Can I Use a Land Trust in California to Protect Real Estate Assets?

Does California recognize land trusts? Yes, but California real estate investors face certain regulations and restrictions in their home state.

Land trusts (read: What Are Land Trusts?) are not subject to the same burdensome tax obligations as, say, an in-state LLC. In fact, the fact that they are relatively new means that there isn't much law about them at the state level at all. Keep reading to learn more about using a land trust in California, as well as what specific benefits Golden State investors can enjoy when they do so.

California Land Trusts Are New

The novelty of land trusts in California actually confers some benefits onto their owners. Other states with more established case law have more exceptions to the protections of land trusts. In general, law is built on precedent. This means that court decisions aren't made in a vacuum. They are heavily informed by the rulings of past courts, particularly courts in the same area.

California Land Trust Community Property Advantages

California is a community property state. This is most relevant for married real estate investors. In community property states, anything one party gains during a marriage can be legally treated as a joint asset.

Community property laws come up frequently in the unfortunate event of a divorce. Let's look at an example. John and Mary Smith are real estate investors in the San Francisco area who have been married for ten years. They both have their own investments, but Mary is the more prolific investor. They show up in family court after a mutual decision to end their marriage.

With no asset protection measures or land trusts in place, Mary could actually stand to lose some of the investment properties (or even the money she would receive from them if they are sold) in the divorce. However, if she uses a land trust to hold the properties, this is unlikely to happen.

The land trust itself is controlled by a trustee, and therefore will not be treated as community property. In short, Mary would be in a much better situation using a land trust because John has a legal ability to make claims on property with her own name on it. He does not have this ability if the property is held in an anonymous land trust.

Of course, there are ways around state regulations that confer community property status onto assets gained during a valid marriage. Tenancy by the Entireties, also called TbyE, allows married couples to own a piece of real estate together, but not jointly. Some couples elect to use both methods of protection by both securing shared properties in land trusts and owning them TbyE.

This information may seem a touch cynical. Few people, when marrying, ever believe they will end up dealing with the fallout of divorce. But the unfortunate truth is this: over half of marriages do end in divorce.

When it comes to the law, it's perfectly fine to hope for the best. But the smart investor will always prepare for the worst. The wise investor plans ahead to avoid the worst possible outcomes, like lawsuits and losing property in a divorce.

Royal Legal Solutions is Here To Help Investors Like You

Royal Legal Solutions works with real estate investors from all over the country. We keep up with the latest changes in state law and other legal technicalities so that you don't have to.  We are also well aware of and sensitive to the needs of California investors. Whether you're trying to enjoy the tax benefits or asset protection aspects of a land trust, we can help.

Self-Directed 401(k) Loans: Borrow Against Your Retirement Account

A self-directed 401(k) is a great way to save for retirement. Unlike the typical 401(k) plan set up by an employer, a self-directed one allows for a much more diverse investment portfolio. A self-directed 401(k) also grants you more control over your investment decisions. In fact, because it is self-directed, you have total control. This even includes the ability to make self-directed 401(k) loans to yourself.

Personal Loans Via Your Solo 401(k)

As a self-directed 401(k) owner, you are allowed to borrow from your account. This is not permitted in almost all other types of retirement accounts. The Internal Revenue Service (IRS) distinguishes between taking a loan from your self-directed 401(k) and requesting a distribution. Early distributions can cause your entire individual retirement account (IRA) to be disqualified and subject to penalties and taxes. This is not so with a self-directed 401(k) loan. If you need a personal loan, for anything, the self-directed 401(k) is your best bet. Let us look at the two most frequently asked questions about how this works below.

How Much Can You Borrow?

You can borrow up to $50,000 or half of your balance, whichever is lower. In other words, if you have $75,000 in your account, you can only borrow up to $37,500; but if you have $150,000 in your account, the loan is capped at $50,000. Unlike a bank loan, borrowing from your self-directed 401(k) does not require a credit check.

How Does Repayment Work?

Borrowing from your self-directed 401(k) works like any loan. In other words—and here's the bad news—you must repay it. If you are on a regular pay cycle, you can elect to make blended payments. These will consist of the principal and interest owed on the loan, as dictated by an amortization table. If you do not receive a regular paycheck, you must make a payment every 90 days. You have 5 years to pay back your loan. After that, the remaining balance of the loan is deemed to be a taxable distribution by the IRS. (There is a caveat if you are borrowing for the construction of your home. If you did, speak with a financial expert to determine if you are eligible for a longer repayment period.)

Have Questions About Self-Directed 401(k) Loans?

We have many years of experience helping our clients understand the IRS regulations placed on self-directed accounts. While these types of accounts give you total control over your future finances, we are here to ensure you do not trip over regulations that can cost you in penalties and fees. If you are considering taking a loan out of your 401(k), our experts advisors can help you plan your repayment options.

CERCLA Liability: Are Land Trust Trustees Accountable?

A lot of folks often wonder whether or not a trustee of a land trust has personal liability under EPA or other Federal regulations.

The answer is no—with some caveats. When the trustee acts at the behest of a beneficiary, or whoever holds the power of direction, then the trustee would be themselves insulated from personal liability. The trustee, however, is still personally responsible for what they themselves do. If the trustee were to commit fraud or violate some other federal regulation, then they themselves could, of course, be held liable.

Land Trustees and EPA (CERCLA) Violations

The law can be  vague when it comes to certain kinds of EPA violations. This includes chemical dumping on land held by a trust. CERCLA (the Comprehensive Environmental Response, Compensation, and Liability Act) names “owners” of a parcel of land or “operators” of a facility but does not go on to define these terms in detail.

Through a very expansive interpretation of these terms, individuals who had nothing to do with the disposal of chemical waste nor even knew about the disposal could be potentially named in a lawsuit.

A US district court in Illinois, however, determined that a trustee did not qualify under the definition of “owner” and therefore could not be held liable for unlawful acts committed on the property. Other states might, however, decide that the trustee is an “operator” of the property, depending on their role in managing it.

The fact is, when CERCLA was drafted, Congress did not consider the status of the trustee. It became apparent that there was an issue only after CERCLA was passed into law. For land trustees, this represents a legal gray area.

There are two things to consider here. Firstly, trustees provide a valuable service to Americans and the government does not want to interfere with that. However, the government also has a tendency to lean on an easy target when they want testimony or evidence in a trial. Since the law is ambiguous, that option is available to them. Whether or not they can act on the threat is a different story.

“Owner” vs. “Title Holder”

Illinois decided that a trustee does not qualify as an owner, and other states may have similar decisions. It will differ from state to the next. No one can be held liable, however, merely for being a “title holder”. Under CERCLA liability regulations or any other law, the trustee would only incur liability under the theory that the trustee is an owner.

While agents of the government are liable to charge an individual with whatever crime they please, in order to prove that the trustee is liable for items held in the trust, they would have to make the case that the trustee is the “owner”. The courts seem opposed to defining a trustee as such.

What are the Main Differences Between a Series LLC and a Traditional LLC?

