Selling an Inherited House With Siblings? Here's What To Know

Are you selling an inherited house with your siblings?

Dealing with the death of a parent or guardian is already tough, but the administrative and legal tasks that go hand-in-hand with settling their estate can make it tougher. If you're inheriting a house with siblings, there are also financial and sentimental challenges to navigate—especially if your brother or sister refuses to sell or has other ideas for the property.

What your loved one intended to be a gift can become a burden if this process isn't handled properly. That's why families opt for selling an inherited home as-is to minimize the timeline and see the financial returns as soon as possible.

Types of Home Inheritances

Inheriting a home may seem pretty straightforward. However, different types of inheritances can impact how you handle the sale of the property: deed inheritance, will inheritance, and trust inheritance.

A deed inheritance works similarly to a life insurance policy. Also known as a "Title by Contract," this applies to mortgages that have a beneficiary or beneficiaries listed to receive the property in the event of the contract holder's death. The beneficiary is listed as a "remainderman."  A remainderman is a person who inherits or is entitled to inherit the principle of a trust once it is dissolved.

A will inheritance is a bit more complicated to manage. This type of home inheritance is what most people envision when they consider an inheritance. The property owner leaves the house to you and your siblings in the will. However, as the will is not a part of the original ownership contract, you must use the will to go through probate proceedings to secure the property. This process delays the sale of the home by months.

Finally, a trust inheritance indicates that you and your siblings are entitled to the home after a certain age. This type of inheritance typically doesn't apply to adult children or siblings.

Determining the type of inheritance you've received will help you understand the timelines and legalities involved. It's worth hiring an attorney to navigate these processes.

Selling an Inherited House? Understanding Inherited Ownership

When you inherit a house with your siblings, state law dictates that you share ownership equally. In addition to sharing the asset, you're also equally responsible for any outstanding liabilities and debts (i.e., the mortgage and property taxes) and for claiming income from the property.

This means that you and your siblings will be equally responsible for paying debts— especially if there's no life insurance to cover the outstanding mortgage— even if you have different income levels. Additionally, you'll all have taxable income from the sale to navigate with the IRS. It's worth getting professional legal and accounting advice as individuals when navigating the process.

It's also important to note that selling an inherited house can't take place without agreement from all of the listed beneficiaries. If a sibling is pushing back, you may require legal intervention before listing the home.

It should be no surprise that handling the administration of dividing debts and income and listing the home is a significant undertaking. If one sibling handles the majority of the work, they are legally entitled to additional compensation for their time from the estate. Again, having legal counsel in place to assist is beneficial.

Dealing with an Outstanding Mortgage

Getting mortgage insurance is one of the best things a homeowner can do to protect their family should death occur— unfortunately, many opt out of this coverage. When mortgage protection is in place, the costs are covered, and the beneficiaries don't have to worry about paying it off.

So what about those cases when the parent didn't have mortgage insurance or life insurance, and a mortgage is still outstanding?

Rest assured that under federal law, a mortgage lender cannot demand the entire mortgage in a lump sum from the beneficiaries of inheritance. In some states, there are even protections in place to give beneficiaries the right to walk away from an inheritance with a mortgage without the bank being able to go after their personal assets.

The process of transferring a mortgage after death is contingent on each lender's policies and procedures. Generally, it's a lot of tedious paperwork, but not too difficult. Inheriting a mortgage does mean you'll be required to make those payments until the house is sold. When the home sells, the profits will be applied to paying off the mortgage before being divided between the beneficiaries.

Home Inheritance Taxes

When you inherit a home, a policy called "stepped-up basis" comes into effect. This policy ensures you only pay gains on the selling profit versus the home's value today rather than the original value. Suppose your parents bought the home for $50,000, and it's now worth $200,000. You sell it as-is for $220,000. You and your siblings would be taxed on the gains of $20,000 rather than $170,000.

It's important to understand this concept, as many parents mistakenly "gift" the home to their children before their death. In that case, you would be taxed for the $170,000 gain.

Selling a House As-Is

Selling an inherited house as-is means that you're listing the property in its current state with the understanding among buyers that you won't be making any repairs. Buyers still retain the right to have an inspection completed, negotiate the price, and access a full property disclosure from the sellers.

The advantage of selling a house as-is is that you won't have to put any time and money into the property before selling. This streamlines the process of paying off the mortgage, potentially getting extra money, and moving on with your lives.

As inheriting a home with siblings can be complex, it's important to hire a professional attorney and consult with a skilled accountant.

Key Takeaway

Spare loved ones the pain of probate and ensure that your assets are distributed exactly according to your wishes by having a professional estate plan put in place. This can be accomplished through a 3-part strategy that involves a Living Trust, Pour Over Will, and power of attornies for making medical, financial, and managerial decisions. By not having a proper estate plan, you are at extreme risk of losing up to 1/3 or more of your estate to probate court and attorney fees. To learn more about Royal Legal Solution's rock-solid estate plan service, visit Estate Planning for Real Estate Investors.

What Is The Difference Between An Authorized Member (AMBR) And A Manager In An LLC?

A Limited Liability Company (LLC) is a versatile legal entity for running a business. Since its relatively recent creation (Wyoming in 1977) it has quickly become an attractive option for real estate investors due to its tax flexibility and strong legal protections. 

In practical business operations, many LLCs function either through a designated manager or the collaborative efforts of its members. Under the second model, an LLC may authorize members to make binding legal commitments for the LLC.

You may be wondering about the meaning of "AMBR." That stands for Authorized Member. This designation signifies an individual with the authority to make decisions and act on behalf of the LLC, including signing contracts and representing the business. An AMBR typically holds significant decision-making power within the company's structure

Whichever management framework is adopted, the details need to be outlined in the LLC Articles of Organization and the Operations Agreement. These two documents are the solid foundation of an effective LLC.

Authorized Members in An LLC

As we've said, an authorized member of an LLC is a member (or members) who are authorized by the governing documents to make binding legal commitments on behalf of the LLC. They include:

LLC Managers

A manager of an LLC is either a member or an outside party tasked with performing the day-to-day functions of managing the LLC. These duties are outlined in the LLC Operating Agreement.

Typically, the manager is given the power to perform the following for the company:

An important note on LLC managers is that the LLC Manager is not liable for fraudulent statements for the LLC or the actions of any of the members of the LLC.

