All Forum Posts by: Klemens N.

@Eric Schultz

A#1: There is no extra CPA tax prep fees as the whole structure does not affect my tax filing at all. I only have one LLC and it is single-member LLC so for IRS's tax purpose it does not exit. The income and expense flow directly into my Schedule E, page 1, as if I own the properties directly on my own name. The CPA would not know that I have all these structures. By the way, I do my own tax on Turbo Tax anyway...

A#2: My rental properties are local (less than 5 miles where I live) so I just manage them myself and so I save 8-10% fee. If they are distant away from me, then, I would consider property manager for both the ease of managing them and anything else. I just don't want to form another LLC to be property manager.

A#3: Yes I do have a 5mil umbrella insurance on top of this AP structure.

Additional replies to other posts: 

@Nick F. Hi Nick, I just don't want to pay the cost of a lawyer, accountant, or third-party firm to be my trustee.  This is DIY strategy.  If I have a relative family member or a friend who is willing to do that for me, that would be great.  From the county record, my name is not shown as the title only list the name of the land trust, no trustee name required, at least at my county.  For now, my name is only visible as I sign the lease as trustee of the land trust.  If the AP structure works to serve as asset protection, being visible would be irrelevant.

@Jerry W. Hi Jerry, if you think if the tenant sues the trustee, the tenant can get to the trust property, then you may not know well about how Land Trust designed for this purpose works, not the regular Land Trust.  If what you says is correct, then why would the law firms who set up these LT would want to serve as the Trustees for these LT?  What if that lawyer is sued for anything by anyone, would the property in this lawyer's client's LT be compromised then?

@Sean Morrison Hi Sean, in this specialized Land Trust, the grantor/trustee has control over the trust, but under directorship of the beneficiary. Yes, it is revocable trust with special twist to give beneficiary more power. Of course the trustee of the LT is never the owner of the LLC. The LLC is the beneficiary of the LT, so in essence the LLC owns the property for its protection under limited liability provisions.

@Rob C. Hi Rob, the difference between member managed vs. manager managed LLC has been discussed so much already. Here is youtube from Clint Coons of Anderson who discussed one of 8 mistakes in Operating Agreement is to list member managed LLC: (search in youtube for "8 Stupid Mistakes in Your LLC Operating Agreement")

The whole idea of my AP structure is to minimize entities, structure as much as possible, as well as to minimize the cost of setting up and maintenance. Of course, the structure has to work for asset protection here. The more outside parties (different trustees), structures (property manager, more LLC, registration in California, etc...) added to the strategy, the more potential protection it would have, but at additional cost. I have no doubt that there are many different strategies that would serve with great asset protection but at different cost level. At this time, it only costs me about $52 per year to file the WY information, for the entire AP structure. Remember, this is my DIY structure as much as possible!

@Steve Vaughan Good point about the tenant would vent about things to you if they don't know you own the house. Agree.

The tenants can believe whatever they want and they can sue whoever they want.  Let's say, they sue me personally and that would be even worse because I own nothing significantly (but I control everything - that's the power of asset protection) so they would not get much of anything.  If they sue the landlord, in this case the Trust, they can potential get whatever the equity of the house, better than suing me personally.  Either way, asset protection!

@Jerry W. You are correct that my LT is massively different from a regular family revocable trust. It makes a big difference in the language of the trust to specify the powers of each party, and yet still complies with the state law for trust. A powerful land trust document carries more weight than just a simple trust. The language itself would not dissolve the trust as you thought. You have to remember that that this type of Land Trust is developed for the purpose of holding title of property, and the beneficiary as LLC for asset protection so it incorporates such powerful languages.

@Steve Vaughan You took my answer out of the context.  Here is my full original answer: "The California ABC Land Trust holds the deed of California property. It serves as the landlord that collect the rent. The rent is payable to your personal name and deposited in your account. The money transactions are reported on Schedule E of your 1040 tax form."

Read it again.  Who is the landlord that collects the rent?  The rent can still paid to my name as I represent the Trustee of the Land Trust and I signed the Rental Agreement.

If you don't believe in it, then you don't have to do it my way.

I still believe my strategy is still a pretty good one for asset protection.

@Jerry W.

@Jerry W. Hi Jerry, apparently you may have not been up to date on Land Trust.  For LT, the beneficiary has all the powers over the LT, even to replace the trustee. Here are some excerpts from the LT for your reference (at least from my LT document):

Trustees as Owners; Beneficiaries Hold Power of Direction. The Trustee is the sole owner of the property transferred to this trust, and, so far as third parties are concerned, has full power to deal with said property. However, the present and future beneficiaries of this trust shall be the sole holder(s) of the power of direction over the title to trust property and shall
have the sole right to direct the Trustee to convey or otherwise deal with the real property held by this trust.

Right of Management and Control. The beneficiary or beneficiaries shall have the full power of management and control of the real property held by this trust, and of the selling, renting, and handling thereof, including the collection of rent and proceeds of sale, and hiring of property managers. The beneficiary or beneficiaries shall also control the payment of taxes, assessments, insurance and other expenses in connection with the real property. The Trustee shall have no responsibility with respect to these matters, except on written direction by the beneficiaries...