A limited liability company (LLC) is a popular way for entrepreneurs to file a business entity. A LLC offers owners a level of flexibility not provided through the formation of other types of businesses. As its name implies, an LLC also affords owners limited liability that can help protect them from incurred debt or lawsuits that may be filed against the business. A series LLC is similar to the more traditional LLC. Similar to a corporation umbrella, a series LLC has a “parent” LLC with one or more “child” LLCs that are filed beneath it. However, a series LLC has its differences as well. How do they stack up? Keep reading!

The Similarities

A traditional LLC and a series LLC follow the same formation regulations. Articles of formation, and any associated fees, will be to be filed with the appropriate government body. Most states also require an operating agreement. Both versions of the LLC protect owners from liabilities. Additionally, they do not limit the number of stakeholders or owners and permit non-US citizens to take part in the company.

The Differences

Series LLCs, however, are not recognized by every state. Those that do recognize and permit the formation of a series LLC may have varying laws that dictate how to do so.
other states, like California, do not permit series LLCs to be formed but do recognize those legally established in other states. Others yet do not recognize series LLCs at all. Series LLCs allow a company to separate and “box” specific assets into various sub-LLCs to help protect them from each other. If a lawsuit is brought against one of the series LLCs, for example, the assets and earnings of the other LLCs are shielded from any legal consequences. A series LLC can also help to reduce startup and ongoing administrative costs. For example, if you file for a traditional LLC in Kansas, the fee is $160. If you file for a series LLC, the master will cost $250 and each series will be an additional $100. If you want to protect three separate assets from debt and litigation, under a series LLC, this will cost you $450. To get the same protection from a traditional LLC, you would need to file three separate LLC entities, for a total of $480.

Professional Guidance

Royal Legal Solutions can provide professional guidance to help you make the most of your entrepreneurial dreams. Our staff understands the nuances of state laws throughout the United States and Canada. As experts, our experience can help you avoid accidentally violating the various regulations your company may encounter and maintain your limited liability. If you would like to schedule a consultation, contact us today.

Checkbook Control Facilities for Self-Directed 401(k)s

Saving for your retirement is one of the best ways to prepare yourself for the next phase of your life. Your investment choices can limit or enhance your portfolio. Different types of retirement accounts provide you with varying degrees of control and opportunities. A traditional individual retirement account (IRA), for example, puts your account primarily in the hands of a financial advisor. It limits your investment possibilities to bonds, stocks and mutual funds.

However, a self-directed 401(k) gives you complete control over your investments and an increased chance to diversify your portfolio. In fact, with a self-directed 401(k), you can invest in everything from real estate, to precious metals, commodities and more. This level of portfolio diversification has the potential to create enormous returns. While there are risks associated with such potential, some individuals prefer self-directed 401(k)’s to other retirement account options. In addition to the potential earnings and diversification, a self-directed 401(k) allows you to have checkbook control.

Checkbook Control Facilities

As the owner of your self-directed 401(k), you maintain full control of your plan. In fact, unlike a self-directed IRA, the Internal Revenue Service (IRS) does not require you to have a qualified trustee or custodian. As the plan’s owner, you are your own trustee. This allows you to open a trust account in the name of your self-directed 401(k) at any bank or credit union. Checkbook control enables you to act immediately on investment opportunities. Because you do not have to go through a custodian, you eliminate the approval process some firms require. You simply write a check from your self-directed 401(k) trust fund and the money will be transferred immediately upon receipt.

The Do’s and Don’ts of Checkbook Control

As with any checkbook account, there are a few do’s and don’ts you should be aware of.

Do:

Don’t:

Royal Legal Solutions

While you are the owner of your self-directed 401(k) plan, you will need to open the account with a provider. At Royal Legal Solutions, we understand the nuances of investment portfolios and IRS regulations. Our goal is to help you increase your retirement fund without incurring penalties from the regulatory bodies.

Understanding the Situs of an Out-of-State Land Trust

The “trust situs” is the technical legal term for where a trust is located. It’s typical for the situs of a land trust to be located in the home of the settlor (the trustor). Under certain conditions, it can be to the advantage of the settlor to establish the situs of the trust outside of their home state.

For instance, changing the situs of a trust to a different state can have a profound impact on how the trust is processed. Administrative efficiency will differ from state to state, as will taxes. When the situs of a trust is changed to another state, the laws that govern that trust are shifted alongside it.

It’s a powerful tool for trustees to have at their disposal. What would be the sense of establishing a trust if it’s not going to behave in the manner that you want it to? If your state’s laws don’t meet your goals, changing the situs of the trust to another state is the last option available to you.

Protecting the Trust from Lawsuits

Another advantage of shifting the situs of a trust to another state is that it makes it more difficult to sue. When a trust is established in an individual’s home state, it’s easier and less expensive for those within the state to sue the trust. There’s less legal legwork involved and lawyers would not need to cross jurisdictions.

Moving the situs of a trust can be beneficial regardless of how friendly your state is to your personal goals. In addition, a trust can have multiple situses. A trust can be under the jurisdiction of one state while being taxed under the laws of another state.

Trust Situs: 4 Types

Situs can be divided into 4 types:

The administrative situs is particularly important because that will determine the jurisdictional situs as well. Any individual that wants to sue the trust would have to take their case to whichever state in which the trust is administered.

The tax situs is also quite important. Every state will have different laws concerning how income from a trust is taxed. Moving the tax situs can thus protect the trust from overly greedy states. In addition, some states tax trusts based on where they were created. Others will tax based on the location of the trustee. Other states have no trust income tax at all.

Having a financial advisor or lawyer who can sort these kinds of things out can help a great deal. Obviously, you don’t want multiple states making tax claims against your trust. On the other hand, you do want your trust to be insulated from being an easy target in a lawsuit.

Understanding the Function of Tenancy by the Entirety (TBE)

Tenancy by the Entirety (which is abbreviated T by E or TBE) is a holding title in which a married couple each own 100% of the interest in a property. It is distinct from joint ownership insofar as it can only be used by married couples, and the agreement must be broken by both spouses as opposed to only one. In addition, a creditor going after one spouse could not lien or force the sale of the residence because of a debt owed by only one spouse. The only caveat is that a TBE can only be used for their primary residence.

Tenancy by the Entirety and Asset Protection

Property titled under TBE is considered legally separate from individually-owned property. The TBE agreement is itself considered a person, in the same way that corporations can be considered persons. Two persons, who are married to one another, establish a TBE agreement for legal purposes. The TBE itself is considered a third person. In this way, a home can be insulated against judgments against one or the other spouse.

In addition, if two creditors have judgments against one spouse, or two creditors have judgments each spouse, the home would be safe from the creditors. It is only when one creditor has a judgment against both spouses that the house itself would be vulnerable.

Tenancy by the Entirety and Land Trusts

TBE agreements and land trusts each come with their own set of benefits. These benefits can be used in conjunction with one another when the beneficiary is established as the TBE (the legal third person created by the agreement) as opposed to one or the other spouse.

Those who set up a land trust in this manner can insulate their assets from creditors while essentially hiding their identity as the legal owner of the property. In addition, they can establish a beneficiary without needing to file paperwork with public records. Furthermore, they can retain tax advantages should they qualify for any.

