All Forum Posts by: Brian Bradley

@Vincent C. I am an asset protection attorney and am licensed in CA. For CA resident investors we like to use DST's Delaware Statutory Trusts for asset holding, and then a side traditional LLC as an operating company.

The (DST) is just another tool in the toolbox for asset protection. Always keep in mind, when creating your system it really is personal to you the investor. There is no perfect bulletproof system. What you want to do when creating an asset protection system is to keep in mind the 5 pillars (avoiding high risk activates, having adequate insurance, compartmentalization, operations, and anonymity,) attack any incentive to sue you, drive away damages, provide an incentive for settling claims fast, and improve your bargaining position to a position of strength.

As an investor you want to protect your legacy as much as possible. As a CA resident, owning more than one asset, and if you also want to compartmentalize your assets into their own series for more liability protection, this can cost you. If you were to create a Series LLC as a CA resident, the State of California will charge you an $800 franchise tax per child series that you create. So as you grow, you will keep paying more and more in just franchise taxes alone. So what do you do? Of if you create a separate LLC with Operating Agreement and maintentce costs, that is just very expensive. So now what?

One option is to create a Delaware Statutory Trust (DST) to act as your asset holding company, and then create a traditional LLC as your operating company. Now first do not confuse this DST with other ways they can be used for institutional investing for accredited investors or syndication, or 1031 exchange. This DST is not used for that. We are only talking about using the DST as an asset protection holding company.

A DST is a business trust, and since it is a business trust, it is exempt from paying the California franchise tax of $800 per series. But ONLY if you maintain its compliance as a Trust. So, if you want to compartmentalize your assets into separate child series and limit your downside risk like the Series LLC, but not pay the $800 franchise tax, you can do that. And the DST provides anonymity. It makes it very hard, time consuming and expensive to find you're name as the owner. This is because the anonymous DST will hold the assets. Anyone researching the owner will only find the name of the trust as the owner.

To properly maintain a DST and not have it collapse on you, you must work with an experienced lawyer and CPA to maintain compliance. In addition, IRS code 301.7701-4(a) holds that the DST will be recognized as a Trust and not a business organization if it is created for the purpose of protecting and conserving the trust property for beneficiaries. This required compliance of being a protection system must be complied with to not be pierced. A DST that operates as a business or that does not limit the power of trustees will be deemed a corporation. Hence why you use a DST as a asset holding company for the purpose of protection and conservation, and then have a side traditional LLC as your operating company.

For California residents and investors, such as you, now you have the best of both worlds. An asset protection system that allows you to compartmentalize your assets into series, an added tax benefit of not paying the CA franchise tax on those series, Just the operating company, and a shell operating company that holds no assets. 

For you CA Resident Investors, I am going to be giving some presentations in SoCA on Asset Protection and the use of the Delaware Statutory Trust (DST). 12 Del. C. §3801 (1988)

I will keep you posted on the dates and locations. As of now looking at Pasadena and the Inland Empire. Possibly also Culver City.

For those who mist the prior posts about what the DST is and its benefits for CA Investors below is a summary.

The (DST) as we will call it is just another tool in the toolbox for asset protection. What you want to do when creating an asset protection system is to keep in mind the 5 pillars (avoiding high risk activates, having adequate insurance, compartmentalization, operations, and anonymity,) attack any incentive to sue you, drive away damages, provide an incentive for settling claims fast, and improve your bargaining position to a position of strength.

If you are a CA resident, and you want to own more than one asset, or note etc and if you also want to compartmentalize your assets into their own series for more liability protection, this can cost you. If you were to create a Series LLC as a CA resident, the State of California will charge you an $800 franchise tax per child series that you create. So as you grow, you will keep paying more and more in just franchise taxes alone. So what do you do? If you create separate LLCs and operating agreements for each asset that will be extremely expensive.

One option is to create a Delaware Statutory Trust (DST) to act as your asset holding company, and then create a traditional LLC as your operating company. You would just be paying the franchise tax on the Traditional LLC operating company, which has no assets connected to it, nor in your personal name.

A DST is a business trust, and since it is a business trust, it is exempt from paying the California franchise tax of $800 per series. So, if you want to compartmentalize your assets into separate child series and limit your downside risk like the Series LLC, but not pay the $800 franchise tax, you can do that. And the DST provides anonymity. It makes it very hard, time consuming and expensive to find you're name as the owner. This is because the anonymous DST will hold the assets. Anyone researching the owner will only find the name of the trust as the owner.

To properly maintain a DST and not have it collapse on you, you must work with an experienced lawyer and CPA to maintain compliance. In addition, IRS code 301.7701-4(a) holds that the DST will be recognized as a Trust and not a business organization if it is created for the purpose of protecting and conserving the trust property for beneficiaries. This compliance of being a protection system is required and must be complied with to not be pierced. A DST that operates as a business or that does not limit the power of trustees will be deemed a corporation. Hence why you use a DST as a asset holding company for the purpose of protection and conservation, and then have a side traditional LLC as your operating company.

For California residents and investors, now you have the best of both worlds. An asset protection system that allows you to compartmentalize your assets into series, an added tax benefit of not paying the CA franchise tax on those series, and a shell operating company that holds no assets.

@Yaasha Sabba thanks for the kind words

@Justin Frank i IM u

624 NE Beech St. Portland, OR

8 plex. With six 2 bed/1 bath and two 1 bed/1bath. 

