Two Company LLC VS. WY + TX LLC

[Jason Hsieh]

Background: I'm a CA resident who owns rentals in TX. I've been researching / talking to people about the best way to structure an entity for asset protection. I am seeing 2 structures that seem popular:

1. Two company LLC structure. See reference HERE. 

The two company refers to two LLC companies. One LLC is a series holding LLC that appears on the titles of the homes and owns the properties. The other LLC is an operation/management LLC that deals with the public at large (tenant, contractors, etc.). The holding LLC never communicates with the public and the management LLC holds minimal asset (rent collected). In the event of a lawsuit, the plaintiff sues the management LLC but cannot touch the holding LLC since they never deal with the holding LLC. It is not clear where these LLCs should be formed. This method seems pretty robust but I read about how the series LLC is not well tested in court.

2. The WY LLC + TX LLC structure. This is spoken at length by the rich dad advisor and Clint Coons, reference HERE and HERE. 

Basically the WY LLC that offers anonymity and charging order protection owns the TX LLC (or a TX series LLC). When a plaintiff sues the TX LLC, the TX secretary will see the WY LLC owns the TX LLC. And then because WY LLC offers anonymity, you are shielded from the plaintiff. What's not clear to me is whether the other TX properties are also protected from the lawsuit. I suppose if we follow the same logic the plaintiff will find the WY LLC without the actual owner's name again. Does this infinite loop effectively discourages the plaintiff to stop suing?

If anyone who looked into LLC structuring knows the different or have first hand experience I'd really appreciate you sharing your insights!

Happy investing!

- JH

[Greg Scott]

I'm not attorney but have been around the block

#1 Best way to protect your asset and yourself is to manage it well
#2 Best way to protect your asset and yourself is to have good liability insurance
#3 Best way to protect your asset and yourself is an umbrella liability policy which not only protects you from the asset but also protects the asset from you.

Beyond that is the subject of tremendous debate. Understand both the motives of the LLC provider and the true protection you need and are willing to pay for, as well as the ongoing maintenance requirements of those LLCs before proceeding. I recently heard a prominent attorney say 50% of LLCs are thrown out in court for not being managed properly, so you need to know the ongoing costs.