There are a handful of states that allow TBE for married couples, but not every state does. In addition, using a TBE as the primary way to protect an asset from creditors can backfire. Anything can happen before a judge, and if a creditor’s lawyer can convince the judge that the TBE was only created for the purpose of defrauding creditors, a judge might throw out the TBE.
For those that are looking to establish a TBE, it’s best to do this when the home is purchased.

One other consideration: if one or the other spouse files for a divorce, the TBE is immediately nullified. While a TBE can be a good way to protect your residence from creditors, it’s important to realize that under some circumstances it cannot be relied upon.

One Property Per LLC Is Great. But A Property Management Company Is Better.

 

A common asset protection strategy for a real estate investor as to have one property per LLC. And that makes sense because if you have a lawsuit with one property, you don't want it affecting your other assets.

Say we have one LLC with Property A held inside of it and a completely different LLC with Property B held inside of it.

This is a great situation. If you have a lawsuit involving Property A, it's not going to affect Property B.

To further increase your protections, you should have a corporation which acts as your property management company.

This company is completely separate from the LLCs, which hold your assets. And because it's completely separate, if you have a contractor sue you, if you have a tenant sue you, if you have anybody else that deals with the business of running your real estate company that would sue you. The property management company is the entity that they're going to be able to sue.

They won't have a claim against your LLC properties (Property A and Property B). And that's what we want. It protects your credit score if you are sued as an individual (if you ran the business yourself) and it gives you the asset protection you need.

Land Trust Documents: What You Need for Proper Record Keeping

There are a number of good reasons why an investor would want to look into a land trust. A land trust involves the transfer of a property’s title over to a trustee. The trustee is usually referred to as a settlor. In a land trust arrangement, the beneficiary has ultimate control over the relationship and can revoke the trust at any time. A few reasons why a land trust might be desirable to someone:

What Do I Need for Proper Land Trust Record Keeping?

Essentially, there are only two land trust documents that are required to create a land trust. Those are:

The TA (trust agreement) is incredibly important. It is recommended that you keep additional copies of it handy. You will need the trust agreement in the event that you want to either change the trust or sell a property from the trust. Make sure that you have both hard copies and digital copies that you can easily access.

For those that have misplaced their TA, a new copy can be drafted by the trustee. This is yet another reason why land trusts are superior to wills. If a will cannot be produced when it is required, it is presumed to have been destroyed or revoked by the individual who drafted it. For those who have lost their trust agreement, there is no such presumption.

The trustee, however, will need to indicate that the new TA is an amended and restated copy. They do this by indicating such at the top of page one on the restated TA. At the top of the document simply write:

“Amended and Restated Trust Agreement”

In the body of the TA, it’s good practice to indicate somewhere that the original trust agreement was lost or could not be found and needed to be redrafted by the trustee.

For obvious reasons, it’s better to have not lost the original trust agreement in the first place. Nonetheless, it’s not exactly the end of the world when that happens. Trusts are meant to be versatile and save folks some of the inconveniences of dealing with wills. So there are methods in place for managing such issues if they occur.

Know that the Feds are Tracking Secret Buyers of High End Real Estate

There are some real estate investors that are secret because they use cash to buy their properties. They do this to keep it off the radar. However, the federal government will now be tracking these secret real estate investors because they feel that illicit money is going from hand to hand during these secret property transactions. Because of this, the government now requires the names of everyone who pays with cash to make sure they are doing it legally. Or so they say, right?

Areas They Are Targeting and Tracking

So, what areas are they targeting and tracking currently? The first place they started targeting and tracking was Manhattan in New York. However, they are also tracking Miami Dade County in Florida. Manhattan is where this illegal money handling started. Although that may be the case, they will track everyone who pays for a property when buying real estate, in cash. These cash purchases protect the buyer from letting anyone know who they are. Now, they will not be able to shield their identity since the government is getting involved.

Is Money Laundering Going on in the Real Estate Industry?

The federal government will be investigating to determine whether or not there is money laundering going on in the real estate industry. Since cash is being used, no one knows the identity of the buyer. However, that has changed because they require the names of everyone who uses cash so they can keep their investigation going. The Treasury Department and the federal government will be using as many resources as they can to investigate this further.

Secret Real Estate Buyers Using LLCs and Shell Companies to Hide

These so-called secret real estate buyers are using Limited Liability Companies and what they call Shell Companies, to hide the fact that they are buying luxury real estate properties with cash. According to Spoiled NYC, the first high-end luxury apartment was sold through these so-called Shell companies for $18.2 Million and used the name "LLC, 432 Parkview." However, they will no longer be allowed to do this since they are now being targeted and tracked by both the Treasury Department and the federal government.
What do you think about these secret real estate buyers using cash for their properties to hide their identity? Now that the Treasury Department and the federal government are involved investigating, and requiring names of cash purchasers,  if there is money laundering going on, it will now be put to a stop.

What is a Roth Solo 401(k) Plan?

Retirement investment accounts such as IRAs and 401(k)s are subject to regulations dictated by the Internal Revenue Service (IRS). No surprise there, right?

Because of this, the various types of retirement accounts have very specific investment and distribution guidelines, which they must abide by or owners will be faced with penalties, fines and taxes. Retirement accounts are typically taxed in one of two ways: pre-tax deductions or post-tax wages. A self-directed 401(k), also known as a solo 401(k), provides plan owners with an almost tax-free investment opportunity and some of the most diverse portfolio options. And when you opt for a Roth solo 401(k), the possibilities are endless!

Limitless Investment Potential With A Roth Solo 401(k)

Many types of retirement accounts limit your investments to mutual funds, stocks and bonds. This is not so with a Roth solo 401(k) plan. In fact, with your Roth solo 401(k) plan you can invest in things like:

Funding Your Roth Solo 401(k)

You can fund your Roth solo 401(k) account in two different ways.

  1. When you make contributions to your Roth solo 401(k) account, you can deposit your funds into your account. Simply write “Roth” in the memo line of your contribution check before depositing it into your account. These contributions are made after taxes have already been deducted from your paycheck. This makes your investment returns and earnings tax-free and entirely yours.
  2. If you have traditional funds already in your Solo 401(k), they can be converted into Roth contributions. The IRS does not consider this to be a distribution. Instead, this is considered to be an “in plan” conversion.

As your plan provider, Royal Legal Solutions can help you figure out the best way to fund your Roth solo 401(k) account. Whether you want to deposit Roth contributions directly into your account or opt for an “in plan” conversion, we are here to make the process easy for you.

Self-Directed IRAs vs Roth Solo 401(k)s

As stated above, your Roth solo 401(k) allows you to invest in real estate. You may already know that a self-directed IRA (SDIRA) permits this as well. Both a Roth solo 401(k) and SDIRA permit you to borrow money for investment purposes. However, the IRS subjects a portion of the profits generated by these investment loans to an Unrelated Business Income Tax (UBIT). (This is typically around 35% of your profits.) While a UBIT is owed on loan profits of a SDIRA, the Roth solo 401(k) earnings are exempt.

