All Forum Posts by: Luis Alvarez

Hi @Craig De Borba I'm going to preface this with saying that I have a legal background in estate planning and asset protection, and before law school I majored in Economics/Business Strategy. However, this is not specific legal advice, just my opinion.

To answer your question, I will use the "go to" answer in the legal profession:  "It depends".  And it really does.  As @Julien Jeannot mentioned, you really need to plan out from a tax and legal perspective. Ultimately, a person's family/living trust is usually the top of the pyramid that dictates what matters most. That being said, I'm a believer in 1 property per LLC...and yes, I know plenty people out there (and in the BP forums in general) will flame for saying that, but there's something about peace of mind. But that's not to say that you can't have one LLC owning multiple properties, however, from a legal and risk mitigation standpoint, it's not considered ideal by legal professionals.

 

@Ender Aslangeciner I'm going to preface this with saying that I have a legal background in estate planning and asset protection, however, this is not specific legal advice to you, just my opinion.

Generally you would want to have the property (in this case located in GA) owned by an LLC that is registered/filed in GA. And here's why: the only real way that the property in question would avail itself to the laws/protections of GA would be if it were owned by an LLC in GA. Any potential cause of action (incident that can result in legal action) would happen at the property (which is in GA) and will go before the COurts of GA, therefore, you want to have that shielded, and contained, liability within the entity that is also located in GA. I hope I didn't make too much of that, but basically, the LLC lives where the property lives.

As to the tax aspect of it, I'm not a CPA, so I can't speak to that, but unless you want the LLC to have a specific tax treatment, you can likely pass the tax burden onto your personal returns. I can tell you that LLCs have two sides to them, legal and tax. From a tax view, LLCs can be: 1) taxed as a sole proprietorship, 2) taxed as a partnership, 3) taxed as an S-Corp, or 4) not taxed at all as an entity, this is called being treated as a disregarded entity. I wish this knowledge got out a lot more on BP and the internet.

Because you live in FL, you would want to register the GA LLC in FL as a "foreign entity".

@Edward Acker I'm going to preface this with saying that I have a legal background in estate planning and asset protection, however, this is not specific legal advice, just my opinion.

Keep in mind you should also adhere to all the corporate formalities (separate bank accounts, have an Operating Agreement--even if it's just you as the sole member, file annual/bi-annual filings). While setting up an LLC on your State's website is pretty straightforward, there are a few more steps that truly makes it show that you are treating it as a separate business entity and not just an extension, an alter-ego, of yourself.

Also, please keep in mind the new Federal mandates for the CTA (Corporate Transparency Act) which need to be filed by every entity in the U.S. or you can face heavy fines and/or jail.

Hope this helps!

@Brandon Stiles I'm going to preface this with saying that I have a legal background in estate planning and asset protection, and before law school I majored in Economics/Business Strategy.  However, this is not specific legal advice, just my opinion.

The overall theme of what others mentioned is about right, the main thing it seems you are concerned with is how this all plays out as you fund the LLC from the HELOC, go through the repair process, sell, and rinse/repeat. Acquiring the property in one's personal name and then transferring to an LLC (as long as it's done correctly) typically would not trigger a due on sale clause (this is one of the biggest incorrect beliefs on BP and the internet in general). I can always elaborate if specifics are needed. When you mentioned "To my understanding, if I transfer the home to my LLC I'm not actually transferring ownership so would it still be considered a personal asset vs inventory for my business?" that is incorrect.  Transferring title to an LLC does actually transfer ownership to the LLC.

I'm not a CPA, and this is not tax advice, but it may be prudent to have an LLC (taxed as an S-Corp) to help with the active income and have an LLC (treated as a disregarded entity for tax purposes) be the one that holds title to the properties. So you have some operational distance.

Keeping separate bank accounts is not only paramount, but it makes things cleaner and allows you to scale easier later on. 

Hi Andi,  there's some nuanced questions/issues in there, ultimately, it depends on what your goal (for ownership) is.  You can certainly hold title in one (passive) entity and have a separate (active) entity run operations and all that, and that's where an S-Corp election can make sense, so long as you are generating enough revenue to warrant the extra work for that. We'll chat and discuss further.

Hi @Andi Morgan I will preface this with the fact that I have a legal background, specifically with estate planning and asset protection. However, this is not specific legal advice to you, just an opinion based on the circumstances described. To your points:

My partner and I are unmarried, own some rental properties together, and want to set up asset protection. Deeds are currently in our personal names and we do not file taxes together since we are unmarried.