Basics of LLC Operations

Before you can understand the difference between an authorized member and a manager in an LLC, you should know the basics of LLC operations. In 2018 just under 200,000 LLCs were established in the state of Texas alone. The popularity of LLCs comes from its legal protections for owners, tax flexibility, and its less formal establishment process than traditional corporations. 

As mentioned, a properly established LLC requires two foundational documents: Articles of Organization and the Operations Agreement. The first key step in how to start an LLC is filing the Articles of Organization with the state to outline the formation and purpose of the LLC. Governing the actual processes of the LLC, the Operations Agreement is important to ensure an efficiently run LLC and that it affords the most protections and benefits to its members.  

The owner(s) of an LLC are referred to as its “members” and the default management is a democratic vote based on the ownership percentage. All the members enjoy protection from any liabilities taken on by the LLC and the LLC is in turn protected from any creditors of its members.

That said, it is imperative that the LLC Operations Agreement is drafted correctly as an ownership interest in an LLC is not automatically protected against personal creditors. If correctly drafted, however, the most a personal creditor of one of the members could obtain is the cash distributions that that member would have been entitled to.

LLC Articles of Organization and Operations Agreement

As one can imagine, an LLC that functions the best and provides a management structure sufficient for the purposes for which it was created will have well-drafted Articles of Organization (legally required to be filed with the state) and Operations Agreement (governing the functional processes of the LLC but not a legal requirement).

Particularly, these documents will contain provisions outlining the duties and privileges of the LLC’s authorized members and managers, if any.

Your LLC: Member Managed or Manager Managed?

Logically, there are only two options for how an LLC functions from a management perspective: democratically managed by the members or managed by an appointed manager. If it is member-managed then having an authorized member imbued with the power to enter the LLC into legal arrangements will often make practical sense.

Which One Is Right for You?

As a generalization, the larger the LLC the more practical it becomes to have a manager-managed model for the LLC. Aside from the practical advantages, the other key benefit from having a manager manage the LLC is to allow for passive member investors.

Many smaller LLCs prefer to manage the company as a team with, if needed, one or more members being authorized to sign on behalf of the LLC. 

In either case, the key is getting the LLC Articles of Organization and Operations Agreement drafted correctly. With well-worded foundational documents, an LLC is an ideal flexible legal entity for conducting business.

Does Your Real Estate Business Need An Employer Identification Number (EIN)? 

Launching a new real estate business is an exciting and rewarding way to build your path to financial freedom. 

However, as with any business, you have to pay taxes (womp womp).

And a primary way that state and federal governments keep track of what you owe in taxes is with identification numbers.

One of the first questions you'll encounter when registering your business involves your Employer Identification Number (EIN). In this article, we'll discuss what an EIN is and help you decide if you need to apply for one.

Does Your Real Estate Business Need An Employer Identification Number (EIN)? What is an EIN?

An Employer Identification Number—abbreviated on forms as EIN—is a nine-digit number that the IRS assigns and uses to identify businesses and individuals for taxation. An EIN is also known as a Federal Tax Identification Number.

As an individual taxpayer, you identify yourself with your Social Security Number (SSN). However, as the owner of most business entities, you need an EIN to apply for your business license and file your tax returns.

That's right; we said "most" business entities. If your real estate business is a sole proprietorship or single-member LLC, you can use your SSN to file your taxes.

On the other hand, the IRS requires your business to have an EIN if you do any of the following:

However, even if the IRS does not require your business to have EIN, many investors apply for one anyway.

Why? As you can see from the above list, having an EIN allows you to make more business moves than you are able to make as a sole proprietor. Some banks will even refuse to allow you to establish a business account or apply for business loans or credit cards without an EIN.

Some investors also feel that using an EIN can make your real estate business look more professional in business dealings. In a competitive real estate environment, an EIN can show that you take your new business seriously.

Also, using an EIN allows you to keep your SSN more secure from identity theft. For example, identity thieves can use stolen SSNs to file fraudulent tax returns. All business EINs are considered public information, but if someone looks for credit information, your EIN will be the only identification number they will find.

Does Your Real Estate Business Need An Employer Identification Number (EIN)? Does a general partnership need an EIN?

Although your general partnership may appear to be a simple agreement between two or more business partners, the IRS sees it as a separate business entity. Therefore, all partnerships—including general and limited partnerships—must have a separate tax identification number.

This requirement remains true even if your partnership has no employees. In addition, all partners must report their profits and losses on a Schedule K-1 when they file their personal income taxes.

Does a sole proprietorship need an EIN?

If you have a sole proprietorship with no employees, you may be able to file your business income taxes along with your personal tax return. You will use your SSN as your business taxpayer ID on your tax forms.

However, an EIN for a sole proprietorship is needed when you do any of the following:

Does Your Real Estate Business Need An Employer Identification Number (EIN)? How do you obtain an EIN?

Fortunately, unlike many aspects of launching a new real estate business, applying for an EIN is easy, and it's free.

The quickest way to apply online, using the IRS EIN Assistant tool. The process takes less than 10 minutes, and you will receive your new number immediately upon completion.

If you'd rather go the old-school route, you can download Form SS-4 and send it by U.S. mail to the IRS. The processing time for an EIN application received by mail is four to five weeks, according to the IRS website. Please note: The IRS warns business owners to beware of fraudulent online services that offer to apply for an EIN for you.

What if you already have an EIN?

If you already have an EIN and your business goes through some standard changes, you may be able to keep your old EIN. For example, if you change your business name or move to a different address, you can continue to use the same EIN.

However, you'll need to apply for a new number if the ownership or structure of your real estate business changes down the line.

How To Protect Your Estate From A Predatory Remarriage  

People tend to put off estate planning because no one likes to think about their own mortality.

That makes sense, but more than 60 percent of Americans don't even have a will in place, and you should not be among them.

Sure, the estate planning process means you have to focus on some unpleasant scenarios. One of them might be the thought of your spouse remarrying after your death.

Still, it is important to plan for your surviving spouse and consider the possibility that remarriage could put your assets at risk. Unfortunately, many unscrupulous individuals take advantage of widows and widowers. In this article, we will discuss how to protect your estate from a predatory remarriage.

How Can Your Spouse's Remarriage Harm Your Estate?

If you and your spouse have been married for many years and have children, you may have established reciprocal estate plans. Under these arrangements, a surviving spouse inherits all the assets of the spouse who passes away first. Then, the couple's combined assets go to their children after the surviving spouse's death.

