All Forum Posts by: Weston Couch

A little more about the tax aspects of the Roth side of the equation. Looking forward to some fuller answers, as I haven't read the book. Just pitching in what I do know.

@Casey Kooiman

1. So far it seems like you're okay, and you can add members to LLCs if you like. You can form venture-specific LLCs for a single venture with a partner, or if it's the tax benefits you're after, LLCs may also be taxed as partnerships. Now ALL THAT SAID--you really want to talk to an attorney. Forming an LLC for every asset you have is a good way to go broke. A more cost-effective solution for the average investor is the Series LLC--check out this info to learn more. Hope that helps!

2. Here's another area where you really want a pro. Whether that's an attorney, CPA, or both. None of us know your specific circumstances. Could you clarify-- are you seeking a loan from a bank or do you and your partner just happen to have the cash laying around? What to do under each circumstance is different. Academically, I agree with basically exactly what

@Zachary Bohn said if the latter.

It's important to address these questions fully with pros because these matters can affect the liability protections of your LLC. You hinted at that yourself by knowing the dangers of piercing the corporate veil. Good luck and happy to answer if you have additional questions!

@Philip Johnson (1 Yes, not being caught under that net of "any LLC" is how the DST's avoid the FTB requirement.

(2 You could use an out of state LLC to operate and pay labor. While you technically would still be required to register that and pay the $800, in our experience the FTB lacks teeth to enforce that requirement against you in that situation(since they can't dissolve an out-of-state LLC or seize assets(the capital you'd pay the labor with) that's out of state(remember the FTB's jurisdiction stops at CA borders).

3)No, a Delaware LLC doesn't need to act as Trustee, you could do that, but you could also name yourself trustee and receive money directly. Others state's LLC's can also work in that capacity.

@Luis Henriquez Hey Luis, I hear these type of questions a lot. A transfer to an LLC can trigger the clause and should therefore be avoided, even though banks are hesitant to ever foreclose as long as the note is being paid. Even with the note being paid, the banks often still send threatening letters. This issue can be avoided completely by transferring the property into a land trust.

While a transfer to an LLC will cause alarms at the bank and prompt them to send you a letter, a transfer to a trust will not. A transfer to a trust is exempt from due on sale violations since banks will view transfers to a trust as an estate planning tool. You should not even receive a letter from the bank.

This article can explain the general process of taking a property into your own name and transferring it into the Land Trust before assigning it to the LLC. The added benefit of this process is that you can also have your attorney sign the public records as "Nominee Trustee" before assigning yourself as the "Trustee" once the Trust has been established. It means your name does not appear on public record for that property, your attorney and their address is the only thing that appears. All the while, you always have control and nobody else, not even your attorney, can manage or sell your property except for you.

Hope that helps, and feel free to DM if you'd like to know more.

@Tim Harwick  Hi Tim, those are good questions, and I think they're best answered with the bigger picture in mind. When I sit down with clients, I always discuss (1) their personal assets, and (2) what their current investments portfolio and other business ventures are before discussing (3) their future goals. Each of these variables can dramatically change the advice I give the individual asking me this question. Generally though, I break it down into the "five pillars" of protecting your assets.

The first pillar is avoiding unnecessary and risky activities (don't drink and drive, insurance generally won’t cover your poor decisions) and take good care of your investments(maintain your property, etc) - these simple steps will help you prevent lawsuits before they even occur.

The second pillar is a good insurance policy as that cover the majority of your exposure. However, insurance is limited because it only protects you from one type of liability: accidents/negligence. Insurance doesn’t protect you from any part of the sale or acquisition of a property (e.x. Somebody wanting to sue for you backing out of a bad deal or accusing you of selling them a property with defects like unknown termite damage). Insurance also doesn’t protect you from misunderstandings, especially those made in writing and email. What happens in these misunderstandings is that something goes wrong either in the sale or after, and then they sue you for some statement you made that they “misunderstood”. That lawsuit is a claim for fraud, and that’s what fraud typically is...a misunderstanding and someone being “injured” and wanting to hold the other responsible for it. Insurance never protects you from these kinds of claims and they happen all the time.

