Legal/tax ideas needed

Tax, SDIRAs & Cost Segregation
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Legal/tax ideas needed

Ivan Smith
Investor · Dallas TX · Member since 2017 · 21 posts · 6 votes

Hi I have several properties in Arizona and one in utah, my LLC structure is kind of a mess. My personal home in Arizona and the rental in Utah is in my wives name. Other properties here in Arizona are either in one LlC's name that I use as a flow through entity for taxes and also is used for my other business, and two of the properties have their own Ll c's. I would need to find a way to create an LlC for the property in Utah and the one that is my own personal home and transfer them to their own llC's. Then according to the advice I have received I need to create a managing LlC that takes rent jacks, does maintenance, and deals with tenants etc, so the actual home owning LLC's aren't on the hook if my managing LlC does something wrong. I know it sounds like a crazy mess but I basically would like to add a couple of layers of protection to my properties and would like to see if anyone had any ideas and the best way to do it, and whether I should call an attorney or do it myself. I have in the past set up my own LlC's so that's not a problem, but I do not know how to organize a structure to have the managing LlC's be the one that has no assets and would be the one under threat of a lawsuit etc. If any one has dealt with this before or has a good idea who to call please let me know thanks in advance.

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  • Christopher Smith
    Investor · brentwood, CA · Member since 2016 · 1k+ posts · 730 votes
    7y

    Never has so much effort been expended by so few for so little.

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  • Lance LvovskyPro Member
    Accountant · Fort Lauderdale, FL · Member since 2013 · 1k+ posts · 753 votes
    7y
    Originally posted by @Ivan Smith:

    Hi I have several properties in Arizona and one in utah, my LLC structure is kind of a mess. My personal home in Arizona and the rental in Utah is in my wives name. Other properties here in Arizona are either in one LlC's name that I use as a flow through entity for taxes and also is used for my other business, and two of the properties have their own Ll c's. I would need to find a way to create an LlC for the property in Utah and the one that is my own personal home and transfer them to their own llC's. Then according to the advice I have received I need to create a managing LlC that takes rent jacks, does maintenance, and deals with tenants etc, so the actual home owning LLC's aren't on the hook if my managing LlC does something wrong. I know it sounds like a crazy mess but I basically would like to add a couple of layers of protection to my properties and would like to see if anyone had any ideas and the best way to do it, and whether I should call an attorney or do it myself. I have in the past set up my own LlC's so that's not a problem, but I do not know how to organize a structure to have the managing LlC's be the one that has no assets and would be the one under threat of a lawsuit etc. If any one has dealt with this before or has a good idea who to call please let me know thanks in advance.

    Have you discussed with a CPA and attorney?

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  • Ivan Smith
    OP
    Investor · Dallas TX · Member since 2017 · 21 posts · 6 votes
    7y

    talked to the cpa he suggested that i need to set it up where all my llcs that own properties are managed by another llc that would take care of leases and rents etc and flow everything through to me eventually. but i dont think he knows how to do that 100% and how to unwind the mess i have now. 

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  • Scott SmithPro Member
    Attorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
    7y
    Originally posted by @Ivan Smith:

    Hi I have several properties in Arizona and one in utah, my LLC structure is kind of a mess. My personal home in Arizona and the rental in Utah is in my wives name. Other properties here in Arizona are either in one LlC's name that I use as a flow through entity for taxes and also is used for my other business, and two of the properties have their own Ll c's. I would need to find a way to create an LlC for the property in Utah and the one that is my own personal home and transfer them to their own llC's. Then according to the advice I have received I need to create a managing LlC that takes rent jacks, does maintenance, and deals with tenants etc, so the actual home owning LLC's aren't on the hook if my managing LlC does something wrong. I know it sounds like a crazy mess but I basically would like to add a couple of layers of protection to my properties and would like to see if anyone had any ideas and the best way to do it, and whether I should call an attorney or do it myself. I have in the past set up my own LlC's so that's not a problem, but I do not know how to organize a structure to have the managing LlC's be the one that has no assets and would be the one under threat of a lawsuit etc. If any one has dealt with this before or has a good idea who to call please let me know thanks in advance.

    I can't imagine the work it takes come tax season with all of those entities! It sounds like you know your way around creating your own LLCs, but the hassle and upkeep seems like a nightmare. If I were in that position I would look into setting up a 2-company structure. You could establish a Series LLC to house each property into it's own "child" series, offering you the liability protection you want from the LLC while you can still file them under the same EIN - max tax time pretty straightforward. From there I would look into establishing an operating company which can carry out the high liability activities involved in your investments (rent collection, hiring contractors, property management, etc,) these are sometimes called shell companies - they are generally the companies law suits get filed against, but wont actually own any property so you only sloe the liquid assets that are in them in the case of a law suit.

    Through the use of land trusts you can place the properties into the Series LLC without having to deal with the foreign filing fees. On top of that, the land trusts can also be used to remove your name from public record - have your attorney sign as "nominee trustee" and then have the land trust transfer to you as the "trustee" after the signing is complete.

    With your setup I would be pretty concerned with (1) having properties in your own name and (2) having so many different entities it would be very easy to commingle funds, essentially negating the liability protection offered by those entities.

    Let me know if you have questions on these entities/structures. This isn't legal advice, just my opinion as a real estate investor.

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  • Ivan Smith
    OP
    Investor · Dallas TX · Member since 2017 · 21 posts · 6 votes
    7y

    Thanks! thats pretty much the structure that was suggested, so can i set up the structure myself? Like create series llc (how do i do that?), then associate other llc to that series llc ( how do u do that, i think u said land trust, what type of attorney should be doing this and what would be a good price for this service?), then move personal properties into newly created llcs (again how do i do that?) And then into same series llc.... so what portions can i do myself and what needs to be farmed out to an attorney? Then do i have all tenants resign leases with the new series llc? All properties are owned outright so hopefully that makes things easier... Do i need to set up anything specific when creating these llcs for tax purposes or just do regular llc? Thanks

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  • Scott SmithPro Member
    Attorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
    7y

    A lot of this you can do yourself, but there are some pieces you wouldn't be able to do yourself (like the registered agent.) With that being said, there are only a few ways to do this right and an infinite number of ways to mess it all up. This is one of the situations it makes the most sense to find an attorney with real estate experience who offers services where you are (some are local, others are national,) and have them put it together for you. A good attorney, or any professional you work with for that matter, is worth their weight in gold. They can cover these issues they have expertise in and allow you to go out and find more deals - what you are best at.

    The actual operation of a Series LLC is pretty straightforward, but the formation is pretty specific. Once the Series LLC is formed, each additional "child" series is created with an internal document that forms the individual child series, so you don't have to file these with the state in the same way as you do to form each traditional LLC.

    Best bet is to just talk with an attorney and CPA to get an understanding of your situation. Most will lay out a strategy for you in a consultation that you can keep and refer to, also. Might help in the case you want to try go forward on your own to have a full strategy in front of you. 

    This is not legal advice, just my opinion as a real estate investor.

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