You may have set up a bypass trust. A bypass trust is a legal arrangement with terms that allow a married couple to avoid or "bypass" paying estate tax on some assets after one spouse's death.

This process is straightforward unless the surviving spouse remarries. In that case, the new spouse may be able to become a legal heir to your surviving spouse's estate. This situation could threaten the assets that you intended for your children.

How Can You Protect Your Assets?

If you have a will that lays out your wishes for your estate's distribution, you may wonder why that document is not enough to protect your children. Unfortunately, a will cannot guarantee that your children will not be cut out of your estate if your spouse remarries.

None of us can predict the future, but careful estate planning is the best way you can protect your hard-earned assets and have the peace of mind that they will go to the people you love. A trust is a legal entity that allows a third party, known as the trustee, to hold your assets on the behalf of your beneficiaries.

Trusts can stipulate how and when your heirs receive your assets. A trust does not have to go through the lengthy and expensive legal process known as probate after your death.

What is A Family Wealth Trust?

A trust that is designed for estate planning for blended families is called a family wealth trust. A family wealth trust can be set up as part of a larger trust, or it can stand alone. Here are some of the key reasons why this solution will protect your children in the event you or your spouse have a predatory remarriage:

A family wealth trust offers other protective measures against predatory remarriage. If your spouse remarries without a signed prenuptial agreement, they lose access to the property held in the trust. This step will encourage your surviving spouse to sign a prenuptial agreement, which is another essential shield against a predatory individual should the remarriage fail.

If you own considerable assets, here's another plus of creating a family wealth trust. This type of trust qualifies for the marital deduction in your gross estate. This qualification means that any of your assets that are above the applicable exclusion can go into the family wealth trust, allowing you to avoid estate taxes.

What Are Other Ways to Protect My Children's Inheritance?

As we said, estate planning leads you into some uncomfortable topics.

Here's another one. How can you make sure that your children do not squander their inheritance? This question may be weighing on your mind if you have a child that has problems with addictions or with failed relationships.

The answer to this dilemma is to create an investment tool called a spendthrift trust. A spendthrift trust places limits on a beneficiary's interest in the trust assets. Limitations might include paying only for your beneficiary's basic living expenses or making only limited payments directly to the beneficiary.

A spendthrift clause may be written to suit your individual circumstances. For example, the clause can include protection of the trust assets if your adult child goes through a divorce. In other words, it can offer your child protection from their own predatory marriage or remarriage.

Check out "Estate Planning For An Irresponsible Child" to learn more.

An Attorney Can Help You Protect Your Estate

With proper planning, your family wealth trust can be written to help your family for decades. For example, you can stipulate in your trust that your assets be passed down to your grandchildren rather than your son-in-law or daughter-in-law. Assuming your trustee manages your assets well, this means that your hard-earned assets will benefit your family for generations to come.

Every state varies in what they allow in terms of trust provisions. Your attorney can help you understand the rules in your state.

Finally, despite the word "wealth" in its title, a family wealth trust is not just for the very rich. If you have a moderate estate, your family can still benefit from this vital estate planning tool.

Interested in learning more? Check out our article Getting Remarried? It’s Time to Update Your Personal Estate Plan.

Can My Husband and I Own Our Business Together as a Sole Proprietorship?

There are some cases where a couple who run a business together wouldn’t be interested in creating a formal business entity.

The question then becomes: can that business, being run by a married couple, be considered a sole proprietorship?

The answer is yes. The IRS allows a lone exemption for married couples who want to structure their business as a sole proprietorship.

Before going into details on that, there are typically four different kinds of business structures that the IRS recognizes. Those include:

  1. Sole proprietorships
  2. Partnerships
  3. Limited Liability Companies
  4. Corporations

In order for the business you run with your spouse to qualify as a sole proprietorship, the following conditions must be met:

  1. There must be no other employees actively engaged with the business. This includes children or other relatives.
  2. Both spouses must materially participate in the running the business.

With those requirements met, each spouse would be required to file their own Schedule C, reporting their individual share (usually an even split) of the business’s income. Each spouse in the husband-and-wife business (sole proprietor or partnership or other) would also need to file a separate self-employment tax form.

Should My Spouse and I Run Our Business as a Sole Proprietorship?

husband and wife business sole proprietor or partnership

This, of course, is a separate issue entirely. The big advantage of a sole proprietorship is that it’s one of the easiest business structures to establish. The major disadvantage of this structure is that you and your spouse are 100% liable if the business fails. Sole proprietorships offer no protection from creditors.

Another option that many married couples employ is a partnership. For tax purposes, it can be easier to file since there is only one form involved. On the other hand, the business will be required to obtain a tax identification number. Partnerships might also be subject to state and federal regulations. The major upside, however, is that partnerships offer more opportunities for growth.

There are no regulations that state that if you start a business as a joint venture LLC, which for tax purposes is considered a sole proprietorship, you cannot later change the structure of the business to a partnership, LLC, or anything else. For many married couples, having the option to start as a sole proprietorship affords them the opportunity to hit the ground running. It’s a simple and effective means of getting their business started without needing to file numerous petitions with state and federal agencies.

What makes sense for your business in the early days, however, may not make sense down the road.

3 Key Tax Benefits of Using an LLC Structure

Limited Liability Companies have many useful properties for investors. Most of my clients approach me about forming Traditional LLCs or Series LLCs for asset protection, but often are completely unaware of the potential tax benefits their entity may provide.

Today, let’s talk a bit about the tactics you can use to minimizing your tax liabilities. Specifically, we will be taking a closer look at the tax benefits of an LLC structure.

Tax Status Flexibility

One of the appealing tax benefits of LLCs is that you get to choose the manner in which it is taxed. But owners of Series LLCs don’t have to miss out on the fun. In fact, if you own a Series LLC, you can tax each Series differently if you desire. What exactly does that mean? Let’s take a closer look at how LLCs are taxed.

You may make your pick from any of the following three tax status elections when forming an LLC (or Series within a Series LLC):

Note that there is an exception to the flexibility norm. Single-member LLCs are more limited and may be forced to file as a sole proprietorship, then report income or losses on their personal returns. It is also important to be aware that the above are simply tax classifications rather than different types of entities. It can be easy to get the impression that an S-Corporation is an entity when indeed it is a tax status, as a C-Corporation is an entity.

