How A Land Trust Can Protect Your Investments From Identity Theft

Unless you've been living under a rock or abstained from cable news for your own mental health, you're probably familiar with identity theft. Identity theft is an all-too-common criminal act that has steadily been on the rise over the past three decades in particular.

The sad reality is that anyone with clean credit, wealth, or valuable assets can become a target. As a real estate investor, you're vulnerable, particularly if you have property in your own name. But did you know that a land trust can help prevent you from becoming a victim?

Know Thy Enemy: How Identity Thieves Pick Their Targets

Nobody gets into identity theft because of their impeccable work ethic. Identity thieves go for low-hanging fruit, meaning, targets that require the least effort on their part. This is one reason elderly people frequently fall prey to these criminals. Some thieves will dig through garbage for identifying information, usually to take out a credit card in the victim's name. Minimizing your paper trail will help you protect yourself in everyday life.

But how should you protect your investments?

Your investments leave a digital trail. This fact and the advent of Google have made investors attractive potential victims. All a thief has to do is poke around online and find a deed, which is conveniently catalogued for them on .gov websites. From this and other public records, the criminal can determine a disturbing amount of information about you, including your banking information.

Most criminals look for low-risk, high-reward targets. You don't have to sacrifice your wealth or real estate portfolio: just make yourself a harder target. This means you'll want to guard your "digital paper trail" closely, or better yet, not leave one at all. The crucial first step is keeping everything out of your name. The land trust helps you do exactly that.

How a Land Trust Can Protect You

Land trusts disguise ownership of property in a perfectly legal manner. The very existence of the trust means your name doesn't have to appear anywhere at all. This holds true even if you must use a mortgage for your property. Your name isn't the one on the dotted line on your payments--that honor goes to your trustee.

Note: Your attorney can be your trustee, and since your communications with your lawyer are confidential, this will give you further protection.

How to Set Up Your Land Trust

Establishing a land trust involves identifying appropriate properties, taking financing matters into consideration, selecting trustees and other manages, and of course, creating and executing the appropriate legal documents.

If a land trust isn't set up correctly, there is little point in setting it up at all. This is why it's crucial to enlist a knowledgeable and competent attorney. Improperly established trusts won't give you the protection you need, but the investment you make in a professional will ensure that your land trust is going to work best for your circumstances. Royal Legal Solutions has you covered. Our experienced attorneys offer comprehensive land trust services, and can also advise you on what other legal tools are best for keeping your property and identity safe. Reach out to us to schedule your land trust consultation. Let us handle the paperwork, while you enjoy your peace of mind.

How to Hold Real Estate Notes in a Land Trust

Chances are if you're reading this, you already know a little bit about land trusts. Maybe you've even taken the next step and secured some of your real estate investments in a land trust.

But if you're new to investing or land trusts, you may not be aware of the fact that you can actually use them to hold all sorts of things, including real estate notes. Learn more about how, and why, you may want to use this fact to your advantage below.

What Can I Hold in a Land Trust?

Most investors who are already familiar with land trusts aren't hip to their level of versatility. Most people think of land trusts as a place to stash a property and title. In fact, almost anything connected to your properly at all can be secured in a land trust.

We'll talk more about real estate notes below, but some other things your land trust can hold include deeds, financial agreements, accounts for regular upkeep services related to the property, and more.

The practical applications here are broad. Let's say you learn your new investment home is sitting on top of a natural gas deposit. Cha-ching: that's great news! The even better news is once you hammer out a contract to capitalize on your new-found resource, the rights to the natural gas (or oil, etc.) can also be protected by your land trust.

What Are Real Estate Notes?

Just like you don't want to hold property in your legal name, you don't want notes tied to your identity. This is a rule of thumb for any asset. There are several reasons for this, and most of them have to do with asset and liability protection or staying out of civil court. But there are also considerations specific to note holders.

Notes can be a risky business for everyone involved. If you're just now learning about notes, they essentially function like loans. While notes and other types of loans can be very lucrative, there is always a definite risk that the recipient will default, or otherwise fail to pay up. Traditional lenders will find this costly and annoying, but note holders have an additional problem on their hands when things go south: foreclosure.

That's right: if you are holding in a note and your arrangement goes sideways, you're left holding the bag in the event of a foreclosure. And even if you're one of the wealthiest and most successful investors out there, you don't want a foreclosure dirtying up your record.

Why Should I Hold a Real Estate Note in a Land Trust?

The good news is, you can completely sidestep this problem by holding your notes in a land trust. If you do a lot of this type of business, a default is nearly inevitable at some point. But the use of a land trust will protect you and your good name from the consequences. It's only fair, considering you're not the one who failed to keep your end of the deal.

This strategy works because the land trust keeps you as an individual separate from any properties, notes, or other related assets. Your trustee's name will appear instead of your own on the documents. But you are the one that will be spared the bruises to your budget and reputation.

The mechanics of moving your notes into the land trust are the same as they would be for any other asset. Our experts at Royal Legal Solutions can help you. If you're in this business, or planning to incorporate notes into your investments, make the smart move. Schedule your consultation before issuing anything.

What Good Is A Land Trust In Real Estate Investing?

The Land Trust is a lesser-known but incredibly powerful legal tool for real estate investors. It gives you a range of legal protections that most investors need, whether they know it or not. Land Trusts protect your anonymity, help manage your properties, and can even assist you in the financing process.

Let's look at some of the common reasons you should think about using Land Trusts to protect your assets.

Land Trusts Minimize the Threat of a Lawsuit

Sooo ... What is a Land Trust? When you use a Land Trust to hold your property, you receive several automatic benefits. Among these is personal anonymity. The trust, rather than you, is identified as the owner of the property for legal and tax purposes. So, how does this relate to lawsuits?

First of all, for someone to file a lawsuit, they need to know who they're suing. Remember when you were in grade school--what was the first thing the teacher always asked you to do for any assignment? Put your name on your paper, of course.

Attorneys, just like teachers, don't like to deal with anonymous papers. While your teacher may have been able to decipher your handwriting, most attorneys will not go to these lengths.

Of course, we investigate anyone we plan to sue. But only to a point. Anonymous Land Trusts make it difficult to connect your name to the property, meaning that a lawyer would have a hard time determining whether you are even worth pursuing in court. Trust me: as an attorney, I have much better and more profitable uses of my time than chasing down someone who might not have anything for me to get.

Land Trusts Help If You're Actually Sued

Now suppose some vindictive person drags you into court out of pure spite. This is incredibly unlikely, but could happen. They're going to have to decide whether to sue you personally, or fight the losing battle of attacking the trust directly. Suing you personally would be a fool's errand, as the value is in the property. You know, the property that doesn't have your name on it.

The plaintiff's unfortunate attorney won't have many good strategies for winning a judgment. In most cases, they'll bow out unless their client is willing to pay a ludicrous amount of money just to get "justice."

Even if they win a judgment against you personally, they're going to have a hard time collecting anything. Your property is safely in the trust. Of course, you'll want to ensure you have a good attorney helping you so the sharks don't win on a technicality. Land Trusts are not a Pinterest craft, so don't DIY.

Land Trusts Help When You Need a Real Estate Loan

Smart investors stick their property in entities like LLCs for asset protection. Smart creditors, on the other hand, don't lend to LLCs. The Land Trust solves this issue, allowing you to get personal financing and protect your property simultaneously. To learn more, see our previous piece on how land trusts solve lending problems.

The simple truth is that I've yet to meet a real estate investor who can't benefit from a land trust in some way. If you haven't set up yours yet, don't wait for an investment to go sideways. Contact us today for help establishing your Land Trust. You can Start with our investor quiz and we'll keep you from having to learn the hard way.

Title Holding Trust (AKA Land Trust), Explained

Land trust or title holding trusts are used for anonymity, but they don't actually provide protection from a lawsuit.

An LLC is required to provide that protection.

A trust is made of three parts. You have a grantor of the trust, a trustee, and a beneficiary. A trustee is used to actually control the property of the trust and manage the trust itself. The beneficiary is the person entitled to all the benefits of the trust, all the money flowing from the trust.

Now in some circumstances you'll be required to be able to disclose who the trustee of a trust is. In these cases, you can use a nominee trustee. This is a person listed on the trust document who has defined powers. These powers might include filing a tax return on behalf of the trust with the comptroller or the tax agency for the state or perhaps just for filing purposes of the deed.

The nominee trustee can be limited to have no other powers inside of the trust besides those specified.

Anybody that's looking to actually alienate a property, sell it or dispose of the trust asset will want to look at the trust agreement before they know that they're going to buy an asset from your trust. In that agreement they'll see that the nominee trustee doesn't have those powers.

So you don't have to worry about somebody running away with your property and the person that will have those powers will be laid out in that document. And that person can be you.

Limitations for Canadian Investors

Business Trust for Investors in California

If you're a California investor with an IRA, looking to set up a self directed IRA structure, don't use the LLC. With the LLC, you end up having to pay $800 per year for the franchise tax, as a California resident. Instead, what you should use is what's known as a business trust. Business trusts aren't subject to the franchise tax laws in California. And therefore, what you're able to do, is perform all of the actions that you would normally be able to take in a self directed IRA. I.e., direct the funds where you would like to and the investments you would like to without having to involve the custodian. But without having to pay the franchise tax. An important point to note here though is that, you're not gonna have the asset protection piece that an LLC or a series LLC would provide, so keep that in mind. My name is Scott Smith, and I'm an Asset Protection Attorney. I'm a real estate investor, and I wanna help you.

What is the Due on Sale Clause?

Despite what you might read on the internet, don't worry about the due-on-sale clause. The fact is is, since before 1960, we haven't seen any bank foreclose based upon a violation of the due-on-sale clause while the note's performing. The fact is is that banks are in the business of making loans and collecting mortgage payments. The due-on-sale clause would allow them to foreclose on your property by transferring the asset. But why would they do that? This could only hurt their interest. Like I've seen it a couple of times, where banks have foreclosed based upon it. But those were always in situations where the mortgage wasn't getting paid, and that was gonna get foreclosed on anyway. So in that sense, don't worry about it. Protect yourself with your proper asset protections strategy. My name is Scott Smith. I'm an asset protection real estate attorney, out of Austin, Texas, and I wanna help you.

Real Estate Asset Protection Explained: Series LLC Structure With Anonymous Trusts

A proper asset protection strategy lets you sleep easy at night even if you are sued. Below, I will share with you the secrets that will let you go about your business as usual even if you’re threatened by a lawsuit. With asset protection on your side, you’ll barely even worry about the fears that are giving other investors grey hair overnight. After implementing a proper strategy, lawsuits will never even get filed and the problem is gone before it even starts.
Asset Protection for real estate investors is premised on two parts:

Isolating the assets for liability purposes inside of a Holding Company and
Hiding the assets from being connected to you or the Holding Company.