Illinois Land Trusts vs. California Land Trusts: What Real Estate Investors Should Know

A land trust, or what they call a Title Holding Trust in Illinois, is a trust that a person, or grantor, creates to put his or her real estate property, personal property, or assets in another person's name. This grantor, uses a land trust to protect his or her property or assets from creditors. Once the property or assets is in another person's name, creditors cannot touch the real owner's property and assets. When naming a land trust, you can either choose an individual you trust or a bank or other institution to hold on to your property and assets for you.

If you were to ask your attorney from a state that doesn't use land trusts about them, they wouldn't know what you were talking about. This is because land trusts are only in certain states. We will discuss two of them now and they include California and Illinois. Here are the differences between the California land trust and the Illinois land trust.

About the California Land Trust

Does California recognize land trusts? Yes, but they use land trusts a little different than they do in Illinois and other states. What they use them for is to conserve land that no one else is using. The land trusts are rooted in local communities in California and work with the public (residents of the state, land owners, and different agencies) to conserve these properties for the benefit of everyone in the state. These properties, under land trusts, are used to educate the public, entertain them, and help improve the health of the public. The state of California has more than 150 land trusts that protect and enhance more than 2.5 million acres of land.

About the Illinois Land Trust

Land trusts were first started in the state of Illinois and are also called Title Holding Trusts. Land trusts in Illinois work a lot different than those in California but much the same as the land trusts in the few other states they exist in.

In Illinois, they work to protect the landowner, versus protecting the land itself (like in California). These trusts go in someone else's name to protect the property owner to keep creditors off his or her back for good. Although the owner of the land trust signs his or her property and assets over to someone else using a land trust, they still maintain all rights to their property and assets. The land trust must do what the land trust owner tells them to do.

As you see, there is a big difference between a California land trust and an Illinois land trust. One conserves the property for everyone to enjoy while the other just holds the property and assets in another person's name for the protection of the landowner.

You Don't Have To Be In Illinois To have An Illinois Title Holding Trust

You can form a land trust even if you don’t live in these states. Most states without the legal structures in place defer to the Illinois Land Trust statutes to determine validity and case law. Apart from Louisiana, you can hold land in trust in any of the other 49 states and the District of Columbia. This has to be done in accordance with the law of any of the foregoing states given that the beneficiary, trustee, or the property is based there. 

The states of California, Colorado, Missouri, and Nevada have trust laws that allow trustees to hold title to property for a NAMED TRUST (note that it’s just a trust, not a land trust).

Can My Series LLC Have an Unlimited Lifespan?

Regular readers know our firm absolutely loves the Series LLC. It's among the most versatile and powerful entities for real estate investors, or anyone with a growing business in need of asset protection. Today, we're addressing how the Series LLC holds up over time. So, can your Series LLC live on forever? Why would you want a company that could achieve such longevity? We'll answer these questions and more below.


Can The Series LLC Have an Unlimited Lifespan?

The short answer is yes, it absolutely can. Traditional LLCs can also have unlimited lifespans under some circumstances. What does this mean in practice?

Some types of companies have laws that require them to re-file with the state to continue existing beyond a certain point. Otherwise, these companies will be required to dissolve within a specified timeframe. By contrast, the Series LLC has an unlimited lifespan, also referred to as a perpetual lifespan, automatically. When you use this structure, you won't have to worry about re-filing, or other paperwork hassles. Read on to learn more about the specific benefits of this feature.


Why Should I Care About My Company's Lifespan?

There are several advantages to having a company with an unlimited lifespan. The most obvious of these is that you'll save money. Re-filing with the state isn't free. You have to pay fees when you re-file to prevent the dissolution of a company with a concrete lifespan. The Series LLC, however, is immortal. You pay once, when you establish it, and you're done. Some other perks of perpetual lifespans include the following:

Of course, there are many more benefits to the Series LLC as a whole. You can read much, much more in our previous posts about advantages of using a Series LLC.


How Do I Form My Series LLC?

Forming a Series LLC still requires filing paperwork with the state. You'll also need an Operating Agreement for the parent company, banking and bookkeeping preparation, and enough Series for each of the assets you intend to protect. Funding the Series LLC is another issue to deal with. Getting this done correctly is important to make the most of your new entity.

That's why it's important to get help from a qualified attorney with specific experience in Series LLCs and their management. At Royal Legal Solutions, we offer a full-service Series LLC package that gets you in business as soon as possible. If you're ready to get started, schedule your Series LLC consultation today.

Some Drawbacks of Series LLCs

The Series LLC is a remarkably powerful tool, but it isn't a panacea. Few things in life are perfect, and the Series LLC is no exception. No entity, legal tool, or strategy is one-size-fits-all. Today, we're going to discuss some of the drawbacks of using a Series LLC. This post should help you determine if the Series LLC is right for you.


Series LLCs Aren't Cheap

Forming a Series LLC costs money--usually several hundred dollars. Those costs can go up depending on if you need additional features for asset protection purposes. The Series LLC isn't unique in this regard. In reality, forming any company is going to cost you money. But forming a company correctly is difficult to do on your own, unless you're an attorney. If you aren't an attorney, you'll almost certainly need the guidance of one.

Lawyers aren't cheap, but if you want a correctly-formed entity you can rely on, this is an expense worth paying for. The alternative is doing it yourself, which means you risk making mistakes that your business will end up paying for in the end. You could lose liability protections, or even fail to register properly. The consequences of these mistakes are generally more costly than employing an attorney to oversee your company formation in the first place.

That said, Series LLCs do save immensely on start-up costs. This is because you're only going to file and pay fees once. If it comes down to using multiple Traditional LLCs or the Series LLC, the Series LLC actually is cheaper. How much you will pay is going to depend largely on what type of business you're running.

Series LLCs are Newer Business Structures

The Series LLC is a young entity compared to other corporation options. This means there hasn't been as much law made specific to the Series LLC. Courts operate on precedent, or previous rulings from other courts and prior changes in law.

When a legal concept or structure is as new as the Series LLC, it becomes difficult to predict what outcomes you'll face in certain situations. This is simply because you're entering barely-charted territory.

Bankruptcy

Bankruptcy is one example of where the Series LLC's newness can become problematic. If you're unfortunate enough to end up in bankruptcy court, your Series LLC may protect the items in your series. But it isn't certain.

Because there is little precedent on how the courts treat the Series LLC, it's impossible to say whether each Series would be treated as a unique entity. Similarly, we just don't know how the entity as a whole will be regarded by these courts. It's literally going to be up to the judge, and some business owners don't like this unpredictability.

The law is ever-changing, and the future is uncertain. For now, however, Series LLC protections have been able to withstand legal scrutiny and many attempts to breach its protections.

Ultimately, understanding how a Series LLC works and whether the Series LLC is right for you is going to depend on your business needs. If you're unsure whether this structure is the right fit for you, feel free to ask questions in the comments section below. You can also contact us for help forming the best entity for your business.

Series LLC Tax Treatment: How the IRS Sees Your Series Entities

The Series LLC comes with so many awesome features for real estate investors that some of us think it's darn-near magical. While it's certainly a powerful structure with plenty of useful applications, even the Series LLC is forced to acknowledge a power greater than itself.

No, we aren't talking about you. We're talking, of course, about the Taxman.

