As real estate investors, one of the questions that will invariably come up is that of asset protection – should I do asset protection, when should I start the process of asset protection, how do I go about asset protection?
Some of the successful investors here on BiggerPockets have spent considerable amounts of time discussing to various degrees how best to structure your asset protection strategy, and hence I recommend getting different perspectives from the different contents available here on BiggerPockets. I recently stumbled on Clint Coons videos on YouTube, and wanted to reinforce my knowledge of the strategies he presented.
I must say that is in no way legal advice. I have kept it very high level and expect that you’ll work with an attorney / CPA for the minute details, such as preparing your operating agreement, selecting the right name, tax elections, the benefits of LLCs in your particular situation, etc. This is a bird’s eye view of a complicated matter and you should seek professional advice should you choose to proceed.
Brandon's words on the podcasts keep ringing in my head… if asset protection is what is holding you back from investing in real estate, then just create your LLC already … BUT make sure you do it right! I hope this writeup gives you a starting point – no more excuses!
Scenario: Buy and Hold Investor in TX who wants not just asset protection but also anonymity
1.Set up a manager-managedLLC in Wyoming and have a Nominee Manager. A few states offer LLC anonymity protection in the US, of which Texas is not one of them. States like Wyoming, Nevada and Delaware have anonymity protection. They all have their advantages and disadvantages, but I personally like Wyoming because of the relatively low filling fee and low annual report license tax ($50 if you have assets less than or equal to $250,000 in Wyoming). Ideally, this Nominee Manager will be an attorney or a registered agent who then resigns immediately with you becoming the Undisclosed Manager.
2. Set up a member-managed LLC in Texas with the Wyoming LLC being the member listed on the LLC. Texas has a relatively more expensive upfront filing fee of $300, but that's balanced by the $0 for the annual report license tax. The protection derived from the LLC statutes of Texas make Texas one of the better states to invest in.
3. Set up a Land Trust in Texas. There are three entities of a Trust – the Grantor, the Trustee and the Beneficiary. YOU are the grantor, the one looking to create the Trust. Your attorney or someone that you can trust should be your Trustee. YOU or whomever you decide should be the beneficiary of the Trust.
4. Reassign Interest of Entities in the Trust. Once the Trust is set up, the Trustee resigns and you become the Trustee of the Trust. Furthermore, beneficiary rights of the Trust is now reassigned to the Texas LLC. Ensure that the forms for all these activities are notarized so as to protect you in the future should a law suit arise. The trustee and LLC must acknowledge transfer and acceptance of interests.
5. Buy a Property in the Trust’sName. Look for Lender that will allow the Trust to take title of the property. This may sometimes be difficult, but working with a local credit union may just do the trick. At closing, ensure that you do not provide only the name of the Trust. Should all else fails and you need to transfer title into the Trust after purchase, do not discuss with your bank of the impeding transfer – it’s not illegal, but only bad things can happen (you may be liable to pay a fee).
I hope this helps. Share ideas or strategies that you have employed to achieve asset protection with anonymity.