Additionally, the company structure we use is scaleable at no additional costs or fees, streamlines your taxes, can be used in conjunction with traditional financing, and allows for the traditional recording keeping you are likely already using. After it is set up, you won’t even notice it’s there in your normal course of business.

Which Type of Company Should I Use to Hold My Real Estate Investments?

The best holding company for real estate asset protection is the Series LLC. You can think about the Series LLC as a Parent-Child relationship. The Series LLC is the Parent, and it can have as many children as it wants. Each child is known as a ‘Series.’ Even though the Series LLC is technically one company with one state filing and one tax return, each child Series is treated as if it were its own LLC for liability purposes.

Each Series is typically designated with its own letter, beginning with Series A. The picture below can help you understand the structure. This means that if a lawsuit is filed against Series A, it cannot impact Series B, Series C, etc. A lawsuit against Series A can only affect the assets held in Series A.

In the diagram above, the LLC has three Series. Each Series holds only one property. REI Asset Holding LLC – Series A owns a single asset, a piece of Real Property located at 123 Main st. If someone filed a suit over that property, it would not jeopardize the properties located at 456 Main st. or 789 Main st.

Moreover, if there was a lawsuit against the owner of the parent LLC, that lawsuit could only collect against the assets of the owner - not against the assets of the LLC. Lawsuit against the owners of LLCs structured this way can only impact the owner's personal property. We recommend never holding property in your own name. This way, if a lawsuit is directed at you personally, it cannot affect your assets. They are secured inside the Series LLC structure.

How To Stop a REI Lawsuit Before It Even Starts

The Series LLC limits our downside risk in the event of a lawsuit since it limits the maximum amount we can lose, which is only the amount held in the Series. However, limiting the amount of the lawsuit is our last resort. What we want is a protection system is that stops the lawsuits before they are ever filed. This can be accomplished in three simple steps.

Step One: Understand What Motivates Real Estate Lawsuits

To stop a lawsuit before it is filed you have to take out one of the three essential pillars of a lawsuit. The essential pillars of a lawsuit, or what attorneys need to make a case worthwhile, are:

The law,
The facts, and
The recovery.

The law and the facts are generally easy to fabricate, and any decent lawyer can find a basis for a lawsuit that will survive summary judgment. The asset protection system we put in my place for our clients attacks the third leg, the recovery.

Step Two: Attack the Recovery Phase

Recovery is the ability to seize assets and get paid after winning a judgment. A judgment is worthless on its own: it's only a piece of paper. Judgments are only as valuable as the assets that can be seized with it. So, before a case is filed, an attorney will always research whether there are assets to can seize from the defendant after victory in court. If it appears that the defendant has very little or no assets, then the lawsuit isn't worth the attorney's time and effort.

The vast majority of the time, this piece of the asset protection plan alone stops the suit dead in its tracks. There are rare exceptions, such as when the client coming for your assets is angry enough to spend thousands simply to satisfy personal self-righteous spite. But in the real world, most people aren't willing to drop that kind of cash on rage alone. The wheels of justice really do rind slowly. Lawsuits take months, sometimes even years, to unfold. Anger tends to burn off far quicker.

Step Three: Make The Other Attorney Lose All Hope of Recovery With Anonymous Trusts

To show the opposing side that there will be no recovery from the lawsuit, we hide the assets using Anonymous Trusts. These Anonymous Trusts can own the LLC itself as well as serve as Title Holding Trusts for the real estate asset. The LLC typically must disclose the members of the LLC on the filing instruments called the Articles of Incorporation. However, the member listed on the filing can be an Anonymous Trust. Since the Anonymous Trust is a private document and it is not filed with the state, anybody researching the Owner or Beneficiary of the Trust will be unable to find that information in the public records.

Additionally, anyone researching the owner of the real estate asset by searching the County Clerk records will only find the name of the Anonymous Land Trust. Typically, the property owner’s name is listed on the County Clerk’s records, but in this case the owner of the property would be listed as the 123 Main St. Trust. Since the owner of Trust and the beneficiary is not registered with the state, they cannot find out that the Series LLC is the beneficiary of that Trust. For more clarity, I refer to the Anonymous Trust used for filing the LLC itself as the “Filing Agent Trust” and the Trust used for holding the real property as the “Anonymous Land Trust”. The Filing Agent Trust in the below example is the actual owner of the Series LLC.

Bottom Line: A properly implemented Anonymous Trust and Series LLC structure can give you total anonymity. Your name won't appear anywhere, making even filing a lawsuit incredibly difficult.

What Should I Expect For Tax Planning?

The tax structure with the above entity is typically done in one of two ways depending on the number and type of owners. If the owner is a single individual or a married couple, then the entire structure is a pass-through entity. In these cases, you (and possibly your spouse) simply report the income on your personal income tax return under Schedule E. In cases of unmarried investor-owners, the LLC will need to file a partnership tax return.
Financing inside of a company structure should only be done once traditional personal financing is exhausted. Traditional financing typically has better, cheaper terms than the commercial financing required if the property is purchased directly in the name of the LLC.

Once the property is purchased in your personal name, the property will need to be deeded into the company structure. Deeding the property into the company structure will violate the Due On Sale clause located in the mortgage. However, we have not seen a bank foreclose based upon the Due On Sale clause since before 1960 as long as the payments are made. I hear of lots of threats, but I have not seen any banks actually do it.

How Do I Keep Records and Make Sure My LLC Will Not Be “Pierced?”

There are several things you must do to keep an LLC from being pierced. These include filing franchise tax, having an operating agreement, and managing the money correctly. Where I see most of my clients drop the ball is on the money management and record keeping.
The recording keeping for the structure is likely very similar to what you already do for your basic accounting of the investment. For any investment, you need to know the profitability of the particular asset purchased, so you need to have records which reflect the amount of capital invested into the asset, the amount earned buy it, etc.

The Series LLC structure above will require you to maintain the records of each Series separately just as if they were separate companies. In many cases, all this requires is for you to “tag” the entries in Quickbooks so that the entry is shown in correlation to the specific company. If you do not use Quickbooks, you can get the job done with an Excel spreadsheet. But be sure to add a new entry any time you add or withdraw money from the bank account for the company. If you forget to do this a few times, it's not the end of the world. You can always go back after and “catch up” on the accounting. Court will allow this as long as it is “reasonable.” Nobody expects you to be perfect, but don’t abuse it.

Delaware Statutory Trust Advantages: Protect Your Assets Like the Pros

The Delaware statutory trust (DST) is a tool wise real estate investors use to avoid the dreaded franchise tax that eats into the profits of LLCs. The California investor, in particular, enjoys advantages based on two concepts:

Insulating the assets and keeping them separate from one another by using a shell company
Masking the assets from any provable relationship between you personally or the shell company.

There are even more good reasons to use this structure. Delaware Statutory Trust advantages also include:

Ability to scale up free of extra charges
Simplification of tax filings
Access to loan and financing options
Ability to maintain traditional book- and record-keeping practices.

The beauty of this structure is all the effort is up front. Once it's in place, you'll barely even know it's there and you can go back to business as usual.

What is the Best Type of Company For Real Estate Investors in California?

As a real estate investor, you have several options for your company structure. But we've found the best for asset protection for the California investor is the Delaware statutory trust. Note: investors from any state can take advantage of this tool, but California state restrictions on business make it ideal for Golden State residents.

A simple way to understand the DST is to compare it to a parent and its children. The DST itself plays the role of the mother and father, rolled into one. Unlike human parents, Octomom notwithstanding, it can reproduce forever. In this case, the children are referred to as "Series." Despite the fact that the DST is its own legal entity with a single filing and tax return, each child receives the same protections as a traditional LLC. This includes, of course, liability protections. This image gives you an idea of how this works:

As you can see, each Series can contain one or more assets. Creating a new Series is simple and can be done in a matter of minutes. For a more detailed explanation, take a look at our piece on the Series LLC Structure. The same information applies to the DST. Its structure is similar to that of the Series LLC.

How Does the Delaware Statutory Trust Stop Lawsuits?

The DST stops lawsuits by sapping any motivation an attorney would have to file one at all. Further, it places a nice, clear boundary on how much a litigious person could collect from you in court. What does this actually look like?

Well, when you use a DST structure, even if someone does sue you, they're only able to "go after" the relevant asset in the Series.

Let's say an angry tenant tries to sue you for a problem related to your rental condo in Series 1. Even if he/she is successful, only the condo is on the line. Your other assets in Series 2, 3, and the Holding Company are safe—and so is anything you own personally.

Believe it or not, this is actually the worst-case scenario. A well-implemented DST will kill the suit before it's even filed. This comes back to the motivation issue mentioned above. Think about it: what motivation does anyone ever have to file a lawsuit? You might think of things like indignant rage, pure spite, etc., but the only motivation that matters for attorneys is cash-money. Or valuable assets that can be converted into cash money.

Even if the person initiating the suit is madder than hell, few attorneys will play ball if they have nothing to gain from winning. Believe me, as an attorney, I have much more profitable ways to spend my time than chasing after someone who doesn't have much for me to recover in judgment.

This is why my asset protection strategies attack recovery. It's easy enough to win a judgment, but on its own, it's like getting a gold star from the court: nice ego boost, but ultimately worthless. If the gold star is just a sticker, it actually costs the attorney precious and expensive time to pursue you. The gold star is only good if it's backed by actual gold, meaning, a valuable asset to convert into the cash we all know and love.

Roll with me on this: would you spend time researching a project at YOUR job that you weren't sure you're getting paid for? Hell no! Attorneys are even more hawkish than the average professional in this regard. We aren't going to waste money investigating you, let alone waltzing into court to sue you, if it's going to cost us more than we could win. There are many, many more tasks that we can bill for and receive certain payment. Without representation, even the most vindictive plaintiff doesn't stand a snowball's chance in hell of winning the judgment.

How Does the Anonymous Trust Play Into An Asset Protection Plan?

Anonymous Trusts help you drive home the point that you aren't worth coming after. Their job is to disguise the ownership of the asset in the first place. These Anonymous Trusts will ultimately hold the assets.

Remember the research phase that comes before any lawsuit we discussed above? Find out how to form an Anonymous Trust and it will more than pull its weight in your asset protection plan. In the internet age, it's pretty easy to figure out who owns a piece of property. County Clerk records are public record, and list the owners of a given property. Anyone with an internet connection can search these.

Usually, these records will clearly show the name of the owner of the property. But if you use this strategy, the trust's name will be listed instead. And you can name that trust whatever you want. So when anyone, including a potential opposing attorney, goes to research the property, they'll see it is owned by "The XYZ Can't Find Me Trust" rather than a person. Your name is kept out of the whole affair. And to file a lawsuit, the litigant needs a name.

Where Do I Come in if the DST is Holding My Assets?