Admittedly, this isn't the sexiest topic in the world, but it's essential knowledge for responsible members of a Series LLC. We'll make this as painless as possible. Below, we'll go over how Uncle Sam views the series within your Series LLC and what you have to do to stay on his good side.

How Uncle Sam Treats the Series LLC

For tax purposes, the Internal Revenue Service treats the Series LLC very similarly to a traditional LLC. The major question I get about this topic is whether each individual series is taxed separately.

For now, the IRS regards the Series LLC as one big entity. This means, that each series within the structure is not considered a separate company and therefore does not require separate returns. Of course, you will have to declare any income you've gained from your Series LLC, and we'll elaborate on that below.

It's important to note that the Series LLC isn't without its tax advantages. Its status as a pass-through entity will save you money and spare you from excessive corporate taxes that you would pay for other types of companies.

How To File Taxes for Your Series LLC

Your operating company (also called the "shell" or "master" company) is what will appear on your tax return. Provided the series that made money for the relevant tax year share common ownership, you can take advantage of pass-through taxation and simply report all income on the Schedule E portion of your personal tax return.

There are ways you could file separate returns for each cell, but this is typically not recommended for Series LLC owners whose income is mostly coming from passive investments like real estate. We do, however, recommend that Series LLC owners keep thorough, separate records for their series to ensure liability protection and simplify the tax process. This applies regardless of how you choose to file.

How to Ensure You're Filing Properly: Get Help

Please keep in mind that this information about Series LLC tax treatment relates only to taxation at the federal level. State law can change more frequently, and your state may implement or already have state tax requirements specific to the Series LLC.

This is one of many reasons that smart Series LLC owners use qualified CPAs and attorneys to help them handle their taxes. Our experts at Royal Legal Solutions stay on top of the most up-to-date information about Series LLCs and tax law. If you still have questions about how to handle the taxes for your series LLC, you're not alone. We're here to help.

Don't wait until the Taxman comes knocking! Contact us to take advantage of your personalized consultation today.

Keep more of your money with a Royal Tax Review

Find out about the tax savings strategies that you can implement as a real estate investor or entrepreneur by taking our Tax Discovery quiz. We'll use this information to prepare to have a productive conversation. At the end of the quiz, you'll have an opportunity to schedule your consultation.    TAKE THE TAX DISCOVERY QUIZ

What States Are Permitting Series LLCs?

The Series LLC is beloved by investors and business people for its versatility and a broad range of benefits. However, it isn't a universal structure yet. Not all states allow the in-state formation of Series LLCs. Below, we'll go over which states do not permit Series LLCs. We'll also tell you what you can do if you live in one of those states. Don't worry--you can still form a Series LLC. Keep reading to learn how.

States that Offer Series LLCs

The Series LLC was initially pioneered by Delaware, a famously pro-business state. Even today, Delaware remains a popular state for entity formation. Other states followed in Delaware's footsteps, and today you can get a Series LLC in Texas, Tennessee, Utah, Nevada, Illinois, Oklahoma, and Iowa.

Though not technically a state, residents of Puerto Rico also have the option to form a Series LLC without ever leaving the island.

States That Don't Permit Series LLCs

As of this writing, the only state that doesn't allow the formation of an in-state Series LLC is California. California has specific and strict regulations governing business in general, and there is currently no such thing as a California Series LLC. Traditional LLCs are common, as are other types of entities and agreements. We've written about special considerations for California real estate investors before.

If your state doesn't offer a Series LLC, don't slam your hand down on the panic button just yet. There's a way to get around the restrictions of your location, easily and 100% legally.

How to Form a Series LLC From Any State

Fortunately, your Series LLC doesn't have to be formed in your state of residence. This means, provided you're a U.S. citizen, you can form an out-of-state Series LLC.

The following are the most popular states for forming a Series LLC:

Each of these options comes with specific operational, judicial, and tax benefits. Which option will be best for you depends on which features and perks you'll get the most out of. For more details, refer to our previous article on the best states for forming a Series LLC.

After you've selected a state and formed your LLC, you will be able to register the company with your state of residence. Even California allows its residents to register a Nevada or Texas Series LLC and conduct business within California. Of course, these laws will vary based on where you live. Each state will have its own regulations that dictate what you and your company must do to be in compliance with the law. You can get an idea of what you'll need to do by doing some basic research online.

However, the wisest course of action is to seek the guidance of an attorney with experience in entity formation, and ideally, experience with Series LLC in particular. At Royal Legal Solutions, we routinely help our clients select, form, and manage the best type of Series LLC for their individual situations. If you have questions about the best option for you or are ready to get started, don't hesitate. Reach out to us and schedule your Series LLC consultation.

Investment Property Insurance Questions You Should Ask Your Agent

Real estate investors that do well are smart folks, but it can be hard for smart people to admit they aren't experts at everything. Many of us have successful careers outside of investing. Maybe you're a CPA or a neurosurgeon, or an attorney like myself. But smart people like ourselves need to be mindful that we are also wise. Wisdom is knowing that there are things you don't know.

And what do the wise among us do when we don't know something? We ask questions! Insurance is vital, and typically a legal requirement for your investment properties. Insurance alone is not an advisable strategy for asset protection purposes. At Royal Legal Solutions we highly recommend insuring your properties as your first line of defense.

Question 1:  What Types of Policies Are Available To Me?

Typically, you'll find policies along a spectrum of Basic, Broad, Specified, and Comprehensive. The first is exactly what it sounds like: the bare minimum. Comprehensive is the opposite end of the extreme, and the most all-inclusive kind of policy you can acquire. A good starting point is to write down what you have; i.e. assets, debts, dependents, monthly income, monthly expenses, and how you make a living. This way you can formulate a plan for what coverages you will need and work from there.

Question 2: Can You Please Explain My Policy And What It Covers?

This is fairly straightforward. You may also take this opportunity to ask what other types of investment property insurance the home already has (fire, etc.) to get the best idea of your needs.

There's a second part to this question: you will also want to ask what your policy does NOT cover. Some policies cover slip-and-fall accidents, and some don't. Many investors need this coverage, especially those who flip or rehab homes. Think about it: with all the contractors,  laborers, and both prospective and future tenants coming through the property, you can't risk not having your backside covered. Asking what isn't covered will help you make the most informed decision possible.

One major concern you should know about your policy is whether it covers the loss of rent. Landlords can face this in situations as extreme as natural disasters (just ask the landlords who had to rebuild after Hurricane Sandy) or as mundane as a few teenagers armed with spray paint defacing your property. (maybe also add about short-term rentals, where damage to the property or furnishings in the property cause a loss of revenue? Assess your risks alongside your agent, but remember insurance is cheap when you think in terms of loss so investors who can afford it should take advantage.

Question 3: What Information Do You Need For An Investment Property Insurance Quote?

This may seem obvious, but the details of your situation will help the agent get you the most appropriate and accurate quote for your needs. Here are some typical things you will have to provide:

Question 4: What Is My Property's True Replacement Cost?

TRC is different from the value of your home but critical for real estate insurance purposes. It's usually measured in square footage, and a good agent will work with you to determine your need. Feel free to shop around with various agents to ensure you're getting the best, honest deal. There are over 4000 different factors that go into determining the assessed value of a property.

