Series LLC Advantages?

[Bryan Hancock]

Rich and a few others have posted on this already and I read through those threads already so please don’t cite them here.

Is there any value in setting up a series LLC from an asset protection standpoint? My understanding is that Texas now has these, but that they have not been well-litigated with respect to protecting each series from the others if a suit is filed against one series. Has the lack of litigation changed at all in the last few years in Texas and/or in other states like Delaware?

I have property that I would like to shield from the other properties as equity grows in them. This structure seems to limit the tax return problem because only one return is filed. I have separate bank accounts for each property already so this doesn’t seem to add any additional problems.

Does anyone have one of these? It seems to be a great concept, but I am wondering what, if any, complexity or legal tradeoffs are involved.

[Bill Gulley]

True, Series LLCs are not battle tested, but the intent is clear and directed by statute. I always look deeper when anyone takes sides on an issue. Seeing that the ABA has not endorsed these entities only tells me that they may be better for some people and result in less litigation, which results in less going to any attorney!

IMO, where properties can be held by several members, the additional division of ownership can be established to better meet estate planning needs, financing among members and installment sales. There are additional ways to strengthen liability issues among partners in these entities, it clearly matters who you get involved with.

Since I am not an attorney, I can't speculate but seems that any bankruptcy issue would be treated as if there were ay other partnership at the federal level, that being held to the extent of interest of the peritioner. Others would or should not be involved. This can also be addressed in the Operating Agreement among members. If other members have an interest and the equity is properly encumbered, there would be no equity to attach.

As to a one member Series LLC, I believe any court will see these as a sufficient shield against tenants' claims.

I think estate planning attorneys will like the Series LLC. The properties can be sold and the notes assigned by a partitioned note funding beneficiaries. Most Trustees don't want real estate to manage nor do they want rentals, the LLCs can also be the property manager and fund the trust.

The intended added benefits of the Series LLCs are evident and under the worst situation I don't see them being any more ineffective than a standard LLC, to me, there is only an upside. I would rather defend the division of interests and assets in a Series LLC than not, especially with mulitple members or in connection with any Trust.

Remember, always follow the money! As I recall, the ABA was initially against the formation of LLCs until; They were seen as an easily formed entity that could be attacked with success and that there would be ongoing maintenance issues of the LLC, especially in divorce, bankruptcy and estate issues. The LLC became an additional source of business out weighing the initial benifits, IMO. So, the Series LLC may be more useful in many situations.

So, Rich, who do you trust, your attoney or the ABA who advocates as a professional organization and promotes business opportunities for members? Bill