Asking $1.4MM. Off market listing. Currently Under Reno. Estimated after repair value of $2.4MM

Contact if interested. 

@Costin I. General rule of thumb is don’t sue if you cant prove your case, and don’t sue if you cannot collect or the cost to collect exceeds the award. That’s the business end of litigation firms. I have let go tons of great cases just for the lack of ability to collect. Chop shop firms generally won’t do an asset evaluation for damages, in hopes of just a small settlement at the mandatory settlement conference post surviving a summary judgment hearing. What’s your better and more accredited firms are seasoned litigation lawyers will evaluate damages and assets to collect on before they even take a case and that includes equity . Otherwise you’re wasting a lot of time for nothing to just say you got a W.

@Costin I. The equity in a property is a big part of the formula evaluation when comparing cases. When I file a lawsuit and calculate potential damages, how and where the money to collect on a judgment will come from is all we care about. If I have an amazing case with law and facts and large damages, maybe a wrongful death or negligence etc, but no assets or method to actually realize an award, and the insurance is limited or will be another expensive fight, that case gets passed up on for a easier case to collect on.

What insurance do you have, what’s it’s coverage, what other assets do you have that I can connect a judgment to and force you to sell to collect then goes into the formula.

If let’s say your house has no equity in it, then you are worthless to collect against and I need to find other assets and methods to actually exercise and collect a judgment. Getting a judgment on a good case tends to be the easy part. Actually knowing how you will collect and the amount etc you will actually collect is another. So yes, your equity from a legal perspective of evaluating damages is a part of the formula.

@Costin I. thanks. @Kenneth LaVoie  You are talking about equity stripping or Real Estate Equity Investment Structure. It is more advanced method of asset protection for those with high-risk profession such as medical doctors with certain surgical specialties or OBGYNs who specialize in high risk births, business owners whose business own assets, and real estate investors with high visibility and risk with high number of units generally with a high risk profession. Their is no reason for your average Joe or above average Joe to consider this strategy until you fall into the above criteria and have a reason for it. 

Essentially what you do is borrow fund at favorable rates, and the security for the lender is provided by a mortgage or lien over the available equity in the real estate asset, and the loan proceeds are directly transferred into an Offshore trust. This strategy is best used when combining it with LLCs and Trusts and placing them offshore. 

This strategy is not for everyone. What you are really getting at when this option is discussed with clients is not ‘asset protection’ but what they really want and are talking about is ‘life style protection’. That means freeing up liquid cash and protecting it in an offshore trust so they can continue using and spending their money and paying bills, making purchases and vacations etc. Sure you can set up any domestic system, but then any court can freeze your accounts and assets. Yes the attorney still did their job and 'protected' the assets, they are still protected, but they are now frozen. Now what? Besides a upset client and assets they can't use / liquidity. For clients who can put away a few million overseas for a rainy day, this is a life style protection method.

Talk to an asset protection lawyer and CPA about this and your personal situation and do not do this yourself or you will fail. Essentially you establish an Offshore trust; then an offshore finance company makes a loan to you in an amount equal to 95% of the real estate equity you wish to protect; the loan proceeds are transferred by the lender directly into your offshore trust and invested in a certificate of deposit (CD) issued by the offshore bank; for collateral you give a mortgage on the properties protected.

I am not going to go into any detail on this as you need to talk to a asset protection attorney familiar with foreign trusts and equity loan structures. By placing the mortgage on your properties you are now removing the equity, ad placing that equity in an offshore trust where no US creditor or court can reach it.

There are lots of nuts and bolts to this method. I am not going to go into them on this topic since it involves a lot. Also, like any asset protection system, it needs to be implemented before you are under attack or expected to be under attack. Being proactive. When done as part of a thought-out and well-crafted plan, equity stripping can be a very powerful asset-protection tool. It is often best used with other protection strategies, such as a LLC structure, which protects property and owner alike. These strategies must consider the strategic use of loan proceeds and be executed well in advance of there being a need for them, so as to avoid being seen as fraudulent transfers by the courts.

@Christopher Lane I am not advising you on anything. But if you are a resident of FL, and live in CA, you have a nice tax mess on your hands. Talk to your CPA about that. I would avoid starting anything in CA if I could. If you are a resident of FL, FL has good Asset Protection Laws. You can create a FL traditional LLC with a land trust and use that and a side traditional operating company, or you can go with a TX, NV or DE Series LLC as the holding company and connected to a land trust, with a side operating company.

Lots of ways to skin the cat or divide the pie. You just need to get on the phon with an asset protection attorney to go over your situation in a lot more detail then on any forum. And talk to them. Not opinions from investors and non lawyers. Talk to your CPA for the Tax issues, and talk to a few asset protection specific attorneys for real estate investors for the law side and options. Its a matter of finding what works for you now, and then room to grow, and keeping it simple and streamlined. 

@Christopher Lane you are in CA. So if you are talking about yourself, what I like for CA investors is a Delaware Statutory Trust to work as the asset holding company. It is a Business Trust so no Articles of Incorporation and you can series out assets into child series into the trust, and not have to pay the CA Franchise tax of $800 per series. Once tax filing and For the DST your CPA treats it as a pass through Grantor Trust, or they can file a trust tax return. But, you should distribute all the income to the beneficiaries so they don't have to pay trust tax rates. Then you set up a side traditional LLC as an operating company that holds no assets, just does the contracting and operations etc.