Final Notes: The More You Know, The Better Off You'll Be

You want an agent who is both transparent and able to answer all of these questions. You can start by researching reputable agents online. If an agent won't answer these questions, that's a giant red flag. Move on.

Still stuck? We now have an in-house insurance agent on staff to assist real estate investors. Together we can streamline coverage through the policies we offer to ensure that you are protected and that your loved ones are cared for in the event something unforeseen occurs. We offer a single point of contact for all of your policies including auto insurance, property insurance, and life insurance. To get started, take our Insurance Quiz and book your free consultation. You've got nothing to lose in requesting a quote and everything to gain if we can save you money.

How to Invest Using a Self-Directed IRA Loan

This is one of a multi-part series on the Self-Directed IRA. Depending on how familiar you are with the account type already, you may already know that the Self-Directed IRA one of the best retirement solutions. This is particularly true for experienced investors and self-employed individuals. Even if you're neither of these yet, you'll still want to read on.  A whole world of profitable investment opportunities is just waiting for…YOU!
 
Think of your Self-Directed IRA as a “retirement investment vehicle” which allows you to use your retirement funds to invest in all varieties of investments. This includes, fortunately for my fellow real estate empire builders out there, real estate.  But regardless of your preferred investment types, the best part for all account holders is that if you form and execute your Self-Directed IRA properly, your money grows tax free and you don’t need to take orders from a custodian. This will also free you from the expensive custodian fees that may have been a burden on your retirement account savings for years.

Below, we'll talk about how to take advantage of some of the Self-Directed IRA's best features, but focusing first, of course, on how to get a loan for your investments.

Why Traditional Loans Won't Work For Your Self-Directed IRA

Most investors using retirement funds to make an investment will use cash to make those deals. Whether the investment is in the form of stocks/bonds, gold, or real estate, most investors will not borrow any funds to make an investment.
One significant reason why retirement account investors will generally not borrow money (also called debt or leverage) as part of an investment of real estate acquisition is the IRS. This should come as no surprise, as most Americans fear the IRS--and with good reason.
Internal Revenue Code Section 4975 prevents you, the IRA holder, from personally guaranteeing a loan made to your IRA. This applies to your Self-Directed IRA,  because you are barred from using a typical loan or mortgage loan as part of an IRA transaction. The IRS considers such loans prohibited transactions, which can trigger major consequences and fees for the investor who runs afoul of prohibited transaction rules.

The bottom line is simple: you just can't get an ordinary loan with Self-Directed IRA. But you may still need one to cover your early investments. Don't worry though. You, as a newly empowered Self-Directed IRA investor, do still have a financing option: a non-recourse loan.
 

What is a Non-Recourse Loan and How Does it Work?

Non-recourse loans differ wildly from traditional loans in a major way. Non-recourse loans aren't guaranteed by anyone at all. Rather, they're secured by collateral, such as a valuable property or other asset. While in theory any asset could be used for collateral, lenders in this case are typically securing  the loan via the asset or property that the loan will be used for.

So if you, the borrower, are unable to repay the loan, the lender’s only recourse is against the asset, such as the investment property you intend to use the loan for. They can't come after you personally.  That's the simple definition of "non-recourse."
 
On average, non-recourse loans are tougher to obtain than a traditional loans or mortgages. Fortunately, this is a common enough strategy for investors that you will have your pick from a wide variety of reputable non-recourse lenders. But you should be aware of the fact that interest rates on non-recourse loans do tend to be slightly higher than those of personal loans.
 

IRS Rules Regarding Non-Recourse Loans

The IRS has some strict limits on how these types of loans may be used in retirement accounts. The main thing you should know is that Uncle Sam allows IRA and 401k plans to use non-recourse loans solely for financing purposes.

 The rules covering the use of non-recourse financing by an IRA can be found in Internal Revenue Code Section 514. Section 514 requires debt-financed income to be included in unrelated business taxable income (UBTI or UBIT), which can trigger around a  40% tax for 2017 and 2018. If non-recourse debt financing is used, the portion of the income or gains generated by the debt-financed can also get you hit with the approximately 40% UBTI tax.
 
So for instance, if you choose to invest 60% IRA funds and borrow 40% on a non-recourse basis, 40% of the income or gains generated by the debt financed investment would be subject to the UBTI tax.
 
Let's keep it simple and imagine for the purpose of this example that the investment property you wish to buy is $100,000. This means that as a  Self-Directed IRA investor, if you invest $60,000 IRA funds and borrow $40,000 on a non-recourse basis and the IRA investment generates $1,000 of income annually, 40% of the income or $400 would be subject to the UBTI tax.
 
But don't stress it too hard. There are ways to reduce the $400 base tax. It should be clear from this example that using as little non-recourse financing as you need is ideal, but that's not the only way to lower your base tax.

How To Save On Taxes By Avoiding the UBTI

You can use a Solo 401k Plan, if you already have one, to dodge the UBTI.  This is one reason that Solo 401ks and Self-Directed IRAs are such attractive investment vehicles. Used together, or using strategic rollover methods, you can reduce your need for financing, but the news gets even better.
 
If you use non-recourse financing to invest in real estate through your Solo 401k Plan or your Self-Directed IRA, you will “escape” UBTI/UBIT tax due to an exception. This exception can be found in the Unrelated Debt Financed Income (UDFI) rules found under IRC 514(c)(9). If you're curious, you're welcome to learn about how this works, but due to space reasons, I'll just tell you that many of my clients have used this exception to save thousands in tax dollars while securing the loans they need for their Self-Directed IRA investments.

And there's no reason why you can't do this too. That's all for now, but if this subject interests you, keep your eyes peeled for many more upcoming pieces on the Self-Directed IRA and its "big brother" account, the Self-Directed IRA LLC. These will also be discussed in an upcoming book I'm authoring and giving away for free for Bigger Pockets. Stay tuned for updates on that, and happy investing!
 

Three Lesser-Known Benefits of the Roth IRA

It's not a secret to the bigger pockets community that I'm a big fan of the Roth IRA, but I love its features so much that I'm doing writing about it again. If you haven't already read my previous Roth IRA piece, it serves as a good primer. The information below, however, will illustrate some of the lesser-known perks of owning a Roth IRA.

Many investors and financial professionals are familiar with the main benefit of a Roth IRA. In short, it's the fact that after you pay taxes on the money going into the Roth IRA, the plan's investments grow tax free. Even better, when the time comes to take your distributions, you won't have to pay taxes on those either.  That being said, there are so many more benefits to the Roth IRA that you should know about if you're considering this retirement account option. Below, you'll find the top three.
 


Roth IRA Benefit #1: Exemption From Required Minimum Distributions

First, Roth IRAs are not subject to Required Minimum Distributions (RMDs). Traditional retirement plan owners are subject to RMD rules which require the account owner to start taking distributions and paying tax on the distributions at a given age. For most plans, the RMD rules kick in when the account owner reaches the age of 70 ½.
 