Trusts, including the example "XYZ Can't Find Me Trust" are made up of several parts. This is the DST Structure:

Parent = Delaware Statutory Trust

Grantor (the client)
Trustee (the client)
Beneficiary (the client, or the client's Living Trust)

Child = Individual Child Series of a Delaware Statutory Trust

Grantor (the same Grantor as the Parent = the client)
Managing Trustee (the client)
Beneficiary (the same Beneficiary as the Parent)

Land Trust = Living Trust that holds title to the real estate

Grantor (the Child)
Trustee (a nominee trustee to start, then the client)
Beneficiary (the Child)

Ordinarily, the trustee and the beneficiary cannot be the same person. The use of the structure outlined above keeps you, the individual with a name, from being both. Instead, the legal structures you control stand in. So your interests are represented regardless. Even if the trust itself is scrutinized in court, the worst-case scenario is that the trust is "merged." When this happens, your assets just return to the original DST.

How Does Bookkeeping Work for My DST Structure?

Proper record-keeping and vigilance on your part is essential for preventing the DST from being compromised. In legalese, this is called "piercing." When a court pierces the structure, it can dismantle. You don't want that, because it would allow the court to treat all of the Series as one, instead of separate.

The DST must abide by several legal requirements. These include a valid trust agreement, initial and current filing with Delaware, a Delaware Registered Agent, and keeping in line with laws and IRS regulations governing the structure.

Our firm takes care of the trust agreement and ensures your DST is complying with these requirements. But you have a part too. Your job is to maintain accurate and responsible records.

Record-keeping for the DST structure is simple, and you're most likely using a structure that works if you err on the side of traditional bookkeeping methods. The DST structure above will require you to stay on top of the books for each individual Series. Remember, the power here is in the fact that you are treating them as separate companies. This means separate bank accounts, as well as treating them as different in your bookkeeping software. Generally, this just means identifying any money flowing in or out as belonging to that particular Series in your accounting software.

How Do I Set Up My Delaware Statutory Trust?

We've got you covered. Royal Legal Solutions provides comprehensive Delaware Statutory Trust and Anonymous Land Trust services. As an attorney and investor myself, I founded Royal Legal Solutions to help investors like you. While I specialize in asset protection, my other practice areas include estate and retirement planning. Over the years, I've helped many clients set up DSTs and Anonymous Trusts to establish a solid foundation for their asset protection plans.

If you're ready to get started, take our Financial Freedom Quiz where upon completing it you will have to opportunity to book a consultation. Together, we can build your real estate empire into a judgment-proof fortress.

Series LLCs (SLLC) 101: A Primer

Whoever said, “If it sounds too good to be true, it probably is,” wasn’t familiar with a Series LLC business structure, or SLLC.

Real estate investors around the nation are benefiting from this organizational framework. For many investors, the primary appeal lies in simplicity, safety and flexibility. Any nominal drawbacks can be readily addressed, or even proved to be advantageous, with the professional guidance of an asset protection specialist such as Royal Legal Solutions.

Take a few minutes to read the following overview to enhance your business or investment strategies.

SLLC Definitions

Series:

Another term could be, “child”, “project”, “subsidiary” or “company”. Picture a honeycomb, as in a beehive, with one or an infinite number of independent “cells”. For our purposes, the partitions between these “cells” aren’t made of wax, but of solid steel. Properly constructed, one unit may or may not complement the overall functions of others. Properly constructed, none rely on others in order to function. Each is autonomous.

LLC:

Once “series” is affixed, another term could be, “parent”, “umbrella” or “the beehive”. Now the bees enjoy economy and efficiency, but the beekeepers and bears can only attack a single, isolated, “cell”, one at a time. All the other “cells”, the entirety of the beehive, remain in tact.

The Delaware Model:

Barely more than 20 years ago, the Delaware Legislature, lobbied by the mutual fund industry, developed the innovative means to reduce duplicate paperwork, transparency, and liability in matters of taxation or litigation. Presently, at least 16 states, Puerto Rico and D.C. have adopted some form of this legislation.
NOTE: With very rare exceptions, anyone can register a business of any type with any Secretary of State. Regardless of residency, whether your legislature has adopted the Delaware Model, a variation thereof or none of the above … establishment of, investment in, an SLLC can be available to anyone.

Origins of the Series LLC

There is a unique objective of an SLLC that can provide exceptional advantages compared to a traditional LLC or any other business structure. As referenced above, back in 1996, Delaware created the vehicle by which a single entity can be managed independently as “one” or operated as an alliance of “many” at the same time.

Texas law is essentially a mirror-image of what many refer to as, “The Delaware Series LLC” … ‘same benefits and advantages, with no requirement for annual renewal fees or paperwork.

Even in states other than Delaware and Texas, there are the same two common denominators. Existing in the best of both worlds, an SLLC is an LLC with internal departments and an unlimited number of LLC ‘s under one ownership. There is no distinction as to whether any “member” (“owner”) is an individual, sole proprietor / DBA, corporation, non-profit, partnership, spouse or even human or external LLC.

Some Advantages of the Series LLC

Barring any violation of law, government regulations or public policy, an SLLC Operating Agreement enjoys “maximum flexibility” and “freedom of contract”. Members have extraordinary latitude in making their own rules and terms.

There is no pre-determined tax rate or business category. In general, membership may be able to elect to file and pay as sole proprietors, partners, corporate shareholders, non-profits or have the SLLC be the taxpayer of record. Specifically, of course, the entity must be created in a way that is fully compliant while optimally beneficial. Tax liability of the whole is limited to individual members’ respective risk, gain, compensation or stake as defined by the Operating Agreement. “Double taxation” (on the SLLC and the membership) is most often avoided.

Contingent upon the state’s “shield laws”, members are generally protected from liability for the acts or debts of the SLLC. This protection is extended to membership enrollments as few as one. In the realm of real estate and real estate investment, each property can be treated as separate entities. One deal gone south, one “slip and fall” lawsuit, should have no impact on the profits of other projects or the members thereof.

The economy of a Series Limited Liability Company is not “limited” to lower tax liability, or the savings in administrative manpower and paperwork. One filing fee paid to the Texas Secretary of State will put you in business, no matter how many bees or honeycombs there are or may be subsequently added to the hive. Unlike other states or business entities, to include Delaware, there are no “renewal fees” … annually or at any other time in the state of Texas.

Caveats

Presently, there are about 15,000 words, about 50 pages and over 600 subsections in the Texas state statutes which govern LLC’s and SLLC’s. No one can quantify or apply all the associated rules and regulations now in place with federal, out-of-state and foreign agencies. (e.g., Canada doesn’t even recognize such a legal entity, but Canadians can participate in U.S. SLLC’s.)

Yet consistently, after 2 decades, the innovative “Delaware Model” (Series LLC) appears to be immune to significant litigation or legal challenges. With only 5% of the world’s population, the U.S. is home to 80% of the planet’s lawyers. Regardless, we’re still trying to find many legal cases in which Texas, Delaware or any states’ similar laws have even been contested. The only thing better than winning a lawsuit is never having one filed.

Yes, the fundamentals are simple, safe and flexible. No, they aren’t “idiot-proof”. Then again, any reasonably smart business owner can avoid any pitfalls:

Get a lawyer. Not just any lawyer, but a specialist who has the credentials, experience and expertise in this very specialized field. One whose practice is exclusive to the protection of client assets, pre-empting litigation and aggressively defending against any threats to the beehive.
Exercise sound judgment. As your attorney will advise, do not misinterpret the simplicity or flexibility of an SLLC as a license to ignore sound business practice, your own due diligence, responsibilities or accountability.
Nail the Operating Agreement. A well-structured and detailed Operating Agreement is secondary only to a sound business plan, reasonable expectations and absolute trust in other members’ integrity. More importantly, trust yourself and a legal expert.

Trustee Vs. Executor: Who Do You Need For Estate Planning?

Unless you are the villain in a spy thriller, there's unlikely to be any intrigue surrounding the reading of your will. Sure, this is a great cinematic device, but a "surprise" announcement regarding your trustee or executor is neither funny nor mysterious in real life.

The events following your death will most likely be painful and dramatic enough as it is. You can ease some of the misery by planning ahead, and letting your chosen executor and trustee(s) know about their jobs ahead of time.

That said, sometimes the executor or trustee really do find out at the last minute. Whether you're in this situation or planning your own estate, this article is for you. You'll learn about the duties of both positions, and how to survive if you're picked to serve as either.

What's the Difference Between a Trustee vs. Executor For Estate Planning?

The executor represents the dearly departed. This person is tasked with administering and distributing the estate. For an executor to do their job properly, he or she must know the identities of any heir and have a solid comprehension of the will. Their main job is to ensure the deceased's wishes are carried out.

Trustees, on the other hand, have a more narrowly defined role: managing a trust. Not all estates necessarily have trusts, but many do. The first order of business for a trustee is to clarify which assets are held within a trust. Check out our asset checklist for estate planning to get started.

It's rare for all of a person's assets to be placed in a trust, so some may be stated only in the will or other documents.

In estate planning, trusts are used to clear up any possible confusion about where certain possessions go. A person may decide to use a trust to offer guidance and maintain more control over their estate. The trust's "job" is to literally own properties, cars, family heirlooms, or any other assets that the creator decides to place within it. The person who creates the trust provides for its funding. The trustee, who may be an individual or even several people, is tasked with determining how money and other assets flow in and out of the trust.

Trust executor duties include liquidating estates. Trustee duties include managing estates.

The former is usually temporary, while a trustee might serve in that capacity for years. There is rarely compensation for either. Many have tried to monetize this position, and few have succeeded. So if someone asks you to serve in either capacity, there are some things you'll want to be aware of. After all, you want to honor your deceased loved one's wishes, don't you?

If this happens to you, don't be afraid. We've got some tips on how to execute and cope with your new responsibilities.

Get Your Estate Planning Paperwork in Order

Before you do anything, you need to review any and all paperwork relating to the estate. These should cover the basics: funeral arrangements, how the deceased wants the estate managed, and preferences about matters like burial. Assuming the deceased planned ahead, there will also be a specific document cataloging valuables like heirloom necklaces or firearms. In legalese, we call this a "memorandum of personal property."

Next you need to determine the assets, which is usually only a hassle if the document above is incomplete or totally absent. If you're in such an unfortunate situation, you may need to get some help. Death leaves quite the paper trail. You're going to need to hunt down everything from the glaringly obvious like bank accounts and real estate, to the not-so-obvious assets like IRAs/401ks, and perhaps a secret vault or two if you get lucky.

Identify the Heirs

Most of the time, heirs are direct relatives. You can usually expect to see them at the funeral. Even if you don't, your paperwork from above should list any heirs. But you should know ahead of time these matters often get sticky. What if one of the heirs has died themselves? Details like this can easily go unnoticed if the most recent will is, say, ten years old. This is when it becomes your job to make a decision--one that can breed contempt under the best of circumstances. Hey, there's a reason people have tried to figure out how to get paid for theses services.,

Speaking of money, there are almost certainly going to be creditors that need to be paid. You need to guarantee that all creditor claims are taken care of from the estate. If you don't pay up, you may suffer liability. "Liability" is legalese for "an all-around bad time."

