All Forum Posts by: Account Closed

Great answer, Mark.

It sounds like you understand what a business entity if for, and how they work for your benefit.

Think of Series A, Series B, etc. as completely different businesses located in different cities.  What would you do?

Series LLCs are still in the early legal life of being determined in detail as to what they really are, in relation to already existing case law in similar areas.  

But one thing that we know for sure: if you expect to receive the liability protection that is promised, you absolutely must isolate all of the activities of that specific property in that specific Series.

If a tenant sues Series A, and he has signed a lease with another entity, then the Judge will probably allow discovery regarding the other entities to find out whether you are really operating this investment inside this Series, or you are spreading it all over.

After all, in Texas we are still litigating the definition of "doing business."  So there are as many questions as there are answers regarding Series LLCs.

Be careful.

I hope this helps.

Michael Lantrip

Three points:

1.)  Adding a second member to a SMLLC will not make it more difficult to "pierce the veil" in the event of a lawsuit.  If the Court finds there is a basis for doing so, it will.  The process is centered on behavior, structure can be argued, but only as mitigation.

2.)  A reading of the few opinions that show a Court's reluctance to "pierce the veil" of a MMLLC reveal that the Judge did not want to order the assets sold when only one member was responsible for the behavior presented in the hearing, but the other member, or members, would be suffering the same consequences.

3.) Adding a second member to the LLC just for the purpose of putting the Court in this position, especially if the behavior appears premeditated or outrageous, will put you in a world of hurt, in front of a Judge who can do just about anything he wants to you.

LLCs are becoming very good business entities, as more Appeals Courts are applying previous law established regarding corporations, partnerships, etc. as also applying to LLCs.  The uncertainties are disappearing.

So there are no tricks.  There are some nuances, and some creative structuring, but mostly we are all playing by the same rules.

Whatever you do, Good Luck.

Michael Lantrip

What you should do immediately is determine whether they have lived in the property as their primary residence for two of the last five years, and whether they still have the option of excluding the capital gains under Section 121.

You gave the years, but not the dates.

Don't mess with the title.

You can't, and you shouldn't.

Every possible outcome is more negative than positive.

What you can do is sell him an option now to purchase half interest at some point in the future which you identify, in return for the DP that he did not have, plus whatever you think is appropriate in the meantime to earn half the equity increase.

He will not share in the income, expenses, depreciation, etc.

Real estate law and federal tax law are fairly specific, you don't have a lot of alternate choices, and almost no do-overs.

I hope this helps.

Good Luck.

P.S.  There is another way, but not what I should be discussing here.  PM me if you want to pursue it.

The word "sale" is used as shorthand for a number of actual events, and one of them is "transfer of ownership," also referred to as "property transfer."

So, yes, when a document is drafted, executed, and filed in the property records that transfers that property from one entity to another, that is a:

1.) sale,

2.) transfer of ownership, and a

3.) property transfer.

There are some special circumstances that might cause the property transfer to not be treated as a property transfer, such as an administrator's deed distributing property out of an estate, or dividing property in a divorce, but your situation is a regular business transaction.

I hope this helps.

Michael Lantrip

Jimmy Wilson:

When you get further down the road and start planning your exit strategy, email me and I'll show you how to exclude all of the qualified gain under Section 121.

Good Luck.

Michael Lantrip

Have you determined that you need a corporation?

If so, the answer to your question depends on why you need this corporation.

Start at the end and work backwards.

What is the ultimate goal that you want to achieve?

On all.  That's why it is important when you do a Section 1031 Exchange to break down the exact makeup of your Net Sales Proceeds that you are reinvesting in the Replacement Property.  Part of it will be Transferred Basis of the Relinquished Property.  Part of it will be pure capital gains, the difference between what you paid for the property and what you sold it for.  And part of it will be Depreciation Recapture.  And I'm not sure that you have looked closely enough at the numbers on your Reverse Exchange, or the identity of the property as "vacation."

Actually, under Texas law, a Revocable Living Trust cannot hold title to real estate because it is not a legal entity recognized under Texas law.

If you deeded the property to the revocable trust, the deed is not void (it just puts a cloud on the title), but it is voidable.

Your Divorce Decree probably acknowledged that the property was never really taken out of your name, and that you still owned it as community property.

Since you are divorced, you no longer own it as community property.  You each own a fifty percent undivided interest.

The correct way to transfer property to a Revocable Living Trust is to deed it to "John Smith, Trustee of the John and Mary Smith Revocable Living Trust."

You must now undo everything that you have done in order to legally reinstate ownership of the property and put it into condition for a title insurance company to insure title.

1.)  Draft a deed from "John and Mary Smith, Individually and as sole beneficiaries of the John and Mary Smith Revocable Living Trust" as Grantors, to "John Smith, (address, including county)" and "Mary Smith, (address, including county)", as Grantees.

2.)  Sign the deed in front of a Notary and have your husband do the same.

3.)  File the deed in the Real Property Records of Harris County, Texas.

You can now either buy each other out, or you can both agree to sell to another buyer.

If you sell to another buyer, either or both of you can use your portion of the Net Sales Proceeds to purchase another investment property and defer taxes on the capital gains and depreciation recapture.

I hope this helps.

Michael Lantrip