Why is this a benefit to you? To put it simply, dodging the RMD rules allows the Roth IRA to keep gathering and growing tax-free income. This tax-free benefit extends to capital gains or other taxes on the investment returns. This allows the account to continue to accumulate tax-free income during the account owner’s life time.

And perhaps even beyond. Learn more about how your Roth IRA can outlive you and provide your loved ones with additional security below.
 

Roth IRA Benefit #2: You Can Share the Love With Your Spouse

Death is inevitable. But if you were a smart investor who got a Roth IRA, your surviving spouse can continue contributing to that Roth IRA, provided your significant other is a beneficiary of that account. He or she can combine your Roth IRA into his or her own Roth IRA.

Allowing the spouse beneficiary to take over the account allows additional tax free growth on investments in the Roth IRA account. By contrast, a  Traditional IRA cannot be merged into an IRA of the surviving spouse nor can the surviving beneficiary spouse make additional contributions to this account. Non-spouse beneficiaries, such as the children of a Roth IRA owner, cannot make additional contributions to the inherited Roth IRA and cannot combine it with their own Roth IRA account. Other beneficiaries are subject to required minimum distribution rules,  but they can delay out required distributions up to 5 years from the year of the Roth IRA account owner’s death. Additionally, they are also able to continue to keep the tax-free return treatment of the retirement account for 5 years after the death of the owner.

The second option for non-spouse beneficiaries is to take withdrawals of the account over the life expectancy of the beneficiary. So, young beneficiaries can delay taking money out of the Roth IRA for quite a longer than older beneficiaries. The lifetime expectancy option is usually the best option for a non-spouse beneficiary to keep as much money in the Roth IRA as possible while also reaping the benefits of tax-free returns and growth.
 


Roth IRA Benefit #3: No Early Withdrawal Penalties

 
That's right!  Roth IRA owners are not subject to the 10% early withdrawal penalty for distributions they take before age 59 ½ based on their own contributions or conversions. This is one reason that many investors choose to go Roth-style: the early withdrawal penalty certainly applies to those using 401ks or Traditional IRAs.

However,  growth and earning are subject to the early withdrawal penalty and to taxes too. But if you do find yourself in a situation where you must withdraw early, you can always take out the amounts you contributed to your Roth IRA or the amounts that you converted. These funds will be available to you tax- and penalty-free.  But if you do this, be aware that conversions have a five-year waiting period before you can take out funds while avoiding penalties or taxes. If you're relying on conversions, you'll want to let them sit for those five years.
 
Roth IRAs are an awesome resource for investors who are eligible to open them. There are some qualification rules for Roth IRA eligibility that leave out many high-income individuals. But as always, there are loopholes you can exploit in this situation.  You can convert your traditional retirement plan dollars to a Roth IRA (sometimes known as a "backdoor Roth IRA") as the conversion rules. This works and is legally permitted because there is no income qualification level requirement on converted amounts to Roth IRAs. This conversion option has in essence made Roth IRAs available to everyone regardless of income.

And everyone includes you. So, are you considering a Roth IRA? Have you already been seduced by this sexy beast of a retirement account? Do you have any more questions? Let's keep the conversation going in the comments section below. I'd love to hear from you, and will do my best to answer questions with the time I have available.
 

5 Most Common IRA Contribution Questions

My clients are always asking me what the deal is with the individual retirement account (IRA).  Don't worry if you're totally lost when it comes to retirement accounts. I spend a lot of my time addressing all sorts of IRA-related queries. Like if it's a good idea to get one even if you're young. Or why  I'm so into this Roth dude that people are constantly talking about talked, and if he's paying me off? (He isn't. He also isn't a "he" either--more on that below). Or what the maximum IRA contribution level is. And will the taxman cut retirees a break, finally? Maybe if I ask super nicely?

Fear not, friends. I've got your backs.  Here are the five most common questions I get about IRAs, finally answered in plain English.

Question #1: Is My Contribution Tax Deductible?

Maybe. All sorts of things factor into whether you will get a deduction. Some circumstances the taxman considers include whether you're married, if your job is backing your IRA, what tax bracket you fall into, etc.  Depending on those variables, you’ll be placed into one of three categories.

Group 1: No Tax Deductions

Contributions to a Roth IRA aren’t deductible. Never. Sorry about it. That said, contributing to your Roth account is still a good idea. You'll want to check your  modified adjusted gross income (MAGI) . Roth accounts have a cut-off for how much you can earn annually and still be eligible to hold the account at all.
 
If you're really looking to save in tax terms, one strategy you can use is maxing out your 401(k) or 403(k) first. You'll get all the same tax perks of the old-school IRA, and more, since you're a superstar taking advantage of multiple accounts.  You can even have one of these AND an IRA if you want to be super comfortable in retirement.

Group 2: Deductions with Limits

You may fall into this group if either of the following apply to you.

  1. You or your husband/wife are covered by your employer.
  2. You or your husband/wife are outside of the allowed income range.

Now you'll need to be aware of the fact that the IRS changes its parameters on this matter all the time. You'll want to do some research to ensure your eligibility before moving forward with filing. If this is confusing for you, call your lawyer and ask for help.

Group 3: Total Tax Deductions

You belong to this group if both of the following statements apply.

  1. You don't have a retirement plan through your work, and aren't married to someone who does.
  2. Your income(s) falls under the IRS cut-off point.

See above for information on income ranges. We'll talk more about the cut-off points below.

Question #2: Can I Contribute To An IRA Even if I Have It Through My Employer?

You bet! And frankly, you  probably should, especially if that employer is matching or offering other incentives to do so. You don't even have to have a conventional account.  SEP (self-employed) or SIMPLE IRA account holders can take advantage of this as well.

You'll want to note that there are limits to how much you can contribute. You may not be able to deduct the entire amount, but that will depend largely on your circumstances. (See Question #1 for more details on that).
 
I can already hear some of you saying, "Wait! I'm not covered by my job."  Take a deep breath now. That's okay. You can still contribute to an IRA. One of the perks of IRA plans is that they're available to literally anyone: which type (self-directed, Traditional, etc.) is best for you will depend on your circumstances. There's even the SEP IRA option for self-employed folks. Those contributions could even be deducted entirely depending on your income. Again, consult a CPA on this matter.

Question #3: Is It Possible to Contribute if I Didn't Earn Anything This Year, But My Spouse Did?

Absolutely.  You'll have to file your taxes jointly to do this, but it's A-okay with the taxman if only one partner is earning taxable income. It doesn't matter which individual  earned the money you plan to contribute.
 
As with all things tax-related, there are some restrictions. You have to ensure your contributions don't exceed those. The limits for 2018 are $5500 in if you're under the age of 50, or $6500 if you're over the age of 50.

Question #4: Is There a Way to Contribute To My Roth Account If I Earned Too Much Money In 2018?  

The IRS has set the contribution cutoff at $135,000.00 for single individuals and $199,000.00 for couples who file jointly, which up significantly from last year. Some exceptions apply if you are a qualified widower. If you're married and filing separately, you aren't eligible for a Roth account. Whether you want to reconsider how you file is up to you.

It comes right down to whether you earned more or less than that figure above. If you're under that number, you're good to go.  But if you have earned more, your Roth custodian can limit or even freeze your account.