Which tax option will be best for you? As with most answers in the financial realm, you’ll find that it depends on your individual circumstances, status, and ambitions in the real estate business. Only a qualified attorney and CPA should be trusted to give tax advice.

Deductions and Credits Galore For Those Willing to Look

If you’re serious about lowering your tax bill you know the power of deductions. So we recommend that you deduct, deduct, deduct everything that you can. No business expense is too small or inexpensive. See if you qualify for fuel deductions, and take a good written record of everything you really need for work and its cost. It may seem silly if you’re looking at many small receipts or expenses, but the old adage about how they tend to add up is true.

The fact that you may not be aware of deduction and credit opportunities is yet another good reason to have a solid CPA and attorney on your real estate dream team. These pros will often point out savings options you didn’t even know you were missing out on. So go forth and deduct shamelessly. It’s a win-win for both client and CPA.

Personal Assets May Be Leased to the LLC

If a valuable assets drag you into a higher tax bracket, an LLC offers a handysolution. You may be able to minimize this situation by leasing the asset to yourself (specifically, your LLC)  with a formal leasing agreement. Such arrangements lower taxable income and often allow for deductions.

For example, a home office is an item you lean on come Tax Season when you’re deduction hunting. Learn more details about the home office deduction and who can qualify from our previous educational resource on the subject. Home offices may not only be deducted from your taxes, but also leased back to your LLC.  When that leasing agreement goes through, you can write it off and claim it as a business expense. The fact that this type of business expense

Optimize Your LLC Tax Strategy With The Pros at Royal Legal Solutions

Between the asset protection and tax benefits, LLCs may begin to seem like a no-brainer. But to get the right entity that will do the best possible job for you, you may need Our crack team of attorneys and the CPAs we work with can assist you through any tax concerns you may have. As investors ourselves, we may have some more tips that you haven’t yet learned to exploit. Which ones will apply to you will depend on your personal circumstances.

If you are wondering how Royal Legal Solutions can help you save on your taxes, our consultants are happy to explain your options to you, answer your questions, and when you’re ready, set up your personalized consultation. We look forward to helping you keep more of your income where it belongs: in your bank account.

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 Set Up a Land Trust For Each Investment Property You Own

Setting up land trusts for each investment property you own is essential. One benefit of the land trust is to keep ownership of the property private. This way, the land title office can no longer let the whole world know that you own the property. Many people can enjoy privacy of ownership and do so for a few different reasons. The benefits are below:

Land Trusts Can Help Avoid Moving the Investment Property Title To and From More Than One Name

Although the above five benefits are the main reasons for setting up land trusts for each of your investment properties, doing so can help in other ways as well. One way setting up a land trust for each of your investment properties can help the owner is by avoiding "churning" of the title. Churning means that the title goes through many different hands in a short time period.

The thing about the title going from one hand to the next and the next and so on is that a lender will not think twice about denying lending money for the property. This is because they may think that the title is going through many different hands really fast so as  to make the investment property look like it is worth a lot more than it really is. This is why it is good to set up a land trust for your properties.

How to Set Up Land Trusts for Multiple Investment Properties

You can create land trusts for multiple properties by using two legal documents. Before you start with the documents, first you need to decide the name you are going to be using for your properties. Once you find a trusted friend or family member, you then see a land trust attorney who will draw up a contract that states what is happening and the rights of both parties, you and your land trust.

Once you both look over this document and you both sign it, you then need to record the trustee deed. However, once these two steps are done, the world will no longer be told that you own any of the investment properties you own. Once this is done, you can enjoy all of the benefits mentioned above of using a land trust for each investment property you own.

Find Out if a Land Trust is Legal in Your State

For years now, I’ve been telling people to use land trusts for their real estate investments. Not only does it provide protection from creditors but it also prevents them from using the Uniform Fraudulent Conveyance Act to access your assets. It’s also a great way to discourage would-be litigators from suing you since your name never appears on record that you own anything.

I’ve been talking about the importance of using land trusts for years now. One of the questions I keep getting is: Which "land trust states" will recognize this legal entity?

What States Allow Land Trusts?

Only six states have a land trust statute on the books. These states include:

This doesn’t mean that you can’t form a land trust if you don’t live in these states. Most states without the legal structures in place defer to the Illinois Land Trust statutes to determine validity and case law. Apart from Louisiana, you can hold land in trust in any of the other 49 states and the District of Columbia. This has to be done in accordance with the law of any of the foregoing states given that the beneficiary, trustee, or the property is based there. The states of California, Colorado, Missouri, and Nevada have trust laws that allow trustees to hold title to property for a NAMED TRUST (note that it’s just a trust, not a land trust).

With the guidance of a knowledgeable lawyer, you can actually form a land trust in most states, even in Louisiana. The state still has the old French Civil Laws that will need an expert to navigate. One of the hurdles you might have is getting a good attorney in your state who’s well versed in land trust matters.

How to Go About Setting Up the Land Trust

To start setting up your land trust, deed the piece of property you’re buying to a friendly nominee. Should you run into problems down the road where the title company rejects your land trust, they will be able to recognize the last person in the title – the nominee. Thereafter, direct your nominee to sign a deed directly to your new purchaser. But there’s a catch to this approach – you need to be certain that your nominee will be around for the long haul. This is why you might want to consider a appointing close friend of family member as the nominee.

To avoid problems in future, you might want to have the grantor execute two deeds – one for the land trust (using trust deed language) and the other directly to the grantee. The deed to the grantee is a failsafe to be used if the land trust is found to be defective by your state law.

Interested in learning more? Check out our article The Benefit of Using a Power of Attorney With a Land Trust.

Personal Property Trust Vs Living Trusts & Land Trusts: Discover An Overlooked Asset Protection Tool

land trust vs living trust

personal property trust

Asset protection is a crucial component of financial planning for any real estate investor.

I've written again and again and again and again about the many tools you can use to keep your property out of the clutches of creditors and would-be-litigants (and new clients are always asking about the difference between land trusts and living trusts and personal property trusts).

While Land Trusts, Series LLCs, and anonymous trusts are some of my favorite tried-and-true asset protection methods, a financial planning tool that doesn’t get as much attention as it should is the personal property trust.

With this article, we're going to change that!

What Is A Personal Property Trust?

