Need help with Asset protection

[Vic Hartounian]

Need advise on how to set up best and practical asset protection.

I Live in CA. Have multiple single family Properties in various states.

Ca lawyer says single member LLC are not really a protection in CA.

Need to form multi member LLC.

Which means separate tax return for each LLC.

Obviously that’s too expensive when I have 7 llc’s.

Corporate direct says that nonsense. multiple single member LLC with a parent LLC in Wyoming is the way to go.

The ca attorney says irrevocable trust is the way to go.

But it’s expensive, attaining loans will be difficult and tax returns will be complex.

Anyone else in the same situation? How did you mitigate around ?

Thanks

[James Bowers]

Multiple single member with a parent is what I do in WY.

[Lynnette E.]

Just something to think about is irrevocable trusts are IRREVOKABLE so be very careful how that would be set up because life changes...  wonderful cute children may become drug addicts, marriages can end in divorce, etc.

I can not answer your question, I moved from CA.  When I lived there I was given similar advice as you from my attorney.  I was told that LLCs needed more than one person for it to work like a protection instrument.  But to be careful who would be added as the other person because a puppet person may not stand up in court.  Trusts were a better choice was the recommendation from the attorney I used.  

He also said that LLC's were expensive tax wise and did not allow the cost basis to reset upon death for the heirs, and a few other things.

He said that both LLCs and Trusts could be used to protect assets under certain set ups, but that that would require separating the assets in the LLC or Trust, income, expenses, etc. all accounted for separately from "my" personal assets and expenses, etc.

I was chided for "giving legal advice" on another post when I was telling about my experience, so that this does not happen again I'll say I am not an attorney, just a regular investor passing along what I was told so you could compare it to what you have been told by your attorney.  This was advice to me, with my circumstances, and you and your situation is different, plus the laws, court rulings, etc.  may have changed since I left.  

Maybe you could consult with an attorney that does not have an interest in either process but works with both processes and go over the advantages, disadvantages for both entities.  And since you are in CA, make sure you use someone that is in CA.  Its a very different world from the taxes, to the laws, to the court rulings.  And if your property is in CA you need something that the CA courts will recognize and agree that it is protective.

[Katie L.]

@Vic Hartounian

Did your attorney say why he doesn't think single member LLCs are effective? I think the general understanding is if you run the LLC correctly, i.e., it's a separate entity with its own books and records and you document business reasons for the decisions and whatnot, they are just as effective as you deciding to be taxed as a partnership. As a SMLLC, the LLC's business would be reported on your 1040 for tax purposes, but for legal purposes it is its own entity.

*this post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

[Vic Hartounian]

He said in CA court cases SMLLC, Have not held well. Judges see it the owner is using the LLC to avoid  creditors. Only in Multi member LLC is when the judges see it as protection if the partners have nothing to do with the case.
You may be right, it may be isolated situation, where the owner did not do a good job keeping documents in place. 

I see you are an attorney, have you seen this type of court situations?

[Aaron Smith]

Too complicated. Just keep all in your name, have a $1,000,000 liability on each one in your regular insurance policy, then add a couple million in umbrella coverage over them all. Done.

You personally are gonna be named in a suit if one ever goes down. I don’t care how many LLCs you have.

[Jennifer Gligoric]

@Vic Hartounian - none of those structures would I recommend. You can have both asset protection and separation but you will have to have either one California LLC or one foreign entity registration in California depending on where your investments are located. A multi-single member LLC in Wyoming seems a very odd choice unless you mean a Series, but that will still get each Child Series (as with all Series) subject to the $800 minimum a year Franchise Tax.

The only irrevocable trust would be one for your Primary & secondary residence - but then it is expensive to break that, you have to figure out your life expectancy to anticipate the trust ending before the end of your life to get any tax advantages and the QPRT no longer has the incredible tax advantages it used to (though it might in 2026 when/if it reverts back to the old structure) since the sweeping changes of the Tax Cuts and Jobs Act (TCJA) in 2017.  That led many financial planners to reconsider the QPRT for California residents looking to both preserve their equity and avoid crippling estate taxes.

There are ways to mitigate around paying multiple California Franchise taxes & still have both flexibility and protection - but nothing will save you from getting around the California FTB "doing business in" California definitions which are incredibly broad and vague so that paying the minimum $800 per year per LLC is inevitable. The right structure will allow you to keep this to one entity while holding properties in another.

*I am not an attorney and I am not YOUR attorney so this is not legal advice. I simply happen to know the most awesome ones. *

[Vic Hartounian]

Everyone Really appreciate your input. Seems to me there are multiple ways to address asset protection.
Found out trust are very costly and not flexible.

Im going to go with Corporate Directs' advise, go with the single member LLC's with an Wyoming parent LLC. So I take advantage of taxes and supposedly IRS treats LLC more professionally than being under my personal name.

However, I will up the insurance coverages per Aaron Smith advise.

Hope for the best!

Thank you everyone!

[Jerry W.]

@Vic Hartounian, the thing that will kill you is the CA tax.  Even if you invest out of state they tax each entity.  Suppose you cash flow $200 per month, you still have to pay the $800 fee in CA and pay income taxes on it.  You will lose over 33% of your NET profits.  Other than moving out of CA you might set up a single out of state entity to hold all of your properties, or even consider having a very high insurance policy and an umbrella policy for a few million.  A lot depends on your current financial situation.  I personally do not like trusts in doing asset protection, but I do know some smart folks with different opinions.