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Updated about 7 years ago on . Most recent reply
Which State to form LLC's ... Asset Protection for SFR
I own rental properties in two states. How does one go about choosing which state to set up an asset protection plan using LLC's?
I own four residential rental properties. Two in Southern California, where I currently live, and the others in Kansas City Missouri. I've not formed LLC's for the properties but am now considering it. I've been advise this is necessary as an additional layer of liability protection, and an important consideration in structuring an asset protection plan. I currently have a two million dollar umbrella policy on top of rental property insurance with limits set at $500,000. Half my personal assets are in SFR's with the other half in cash. All the properties have substantial equity......greater than 60%.
Looking for thoughts on which state is best to form LLC's. California is expensive with an annually cost of $800 per LLC. I believe the cost is about $150 in Missouri.
I currently live in California. Is this a factor in choosing where to form LLC's?
Are individual LLC's required for each property?
Most Popular Reply
@Robert Carraway @Dan Krupa I'm an attorney, check out podcast #109 where I talk about DST's since I'll also be referencing them here.
The CA rule for franchise tax (if broadly interpreted) is that a CA resident is liable for CA franchise tax for any LLC operated anywhere. I think it's a low risk of them ever enforcing it if its an out of state LLC only doing business out of state, but still a risk.
The only way to completely avoid the risk for AP purposes for a CA resident is to use a Delaware Statutory Trust (DST). The DST is a Trust, not an LLC, so if operated correctly it is also taxed as a trust and not subject to franchise taxes. Business Trusts like the DST are not new. The only downside to the DST is the cost to set it up, but for a CA resident even the seemingly expensive is cheap to the comparison. If you live in CA in want to compartmentalize your assets and obtain anonymity, the DST is the only way to go.