All Forum Posts by: Mike S.

While the LP has the most case law and track record compared to the more recent LLC. Is the LLC a viable replacement for an LP as an asset protection holding structure?

In the same token, the usual holding LP structure will be a corporation as General partner and your living trust (or DAPT or foreign AP trust structure) as a limited partner. If you use an LLC instead as holding entity, would you still need to use the multi member structure to perfect the protection, or a single member LLC would be enough in states that have built in single member charging order protection as sole remedy (not following Olmstead vs FTC)?

If your trust is revocable, you have the right to revoke it, and you will be compelled to do so if you lose your law suit.

Again, you are the only person that I have heard so far stating that a revocable trust provides asset protection. If your structure is providing you what you want for it to do, then everything is fine. However, unless I misunderstood what you described, I would strongly suggest that you get a second opinion from your lawyer, as I do maintain that a revocable trust does not provide asset protection.

Respectfully

I'll be interested if you have any case law on that as all my research and cases that I have found showed that a revocable trust does not provide any legal asset protection.

It does however creates anonymity. In that way, it would avoid any lis pendis or other generic liens as your creditor is not aware of your ownership of that property. However, if you are sued and lose the case, you will have to disclose all your asset, including the trusts that you have beneficial interest in. When disclosed, the creditor will easily obtain full access to them, including the right to foreclose.

In an LLC or an LP structure, even when disclosed, the only judgment that could be obtain in some state is a charging order that give the creditor the right to receive any distribution from the LLC or LP if any. But if your operating agreement is properly set up, you won't have to make any distribution and your creditor will still have to pay tax on them. Its a poison pill that will deter any creditor to go against your LLC or LP.

 I agree that if you spend time and money to create the structure, you need to use them properly. If you can't do a minimum of paperwork and keep the money flowing through the proper entity, you will weaken your structure. It would be like installing a high security lock on your door, but never locking it... It may be impressive and looking nice, but that wont stop anyone to open it...

As I explained before, if you are sued personally, for anything unrelated to your property (car accident, your kid do something stupid, ...), you can loose all the asset that you own in your name. The assets owned by the LLC won't be reachable by your creditor (in States where the charging order is the only remedy).

Same if you have multiple LLC, if you are sued for something related to one of the property (slip and fall, ...), you can loose all the asset owned in the same LLC, but your own asset and the other LLCs asset will be out of reach.

A revocable grantor trust (living trust, personal property trust, land trust...) does not provide any asset protection at all. An irrevocable trust will, but then you loose control and benefit of the asset, because technically, it's not your asset anymore.

An LLC can be taxed as a partnership, C Corp, S Corp or as a disregarded entity (only for single member LLC). You make the choice when you create the structure.

The usual structure when you have multiple entities would be to have all your properties held in individual single member LLC. These LLCs will be disregarded entities and there will be no tax return. All the tax reporting will be on the single member tax return. If you are the member, then all of them will be on your tax return. If your individual LLCs are owned by a holding LLC, this holding LLC will do the tax return (unless it is also disregarded).

If your LLC is multi member, the default taxation is as a partnership and you will have to file a 1065 return and issue a K1 to each member. No tax will be paid by the LLC, but each member will include the K1 in their own tax return.

Land trust are great for anonymity and to avoid the due on sale clause, but they are not providing any asset protection (except in Florida).

I am using Land Trust and assigning the beneficial interest to an LLC for the asset protection part.

Look at your operating agreement. It should detail the procedure for a member to leave.

Also, if you want to cut all ties with the prior property you flip to avoid later possible lawsuit, it may be better to dissolve the company and open another one for the new deal.

Or you can also, instead of selling the property, sell the LLC with the property inside. In some state that would avoid the tax reassesment, the transfer doc and stamps and the deed. It may be advantagous for the new owner.

Costin, why would you want to make your LLC dormant? Wouldn't it be better to just dissolve it after the flip. Then there is no one to come back after in case of law suit years later.

Don't forget also to replace the corrosion rod every five to ten years years to extend the life of your water heater.