Self-directed IRA Question

[Christian K.]

Hi everyone!

My brother and I are looking at investing in real estate notes and tax liens inside SD IRA's and we wanted to do this together. Now I know just enough about SD IRA's to be dangerous (to my self only, perhaps.) I was initially thinking we start an LLC and have the SD IRA's own the LLC. We both can contribute the same amount in cash every year and that's not a problem. Someone I know from my local real estate club told me he is currently setting up his SD IRA as a checkbook SD IRA to purchase notes and have an LLC he owns handle the servicing of his notes. He said as long as you disclose it everything is legal. My questions are:

1. Does this sound legal? I thought all transactions in the SD IRA had to be at arms length and couldn't benefit you before retirement.

2. If this is legal does this somehow limit your IRA's exposure to liability if someone sued you?

3. Would it be easier to set up and LLC with my brother and have an insurance policy to cover an lawsuits and handle everything out of one entity?

Sorry for the long post I just wanted to get some feedback before I speak with an attorney. Thanks!