset protection standpoint that you're establishing an LLC in advance. The article of mine that Costin linked you to here on BP has some information about forming a venture-specific LLC for joint ventures. That is certainly one smart way to approach this plan, particularly in the early days where minimizing risk is essential.

In my experience, starting out as a Joint Venture is an effective way to team up with another investor. You *could* create a Limited Partnership, but if you're in the U.S., I would still recommend a venture-specific LLC above a Limited Partnership. The venture-specific LLC will offer more liability protections, and you will have the opportunity to craft an Operating Agreement that puts a "clock" on the details of your deal. This Operating Agreement will also spell out important things like how profits and losses are divided. A Series LLC may be a wise idea for you, since you're looking to hold multiple properties in the near future. Generally speaking, we want to have asset protection systems where you have one property per LLC. The Series LLC allows you to do this easily by forming a "Series" (which works like a mini-LLC) for each new asset you acquire. Everything I've said above about LLCs applies to the Series LLC as well. You can pick a state that is friendly to the LLC--and yes, I have some suggestions on that as well--and form it there if your state doesn't have a Series LLC option. If you choose to go this route, make sure you have a registered agent for your out-of-state LLC. That link is for an article I just published here on BP that spells out the details of how you can meet this requirement easily and cheaply.

As always, make sure you have a competent real estate attorney on your side if you choose to follow through with forming any kind of legal entity or agreement (like a JV Agreement or Limited Partnership). That attorney can make sure your interests are represented and that you're getting the arrangement you really want. Beware of "Contracts by Google"!

Welcome, @Christopher Mcfarland!

My friend @Dmitriy Fomichenko gave you some great starting advice. I’d also add that you can set up keyword alerts to follow the topics of most interest to you. Following people whose posts you like, particularly if you are interested in their thoughts on their areas of expertise, can be a great strategy. Dmitriy, for instance, has lots of great wisdom  401(k)s, as that’s what he deals with for a living. You will notice some of us have “pro” banners, and those can be helpful for locating attorneys, CPAs, brokers, and other RE pros. It’s a great way to harness free info from experts!

There's tons of great content from users here on the BP blog, as well. Reach out if you need any more showing around, and we are glad to have you here. This community is such an awesome resource for all-things-REI, and many other issues that affect us investors.

@Sharon Tseung You are certainly on the right track! However as a fellow investor and attorney I’d recommend incorporating some asset protection research and planning as part of your preparations. This isn’t legal advice, just a suggestion based on my experience and background.

And asset protection plan can secure your assets, or in this case your new investment properties, in the event you are ever targeted for a lawsuit. Because you live in California, I seriously recommend that you look into the Delaware statutory trust structure and have one set up before you buy your first property. Having a corporate structure of some sort set up in advance Will avoid the problem of having this property in your own name. Keeping property in your own name can be a major mistake. Since 90% of us investors are sued over a 20 year career, you want to guard against this from the beginning.

I don't know if you've started looking into this yet. But essentially, a corporate structure like an LLC or DST holds your assets for you. This keeps any would-be plaintiffs from coming after everything you own in the event of a liability issue on your property. In California, it's generally cheaper to go with a DST because of the high state franchise taxes on LLCs. This structure also allows you to own property in any state. If you'd like more information, I'm happy to hook you up with some resources or answer any questions you may have.

Welcome to the game—and good luck! You’re off to a great start by doing your homework well ahead of time.