Yeah, this is a thankless job.

Deal With the Creditors

It doesn't take long for the vultures to circle. You'll have two kinds of creditors to tango with: secured and unsecured. Worry about secured creditors first. These are folks like conventional lenders. You'll want to make sure these types of creditors are notified of the deceased's passing right away. Make payments immediately, as soon as reasonably possible. This is to avoid that all-around-bad-time mentioned above.

Unsecured creditors, on the other hand, are a totally different ballgame. They have to actually come after you in the form of a claim. Unsecured creditors can include everyone from the neighborhood bookie to the (much more likely) credit card companies. Fortunately, credit card companies are fairly realistic about the fact that they're unlikely to be paid off in full. So bust out your haggling skills. There is some wiggle room about the total bill, but don't expect the company to tell you that.
While credit card companies won't break your kneecaps, they can make probate court an even bigger pain in the ass than it already is. Both types of creditors can demand and collect legal fees in a court setting. If the estate ends up in probate court, you will be obligated to alert all creditors of this fact.

Still with me? At this point, nobody will blame you for cursing whoever named you executor.

To recap: Don't mess around with secured creditors. It's a good idea to delay making unsecured creditor payments, because if a claim is never made you won't be on the hook. There's also a clock on how long these types of creditors have to make a claim at all.There’s a good chance this one is going to take care of itself by dissolving into the ether of banking bureaucracy. Now it's time for the fun part: probate court.

Probate Court For Estate Planning

The estate documents should outline exactly how the estate will be administered. Sometimes, the court has to approve certain aspects of this, such as when the family home is transferred to an heir. This is particularly common if the estate is based solely on a will (all the more reason we should all be thorough in our estate planning.)

If the estate you're dealing with is more "Jerry Springer" than "cinematic drama," you may find issues with the identities of the heirs. We're kidding. This is actually more common than most of us would think. Fortunately, it's on the court to figure this out. You've got enough on your plate. Let the judge interpret the law, or anything ambiguous for that matter. Even if you have legal chops of your own, you'll likely need a greenlight from the court to interpret much of anything.

We're approaching home base: stay with me, folks.

Income Tax Returns

That's right, you get to deal with both of life's inevitabilities in one experience: death and taxes. You'll have to file the deceased's final tax return. You'll want to be certain that you label the returns with the word "DECEASED.

As your last task, you may have to also file an estate return. This is legally required if the estate earns over $600.00 in gross income.

Final Legal Estate Planning Tips

Don't go it alone if you don't have to. We're sure you're smart, but it's unlikely that you are both an attorney and a CPA. Enlist help from the pros. The estate will assume their costs, particularly if it is a large or complex one. If you spend any of your own money in the course of your duties, the estate should reimburse you.

Be aware that this is a sensitive time for the relatives and other loved ones.The role can be as emotionally draining as it is time-consuming. But don't forget that you have a job to do, and you must do with your head and not with your heart.

If you've been tapped to act as a trustee or executor, or if you need estate planning services yourself (if only to spare your loved ones from some of this rigmarole), get help from experts who know all types of estate planning and administration issues, and who can help in a compassionate manner. Don't let your death become a big traumatic affair played out on the probate court stage.

Finding a Trustee For Your Estate Plan

Finding a trustee for your estate plan is tricky. If you choose someone who isn’t up to the task, you won’t be around to correct them.

On the surface, the job is simple. You name which assets go to whom and under what conditions. The trustee just has to execute. So, as with any trust designed to protect your investments, you need a trustee you can, well, trust. You may also want to see our Trustee Vs. Executor article.

In order to pick the right person, consider the following:

What Will My Estate's Trustee Do?

The trustee will make the funeral arrangements with the help of the family. The hardest part about this is managing a grieving family. If your son or daughter doesn’t do well with grief, you may want to consider someone else.
Your trustee will inform your family members and your heir of your estate plans. This is just like in the movies where the deceased leaves behind a video. The trustee puts in the video and the eccentric old billionaire announces that to get his money you have to do something hilarious like defeat his greatest enemy in mortal combat, or solve a terrific riddle that leads you to a treasure buried on an island off of Nova Scotia. No? Maybe that’s just my grandmother, who wasn’t a billionaire, but she was crazy.
Your trustee pays people. Dying is expensive. Make these arrangements ahead of time. By the time your trustee steps in, all he should be doing is signing checks in accordance with your carefully laid plans.
After the dust settles, the trustee determines what assets you still have and how to distribute them. Might be a good idea to include “well- organized” on your list of desirable trustee qualities. With that in mind, you should have selected a beast of a bean counter to execute your will. Someone meticulous, organized, and financially sound. It won’t hurt if they’re funny either. Your family might need a laugh while they divide up what remains of your life in the days and weeks after your death.

Now that you have found a trustee who can educate and entertain, you need to make a plan for your estate. Once again, you need to choose the right trustee for the job.

Here are a few things to consider.

How Big is Your Estate?

If it’s not extremely large, you can probably entrust its distribution to a family member. Unless of course merciless thieves populate your family, in which case you may need outside help. Sometimes family member receive a small honorarium for their services, but this job is largely pro bono. That’s right, you can keep taking advantage of your family even after death.

Now that’s a haunting.

When an estate is worth over 10M, you may want to name a company or a bank as the trustee. Absolute power corrupts absolutely and every family has a Mr. Burns buried somewhere, just waiting to get their hands on the cash so they can “release the hounds."

If you appoint a company or bank, this will cost…a lot. This means it’s only practical for larger estates. It’s also a lot to hoist off on your daughter, even if she is majoring in finance.

You may also want to appoint a non-family member or friend as a trustee simply so that your estate doesn’t tear the family apart. It can get ugly when one family member is dividing up wealth amongst the others. See: KING LEAR.

Does Your Trustee Have Solid Financial Skills?

This one should seem obvious, but a lot of people make posthumous financial decisions with their heart instead of their head. Whether it’s your wife, your child, or a friend, you need to make sure that your trustee is organized, responsible, and financially sound.

What Are Your Family Dynamics?

Families are made up of people and people get into disagreements. They are flawed units made up of flawed people. Every gold digger and delinquent in the world belongs to somebody’s family. If you have any in yours, keep them away from your finances when you’re gone.

Are You Compensating Your Trustee?

Generally, family members act as trustees without compensation, but you can leave them a little something for their trouble. A little bonus out of the estate might motivate them to do a better job. You’re son also tends to do a better job on the lawn when he’s receiving an allowance.

Conflict of Interest

If you are naming a child as a trustee, you are probably naming them as an heir as well. Don’t sweat this one too much. The trustee is bound to the terms of the trust, so if you are thorough, there is very little that can be done to abuse the trustee position for personal benefit.

Co-Trustees

Sometimes it’s important that several people are trustees. Once again, family members are people, and people are petty. You don’t want to bruise egos that are in the middle of grieving.

Multiple trustees are fine, but make sure that you are specific about authority and responsibility. Your death might leave a financial rat’s nest. One monkey will take long time to untangle it. If you involve multiple monkeys you might turn your funeral into a mud-slinging contest. When you're estate planning, you can be the circus ringleader who prevents these issues.

Most people will name a child as trustee. Siblings and close friend of the family are common choices where the children are too young. Keep in mind; this is more than just the distribution of your wealth. This is the evolution of your legacy. Make sure you have chosen the right captain to steer the ship.

Take care of your family’s future. Choose a capable trustee. For much more information and a look at things from the trustee's point of view, read up on trust executor duties.

A Series Of Landmark Prohibited Transaction Cases, Part IV: Dabney Vs The IRS

This article is the grand finale of a series with the goal of educating you, the almighty Self-Directed IRA LLC investor, on how to successfully invest & avoid triggering prohibited transactions.

Because the prohibited transaction rules are so broad, the scope of their enforcement is as well. You'll probably agree with what I'm saying if you've read the previous articles in this series.

We've seen Self-Directed IRA investors lose their bankruptcy protection, gains, and even their entire IRA account, simply because they failed to properly follow the prohibited transaction rules.

The case we're about to go over below is different from our earlier cases because it doesn't actually involve a prohibited transaction. Of course, the IRS tried to pin this on him anyway. But what it does involve could happen to any of us: a mistake in judgment.

Dabney Vs The IRS: Background

Back in 2008, Mr. Dabney rolled over funds from an IRA at Northwest Mutual into a pre-existing Self-Directed IRA he had with Charles Schwab. After this, he learned of a piece of undeveloped land in Brian Head, Utah that was for sale. Mr. Dabney believed the land was priced below its fair market value.
He then conducted some Internet research and came to the conclusion that IRAs are permitted to hold real property for investment. He then set out to have his Charles Schwab IRA purchase the Brian Head property.

Mr. Dabney also contacted his CPA (Certified Public Accountant). The Schwab customer service line told Mr. Dabney that he would not be able to make the real estate investment with his IRA at Charles Schwab as they did not permit such investments with IRA funds.
(Of course they wouldn't. There's no money in it for them.)

Mr. Dabney Makes a "Creative" Real Estate Purchase

After carefully considering his telephone conversations with the Charles Schwab customer service representative and his CPA, as well as his own internet research, Mr. Dabney arranged what he believed to be an "IRS approved" way to have his Charles Schwab IRA purchase the Brian Head property.

Mr. Dabney proceeded to wire $114,000 directly to the bank account of Chicago Title and purchased the property. He told them to put the property under the name of “Guy M. Dabney Charles Schwab & Co. Inc. Customer. IRA Contributory”.

He planned to then resell the property for a profit and to contribute the proceeds of the sale back into his IRA. Mr. Dabney believed that the property would not need to be managed by a trustee as long as he did not use or "enjoy" the property.

Although he had hoped to sell the property sooner, Mr. Dabney was unable to find a buyer until 2011. It was then that Mr. Dabney discovered that the property was incorrectly titled in his own name.

Upon discovering this error, Mr. Dabney sought and received a scrivener's affidavit from Chicago Title, which means the company admitted the error was their fault.

Mr. Dabney then sold the Brian's Head property and received $127,226 on the sale, after taxes and fees, which was about $13,000 profit. That amount was wired back directly into his Charles Schwab IRA around January 28, 2011.

Mr. Dabney’s CPA prepared his Form 1040, U.S. Individual Income Tax Return, for 2009. Charles Schwab issued Mr. Dabney a Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., for 2009, although Mr. Dabney said he didn't receive it.

The Form 1099-R stated that he had received a $114,000 early distribution from his Charles Schwab IRA and that no exceptions to the early distribution penalty applied. Mr. Dabney did not report the withdrawal on his Form 1040.

The Court's Conclusion

The Court confirmed that an IRA is allowed to hold real estate, but that the law does not require an IRA trustee or custodian to give the owner of a Self-Directed IRA the option to invest IRA funds in any asset that is not prohibited by statute, such as real estate.

