All Forum Posts by: Brian Bradley

@Tony Kim firms differ in their pricing. Our firm does package pricing so normal joes can set this up. Other firms charge hourly. I can IM you what we charge for this for an idea. Regarding the umbrella coverage. It is false security. Let me ask you this. Is the insurance company a business? Yes. Would they be in business if they paid every claim in full? No. Do claims almost always get challenged by your insurance provider? Yes. When you make a claim, the insurance company does not want to pay, and will challenge large claims to avoid paying or decreasing the amount they have to pay. Its false security. I still say get insurance and an umbrella policy, just understand it is not full protection. And they do not cover fraud and lots of other limitations. Really read the find print of your policy to know its limitations and ways they can get out of paying. And most consumers who purchase insurance an umbrella policies do not even now they can negotiate the terms, so do not have their lawyers negotiate the scope of coverage and the fine print etc. 

@Bryce Litwin It will get their. 17 states now have them, expecting 20-22 next year. But because PA does not have one does not mean you can't set one up in lets say TX, NV or DE. Generally, even if PA did have one, when you set up an asset protection system, you want to incorporate in the state with the best laws for you regarding charging orders and liability shields. Like any product, as you have more options, you start narrowing them down. That is why TX, NV and DE are most looked at. They have the best protection. AZ and WY are starting to compete also. 

@Tyler Kaye 

Its about taking away one of the legs of a plaintiff attorney, damages/recovery. You do this by creating multiple layers of protection. (Series LLC, Land Trust) and making it hard and expensive to be able to find you and your assets.

Theoretically it is easy to explain a land trust and how it is used. A real estate land trust is just one of the many types of trusts. You are probably most familiar with an estate plan trust used for death, taxes and probate. A trust, be it your estate trust or land trust, is any agreement where one party holds property for another party's benefit. The owner of the property never gives up control of the assets, but the trustee becomes the owner of the property. The function of the land trust is to shield the asset owners. The anonymous land trust owns the Series LLC as well as serve as the Title Holding Trusts for your real estate assets.

The nuts and bolts of anything is in the details, which will involve a Lawyer and your CPA.

@Bryce Litwin good question. In regards to Series LLC's and states that recognize them or not, the issue comes down to each specific state recognizing the "internal liability shield." Not if they have a Series LLC to create in that state or not. Every state has an internal liability shield for LLCs and that is what is analyzed in every state is the LLC Internal liability shield of the state you’re being sued in. Just to put perspective of the misconception of the Series LLC being a new entity, it is not. It was first created in 1996 in Delaware. 22 years ago. The traditional LLC first became available in Wyoming in 1977, but most other states did not follow suit until the 1990s). The next state was Delaware in 1991 to enact the LLC. In 1994/5 CA. It was not until 1996 that all states had a LLC. The same year the Series LLC was statutorily crested. So it’s interesting how people quickly fall in love with the traditional LLC thinking it’s been around forever but fairly after the creation of the LLC in most states, the series LLC immediately came in the game. In fact just one year after CA codified the traditional LLC. Just a quick timeline of history and the LLC relating to the misconception of the “novelty” of the Series LLC.

The fact is that not all LLCs are the same. Some are just better for asset protection then others. The best LLC structure is the Series LLC. Like any good parent, we want to protect our children. This is accomplished with the Series LLC by isolating each asset into individual series called "children series" for liability purposes inside a holding company, the parent Series LLC. And then we protect our children even more by hiding those children from being connected to the holding company with an anonymity land trust. This system (Series LLC with Anonymity Land Trust) allows you to stop a lawsuit before it is started, by taking away the chance of recovery. Though the Series LLC is one company, with one filing with the state, and one tax return, each child ‘series' is treated as if it were its own LLC for liability protection.

I see this a lot on BP and on these types of topics. So its worth repeating. Make sure when you look for advise you know the persons credentials when you get it and check it out. You CPA or a CPA should be giving you tax advise. Do not take legal advise from your CPA, they cannot give it and don’t know it. They are not lawyers. They did not go to law school, pass a bar exam, and work in the legal field. Talk to your lawyer about legal issues. You can get an opinion from your CPA to then talk to your Attorney about that opinion  in more legal detail for legal advise, and you can talk to your lawyer about tax issues for an opinion (if not a tax lawyer) to then talk to your CPA about it and its tax ramifications. Your lawyer is not a CPA and did not go to school for accounting and tax codes (unless a Tax attorney or some attorneys who also have a CPA license.) The google lawyers are not lawyers. they read blogs and have no legal training on the topics and most are misplaced opinions and lack detail. 