In general, a trust is a type of legal arrangement where a trustee holds title to specific property and manages it for the benefit of the trust’s beneficiaries. Trusts can be revocable, which means the trust can be altered or canceled at any time while the person establishing the trust is still alive. They can also be irrevocable, which means they cannot be modified or revoked.

Like a Land Trust or living trust, a personal property trust is a type of revocable trust. Whereas the Land Trust is used to hold real property, the personal property trust is used to hold title to personal property assets such as vehicles, boats and mobile homes.

Whenever an asset needs to be registered and included in public records, you can use a personal property trust to keep your ownership information private. 

Since trustees must manage the trust assets as directed by the trust instrument, you can use a trust to transfer legal ownership and protect your identity while essentially maintaining complete control over the trust property. Generally, the sale of trust property requires approval from the beneficial owner, and the trustee cannot make the decision alone. Naming yourself as the beneficiary of a personal property trust can keep you in control of your assets.

What Are The Benefits Of Putting Your Property In A Trust?

The primary benefit of using a personal property trust is privacy. When you place your assets in a personal property trust, public record registrations will show the trust as the owner instead of listing your name. If you choose a privacy-protecting name for your trust, there will be no indications in the public record that you own the property.

A few additional benefits of using a personal property trust include:

When Should You Use a Personal Property Trust?

As a real estate investor, there are several ways you can take advantage of the protections offered by a personal property trust. Here are a few of the most beneficial ways to use personal property trusts to help keep your real estate investments safe and private.

Mortgages

One of the most common uses of personal property trusts is to hold mortgages, since the ownership information for this type of asset can be found through a public records search. As a real estate investor, you may want to consider creating a separate personal property trust for each property for which you have a mortgage. This strategy will allow you to keep your ownership information private and avoid links between your various properties. 

LLCs

Savvy real estate investors often use an LLC to own real estate directly or name an LLC as the beneficiary of a Land Trust. To add another layer of separation and anonymity to your asset protection strategy, you can use a personal property trust to hold your membership interest in the LLC. 

If you use an LLC as part of your real estate asset protection plan, it’s important to remember that, in most states, LLC membership is included as part of the public record. One way to keep your LLC interests private is to list a personal property trust as the LLC member and name yourself as the trust beneficiary. 

Vehicles

Any vehicle—including cars, trucks, and motor homes—that must be registered with the Department of Motor Vehicles is generally part of the public record, which can make your personal data open to public search.

You can avoid this by titling your automobiles to a personal property trust. 

Given its various uses, a personal property trust can be a valuable tool for real estate investors, as well as people who haven’t caught the real estate bug (yet). No matter how you use your personal property trust, it is a practical but often-overlooked component of a successful asset protection plan. When deciding what financial planning tools are best for your real estate investment plan, it’s vital that you seek the input of an experienced asset protection attorney. 

 

Tax, Investing, and Legal Strategies for Medical Professionals

High-earning medical professionals eventually learn a hard lesson:

The more they earn, the more they pay in income taxes.

And since physicians and other medical professionals rank among some of the highest-paid individuals in the United States, they need tax planning and investment strategies that will protect their assets and build real generational wealth they can pass to their children and grandchildren.

Hard-working doctors and other healthcare pros can take advantage of all the tax deductions, tax credits and tax exemptions that Congress and the Internal Revenue Service (IRS) make possible to reduce their taxable income.

But there are also lesser-known strategies which, when leveraged correctly, can reduce your tax burden and deliver a sound financial plan that gives you what we call “time freedom.”

These include:



✅️ Setting up an S-Corporation and a Solo 401(K)
✅️ Setting up a 501(C)3 Non-Profit Private Foundation and investing in cash flow deals 
✅️ Investing your tax savings in Short-Term Rentals or syndication deals that offer bonus depreciation

Here I’ll introduce some of the tax, investing and legal strategies our medical professional clients use.

Tax Strategies for Medical Professionals

As a busy healthcare professional, you work hard to provide quality care to your patients, juggle administrative work, and balance your work with life and demands at home. 

That’s why working to optimize your tax situation is probably not at the top of your priorities.

Deep down, however, you know that tax planning should be a key component of your wealth management strategy.

If you are employed by a hospital, a private practice, or a government healthcare department, you’re probably a W2 worker. W2 employees are taxed on gross income first, meaning the IRS takes their cut before you receive your paycheck.

But if you’re a business owner or investor (with the correct structures in place), you can pay the IRS quarterly on your net income after expenses. 

To put it another way, when investing through a properly structured entity, your investment income gets the same tax treatment as a business. This allows you to use your money before deducting taxes. 

If you’re like most of our clients, you've been told there isn't much you can do to lower your taxes beyond taking deductions or using retirement vehicles like 401ks and IRAs. 

This simply isn’t true.

That’s why finding the right CPA to work with is so crucial. You need someone who knows what they’re talking about. It's important to understand there are different tiers of CPAs:

Many CPAs don’t understand that it's possible to save outside the standard deductions. A high-level CPA is someone who earns a high income themselves, someone who has personally found a way to pay nearly $0 in tax by leveraging advanced strategies. 

The right CPA helps our medical professional clients achieve and maintain tax rates in the 0-10% range. This accelerates your overall cash flow and net worth.

If you find a CPA with an MBA and who can perform Chief Financial Officer functions, even better— these folks will be able to help you navigate complex tax decisions and make it seem easy.

When you work with that level of CPA, you'll start to find creative (but completely legal) ways to save taxes, even if you're a medical professional with zero investment experience. And that savings can be invested in equally creative, equally overlooked ways.

Such as …

Investing Strategies For Medical Professionals

The median wage for medical professionals (everything from dental hygienists, physicians and surgeons, to registered nurses) was $80,820 in 2023—much higher than the median annual wage (for all occupations) of $48,060. (Source)

However, at a certain point these high-salary professionals realize they need to take steps to shelter their income from overtaxation. And while saving money on tax is important, but the real magic happens once our medical professionals start re-investing those tax savings into tax advantaged deals.

These include:

Private Foundations

A Private Foundation is a self-funded nonprofit organization that shelters income, allowing you to bypass traditional capital gains tax and take advantage of a much lower excise tax rate.

When using the Private Foundation for income sheltering and high-performance investments, the compounding effect can lead to much better returns than traditional investing.

The Private Foundation can even  replace your W2 income with a director’s salary for managing the Foundation.