But there are loopholes here if you do earn more than the Roth cut-off. You can use a Traditional IRA (which is available to everyone, regardless of income). Contribute to that, and pay the taxes upfront. Now roll that cash money over to your Roth IRA. Why this is legal is you've already paid the taxes, so it's eligible to transition into the Roth. Pretty cool, right?

Fun fact for all my retirement superstars out there: This tactic was made possible when the IRS removed the income level restrictions for making Roth conversions in 2010.

Question #5: Can I Contribute To My IRA if I'm older than 70½?

Maybe. The type of IRA you use is the critical factor here.
 
If you've gone with the old-school IRA, the answer is no. Once you hit that age, you won't be able to contribute any further. But if you've opted for a Roth IRA, you can still add funds there. You may also move funds between IRA accounts.  Barring any unforeseeable and unlikely dramatic changes of law, this will always be true, even if you live into your 100s.

And I sincerely hope you do!

There you have it. Those are the short versions of answers to the five most common IRA questions I get. If there's a detail still gnawing away at you, or if a question you didn't see answered above, please use the comments below to ask about anything still on your mind. Thanks for reading!

Quick Fix: IRA Contribution Limits for 2018

Hello, fellow investors. Every new year, I get many questions about IRA contribution limits and what changes have taken effect. This year, there have been many more questions than usual about this subject, as well as the new tax laws.  Don't worry, there's an article in the works about how these new tax laws will impact real estate investors soon. While it would be impossible to answer all of the questions I've received in this space, I will be giving an update on the IRA Contribution Limits for 2018.

Today, we're just going to talk about a "quick fix" for your IRA and retirement concerns. We'll also show you one big way to get around the 2018 limits and make the most of your retirement savings.  Even better, you can learn all of this information in less than ten minutes.

2018 IRA Contribution Limits

Let's start with the good news:  IRA contribution limits remain the same in 2018 as they did in 2017 (and even as far back as 2016). Here's the quick and dirty update:

 
But maybe you want to contribute more. If you're ready to take your retirement account to the next level, here is our Quick Fix solution:  take advantage of a self-directed IRA LLC.

Why Is a Self-Directed IRA LLC Good For Me?

 
Self-Directed IRA LLCs  are a mouthful to talk about, so it's possible you haven't even heard of this tool at all. But they will offer you the ability to make tax-free investments without custodian consent. Since you don't need to get permission from a custodian (you are, after all, an adult--or possibly an extremely bright teenager planning retirement early), you can make the investments you want, and you can make them faster than you would if you were stuck in Traditional IRA Land. Self-directed IRA LLCs are special purpose liability companies. Yours will be fully owned and managed by you. You can lord over it and feel like a God on the weekends. The LLC can become a pass-through for tax purposes, which allows you, the owner, to assume the tax burden instead of the LLC. This gives you tax options.

In most cases, income and gains flow back into the IRA tax-free. You are also able to keep and funds in an LLC bank account without having to go through a custodian. These accounts operate similarly to personal checking accounts, but the company is separate from you as an individual. You have control over, and access to your money, which means greater investment flexibility.

You can invest in anything from your IRA LLC. And when I say anything, I mean literally anything: real estate, gold, Bitcoin, and so much more is all fair game. Your only limit is your imagination. No matter where you put your money, your income and gains flow back into your fund tax-free. You can stick it to Uncle Sam--who among us hasn't wanted to? And even better, you can maximize your contributions and plan the retirement you've fantasized about for during your working life.


Quick and Dirty Recap of Self-Directed IRA LLC Benefits

 
So, to briefly review for the scanners in the audience, when you get a Self-Directed IRA LLC:


Pretty cool, right?

That's it for today. If you have any questions about Self-Directed IRA LLCs, want to sing their praises, or want to pick an argument with me because you think I'm totally off-base, you can do so in the comments below. Let's spread the Self-Directed IRA LLC Gospel  and work towards a happy, healthy, and comfortable retirement plan together.


 

What's The Right Business Structure For Multiunit Real Estate Investors?

Real estate investors love multiunit properties. These rental properties are in high demand, with renters scrambling to find duplexes, fourplexes, and of course, traditional apartment complexes in the parts of town close to work and play.

Multiunit investments are also surging in popularity in part because they are more resistant to inflation than traditional single-family homes.

While many of the same principles of business entities for real estate investors carry over to this topic, there are certainly special considerations that multi-unit investors must take into account. Below, we'll talk about the types of business structures that favor these investors, how they work, and what to keep in mind if you're considering adding a multi-unit to your real estate empire

Joint Venture Arrangements

Joint Ventures (JVs) are a popular choice for beginner investors, as well as those who prefer quick, one-and-done deals. They allow investors to pool money and equitably share risks and profits alike. Multi-unit residences and industrial properties make for a logical application of a JV agreement, as they easily divided for practical purposes.

JVs are a great option because they are clearly defined from the beginning. If your investment or partner(s) don't work out, you aren't locked in for life. But if you're successful, the JV leaves the door open for future collaboration.

Limited Partnerships

Limited Partnerships are most useful for investors operating their property with one partner. The terms of LPs are flexible, so your partner can be a fellow investor, property manager, angel investor, or anyone you see fit.

LPs are agreements that offer investors a high level of control over their terms. If you're considering this option, ensure you share your needs with a qualified attorney. Strong contracts will ensure you're getting the deal you want and will beef up your asset protection system.

The Series LLC

The Series LLC is among the strongest structures for any investor, and multi-unit real estate investors are no exception.  This structure is extremely versatile. It's easy to form a multi-member Series LLC, but it works just as well if you're investing on your own.

Common reasons multi-unit investors love the Series LLC include the following:

We hope this has given you a starting point on the best business structures for multi-unit investments. Of course, everyone's situation is unique.  Ideally, you want your structure in place before making any investment.

Interested in learning more? Check out our article, When It Comes to Taxes, Is Managing Rental Properties a Business or an Investment?

 

Anonymous Trusts & Asset Protection

 

Rich people employ asset protection specialists to make sure that their wealth is preserved from any particular lawsuit.

How do we protect the assets and keep people from finding out about them? We do this is by using anonymous trust.

You already know about the LLC and the protections that an LLC is going to give you in terms of anybody trying to sue you and get you your assets. What you might not know is that as a matter of public record and traditional filing that you would do with Legalzoom or another legal website or your average CPA or attorney is that now everybody knows what you're LLC is? Well, what we use is a trust.

You can use a trust to be able to own the LLC well trust or private documents so nobody would be able to find out who actually owns that trust, where the beneficiary of the trust assets, you can own the LLC anonymous. You also know that the ultimate goal of actually having this LLC is to hold the asset. Your ultimate goal for this piece of property.

This piece of property has a deed, and on that deed it says who owns it. Well, if that's your LLC and people can connect it to your company's structure, if it's you, now they know that you own it. That's your worst case scenario.

But you might have not known that a trust itself can actually be the title holder to the property. This keeps anybody from being able to connect your property to your company. So in effect, you have complete anonymity. Nobody can find out who owns your company and nobody can find out who owns your property.