The Court further held that the withdrawal of the IRA funds from Schwab was not considered a tax-free direct rollover, which means he was subject to a 10% fee. On the bright side, the court did not hold Mr. Dabney liable for the 20% understatement penalty, citing that he had acted in "good faith".

What Real Estate Investors Can Learn From The Case

The traditional financial institutions and banks, such as Charles Schwab, etc, don’t make money when you invest your IRA funds in alternative investments, like real estate, and as a result, will not allow you to do so.

To that point, the Tax Court was clear in stating that an IRA custodian is not required to provide its IRA clients with the ability to invest in all IRS permitted investment options if they don't want them to.

In the words of the Tax Court "The flaw is not in Mr. Dabney's intent but in his execution." If Mr. Dabey had initiated a rollover or a trustee-to-trustee transfer from his IRA to a different IRA (one that is permitted to hold real property) he would have won this case hands down.

The Dabney case is a great example of why you want to use a special Self-Directed IRA custodian, such as Royal Legal Solutions when making alternative asset investments with an IRA. A small mistake can cost you thousands, which is far more than the cost of hiring a custodian.
The tax code is vast and can be overwhelming for someone who lacks years of experience in dealing with them as well as the IRS. Save yourself the money and the court dates and get a Self-Directed IRA custodian if you're not 100% sure you won't be triggering a prohibited transaction or some other penalty.

I hope you enjoyed this series of articles and learned a thing or two about directing your own investments.

To learn how to take control of your future and your retirement savings with a Self-Directed IRA LLC, take our Tax Discovery Quiz.

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

How To Purchase Real Estate With A Self-Directed IRA (And Save Taxes In the Process)

Wall Street has successfully fooled the majority of American investors into believing they can only invest in stocks, bonds, mutual funds or bank CDs. If you've fallen for this, you're not alone. But we're about to teach you how to break free.

The truth is, you can you invest in virtually anything you want with a Self-Directed IRA LLC (excluding collectibles and art). Even better, you don't even need a custodian in the middle to do it.

Real estate is the most popular Self-Directed IRA LLC investment, particularly among our clients. Why? Because there are many advantages, tax benefits, and other little tricks which are only accessible to real estate investors who use a Self-Directed IRA LLC.

Let's go over the biggest perks below.

Advantages of Using a Self-Directed IRA LLC to Purchase Real Estate

Income or gains generated by a Self-Directed IRA LLC are tax-deferred. Which means you can invest tax free and not have to pay taxes right away, or in the case of a Roth IRA, ever.

Tax Advantages Of Buying Real Estate With A Self-Directed IRA LLC

When you buy real estate with a Self-Directed IRA, instead of paying tax on the returns of a real estate investment, tax is paid only at a later date, allowing your real estate investment to grow quickly.

The key to investing in real estate with a Self-Directed IRA LLC is to do so when you're earning high income (and being taxed at a higher rate.) Then when you start making less money (and get taxed at a lower rate) you should make withdrawals because your withdrawals will be taxed at a lower rate.

Let's say you establish a Self-Directed IRA LLC with $200,000 to purchase real estate and make other investments.
We will assume you kept your Self-Directed IRA LLC open for 20 years and that you were able to generate an average annual pre-tax rate of return of 8% at a 25% tax rate.

After 20 years your $200,000 investment would be worth $349,572 after taxes on your earnings. Whereas, if you had made the investments with taxable, personal funds (non-retirement funds), in 20 years your investment would only be worth $320,714.

Popular Types of IRA-Funded Real Estate Investments

Below is a small list of real estate related investments you can make with a Self-Directed IRA LLC (foreign and domestic):

Commercial property
Duplexes
Residential homes
Tax deeds
Condos/townhomes
Real estate notes
Tax liens certificates
Purchase options
Land
Apartments
Mobile homes

And that's actually the short list. There are many more opportunities available.

The Differences of Investing With a Self-Directed IRA LLC

Buying real estate with a Self-Directed IRA LLC is essentially the same as buying real estate personally. Except you have way more benefits and advantages when you do it with a Self-Directed IRA LLC.

But there are a few differences as far as the "backend" is concerned:

All expenses paid from the investment property go through your Self-Directed IRA LLC. Likewise, all rental income checks must be deposited directly into your Self-Directed IRA LLC bank account.
Title to the investment property and all transaction documents should be in the name of the Self-Directed IRA LLC. Documents pertaining to the property investment must be signed by the LLC manager. The manager can be you.

How To Make Real Estate Investments With a Self-Directed IRA LLC

When using a Self-Directed IRA LLC to make a real estate investment there are a number of ways you can structure the transaction:

Use your Self-Directed IRA LLC funds to make 100% of the investment
Partner with your family, friends, etc.
Borrow money for your Self-Directed IRA LLC.

Partnering with your family & friends to make a real estate purchase won't trigger a prohibited transaction if your Self-Directed IRA LLC is set up correctly. For this reason, it's important that you get professional help to establish your Self-Directed IRA LLC.

Also, when it comes to borrowing money, you must use a non-recourse loan. That is, unless you want to trigger a prohibited transaction and pay the taxes below.

If you do trigger a prohibited transaction, you will be paying UBTI (Unrelated Business Taxable Income) Tax. You will be taxed at the trust tax rate because your IRA is considered a trust. For 2018, a Self-Directed IRA LLC is taxed at the following rates:

$0 - $2,500 = 15% of taxable income.
$2,501 - $5,900 = $375 + 25% of the amount over $2500.
$5,901 - $9,050 = $1,225 + 28% of the amount over $5,900.
$9,051 - $12,300 = $2,107 + 33% of the amount over $9,050.
$12,300 + = $3,179.50 + 39.6% of the amount over $12,300.

Why Should You Buy Real Estate Using a Self-Directed IRA LLC?

There are so many benefits to using the self-directed IRA LLC for your real estate investments that we have written multiple previous articles on the subject. Check out some of our top reasons to use a Self-Directed IRA LLC in greater detail. But we'll go over the basics here. The top four reasons investors use this method include the following:

Your gains are tax free.
No time limit for holding property.
Your IRA can borrow money.
You can earn a larger rate of return on invested capital.

Royal Legal Solutions Can Guarantee Your Tax Efficiency & Compliance

As you can see, there are so many advantages and benefits when it comes to investing in real estate with a Self-Directed IRA LLC.

However, in order to enjoy those benefits you have to make sure that everything is structured correctly from a legal standpoint. The legal aspects are what matter for protecting you and your hard-earned money from the IRS.

Royal Legal Solutions can guarantee that your Self-Directed IRA LLC is set up correctly and kept up to date with all future IRS regulations. Your satisfaction is our greatest priority.

401(k) For The Self Employed: What Kick-Ass Entrepreneurs Should Know

A self-directed 401(k) for self-employed business owners isn't the same as an employer-funded retirement plan.

And if you're a kick-ass entrepreneur, a solo 401(k) is a kick-ass way to save for retirement. Why? Because this unique plan offers the ability to use retirement funds to make any type of investment on your own without requiring the consent of a custodian.

The following are some examples of the types of investments you can make with your solo 401(k) :

Loans (personal, private, hard & soft, etc.)
Foreclosure property.
Stocks, Bonds, Mutual Funds
Tax liens
Gold
Mortgages
Raw land
Deeds
Private loans
Private businesses
Limited Liability Companies & Partnerships
Residential or commercial real estate
Mortgage pools
Private placements
Most currencies

Indeed, you can make just about any type of investment except art and collectibles.

Who Benefits The Most From a Solo 401(k) Plan?

The solo 401(k) plan is designed specifically for small, owner-only businesses. It’s a tax-efficient and cost-effective plan that offers all the benefits of a self-directed IRA, and includes a couple of unbeatable benefits, such as high contribution limits (up to $60,000 or $54,000 depending on your age) and a $50,000 loan feature.

There are many benefits and features of the solo 401(k) plan that make it useful to self-employed individuals. These features and benefits are what make the solo 401(k) plan so popular:

Roth Type Contributions

Roth IRAs have historically been unavailable to people with high incomes. But if you have a solo 401(k), you can use the built-in Roth sub-account which can be contributed to regardless of how much money you make.

Flexible Investment Options

As I mentioned above, you can make almost any type of investment, including real estate and private stock, and then channel them back into your solo 401(k) tax-free.

Loan Features

I also mentioned earlier how the solo 401(k) allows participants to borrow up to $50,000 or 50% of their account value (whichever is less) for any purpose. The interest rate on this loan will be the prime interest rate, which is around 4% give or take.

But be careful, failing to pay back this loan will "displease" your friends at the IRS to say the least!

UDFI Exemption

Most IRAs generate Unrelated Debt-Financed Income (a type of Unrelated Business Taxable Income) when they buy real estate. Which means they'll end up paying more taxes. Thankfully, a solo 401(k) plan is exempt from UDFI.

Sky High Contribution Limits

Under the 2017 solo 401k contribution rules, if you're under the age of 50 you can make a max contribution of $18,000. This amount can be made in pre-tax or after-tax dollars.

On the profit-sharing side, a business can make a 25% (20% in the case of a sole proprietorship or single-member LLC) profit-sharing contribution up to a combined max of $54,000, if you include the employee deferral.

If you're over the age of 50 everything is the same, except your contribution limit, which is $60,000 instead of $54,000.

Consolidation

A solo 401(k) can accept rollovers of funds from any other retirement account, such as an IRA, a SEP, or a previous 401(k).

Employee Elective Deferrals & Employer Profit Sharing

For 2017, you can contribute up to $18,000 per year through employee elective deferrals. An additional $6,000 ($24,000) can be contributed for persons over age 50. These contributions can be up to 100% of your self-employment compensation.

As an employer, you can make an additional contribution of up to 25% of your self-employment compensation.

Total Limit

As I mentioned earlier, the contributions to a solo 401(k) are capped at a max of $54,000 per year or $60,000 for persons over age 50.

But if your spouse also participates in the Solo 401(k) with you and earns compensation from the business, the spouse is allowed to make separate and equal contributions.
This would increase your combined annual contribution limit to $108,000 (or $120,000 if both spouses are over the age of 50).

Cost-Effective Administration

The solo 401(k) is not only easier to administrate, but it's also cheaper! There is no annual filing requirement unless your solo 401(k) plan exceeds $250,000, in which case you will need to file Form 5500.

Do Self-Employed Solo 401(k) Owners Need a Custodian?

Nope! The most cost-effective benefit of the solo 401(k) is that it does not require you to hire a bank or trust company to serve as trustee. This allows you to serve in the trustee role.

This means that all assets of the 401(k) trust are under your sole authority. You won't have to pay fees, or wait for a custodian's consent, unlike most other people with retirement accounts! And then you'll also be able to invest in almost anything by simply writing a check.

Click here to watch videos on Solo 401(k) and other retirement planning tools

Are There Any Administration Costs or Maintenance Fees With a Solo 401(k)?

Yes and no. You won't have to pay a custodian, so that kills 90% of the fees right there.