Depreciation Deals

Bonus depreciation is a tax incentive designed to stimulate business investment by allowing investors to accelerate the depreciation of qualifying assets, such as equipment, rather than write them off over the useful life of the asset. This strategy can reduce a company's income tax, which in turn reduces its tax liability.

Medical professionals can claim accelerated bonus depreciation as a limited partner when investing passively into a real estate syndication. As a limited partner (LP) passive investor, you get a share of the returns based on how much you invest. 

Similarly, you get a share of the tax benefits as well, as documented by the Schedule K-1 you would receive each year. The K-1 shows your income for a particular asset. In many cases, particularly in the first year of the investment, that K-1 can show a loss instead of an income.

The magic of the K-1 is that it includes accelerated and bonus depreciation. In other words, even while you’re receiving cash flow distributions, the K-1 can show a paper loss, which in most cases means you can defer or reduce taxes owed on the cash flow you’ve received.

Cash Flow Deals

These deals don't offer tax benefits, but can generate so much income that they outperform potential tax savings. Investments in this category include things like algorithmic trading. You can invest in cash flow deals through a tax shelter, such as your Private Foundation, to get the initial tax savings as well as tax advantaged portfolio growth.

Legal Strategies For Medical Professionals

Estate planning is something everybody needs to do at some point. Lawsuits can happen to anyone, and high-net-worth medical professionals are especially at risk. All it takes is a car accident, an injury on your property, a contractual disagreement—and once somebody knows what you own, they can hire a good attorney to force you to settle out of court. 

The way you protect yourself is to set up asset protection. Holding companies can shield anything of value, such as real estate properties and investments. Operating companies can be established for  business activities like collecting rent, paying contractors, and signing contracts.

Trusts are a way to guarantee anonymity across all of your entities and assets. They allow you to look like a beggar on paper and transfer your assets anonymously to your heirs, taking the target off your back.

Here are a couple of other legal structures we help our clients set up:

S Corporations

Independent doctors or physicians can create S Corporations to handle their taxes. Unlike regular corporations (where profits get taxed twice), S corporations pass their income, losses, and deductions directly to their owners. An S Corp, or S corporation, is a “pass-through” entity, which means that the profits and losses of the business are passed through to the individual owners and are taxed at the owners’ personal income tax rates. 

Instead of paying corporate taxes, each owner reports their share of the business’s money on their personal tax returns, paying taxes at their individual rates.

Solo 401(K)

What about retirement?

If you are a medical practitioner who works as an independent contractor, The Solo 401(k) is an ideal retirement plan because it lowers your taxable income and enables you to build up retirement funds through high contribution limits and almost limitless investment capability. 

The Solo 401(k) is a qualified retirement plan, just like hospital-sponsored plans. You can contribute to the plan on a tax-deferred basis. You can also contribute Roth funds to the plan and invest tax-free. With some of the highest contribution limits, the Solo 401(K) lets medical professionals lower their taxable income and grow their retirement quickly. 

To Wrap It Up …

Even medical professionals with no investments need entity structuring. Here is what a full legal diagram could look like, which includes asset protection structures, estate planning, and tax shelters.

As you accelerate your tax and investing approach, it's important to add in measures to prevent a catastrophic reset. We can show you how to save $20k or more in taxes during the first year, but you will want to set up additional tax and legal structures over time to continue to reduce your taxes down to the 0-10% range. 

Without entities, this would be impossible.

It's also important to protect yourself from catastrophic events, no matter how unlikely, so that you don't have any major setbacks on your journey to time and financial freedom.

Tax, Investing, and Legal Strategies for W2 Employees

Not-so-fun fact: As a W2 employee, you are taxed at a rate higher than businesses and investors.

In fact, no group in America pays more taxes than high-salary wage-earning W2 employees. 

Whether you are a medical professional, a tech professional or any other full-time employee for a U.S. company, there are some little-known ways you can jumpstart your tax savings and investment journey.

They include:


✅️ Setting up a 501(C)3 nonprofit Private Foundation and invest in high-performance depreciation and cash flow deals
✅️ Finding general partner investment opportunities in energy and machinery to get bonus depreciation
✅️ Investing in Short-Term Rentals and using Cost Segregation and the STR Loophole

Let’s take a look at these tax, investing and legal strategies for 9-to-5’ers so you can make an informed decision about the best steps to take to secure your financial future.

Tax Strategies for W2 Employees

Tax planning is a key component of a solid wealth management strategy. Remember: W2 employees are taxed on gross income first, with the IRS taking a portion before you receive your paycheck.

In contrast, business owners and investors (with the correct structures in place) pay the IRS quarterly on their net income after expenses. 

When you (as a full-time employee) invest through a properly structured entity, your investment income gets the same tax treatment as a business. This allows you to use your money before deducting taxes. 

If you’re like most of our clients, you've been told there isn't much you can do to lower your taxes beyond taking deductions or using retirement vehicles like 401ks and IRAs. That’s why finding the right CPA to work with is so crucial. You need someone who knows what they’re talking about.

The right CPA can help W2 earners leverage tax strategies to achieve and maintain tax rates in the 0-10% range. This accelerates your overall cash flow and net worth.

Many CPAs don’t understand that it's possible to save outside the standard deductions. A high-level CPA is someone who earns a high income themselves, someone who has personally found a way to pay nearly $0 in tax by leveraging advanced strategies. 

If you find a CPA with an MBA and who can perform Chief Financial Officer functions, even better— these folks will be able to help you navigate complex tax decisions and make it seem easy.

When you work with that level of CPA, you'll start to find creative (but completely legal) ways to save taxes. And that savings can be invested in equally creative, equally overlooked ways.

Such as …

Investing Strategies For W2 Employees

W2 employees spend years growing their career and growing their income. At a certain point we have plenty of income but 20-30 percent of it is being sucked away by the IRS.

Saving money on tax is important, but the real magic happens once W2 earners invest their tax savings into tax-advantaged deals.

There are tons of deal types, but the top asset classes include real estate, syndications in energy or machinery, and algorithmic trading. In short, deals can do three things:

In general, there are two categories of investments you should be looking at...

Depreciation Deals

Cash Flow Deals

These deals don't offer tax benefits, but can drive so much income that they outperform the tax savings. Investments in this category include things like:

One of the top strategies is to invest in cash flow deals through a tax shelter, such as a 501(C)3 Non-Profit Private Foundation, to get the initial tax savings as well as tax advantaged portfolio growth.

