All Forum Posts by: Scott Smith

@Chad Davis, you can check out this article that explains some of the estate planning tools that are used in developing family partnership protection plans.  I have found that clearly laying out a solid structure keeps relationships strong.  It is important to protect the relationships as much as the assets, and the best way is to put together a plan that covers both the business and estate issues that will develop over time.  I wish you well!

@Justin Witt, the discussion shows there are many things to consider, so I don't want to say this is the total answer.  A strategy that helps to transfer property from an individual to a LLC using a land trust works, and is often paired with other asset protection strategies to cover the risks you are concerned with. The St. Germain act of 1982 was set up to protect transfers to trusts from the due on sale clause that has been recently incorporated into Fannie Mae also.

@Lindell, the strategy to use a Living Trust as the beneficiary of the LLC or trust holding the asset helps to transfer the assets. You can check out the estate planning tools that can be used to improve your asset protection started with your LLC in this article.

@Brent Crude, fun conversation and I agree with some of the cautions about DIY especially as it relates to California. What you will find is California taxes and regulates all LLCs (even foreign) - some say heavily. I have found a strategy to hold the assets in trust, which are not taxed or regulated as heavily and provide comparable asset protections as LLC. You can check it out on this article. This strategy is less expensive, but probably not a DIY either unless you like risk.

@Roger R., a strategy I have used to assist the transfer of property to an LLC that does not trigger the due on sale clause is the use of land trusts, since the St. Germain Act of 1982 protects this transfer. I identify the process to move from your name to a land trust with your LLC as beneficiary in this article - ignore the initial financing advice and focus on the process.

Might be a good idea to think through asset protection, especially if they plan to go into rental.  There are also great estate planning strategies that complement asset protection that will lower overall risk and protect investment partners and aide in generational exchange of assets.

With two houses, one live in and one rental, they may want to hold the rental in an LLC or trust and planning this at the start makes property transfer easier. Check out https://www.biggerpockets.com/blog/estate-planning-overview-real-estate-attorney for some tools that can help in this planning.

Getting financing for a new LLC may prove nearly impossible--particularly if there is no equity in the company. Financing terms for LLCs, even those with established equity, are typically far more costly than getting financing in your own name. But there is a way around this problem.

The first step is to get your financing in your personal name then use a land trust to execute any transfers into your LLC or Series LLC asset-holding company. Land trusts are viewed as estate planning tools [or an Inter Vivos Trust] and will not trigger the due-on-sale clause thanks to the St. Germain Act. They simply don't set off the same "alarm bells" at the bank that transfers to LLCs do. This has to do with the fact that land trusts are private documents, while most states require LLC membership to be reported on the public record with the Secretary of state. You can read more about this method of using land trusts to avoid due-on-sale issues from my previous BP article on the subject.

I have used this method personally and have seen many other investors do the same. None have even gotten a letter from the bank, to date. Barring a dramatic change in law, I would expect this method to help real estate investors avoid the "LLC lending problem" for the foreseeable future. Even if my entire analysis were wrong (it's not, I'm just playing out the worst-case-scenario for the excessively cautious), the very worst thing that could happen is that the property would revert back to your name. The bank won't force you to pay the entire loan in full without some time to "remedy" the situation. But even that is a worst-case scenario that I've literally never seen play out. Nor do I expect to. Land trusts have many asset protection benefits and can be a powerful addition to your asset protection plan anyway--yet this use is still not as widely known as it should be.

Thanks @Greg Dickerson.

@Matthew Haralson, I put together some thoughts on your question that may be helpful to you  at https://www.biggerpockets.com/blog/effectively-conduct-joint-venture-agreements-as-a-real-estate-investor.  Getting started on the right track will be helpful to maintain a relationship that could benefit you both in the long run.  I agree with Greg on the need to communicate, and getting knowledgeable on the subject is a great start!

@Anthony Parisi Sorry I missed your question from earlier.

I would like to answer your question "are DST's and Nevada Asset Protection Trusts similar or the same?"

No - DST's are Revocable - NAPT's are IRREVOCABLE - A Nevada asset protection trust (self-settled spendthrift trust) is an irrevocable trust in which the grantor may also be a permissible beneficiary. Two years after the Grantor contributes a portion of his/her assets to the Nevada asset protection trust, the contributed assets should be protected from the Grantor's creditors. The Nevada asset protection trust is a powerful planning technique. It may be an appropriate creditor protection solution for clients in high-risk professions such as doctors, attorneys, architects, engineers, developers, and other small business owners.

Again, this is not legal advice.  Simply my understanding of your question.

One advantage is that a Wyoming LLC does not require the name of the owner to be listed on public record. Some investors believe the only way to accomplish anonymity is by using the Wyoming LLC, which is not true but it could add to the advice you are getting. Here are a few more reasons for forming an LLC in Wyoming:

No state taxes
Asset protection and limited liability
Members nor Managers are not listed with the state
Best asset protection laws
No citizenship requirements
Perpetual life
Transferability of ownership
Ability to build credit & raise capital
Number of owners is unlimited
Lower startup costs- with Registered Agents of Wyoming LLC, the cost of forming an LLC is affordable.

I have formed many LLCs in Wyoming, yet there are advantages for other states I listed in this article:  https://www.biggerpockets.com/blog/best-states-forming-llcs.  Maybe some day I will add Wyoming to this article.