All Forum Posts by: Sean Morrison

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

There isn't a limit on the number of GPs a partnership can have. However, at some point there is a management problem with having too many people able to vote on every little thing. The more managers you have, the more disputes may arise and less gets done. 

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

You've already gotten some some good answers, but I'll throw something else out to consider. An LLC member has a duty to avoid self-dealing, which this may be. Self-dealing can lead to dissolution of the LLC.

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information. 

I think this conversation showcases a fundamental misunderstanding of how trusts work in the courts, which I see a lot with land trust courses and gurus. Don’t think of a revocable trust as a separate legal entity like it is for probate. Think of it as a relationship between the trustee and the beneficiary.

In collections involving trusts, the court looks at control. A lawsuit would first go after the trust itself, as owner of the property. If a grantor has control over the trust (as they do in revocable trusts or where they act as trustee) then the court orders the trustee to turn over the property. If the trustee also happens to be the owner of the LLC, then the court can order that the LLC interest be turned over to the creditor. Since the LLC does not own the property, the property is not protected by the LLC's limited liability provisions.

And a CA court will not recognize WY's charging order exclusivity for an LLC that has not registered in CA but is benefiting from CA property so LLC foreclosure is an option to the plaintiff. Essentially, a lawsuit can go after the beneficial owner, the trust, or the LLC, and still manage to attach all assets of each.

It may be that this strategy has been working since it has not yet been tested in court. You mention that you own nothing but control everything, but control is the determining factor in a trust collections case. One must give up control of a trust for asset protection. Even proper asset protection land trusts are designed to be irrevocable and turn control over to a trustee.

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

A common asset protection strategy is to hold real estate in a separate LLC which then rents it to the operating business. So long as the real estate LLC is completely separate, it can provide protections for real estate related damages (and vice versa, protecting the real estate from business related damages). For tax purposes, talk to a CPA. The two issues to ask about are whether this could be treated as passive income vs. active income, and whether ongoing losses would trigger problems.

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

As a general rule, LLCs are great for managing and protecting property; trusts are great at transferring property. Irrevocable trusts come with baggage for asset protection purposes - the beneficiary must give up control, often higher taxes, difficulty with loans and transfers. There are probably much better ways to protect from future spouses etc. Despite your distaste of attorneys, you should talk to one. The attorney's first job is to determine which entity is right for your before they create it. Forums can't do that for you.

It may be worth talking to a CPA about your expenses. Typically, remodeling expenses are not deductible until the property is actually in the business of renting. Instead, they are part of the cost-basis.

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

At the beginning, adding more LLCs will not make much of a difference for liability purposes, unless your family LLC is doing other investments apart from your friends'. I would highly recommend speaking with an attorney for a few reasons. First, an LLC with four members needs a robust operating agreement, not something printed off the internet. Second, any LLC with a married couple involved should have a buy-sell agreement in case one family wishes to withdraw or there is a divorce or death somewhere. Last thing a business needs is to have members caught in divorce or probate proceedings.

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

Business or corporate attorney would be your best pick. Preferably someone who works with real estate investors. But even if they haven't, they will understand the complexities of a partnership more than a real estate attorney, who probably mostly handles closings.

I have a list of items the tenant is responsible for, including a "under $100" item. I haven't seen any problems with this and it keeps me from dealing with leaky faucets and changing lightbulbs. The only one I worry about is air filters, but I do a walkthrough twice a year when the HVAC does its maintenance so I get to check on things.

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

While I don't agree that investors need an LLC for every property, I usually believe partners should form an LLC with a strong operating agreement, unless there's a strong reason not to (like 1031 exchanges or something). The LLC provides liability protection to the partners, but also from the partners. In other words, if one partner gets in trouble personally, there may be protections in the LLC to protect the other partner from losing the investment too.