You see, there are three "financial freedom" strategies at a high level:

  1. Save on taxes (typically this year)
  2. Generate more cash flow (typically this year)
  3. Create a nest egg so you can retire as fast as possible

#1 and #2 are short-term strategies. You can accomplish #1 with Royal Legal's tax strategies (and you may still use a foundation, but only as one of many tools to capture tax savings) and you can accomplish #2 with a good cash flow deal (algorithmic trading, for example).

#3 is a longer-term strategy. Putting money into your own foundation, THEN investing in cash flow deals is the strongest possible move—as long as you don't want to have a bunch of cash on hand. Because once it's in the Foundation, it's no longer yours.

So when we endorse this strategy, it's because that's the best possible move for anybody interested in #3 - achieving financial freedom.

Legal Strategies For W2 Employees

As you accelerate your tax and investment approach, it's important to incorporate asset protection and legal strategies into your plan. The Royal Legal approach for W2 earners lets you:

Even a W2 employee with no investments needs to set up legal support. Everybody needs an estate plan, not just for their kids but also in case they become incapacitated and need someone to help make medical and financial decisions (ex: car accident, COVID, etc...).

Setting up an LLC, even as a small consulting or investing firm, can give you options to a big range of new strategies.

Once your LLC hits the $50-75k income mark, the S-Corp election becomes your best friend.  S Corps utilize pass-through taxation, meaning income and losses "pass through" the company directly to the shareholders. 

Unlike C Corps (which have corporate taxes and then shareholder taxes on dividends), S Corps allow shareholders to pay taxes only at their individual income tax rates, simplifying the process.

For businesses generating between $75,000 and $250,000 in profits per owner, electing S-Corp status can offer significant savings. While LLCs face self-employment taxes on all profits, S-Corps split profits into wages and distributive shares, the latter of which is not subject to self-employment taxes. This distinction can provide considerable savings on the Social Security and Medicare tax burden.

The S Corps elections also means you can write off business expenses such as equipment, work meals, travel and more. For example, you can depreciate vehicles—80% if under 6,000 lbs or 100% if over 6,000 lbs.

You can even pay your kids to work, typically up to around $14k/year. They avoid income tax and you avoid having profit taxed at your normal income tax rate. Win/win!

There’s a Path to True Financial Freedom For W2 Employees

You’ve worked hard your entire life. It’s time to gain control over your time and money. Rapidly achieving true freedom requires a good tax and investment strategy.

We can show full-time, W2 workers how to save $20k or more in taxes during the first year. Then we give you access to high performance deals and model out different investment options so you can see the best path to rapidly achieve your financial goals.

The Private Foundation. Oil & gas syndications. Machinery deals. And short-term rentals. These are your best options as a W2. The list of deals that outperform traditional stock market investments (and sometimes provide additional tax benefits) is long.

Take a look at a typical 20-year plan that includes asset protection structures, estate planning, investing and tax shelters:

Can A Trust Own An LLC? Choose Your Land Trust Beneficiary Wisely & Reap The Rewards

Can a trust own an LLC? In other words, can your LLC be the beneficiary of a trust?

Having a land trust is a good idea for property owners and real estate investors. Land trusts are especially a good idea in case you own more than one property and don't want everyone snooping into your business.

Land Trust Vs. LLC? Think Of It More As A Symbiosis

You can choose whoever you want as beneficiary for your land trust.  However, it should be someone you know and trust. After all, your property title will be going to them to keep it safe and private for you. While your property is in a land trust's name, no one can see that you own it. For example, the title company cannot announce in the local newspaper that you own property (like they do with everyone else).

How to Start a Land Trust For Privacy and Asset Protection

First, you have to choose someone or a certain business to be your land trust. You don't have to choose an individual if you can't find one to do it for you. You also have the option to choose a business if the business owner agrees to do it.

Whichever one you choose, you need two legal documents for the land trust. The first legal document is a trust agreement between the owner of the property and the person or business who will be the land trust. The second legal document is the deed of the property from the owner to the trust.

Although the land trust will be holding on to the deed of the property, they will not be the owner of the property and will not receive any benefits from holding the deed and having their name on it. The owner still has all rights. The land trust is just for privacy. The trust agreement is also private and only you and the land trust know about the agreement.

Land Trust With LLC As Beneficiary for Privacy and Asset Protection

Although a land trust is for privacy and asset protection, a land trust does not receive the benefits that an LLC or a business does. However, if someone falls on your property and gets hurt, the beneficiary will be held responsible.

This is the main reason to use an LLC or a regular business to stand in as the beneficiary of the property. The reason for this is that LLCs and other businesses are protected from something like this happening.

That was just the first reason for obtaining an LLC or other businesses as a land trust. The second reason to do so is because they receive tax benefits. This means that the transfer of the property can be done tax-free.

A third reason to use an LLC is that many attorneys and accountants don't even know what a land trust is in many states. Because of this, you won't have to worry about litigators looking at your property and thinking you have deep pockets. This way, they won't be trying to file a lawsuit against you.

Seeking Anonymous Company Ownership? Here's How To Hide Your LLC

The main reason you might want to know how to hide ownership of a company is to prevent lawsuits.

I'm going to talk about the concept of anonymity, and one of the most effective tools for maintaining your status as a real estate investing ninja is the Anonymous Trust. When set up correctly, the anonymous trust can be extremely effective at hiding ownership of your corporation/LLC—which in turn prevents you from being sued.

Here are three simple steps you can follow to hide company ownership and prevent lawsuits.

Step #1: Form an Anonymous Trust For Your Business

The Series LLC reduces your liability exposure, which effectively limits the potential damage a lawsuit can do to you. What it doesn't do is stop the lawsuit from happening in the first place. On the other hand, an anonymous trust can. If you truly want to make your company litigation proof and protect your assets, you need an anonymous land trust.

The probability of a lawsuit happening is based on three separate components: legal, factual, and financial.  An anonymous trust will attack each of those motivating factors. What this does is reduce the chance of a lawsuit happening in the first place.

Step #2: List Your Anonymous Trust as a Member of Your LLC

Yes, believe it or not, you can do that, at least in America. (You have several options when it comes to structuring your business assets.) Anyway, this tactic targets the financial component of a lawsuit.

Why? 