But make sure you talk to the correct person for the correct issue. Anybody can have an opinion. they are great as starting points. But you should understand where it comes from and how much credibility to give to it. If you want to talk about the legal grounds of a business structure like a Series LLC or a S-Corp, C-Corp, LP etc, I would suggest your best course would be to talk to a licensed attorney who is an asset protection attorney and who uses them. They will tell you the legal benefits of it. Your CPA will tell you the tax benefits of each.

Not all attorneys are even familiar with every type of business entity or trust. They generally stick to what they know and were taught. You’re job is to find the correct person to talk to. Then you are actually getting good advice. You won't talk to your dentist about abdominal pain. Do your homework, ask the questions, vet the opinions, and let it guide you to the correct people. It’s a process at times. And building a good team and network is a process. 

@Christopher Smith how so? Saving money, generating more cash flow because of it, and protecting your investment is worse? Love to hear this one. It is actually more streamlined and simpler, especially when owning more than one property. So you have a better, more organized streamlined system, that saves you money, and protects your assets. Hmmm.  

@Account Closed so true. we did do that and left CA some years back. And the CA tax reason was part of it. But this is not about how to avoid taxes. You can't avoid all taxes and should not. It is about how to properly protect your assets and use the tools that are available to you as a real estate investor, with the benefit of paying less taxes. For example, if you are a CA resident and you own 3 investment properties and you want to place them in an LLC to limit liability in the event something happens. You pay franchise tax and maintenance tax on that LLC. Then you hear about a Series LLC, you like the idea of creating child series of individual assets, but you are a CA resident, and CA is going to charge you a $800 franchise tax on that. So now what, how do you accomplish both? Series out each asset for better liability protection, but not have to pay the $800 franchise tax every time you grow and add a new property. That is the DST. It treated by the IRS as a trust, so long as its compliance guidelines are followed, so you are not subject to to the CA Franchise tax of those series. You now have the benefit of both. But it is not a tax avoidance system. No Asset Protection System is for tax avoidance, it can not be, otherwise it is a fraudulent structure. BUT, you can get tax benefits by using proper legal structures to hold assets in and pass asset through.

The cold hard truth is that if you are a CA resident and invest in real estate and own or plan to own multiple investment properties, and you set up an LLC to hold that asset, ANY state that you own property in and any state that you incorporate your company in, even if outside the State of CA, you will have to pay CA Franchise Taxes on it. Another cold hard truth is that if you create separate LLCs for each of those assets, you will be paying maintenance tax and franchise tax’s on EACH of those LLCs. Eating into your cashflow. Another cold hard truth is that if you are a CA resident, and create a Series LLC, in another State, CA will still charge you a franchise tax on EACH child series you create. The more children "series" you add, thats another $800 franchise tax to the State of CA. Again, more cash flow loss. 

HOWEVER, here is how you can legally work around and limit the CA Franchise Tax as a Real Estate Investor who wants the asset protection benefit of creating child series to place each asset in. Its is called the Delaware Statutory Trust Act 12 Del.C. section 3801 (1988). We will call the the (DST) to make it simple.

The benefits of the DST as a Asset Protection system, and particularly for those CA investors is that you can Series out your properties into child series like with Series LLCs, without paying the $800 Franchise Tax for each child series. The (DST)  is a Business Trust, and allows for the Series structure like protection of a Series LLC.

Again, this is not an investment DST for in institutional investing, but rather a Business Trust DST, and to keep that classification of a trust by the IRS, it must maintain strict compliance or the asset protection structure will collapse. This is where working with your team CPA and Lawyer are a must. There are lots of other purposes of DST. Some use for 1031 exchange's, some use as an investment tool to as accredited investors in institutional investments, etc etc. This is not what this forum is about. This is about the DST for Asset Protection as a trust asset holding company.

Some of the code sections regulating the DST are:

12 Del.C. 380; IRC Section 301.7701-4(a); 

Senate Bill No. 355, 66 Del. Laws Ch. 279 (1988); 

IRC Section 301.7701-4(a);

California's Revenue and Taxation Code (R&TC) section 23101; 

California law, specifically Public Law 86-272. 

@Alan Davidson Do both with the same structure with a Series LLC and Land Trust.