As for maintenance cost, there is generally no annual filing requirement unless your solo 401(k) plan exceeds $250,000 in assets. If you have more than $250,000, you'll need to fill out Form 5500.

Besides the $250,000 filing rule, you're not required to do anything else. However, I would advise you to keep all records, receipts, and contracts related to your solo 401(k) and its investments on file. So, if you hire someone to do those things for you, that will probably be your biggest administrative cost.

Do you want to learn more about solo 401(k) to see if it's the right option for you? Check out our previous article to find out if you're eligible for the solo 401(k).

A Series Of Landmark Prohibited Transaction Cases, Part Three: The Kellermans

This article is part 3 of a series with the goal of educating you, the Self-Directed IRA LLC investor, on how to successfully invest and avoid triggering prohibited transactions.

If you've read parts 1 and 2, get ready for something completely different. The case we're going to go over today is about bankruptcy, something I hope you never go through!

Oddly enough, with Self-Directed IRA LLCs, you have a bit of an advantage as far as protection from creditors is concerned. But as you will find out by the end of this article, once you go in too deep, there's no way out.

The Beginning: The Kellermans File For Bankruptcy

The Kellermans, for whatever reason, decided to file for voluntary Chapter 11 bankruptcy. Prior to filing for bankruptcy, Barry Kellerman created an IRA, which as of October 27, 2008, had a reported value of $252,112.67.

The named administrator of the IRA is Entrust Mid South LLC. The IRA is Self-Directed by Barry Kellerman, who made all of the decisions related to the issues raised in the objections.
At the start of their case, the Kellermans valued their IRA at $180,000.00 and claimed the entire fund as exempt under the Bankruptcy Act.

The trustee in the bankruptcy case against the Kellermans objected to the Kellermans’ claimed exemption in the IRA on the basis that it was no longer exempt from taxation as of the commencement of the case and is not eligible for exemption.

The trustee alleged that the IRA lost its exempt status in 2007 because Barry Kellerman directed the IRA to engage in prohibited transactions involving disqualified persons.

The Kellermans' LLC and Its Alleged Prohibited Transactions

The alleged prohibited transactions involved the 2007 purchase of four acres of real property located near Maumelle, Arkansas. Panther Mountain Land Development LLC helped setup the purchase.

Barry Kellerman and his wife each own a 50 percent interest in Panther Mountain. To effect the acquisition and development of the four-acre property, the IRA and Panther Mountain formed a partnership whereby the IRA contributed property and Panther Mountain contributed property and cash.

The purchase took place to assist in the development of two nearby tracts of approximately 80 and 120 acres owned by Panther Mountain. Controlling the 4 acre tract assisted in the development of the other Panther Mountain properties.

The Plot Thickens

Interestingly enough, Panther Mountain filed its own Chapter 11 bankruptcy on September 20, 2009 after the Kellermans filed for bankruptcy on June 3, 2009.

Even more interesting is that the Kellermans admitted that they are “disqualified persons". Specifically, Barry Kellerman is the beneficiary of the IRA and a fiduciary because he exercises “discretionary authority” and “discretionary control” over the IRA as the owner.

Dana Kellerman qualifies as a “member of the family” as the wife of Barry Kellerman. Panther Mountain is a “disqualified person” according to 4975(e)(2)(G) because Barry Kellerman asserts a 50 percent membership interest. Likewise, the Entrust Partnership is also a disqualified person according to subsection 4975(e)(2)(G).

Remember: in this case it is already clear that a prohibited transaction occurred. The debtors are only seeking bankruptcy protection.

The Court Rules Against The Kellermans

Based on the Kellermans' admittance and the court's findings on disqualified persons, all that remained was a determination of whether a prohibited transaction occurred that terminated the tax exempt status of the IRA.

The court concluded that in 2007, Barry Kellerman engaged his IRA in transactions including the purchase of the real property with IRA funds and the cash contribution of $40,523.93 made by the IRA to the Entrust Partnership.

Both collectively and individually, both the non-cash contribution and the cash contribution are prohibited transactions with disqualified persons according to IRC Sections 4975(c)(1)(B), (D), and (E), which rendered their IRA non-exempt.

Hidden Details

What was not stated above is that, during Panther Mountain's own bankruptcy filings, (which were happening around the same time) they made it seem as if they were using the Kellerman IRA as a lending source for the purchase and development of property.

So then, the real purpose of these transactions was to directly benefit Panther Mountain and the Kellermans in developing both the four acres and the properties owned by Panther Mountain.
Here's a shocker. The Kellermans each owned a 50 percent interest in Panther Mountain and stood to benefit substantially if the four acre tract and the adjoining land were developed into a residential subdivision.

Case Outcome & Summary

The Kellerman case involved a construction company's owners, the Kellermans, who were also LLC co-owners. They were denied a claim for bankruptcy estate exemption for Mr. Kellerman’s Self-Directed IRA.
The court found that Mr. Kellerman who, along with his wife, were disqualified persons who had engaged in prohibited transactions by:

By directing their IRA to deliver property as a non-cash contribution to an IRA and LLC.
By making cash contribution to partnerships to develop property.

You can view the full case here.

What Real Estate Investors Can Learn From The Kellermans

This case is a clear example that using retirement and personal funds together in the same transaction can trigger a prohibited transaction.

The Kellermans entered into a transaction with their IRA funds, which involved a disqualified person, in this case Panther Mountain. Because they did that, they then had the burden of proving the transaction didn't violate any of the self dealing or conflict of interest prohibited transaction rules under IRC Section 4975.

A burden that, as this case shows, can be difficult to prove.

So here's the lesson we've all learned from the Kellermans: Using retirement funds and personal assets in the same transaction can potentially trigger the prohibited transaction rules.

Don't end up like the Kellermans! If you're interested in learning more about Self-Directed IRA LLCs, we have many free resources for you to read about investing with these entities. If you're going to set up your own, get the job done right: contact Royal Legal Solutions now.

Top Six Duties For Trustees and Executors of Estates

Unlike the movies, you won't just get a call one day telling you that you've been named as the executor or trustee to a billion-dollar estate. Not usually, anyway.

But let's say you do.

So you’ve been named as an executor in a will or as a trustee in a trust? Now you have some serious duties to carry out. Before I explain the trustee duties and the trust executor duties, you need to know the difference between the two.

What Is an Executor?

An executor, also known as a personal representative, has the authority to administer and distribute an estate. If you were appointed as an executor (or personal representative) in a will, you will need to understand the terms of the will and who the heirs are.

In most situations where only a will is used, you will need to go to court to be appointed as the legal executor of an estate and will need court approval to transfer certain assets (such as a home.)

What is a Trustee?

If you were appointed as a trustee in a trust, you will need to understand what assets are owned by the Trust and what assets are owned outside the Trust. In general, a trust is used by individuals to avoid probate and to provide better direction and control of their estate.

If the Trust was established correctly and if it was properly funded (the trust owns the assets of the deceased person), then you will not need to go to court to get approval to administer the estate.

The Difference Between an Executor And a Trustee

The position of executor tends to be temporary, while someone could serve as a Trustee for a few months or a few decades.

Think of an executor as a "liquidator" and a trustee as more of a "manager." An executor's duties are complete once everything has been liquidated, whereas a Trustee's duties are complete when there is nothing left to be managed.

Fun fact: Usually neither an executor nor a trustee is compensated for their position.

Now that we've got that covered, let's go over the six most essential duties of executors and trustees.

Responsibilities as an Executor or Trustee

#1 Understand the Estate Documents.

Before you do anything, you need to read the estate documents. These documents will determine the distribution and management of the estate. These documents may include funeral and burial instructions. (Where and how the person wants to be buried, or where they want to be cremated, etc.)

There may also be a memorandum of personal property that outlines how specific items of personal property are to be distributed to heirs. Common items identified and handled on the memorandum of personal property are jewelry, guns, and other valuables.

#2 Determine the Assets.

You will need to determine what assets are included in the estate. Sometimes this can be difficult to determine, as the deceased person may not have provided complete information as to their bank accounts, investment accounts, real estate, retirement accounts, and life insurance policies.

Many children who become executors and trustees have a difficult time locating the assets of their deceased family member despite having an otherwise close relationship.

#3 Identify the Heirs.

Most estate documents such as a will or a trust will list the heirs to the estate and these heirs (AKA, beneficiaries). Usually, the heirs are clearly identified. However, what happens if the will or trust listed one of your siblings as an heir, and what if that sibling in longer living?

Does that portion of the estate go to your sibling’s surviving spouse or children or to the other siblings? Hopefully, the will or trust will state what shall occur in this instance. But in many instances, this item can be overlooked and not considered in the estate plan.

As executor or trustee, you are left to determine who shall take the place of your deceased sibling and this decision is subject to the terms of the document and state laws.

#4 Identify the Creditors.

Almost every estate has creditors who need to be paid. From credit card companies and other consumer debt to mortgage lenders with liens on real estate owned by the deceased.

As executor or trustee of the estate, you have an obligation to guarantee that all creditors' claims are paid from the estate. Failure to do so may result in liability to you as the executor or trustee or to the heirs who receive distributions from the estate.

Whether you are working with a secured or unsecured creditor, you will need to provide evidence of your position as executor or trustee, which in the case of a Will would include a copy of the Will, or in the case of, a Trust would include a copy of the certificate of trust.

In general, secured creditors such as mortgage lenders or car lenders will be paid upon the sale of the property or asset unless the estate otherwise has cash available and intends to hold these assets.

Regardless of whether the asset will be held or sold, you should immediately notify secured creditors of the death of the deceased person. Where possible, you should make sure that payments are made to these creditors to avoid late fees and other penalties.

If properties or assets subject to the secured creditor are paid, then the proceeds from the sale will resolve these debts.
As for unsecured creditors, you should notify them of the passing of your loved one. However, these creditors are not always paid in full. Don't be hesitant to negotiate with unsecured creditors, such as credit card companies. They can be negotiated with fairly easily.

Maybe start with an offer of 1/3 of the amount owed and see if the unsecured creditor will accept that amount as a payoff. While they do have legal recourse against the estate, they do face significant legal fees in probate court to collect on the debt.
If the estate must go through probate in the court, as will typically occur if there is only a will, then as executor you are required to notify creditors of the probate court action and of the assets of the estate.

Unsecured creditors then have a certain amount of time to assert their claim against the estate. Most unsecured creditors won't follow up and make a claim against the estate despite being given notice of the assets of the estate.

Look to negotiate with these creditors and if you are in probate court already, wait until they actually make a claim in the probate court (following notice of the case and deceased person's death you will be required to provide) before paying those creditors.

You have a good chance that the creditor won’t even make a claim.

#5 Conduct the Proper Process.

The estate documents and the assets of the deceased will determine the process to administer the estate. Also, if the deceased person had assets in multiple states if they only left a will, you may need to conduct probate in multiple states.

There are a number of common situations where you will need to go to court to obtain court approval in administering the estate.

