All Forum Posts by: Weston Couch

@LaKeya Smoot Hi LaKeya, your research was right. A transfer to an LLC will trigger the due on sale clause and should therefore be avoided, even though banks are hesitant to ever foreclose as long as the note is being paid. Despite the note being paid, the banks will still send threatening letters. The good news is 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.

If you need to prove ownership for financing or any other reason, you simple produce your company documents as well as your banking and accounting records. Since these disclosures are private, and not part of the public record, it does not violate the anonymity you’re seeking.

@Jason Malabute Hi Jason, why do you want to do an Indianapolis LLC? Normally I'd say that's a good one since it's cheap to create and maintain(location generally isn't a big deal) but if you live in CA, it's a bit different. We actually recommend a Delaware Statutory Trust for our clients who live in CA because it provides equal protection but avoids the hefty requirements Katie mentioned here.

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

@Alex J. Legal disclaimers and whatnot. You can just use a land trust to "transfer" the properties to the LLC/s. Since the land trust is a disregarded entity(considered yours for tax purposes), it avoids a new tax assessment and as an added benefit, avoids due on sale issues. The land trust is then assigned to the LLC which means the properties get the liability barrier of an LLC(but are still yours for tax purposes).

Please feel free to connect with me if you’d like to know more.

@Moses Castillo Hi Moises, the benefit doesn't come into play until you acquire the properties, but having insurance and an LLC is definitely a good place to start with asset protection once you do. If you're interested in a free one, or knowing more, just connect with me.

@Keith Andrews Hi Keith, great question and one I see frequently working in asset protection. A transfer to an LLC will trigger the clause and should therefore be avoided, even though banks are hesitant to ever foreclose as long as the note is being paid. Despite the note being paid, the banks still send threatening letters. This issue can be avoided completely though 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, meaning no threatening 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.

If you need to prove ownership for financing or any other reason, you simple produce your company documents as well as your banking and accounting records. Since these disclosures are private, and not part of the public record, it does not violate the anonymity you’re seeking.

Please feel free to connect with me if you’d like to know more.

@Kris Marmol I agree with Chris K. and I am also only writing for informational purposes. I would just like to add that there are potentially more important factors in your choice than how the language is structured(since attorneys can generally write the LLC OPAG's to your specification while accommodating state rules). While there are multiple factors to consider, in my experience, the biggest thing is simply price. The price to create and maintain an LLC can vary dramatically. TX LLC's, for example, cost about $300 upfront to create but are free to maintain indefinitely afterwards, where CA LLC's only cost about $100 to create but a little more than $800 annually to maintain.

If you're interested in discussing more in depth what type of LLC is best for you, feel free to connect with me or DM.

@Mary Jay Hi Mary. That's a good question I often hear working in asset protection. We like to say good insurance is the second of the "five pillars" of protecting your assets, so while it's very important and helpful, even a good umbrella policy is only part of the picture for "complete" protection.

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. 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.

Now, of course the extent to which you want to implement these "pillars" naturally depends on your level of comfort with taking risk, but we've found they're all increasingly important the more properties you hold. Not only do you have more assets at risk with more properties, your chances of running into a claim against them also rises.

Hope that helps. Feel free to connect with or DM me if you would like to know more.

@Ken Tsai Hi Ken, the group I work with often deals with this issue. It looks like Katie already covered a lot of good information on the subject here but I would add a point. We've found that it is possible to get around a lot of those "beastly" taxes and filing requirements. 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.

Feel free to connect with or DM me if you're interested in knowing more about how that might work for you.

@Derek Scott Hi Derek, we actually transfer properties with outstanding mortgages into LLC's almost daily by transferring the properties into land trust that are then assigned to the LLC's.

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.

If you need to prove ownership for financing or any other reason, you simple produce your company documents as well as your banking and accounting records. Since these disclosures are private, and not part of the public record, it does not violate the anonymity you’re seeking.

Please feel free to connect with me if you’d like to know more.

@Lua Jambeiro Hi Lua, I work with a real estate asset protection group, and since we use LLC's for a lot for clients, we run into this question frequently. If you're interesting in reading some of our resources on the subject, or talking it out with an expert, feel free to connect or DM me.