Privacy, Real Estate an LLC's

[David Disraeli]

With a few mouse clicks anyone can find out where you live, what you own,  your cell phone number, your relatives’ names, and more. A simple search of your local appraisal office will reveal what you own.  The good news is this unwanted publicity is, in large part, optional.  

If you own property in an LLC, you may be shielded from personal liability but that is only one issue. There are many reasons why some one would be interested in knowing what you own. It may have nothing to do with the real estate itself (a traffic accident) or it may. The owners of a corporation, partnership, or LLC are not pubic record (in Texas). However, the managers and the registered agent are public record. Frequently the managers and owners are the same people. Therefore, it is not difficult to find out who controls a business. The fact that your name is associated with a business can be important for a couple of reasons. One, you may simply want your affairs private and two, if someone is considering suing you, they are going to do their research and find out what you own.

What is the solution? What if you were told you could own property or a business and your name would not appear in any public record?Sounds interesting does it not? There is a lot of talk on Bigger Pockets about using an LLC in one state to form an LLC in another state or a land trust. That is over kill (and will not work in a disclosure state anyway). All you need is a simple trust and someone to act as your registered agent. Trusts are not public record. They are not filed anywhere and the details about who formed the trust and who controls it can only be disclosed via a court order. Trusts can certainly own property and many do. Trusts may also form and own an entity like an LLC. In this scenario, the only information the secretary of state has is the name of the trust as the managing member and it ends there. Your name simply does not show up anywhere.

What is a trust? Many books have been written about trusts. For purposes of this article I will simplify. A trust is a vehicle that is used to hold and distribute property or assets. Trusts fall into one of two categories; revocable and irrevocable. All trusts have three components, the grantor or person creating the trust, the trustee who controls the trust, and the beneficiaries who receive the benefits of the trust. In some cases, the same person or persons may hold all three positions. A revocable trust is just that – revocable. The terms may be changed at any time or dismantled completely. The common term used for this type of trust is "Living Trust". The reason this term is used is because the trust ceases at the death of the grantor(s) or creator(s). Living trusts are private, avoid probate and have built-in measures to deal with the incapacity of the person who created the trust. Living trusts are also tax-neutral – meaning they pay no income tax and are not required to obtain an EIN. Rather all the income is reported on the grantor's tax return as if it did not exist. The main disadvantage of a revocable living trust is that it provides no asset protection as the assets are available to the creditors of the grantor. The reason for this is that the grantor can revoke the trust at any time as if it never existed. In any event, if all the assets of this type of trust are in LLC's, creditor protection may not be an issue due to the existing protection LLC's offer. Finally, all the assets of a living trust pass outside probate to the heirs that are listed. In this way, no one can find out what you left and to whom. In addition, living trusts make challenges significantly more difficult since the property will have already been distributed before anyone decides to initiate a dispute.

Irrevocable means the trust cannot be revoked and the assets are beyond the reach of creditors if it is set up correctly. The main disadvantage of an irrevocable trust is that the grantor who placed assets in the trust may not normally change the terms of the trust or decided to take the assets out. A detailed discussion of any type of trust should be conducted with a qualified professional. The living trust/LLC combination is just one way to conduct business or own assets anonymously. Besides the benefits of privacy this structure could make life very difficult for a potential plaintiff and their attorney – so much so the attorney likely will look for another case! If you are interested in learning more, you will need someone who is equally familiar with trust law and tax law as they are intertwined. I can point you in the right direction. Send me a message if you'd like to discuss this trust/LLC combo.

David Disraeli