In the case of a will, you will typically need to go to probate court to be appointed as executor by the court and to get court approval to transfer any real estate assets to heirs or in a sale from the estate.

Also, if the identity of heirs is in question, you may need to get approval from the court as to the proper heirs to receive proceeds from the estate.

Lastly, you may be required to go to court if the estate documents leave contradictory, improper, or confusing provisions that cause disagreement amongst heirs. In this situation, obtaining approval from the court is advisable in order to avoid claims against yourself and the estate.

#6 Final Tax Returns

As executor or trustee, you must also make sure individual income tax returns and estate tax returns are filed. This can be tricky, considering the circumstances.

For example, you must write the word DECEASED across the top of the tax return. In addition to a final income tax return, you may be required to file an estate tax return using IRS form 1041. This is required if the estate receives $600 or more in gross income.

Conclusion

Being a trustee or executor isn't easy. You may want to get some professional help to make sure everything goes smoothly.

Remember, the estate can pay the expenses of professionals and if you incur out-of-pocket expenses then the estate can typically reimburse those expenses.

One last thing you should be aware of as an Executor or Trustee. I didn't mention this in the list above, but as an Executor or Trustee, you will typically be involved closely with the heirs/beneficiaries. Sometimes this can involve drama, emotional support, and other sticky situations. For your convenience, we've created an additional Survival Guide for Trustees and Executors. You can make it. We believe in you and are here to support you through this process if you need help.

Are You Swimming In Liability? Lessons Pool Owners Can Learn From Demi Moore's Asset Protection Fail

Do you remember a couple years ago (2015ish) when some guy drowned in actress Demi Moore's pool? The incident caught the media's attention and made me think of the pool safety and liability issues that my clients deal with.
As a lawyer with many clients who own real estate from California to Louisiana where pools are common, I thought it would be both helpful & fun (yes, lawyers can be fun) to address the issues of pool liability and safety.

Your Pool Is a Liability

Let's start this fun discussion with pools. Do you own a pool? In most states, you're responsible for keeping your pool "reasonably safe".
What happened at Demo Moore's pool is something that could happen to anyone, including you. Someone else (her assistant) held a party at her house while she was away and a man ended up drowning in the pool at this party.
Since Demi’s assistant is an employee, that means that Demi is also liable for her employee’s actions. So her assistant’s failure to keep the pool safe during the party becomes a liability issue for Demi, which naturally, sucks for Demi.
Let's go over a few tips so that you don't end up like Demi Moore, who at the time of this writing, is still in court regarding that unfortunate incident 2 years ago.

How to Protect Yourself From Lawsuits and Liability as a Pool Owner

What You Should Know About Strict Liability and Local Laws

There are two ways you can be liable for accidents that occur at your pool. First, if you violate a local law (city or state) that relates to pool safety you can be held solely liable. In most instances, there are laws that say what safety precautions should be present at your home or property. These requirements of these laws vary by state and include things fences, pool covers, and rails.
If your property and pool do not comply with these requirements and an accident occurs at your pool, you can be held “strictly” liable for the accident that occurs on your property. Just like Demi Moore.
Make sure you understand the laws in your city and state so that you are in compliance. Please don't end up in a situation like Demi Moore!

Pool Accidents and How to Avoid Them

The second way you can be held liable for a pool accident, is if your property and pool is deemed "unsafe". Indicators of an unsafe pool are broken fences, rusty rails, and lack of markings that tell people how deep your pool is. The biggest one by far however, is lack of supervision while children or other persons who may need supervision are around.

If you are aware of a dangerous pool condition and don't fix it, you are liable for any accidents. In the case of Demi Moore, the argument is that the pool was unsafe because it was not properly supervised while there was a party where alcohol was served.
You should know whether or not alcohol is being served around a pool that you own. And if alcohol is being served around your pool, you better make sure the pool is properly supervised. Hire some kid to be your life guard, and make sure he or she doesn't drink alcohol. (That's right, lifeguards are liabilities too!)
Are you a landlord?
Let's say you own an apartment complex with a pool. As a landlord, you have a duty to your tenants to guarantee that the pool includes the necessary safety features required by law. You can also be liable for damages and accidents to the guests of your tenants. And sometimes, even trespassers can hold you liable for damages incurred from the pool while trespassing. If you haven't realized it yet by now, owning a pool or a property with a pool is potentially a high liability factor.

The Pool Owner's Guide to Preventing Liability and Expensive Lawsuits

Here’s a short summary of things you can do to limit your liability from pool accidents.

Comply with all safety requirements for your city/state (fences, markings, etc.)
Include a clause or separate pool disclosure and waiver. (These are similar to the signs you see at hotel pools & trust me they're there)

This document will include the following:

The tenants use the property at their own risk.
Have your tenant(s) specify if all of the occupants of your property can swim. If any occupant cannot swim, (infants for example) then additional caution should be taken and indicate in the waiver that the pool must be supervised at all times the child is at home. You may be better off not renting property to someone with an infant if you feel that they're irresponsible, as your liability will increase.
State that your tenant is responsible for maintenance of the pool safety equipment, such as fences, and that the tenant must immediately notify you, the landlord, of any safety feature or pool equipment repairs that are needed.
State that the Tenant agrees to supervise the pool at all times that guests are at the property. This would have saved Demi's rear end.
Make sure that your property/landlord insurance includes protection for the swimming pool and that your insurance agent knows there is a swimming pool on your property. Keep in mind that your insurance company can deny you coverage if you do not have the "adequate" pool safety features as required by law. (This is why you need to know local/state laws).
Own your property with an LLC! This way if something occurs on the property your LLC is liable for any damages as opposed to exposing all of your personal assets. In general, when the LLC owns the property the LLC is liable for anything that occurs on the property and a plaintiff tenant cannot reach your personal assets held outside the LLC.

Nobody enjoys going through a lawsuit, they can drag on for years and cost you big time. Hopefully this article helps all the landlords and real estate investors out there understand the implications of having a pool on their property. While pools can add a lot of value to a home, they do increase liability. Make sure you're in compliance with local/state laws so that someone can't slip, fall, and then sue you for everything! Don't end up like Demi Moore. When in doubt about the legal status of your pool, contact a competent attorney.

How To Disinherit Someone Legally Using a Will Or Trust

Have you become estranged one of your heirs? Sometimes, the apple falls far far away from the tree. I hate to sound satirical, but the good news is that you can easily disinherit the heir from receiving anything in your estate.

Disinheriting an Heir: The Right Way vs. The Wrong Way

You certainly shouldn't just leave their name out of things and think that this will accomplish your goals of disinheriting them. The laws in most states will presume you intended to have them be an heir unless you specifically state otherwise.
Following your spouse, your children are the presumed heirs to your estate by law in the absence of an estate plan. As a result, it is important to complete an entire list of your children in the estate plan and to specifically mention any child who will not be an heir to your estate by stating something like, “I do not want *child's name here* to receive anything from my estate."

Other Ways to Provide for a Disinherited Heir

Perhaps you have a heart, and you still want to provide for that "bad apple". But you also want to attach some "strings" to their inheritance. While you generally have freedom in deciding how to pass on your estate, there are some things you can't do with a trust.

Limits on Trust Clauses

For example, a trust or will cannot be created and enforced to go against public policy, promote illegal activities or tortuous acts. One of the more popular clauses is one which requires a child to divorce their spouse in order for them to receive their inheritance.
For example, you can’t say, “Brad doesn’t get anything from the estate so long as he is married to Angelina.” Many courts view this as a violation of public policy as it promotes divorce.
Avoid clauses such as these and seek the guidance of an attorney when adding clauses which disinherit or significantly restrict a child’s inheritance.
Whatever you do, don't ever state why you've disinherited someone in your will or trust. If you do, chances are that they'll use hired guns to prove that you were "mentally unstable" when you wrote that.
Details like this are why you should form an estate plan with an experienced attorney. If you don't have one, schedule your estate planning consultation today.

Buy Tax Liens With Your Self-Directed IRA LLC Or Solo 401k

Did you know tax liens can be purchased with retirement account funds? Yes, it's true!
By Self-Directing your IRA LLC or Solo 401k Plan investments into tax liens, your profits are tax-deferred back into your retirement account. More importantly, purchases can be made on the spot as fast as you can write a check.
But hold on a minute! What are "tax liens"?
A tax lien is Uncle Sam's (most likely the city or county's) claim on your property. They are usually placed when a taxpayer, such as a business or individual, fails to pay taxes owed.
You probably don't know much about tax liens right now. However, by the end of this article you will know how they can multiply your earnings in a tax-deferred IRA LLC or 401k, making them one of the soundest investments in your retirement account.
The purchase of tax lien certificates is a surprisingly safe investment. The transaction is fast for those using a Self-Directed IRA LLC or Solo 401k. The use of a Self-Directed IRA LLC is actually one of the most tax efficient ways to finance your tax lien purchase.
But this doesn't mean the Solo 401k isn't great for buying tax liens. On the contrary, the Solo 401k Plan offers a loan feature allowing for the purchase of tax liens.
Under the Solo 401k Plan, you can borrow up to either $50,000 or 50% of your account value at the prime interest rate + 1%.
What You Should Know About Tax Liens
Real estate has long been considered one of the greatest investment opportunities for both the large and small investors.
Ask yourself, how do real estate investors make money in a post recession climate? By purchasing properties for a fraction of their value!
The question is how? The answer is: Tax Lien Sales.
Where Do Lien Sales Originate?
When a property owner falls behind on their taxes, failing to pay for one or more years, the local taxing authority has the legal right to place a lien/repossess the property and sell it at auction to get the lost tax revenue.
How long local authorities wait to seize individual properties, and how much they allow to be owed on it before one of these events is up to the lien laws in their particular area.
Properties are often shockingly acquired for a few thousand dollars, regardless of how much they're actually worth! Similarly, paying off the lien on other properties may cost more than the house or land is worth.
The key to investing in tax liens is to take your time to research each property carefully before sale/auction day.
When & Where Do Tax Lien Sales Take Place?
Tax lien sales usually take place at public auctions. How often depends on the area in where it is located, and how many properties the government may seize annually for back taxes.
For example, larger urban areas may hold monthly auctions, while smaller rural ones might only have one auction a year.
2 Types of Tax Liens
There are two types of tax lien sales through auction: the tax lien certificate and the tax lien deed. So what exactly are these liens?
Tax Lien Certificate
The Tax Lien Certificate offers a delinquent homeowner who has fallen behind on their taxes one last chance to retain ownership of their property.
The certificate gives them a chance to use third-party investment money to pay off the taxes and a bit more time to collect the money needed to pay their debt without the risk of losing their home.
When you bid on a tax lien certificate, you are agreeing to loan the homeowner the money needed to pay all taxes due. The homeowner in turn agrees to pay you, the tax lien certificate holder, back with interest by a specified date.
If the homeowner fails to pay the debt on time, the deed to the property is transferred to you for the amount paid on the taxes.
Either way you make a profit. Whether your profit is on the interest you earn on the loan or by obtaining the property for a fraction of its value through the tax lien sale and then reselling it.
Tax Lien Deed
Tax Lien Deed sales are handled a bit differently, since you are actually buying/bidding for the property at the time of auction, with no responsibility to give the homeowner more time to pay his/her tax debt.
Once the selling price is approved, the deed is automatically transferred to you. Which gives you free reign as to what to do with the property next. You could renovate it, sell it as is or build a new home.
Properties in this type of tax lien sale tend to cost more, which may lower your profit margins compared to the acquisition of tax lien certificate properties. But the advantage to this lien is that you don't have to worry about homeowners.
Either way, investing in tax liens can be a profitable and easy way to enter the real estate market.
3 Ways You Can Make Money With Tax Liens.