There are a lot more series of all the power of the beneficiary over the trustee as mentioned in the trust document. That's why the WY LLC serving as the beneficiary of the trust will have complete and total power over the property held in the trust. I agree that the LT itself has no asset protection. It solely provides anonymous purpose at the county record for the deed.  That's why you need to tie in the LLC as the beneficiary of the LT for the asset protection part.

Single member LLC is a pass-through entity in regard to tax. The single-member LLC does not file tax return with the IRS. The income / expense of the property will flow through my own page 1 of Schedule E of 1040 as if I own the property myself. Under the eye of IRS, this single-member LLC does not exit for the tax purpose. You need to understand the tax issue with IRS and the asset protection are completely separated here.

This strategy can be applied to wherever you live in the US for both anonymity (from Land Trust) and asset protection (from WY LLC), not just to avoid California franchise tax.

@Rob 

@Rob C. Here is my understanding:

1) Land Trust is a form of Revocable Trust that will comply to the trust law of the state, California.  According California trust law (if my understand about it when I read it many years ago is correct) the trust domicile state is where the trustee resides.  Since I live in California and I serve as trustee of my LT, my LT is formed, signed in California.  Once the LT is formed, it can hold title to any property anywhere in the US as that is not a limiting factor.  Therefore, your properties can be in-state or out-of-state.

2) Manager of an LLC is responsible for managing the LLC. The manager is not held liable for the LLC. Here is an excerpt from my OA: "Notwithstanding any other provisions of this Agreement, without the unanimous approval of all Members, the Manager may take no action with respect to..(iv) the compromise or release of any of the Company's claims or debts. Regard to FTB, I can work as an manager of any company (LLC) from any where who hires me for it. This does not make the LLC that I work for become "doing business in California."

Disclaimer: I am not an attorney.  I have invested time and money to learn about asset protection. I just share how I structure my asset protection, and not providing any legal advice.

To correct my previous post and here is how the lease, rent collection works: The Rental Agreement lists the Landlord is the name of the Land Trust. I sign it as "Klemens, Trustee of the Land Trust..." The tenant pays rent to the land trust (via Cozy.co as above) and the money will get deposited into a business bank account of the LLC. Thus the tenant is not doing business with me personally, but doing business with me as a trustee of the land trust. The tenant can sue the Land Trust and get access to the equity of the single property that the LT holds the title too, not anything else. Thus, this separates one property from another. This is "inside risk" protection.

The beneficiary of the LT is transferred to the WY series LLC. The WY Series LLC is serving as a "holding company" to hold the beneficiary of the LT. It does not do any business in WY nor California. There are not any activities that I do on behalf of this holding WY LLC. I am not "hiding" this WY LLC from CA FTB at all as it does not do any activity to be registered in CA.

I agree about the potential issue that CA would not recognize the WY Series LLC.

I agree that Family Revocable Trust (FRT) or Revocable Land Trust (LT) by themselves is NOT an asset protection strategy. FRT is to avoid probate. LT is to hold the title of the property in the deed with public record. That's where the LLC comes in for asset protection. The beneficiary of the LT is transferred, thus owned by the LLC, which in turn the LLC is owned by the FRT. At the bottom of it, my wife and I are the trustees of the FRT.

Most asset protection strategy serves to deter a frivolous lawsuit to begin with, and that may avoid majority of the lawsuit cases. The lawyer will not be able to find out what I own from public record. Under the court order to disclose information, I will disclose the structure as follow: - The property is owned by a LT. The LT has me as the trustee, but the power is with the beneficiary. The beneficiary is the WY LLC. The WY LLC has a member as FRT. I am the trustee of this FRT. Directly, I do not own the property.

With charging order protection of WY LLC, the court may not force me to give up the beneficiary of the LT. Thus it is "outside risk" protection. The "inside risk" protection is provided by each property in each LT and each LT's beneficiary is in each series LLC. The tenant can always get awarded to the equity of that single property, but not anything else.

So far I have no problem with the structure at all. My tax return went through as plan without problem. For my rent collection I use the free online Cozy.co and set up account as my Land trust and the money will be deposited by Cozy to the bank account of my WY Series LLC. So the tenant pays rent directly ACH to Cozy system with my Land Trust and money will go to business bank account of LLC. Everything is smooth and automatic without my personal name in it.

Two most important things: 1) good land trust agreement with all the necessary details, and 2) good Series LLC operating agreement to reflect the structure.

It just works for me so far.  Anyone in any state can essentially do the same thing to setup asset protection for rental properties without much hassle and very easy to maintain every year with very minimal maintenance cost (less than $100).

Rental agreement: landlord is the Land Trust Name. As the trustee of the land trust you can receive the rent. If the tenant sues, he can sue the Land Trust as it is the landlord and the title of the deed. There is no corporate veil here to be pierced. Who owns the trust? It's the beneficiary which is the Series LLC. The LLC corporation just holds the title of beneficiary of the trust, not doing any business to be pierced.

You can check out on YouTube for Clint Coons with the Anderson Firm who has many videos about the Property - Land Trust - WY LLC structure.