The third pillar applies after you have good insurance You need to protect yourself from what insurance doesn't cover by compartmentalizing your assets(so it wouldn't be a good idea to put all your properties into one LLC). Compartmentalization means that if something happens to one property, people suing can't touch you or the other properties. You should use either LLC's (the old and expensive way) or a Series LLC (the new and more cost/time effective way). No matter where you live or where you own assets, I personally recommend the Series LLC to be a great tool for the individual investor who is planning to expand their operation, as it allows for you to scale infinitely for FREE. If you're interested in using an LLC, this article also further explains the advantages of a Series.

The fourth pillar is somewhat similar - you want to separate your operations from your assets. One company owns everything and does nothing (this is your SLLC a/k/a "asset holding company") and a completely separate company handles all of your operations (this is a traditional LLC a/k/a "operating company") For the operating company which serves as your face to the world and through which you do all your business, you establish a Traditional LLC to carry out the operations of your investments. The operating company takes on all of the liability that would otherwise blow back on you including: paying property management, paying contractors, collecting rent, marketing, etc.

The fifth pillar is owning everything anonymously. If people don't know that you have assets, then they are less likely to sue because there's no use in suing people that qualify for food stamps. This anonymity can be accomplished for free by using land trusts to own your companies as well as the assets. Trusts create this anonymity by removing your name from public record. Even if they can see you used to own a property, when properly transferred it will look like it was sold to investors. If they somehow guess you are the owner though, it still doesn't matter because you would not be the owner. The land trust and the LLC are the owner of the asset/real estate, so even in the scenario that potential litigants guess, they would guess wrong.

@Philip Johnson Hi Philip, I have some experience with asset protection for CA residents. Generally, I would avoid creating an LLC in CA altogether due to the $800 annual franchise fee per LLC registered there(imagine if you did have multiple). The best way around this problem is to use a Delaware Statutory Trust (DST) instead. The DST is not obligated to pay the $800 franchise tax mentioned above, and can contain as many assets as you like. The DST is viewed as an estate planning tool, and therefore exempt from the far-reaching corporate tax laws set forth by California's FTB. A properly set-up DST will both protect your assets and bypass the burdensome franchise tax that would be levied against a Series LLC.

@Cindy Veit Hi Cindy, a good insurance policy can cover the majority of your liability exposure. However, insurance is limited because it only protects you from one type of liability: accidents/negligence. Insurance doesn’t protect you from any part of the sale or acquisition of a property (e.x. Somebody wanting to sue for you backing out of a bad deal or accusing you of selling them a property with defects like unknown termite damage). Insurance also doesn’t protect you from misunderstandings, especially those made in writing and email. What happens in these misunderstandings is that something goes wrong either in the sale or after, and then they sue you for some statement you made that they “misunderstood”. That lawsuit is a claim for fraud, and that’s what fraud typically is...a misunderstanding and someone being “injured” and wanting to hold the other responsible for it. Insurance never protects you from these kinds of claims and they happen all the time.

Feel free to connect with me if you'd like to know more.

@Michael Aschenbrenner I think you're on the right path in terms of asset protection, but there are a lot of details/minor corrections(Mike S. mentioned some) that need to be addressed to get you to your final destination here. To begin with, you don't need to be constrained to thinking of Arizona entities just because your assets are located there.

@Kyle McAlpin Hi Kyle, welcome to Bigger Pockets! Just speaking from experience with LLC's here as I am not your attorney, but theoretically you should be able to just take money out as a distribution to you as a member and beneficiary of the LLC. And no, the process wouldn't change with a different state LLC and an extra member, just the amount of distribution(payment) you could receive would be halved in that case.

@Ashutosh Koshe I have to agree with Eamonn. You'll pay a lot more for an attorney to form it for you, but it could be well worth it just so you understand how to use the structure effectively. You could also save money by not creating the LLC in WA since some other states have cheaper LLC's and they're all still good in WA.