Supercharge Your IRA.

You can buy tax lien certificates with your Self-Directed IRA LLC or Solo 401k. For example, let's say you buy a tax lien certificate which earns 16% of your initial investment annually.
When you buy tax lien investments you receive the amount invested plus interest within 12 months. If you continue to reinvest in tax liens year after year at 16%, you can double your money in about 4 years.
Note: Only a Self-Directed IRA LLC can preserve this 16% return, as traditional IRAs can't invest in tax liens.

Grow Your Retirement Money Tax Free.

By buying tax liens with a Self-Directed IRA LLC or Solo 401k, you can avoid all taxes until the money invested is withdrawn from your IRA or 401k, which is usually around age 59 1/2. (Unless you like giving the IRS free money.)
The money can be invested once, twice or a thousand times and continue to grow tax-free, so long as it is not withdrawn for personal use.

Flexibility.

With a Self-Directed IRA LLC, you can serve as the trustee. This means that all assets of the 401k trust are under your sole authority. This gives you the freedom to fund any investment anytime.
As trustee, you can buy tax liens with the stroke of the pen, without a custodian trying to charge you fees or slow you down.
Tax liens are backed and leveraged by the property being "liened" and are guaranteed by the taxing authority.
In most states, they are a first lien on real estate, and when foreclosed, they wipe out all junior liens (such as mortgages). Which means you can snag a valuable piece of real estate for next to nothing!
Tax Liens Are A Great Investment Opportunity.
Real estate has been the cornerstone of wealth since the beginning of civilization. Even cave men had caves!
Although many people have left the real estate market because of the housing bust, many real estate investors are still enjoying huge profits by investing in tax liens.
To learn more about buying tax liens with a Self-Directed IRA LLC, call Royal Legal Solutions today at (512) 757–3994 to schedule your free consultation!

Protect Your Assets With a Network Of LLCs and Trusts

If you're a real estate investor in the U.S. with assets in your personal name you need to wake up.

You're in the most litigated industry (real estate) and the most litigious country in the world. Anyone off the street can sue you. It's time for you to get real and learn to protect your assets the right way.

By the end of this article, you'll know the steps you need to take to become judgment-proof.

You should at least spend a little bit of money to protect your wealth, especially if you're investing tens of thousands of dollars into acquiring properties. Otherwise you might lose hundreds of thousands of dollars in just one lawsuit.

A Network Of LLCs and Trusts

Rich investors don't own assets, and for good reason. When you own assets, people can sue you and get to them.

What you need is a network of LLCs and Trusts. Using those legal structures will protect your assets and hide them from people looking to sue you for your hard-earned money.

A network of LLCs and Trusts will make people think they have nothing to gain from you in a lawsuit. On paper, it will look as if you own nothing. At least, you as a person won't. The company will. This means nobody will waste their time trying to sue you.

But let's say they actually find out you own assets. It's still highly unlikely that they'd win a lawsuit against you. And even if they did, they'd get next to nothing because your assets will be separated from your personal name.

Why You Need an Asset Protection Plan Now

Can you afford to lose tens of thousands of dollars? That's what you should be asking yourself, because without an asset protection plan your assets are exposed.

Before I became an asset protection attorney, I used to sue people. I know how these attorneys think when it comes to suing people. I know the strategies they use to see if a case against you is "worth it." If they see that you own assets, they won't hesitate to help someone sue you.

You can call me today to get set up with an asset protection plan to protect your assets. My firm will also connect you with our trusted CPAs to create a customized tax strategy to optimize your tax benefits and insurance.
As always, if you have any questions feel free to ask me in the comments below.

Learn more about asset protection, then take our quick investor quiz and we'll work with you to protect your assets.

Can Title Insurance Be Transferred? How To Preserve Title Insurance When Transferring Property

Are you in the process of transferring property? Or maybe you're planning to transfer a property, or even multiple properties in the near future. If the answer is no, let’s just hypothetically say you’re looking to transfer your properties into a legal structure as part of your new asset protection plan. Can title insurance be transferred?

Ultimately, this is something most real estate investors will have to deal with at some point in their investing careers. Get this information now so you can stay on top of your business and be prepared when the time comes.

Let's talk about how to preserve your title insurance when transferring, step-by-step.

How Title Insurance Works

Any time you transfer property, you must consider the title insurance implications. Title insurance will generally being invalidated upon the transfer of the property. However, title insurance isn't invalidated if you transfer the property to a wholly owned LLC (an LLC that is completely owned by you, the person that also owns the property).

It also won't invalidate it if you add your spouse to title.

You may also transfer the property to an inter vivos trust where you are the settlor of that trust. This is the type of strategy that we'll be using with our anonymity land trust and we start transferring property.

Property Transfers and Title Insurance

As a real estate investor, you’re painfully aware of the cost of insurance for a property. The last thing you want to do is pay more money than is absolutely necessary for insurance.

Usually when you transfer a property, your hazard and title insurance expire. This typically happens because insurance companies are pretty good at looking out for their own best interests, and have the legal personnel to make sure these stipulations are made in your insurance contract. I know nobody enjoys reading contracts, but go ahead and check if you don't believe me. The vast majority of the time, property transfer means expiration for those types of insurance.

Preserve Title Insurance With a Land Trust

But never fear, smart investor friends: there is a way around this! You can use the oh-so-useful money-saving and anonymity-preserving land trust, a tool I've written about before here on Bigger Pockets, to preserve your title insurance as well. Here's how it works: if you transfer your properties into a land trust you’ll be able to preserve both your hazard and title insurance. This in addition any other insurances you might have for the property.

Land trusts are a common component of many asset protection plans because of their ability to give you total anonymity. And as a small bonus, you won’t have to worry about violating the due on sale clause when you transfer your property to a trust. Follow the link in the previous paragraph for much, much more information on these other uses of the land trust.

You might be thinking it sounds too good to be true. The skeptical among you may already be wondering what kind of legal backbends you'll have to do, and if there's a catch here.

Is It Shady To Use a Land Trust? What's the Catch?

Not at all. This is perfectly legal and honest tool, and something that investors can always take advantage of. If you're holding your breath waiting for a surprise gut-punch in the fine print, exhale. You aren't going to find it.

That said, you do need to have your ducks in a row regarding both the property and the trust. First, you must be the settlor of the property you’re transferring to preserve your insurance. You must also be the beneficiary of the trust you’re transferring the property in question into.

Before transferring any property, it's definitely a good idea to review any insurance policy you have. While you're doing this, pay special attention to your title insurance policy. It shouldn’t be too hard to find the part of your insurance contract dealing with this issue. If you're having issues with this, consult with an attorney. A business-savvy professional who deals with contracts regularly, such as an insurance agent, CPA, or other legal professional can also help in a pinch.

Usually, the land trust you want to transfer property to must meet your insurance policy’s criteria for transfer eligibility. If you’ve looked over the policy and you're still uncertain whether this is the case for you, it's time to check with your agent.

Land Trusts Preserve Title Insurance and Protect Your Assets

The good news is there’s a guaranteed way to make this transfer will work for you.

The most reliable method is fairly straightforward. All you need to do is add the land trust you plan to use as the beneficiary of your insurance policies. Adding your land trust as a beneficiary essentially guarantees that you'll get to keep your insurance.

This method is leaps and bounds better for you than getting a new insurance policy. Why, you ask? Because, as I’m sure you know, a new insurance policy would have to use the current value of the property. And thanks to a little thing called appreciation, which is usually a good thing for investors, the current value is almost certainly higher than it was when you bought it. And while that's good news if you plan to sell it, it's bad news if you're having to get a new insurance policy. It means you’d actually end up having to pay more, perhaps a lot more, than before. So you want to hold your policy to the last minute before being forced to renew.

First you’d have to pay to re-issue the policy, and since your property has probably appreciated in value, your policy will be more expensive. Second, if you're policy isn't already near its expiration date, you're unnecessarily costing yourself extra money. Extra money which could be used for much more pleasant things than insurance. This is why it's worth the effort to use the land trust method to avoid triggering the expiration clause in that crafty insurance contract.

What's The Due On Sale Clause and How Do I Avoid It With A Land Trust?

Despite what you might read on the Internet, you shouldn't worry about the due on sale clause.

Banks are in the business of making loans and collecting mortgage payments. It's true that the due on sale clause would allow them to foreclose on a property, but why would they do that? This could only hurt their interest. They can't collect on payments if there isn't a borrower to pay them.

The fact is, since before 1960 we haven't seen any banks foreclose based upon a violation of the due on sale clause while the borrower was making payments on time.

When Do Banks Invoke The Due On Sale Clause?

I've seen a couple instances where a bank did decide to invoke the due on sale clause. But in all of those situations the mortgage wasn't getting paid. The property was going to get foreclosed on anyway.

These days interest rates are at an all time low. This makes banks unlikely to invoke the due on sale clause. However, if interest rates were to go back up to the standard 6%, then they might change their minds. What exactly do I mean by that?

Let's say you're behind in payments on a 30 year mortgage with a 3.5% interest rate in a market where the prime rate is 6%. If the bank invokes the due on sale clause on your property and resells it, they'll be able to make more money. This is because the property will be re-sold with a 6% interest rate instead of a measly 3.5%.

How Do I Avoid the Due On Sale Clause?

It's important to remember that tens of thousands of real estate investors violate their loan covenants everyday. Yet the banks don't invoke the due on sale clause. But if the banks really wanted to, they could.

Instead of gambling with your properties, what you should do is use a land trust. By using a land trust, you'll be able to transfer your property without angering the bank.

For this method you'll need an LLC and a land trust. So first you'll create a anonymous land trust and place the property(s) into the land trust. Then you'll make your LLC a beneficiary of the land trust. Problem solved!

Not only will a land trust help you avoid triggering the due on sale, but it also helps with transfer taxes and keeping your real estate holdings private.

Get Help With Your Land Trust and Asset Protection Needs

If you have any more questions about asset protection or the due on sale clause, I'd be happy to answer them for you in the comments below.

Also, while we're on the subject of transferring property, you may be interested in our free educational resource on how to transfer your property and keep your old insurance. We offer these to all of our prospective clients and fellow investors to empower you to make the best choice for your real estate business.