First, I would never own rental properties in my personal name. Yes, there are many out there that do it and nothing bad has ever happened, and I say kudos to that, I just would never do that. Second, in terms of asset protection, as some have mentioned, LLCs are not invincible, but I think what many don’t understand is that they are not designed to completely shield your assets from liabilities, on the contrary they are designed to contain and isolate liabilities. They keep inside liabilities inside and outside liabilities outside. Read that again. The reason you see a person’s name and all their entities listed in a lawsuit is because Plaintiff (the suing party) attorneys have to list everyone and every entity that can be remotely tied to a cause of action, otherwise, if enough time passes and through the legal process discover that a separate entity or just a person was truly liable and they didn’t name them in the lawsuit, they are out of luck. Basically, they name everyone because they’re hoping and counting on the fact that people set up their own LLCs and didn’t adhere to basic entity maintenance and kept things separate (like bookkeeping and separate bank accounts). Umbrella Policies are good, but they are not an asset protection tool, they only cover litigation/damages after you’ve already been found liable. Also, most Umbrella Policies only pay out if your underlying policy pays out, and the underlying policy will do everything they can to find an exclusion or that you were negligent (which you probably were) in the cause of action to get out of paying the claim. And yes, attorneys make money from forming LLCs, but they make way more when you were negligent and didn’t know what you didn’t know and end up in a lawsuit.

We have several properties we co-own, but I keep hearing all of the asset protection plans talk only about single-member LLCs being the way to go for the ease of taxes end-of-year since those are pass-through/disregarded entities.

An LLC can be treated four different ways for taxes: as a sole prop, as an S-Corp, as a Partnership, or not recognized at all for tax purposes (IE it is a disregarded entity). I am not a CPA, but I have experience seeing LLCs (with multiple members) be disregarded and everything flows out to each Members' 1040s.

We know we'll need an additional company above that one (possibly multiple ones) that owns the LLCs, but I'm getting no real answers about how we should structure the LLCs to both maintain ownership without complicating taxes by having a ton of multi-member LLCs that have to file taxes separately at additional costs.

This sounds like you’re referring to a holding entity, which depending on revenue/volume can sometimes be treated as an S-Corp to really ramp up tax efficiencies (again I am not a CPA, but I have conferred with some to get the best structures once one hits this point). For me personally, only one of my entities files a separate tax filing, and it’s because it is worth it. A well thought out and detailed Operating Agreement can quell concerns over succession or what-if scenarios. In essence, you and your partner are just that…you’re partners. Treat it accordingly.

Has anyone dealt with this? These properties are in NC and SC and we are also looking for reasonable attorney recommendations for good, solid asset protection plans that involve LLCs owned by another company and possibly an irrevocable trust of some sort on top of that (not totally foreign).

Owning properties in different states is not a concern I have, I have established corresponding LLCs in the home state (where the property is located) to then transfer title of said property to that LLC. This is the only way one can avail themselves to the laws and protections of each state in which the property is located.

Hope this helps.

@Felix Contreras A land trust is something that can work for certain situations, but we typically have legacy and asset protection structures consisting of living trusts, family limited partnerships, and underlying LLCs...but you don't necessarily want to get all that set up before you have anything in them.  A proper set up allows you to slip in entities and protection layers (seamlessly) as you scale up.  I'll send you a sample structure org.

@Patrick Hammon I hope my reply above helps you too :)

@Joshua Delzell  Yes, I do.  I can relay a bit to your question below.  This is not specific legal advice, just my opinion based on estate planning/asset protection background.  

The good 'ol DUE ON SALE CLAUSE is TYPICALLY not what the internet (and the forum) makes it to be.  I stressed "typically" because in the legal world the answer is always: "it depends".  To elaborate, there are statutes and administrative regulations (found in Fannie/Freddie guidelines) that provide a laundry list of exemptions from them calling the loan due to a transfer in title (EG divorce, death, inheritance, asset protection/estate planning).

It sounds like they misunderstood your question as you asking that you wanted to transfer the loan, which you've obviously clarified on here. I have transferred multiple times in/out of an LLC, so long as there are certain things that remain constant (EG the majority controlling interest in the LLC to the current ownership interest) I know that I have the exemptions that cover me. The Due on Sale Clause is part of loans so that the lender has easier recourse in the situation that the property is sold and an argument arises between legal title and equitable title, which would come up after the loan isn't paid and they are trying to collect payment.

I hope I can continue to provide the specifics of these exemptions for many more on here as it seems to be a point of fear for investors to properly insulate their business/investments from their personal name. Also, to clarify an LLC shields the assets within that LLC from inside and outside liability, whereas an umbrella policy only pays damages once you've already been (personally) found liable (if you have the investment property in your personal name). A Umbrella Policy is important (I have one), but it does not serve as "asset protection".

@Amy Lieu Following the option I mentioned above, yes, a General Partner usually has those powers. But the drafting of the partnership agreement is the crucial component.  

I also messaged you that even though the language you have in your Op Agreement spells out that one can act alone, these lenders are likely wanting to have all members sign because they are wanting to use the credit/obligations from each as individuals, rather than that of the entity--but that's something to confirm/clarify with the lenders.

There's also another option of putting together a type of "corp resolution" which reiterates that all members are granting one individual the unilateral power to conduct business and enter the entity into loans.  But again, if the lenders want all individuals to sign for purposes of personal guarantees, then they may not really acknowledge the legal powers granted by you and the other members to the one individual.

I hope that makes sense!  And for clarity, this is not specific legal advice, just my opinion based on my years spent in private practice estate planning, asset protection, and trust administration for high-net worth clients.