Because lawsuits only happen when a plaintiff believes they have a reasonable case for seizing assets to cover damages. If there's nothing they think they can seize from you, they won't sue you. 

The anonymous trust structure enables you to hide company ownership by listing your company as a member in your LLC’s Articles of Incorporation. Another advantage of an anonymous trust is that you don't have to file it with the state. This means the people who want to sue you won’t be able to access your ownership information in the public records.

There will be nothing to associate the assets with your name, shielding you from potential legal action.

Note that you can use this strategy with any type of LLC, including the Series LLC.

Step #3: Allow Uncertainty to Work Its Magic

People sue you because they want your money. Most of the time the people suing you have little to no money in the first place. And if they don't have enough money they can't pay a lawyer to sue you.

People usually get around this obstacle by offering their lawyers part of the settlement. This means it's up to the lawyer whether or not you get sued.

If a lawyer is uncertain about whether you own assets worth anything, they won't waste their time trying to sue you. After your anonymous trust is in place it will be next to impossible for someone to determine what you own. 

No lawyer is going to spend months or years trying to figure out what you own, period. I would know, I'm an attorney myself.

I hope you enjoyed this article. If you want to hide company ownership, make sure you do it right. To learn more about setting up an anonymous trust, visit our Land Trust hub or take our investor's quiz and find out if engaging with us is a good option for you.

Introducing The Anonymous Trust LLC

One day you're living life, enjoying the profits from your real estate investments. The next day you're trying to figure out how you got sued. That's life.

And that's why creating an anonymous LLC for your business is so important.

One in Four Americans Will Be Sued

According to a Clements Worldwide study, Americans face the greatest risk for being sued. The risk is even higher if you own real estate. Are you willing to roll the dice on your future? Investing in real estate without asset protection is like betting against the house. You might come out on top, but you're more likely to lose everything.

Asset protection was a tool of the rich for generations. Regular folk usually weren't aware of strategies to protect wealth (such as the anonymous trust LLC), or they were unable to afford it. Today these techniques are accessible to everyone, thanks in large part to the introduction of two new legal structures.

The Series LLC Structure

In the past, investors held companies under their name or a single entity. This created a jackpot scenario, where successful litigators could access the person's entire wealth. Savvy investors would spread assets between multiple entities, but creating and maintaining a host of businesses proved too expensive for most.

The series LLC changed the way assets are held. It makes it possible to spread assets across multiple holding companies, but reduces the filing and management expense to that comparable with a single LLC. For more information, learn the basics of the LLC structure.

The Anonymous Trust LLC Structure

The problem with a series LLC is that you can still be sued one property at a time. It doesn’t make you invisible. This is where an Anonymous Trust LLC comes into play.

Using a trust in this manner allows you to hide the ownership information of your company, including its assets. As a result, plaintiffs are unable to identify you or target you based on whatever juicy assets may be ripe for the picking. That information is invisible.

A Lawsuit Can Affect More Than One Property

Just because your assets are wrapped up in a traditional LLC doesn’t mean you’re protected. Unlike the series LLC, where your assets are spread out individually, a traditional LLC groups assets into one basket. While there are some legal benefits to a traditional LLC, it still leaves you vulnerable to attack.
In any case, here's a short list of what you should and shouldn't do.

Asset Protection "Do"s and "Don't"s

1. Don't Hold Property Under Your Name

Individuals have the least protection of any entity. Maintaining ownership status as yourself is the worst possible scenario and leaves you open to the maximum level of risk. A simple mishap, such as someone slipping while on your property and being denied insurance coverage, could result in a devastating legal battle and even wipe out your life savings.

It’s essential to create a company structure to hold your assets separate. This will make your legal person litigation bullet proof.

2. Don't Hold All Property in a Traditional LLC

While this is a much better scenario than personal ownership, it still leaves you exposed to losing everything under the LLC’s ownership. Which means you could lose all your assets, not just one.

A series LLC, on the other hand will offer twice as much protection.

3. Don't Leave Yourself Exposed Because You’re A “Good Person”

Lawsuits have nothing to do with whether you mean well. Instead, most lawsuits are based on accidents and misunderstandings, not fraud or malicious intent. The purpose of asset protection is to provide coverage when things don’t go as planned. Ask yourself: “Would I be comfortable giving them access to my bank account or credit card?”

4. Do Get Professional Legal Advice

It's hard to tell if your LLC was filed correctly, but there are some common areas that account for the majority of mistakes:

  1. Was the LLC properly formed and maintained (requires an operating agreement and yearly state filings)?
  2. Did you properly sign for all the contracts and business dealings?
  3. Have you filed the appropriate franchise taxes to maintain good standing?
  4. Are all records, including accounting and banking information, current and accurate?

A single technicality can invalidate your protection, which is why we always recommend consulting a specialist in the field.

Insurance Won’t Protect Your Investments

Insurance companies are in the business of collecting premiums, not protecting their clients. They routinely look for ways to deny coverage as a way of lowering their costs.

It’s always a good idea to have an insurance plan, but you shouldn't assume they will pay by default. There are a variety of ways your coverage can be reduced or denied. These range from state and local policies to your payment status or specific instances surrounding your claim.

Are You Sure You Can Count On Your Insurance Company?

Successful investors are experts and managing risk. Purchasing insurance is a good example of this, but having a Plan B takes things to the next level.

Let’s go through a fictional scenario. Imagine one of your newly acquired properties has a rotting staircase and someone accidentally trips and breaks their toe.

Most people would expect the insurance company to cover this unfortunate incident, but this time the insurance company fights back. They claim you exhibited gross negligence and are individually responsible for your guest’s injury.

This lands you in a tricky situation. The best case scenario is to endure a series of stressful negotiations and come out on top. Unfortunately, this doesn't always occur and you could be left holding the bag, exposing your life savings and assets in the process.

Smart risk management requires good up front decision making, such as purchasing a solid insurance plan. But it also includes having a plan for when tragedy and the unexpected strikes. In this case, it means not only carrying insurance, but protecting yourself from potential failure of your insurance.

You Can Be Fully Protected Within A Week

Did you know it's possible to create a scalable company plan in as little as a week? This plan includes both the company setup and the transfer of properties to the new legal structure, and the benefits are legion.

Compared to traditional structures, our asset protection plan provides a layered defense against lawsuits. Not only do we split your assets across various holding companies, but we veil your wealth in anonymity. This strategy makes you unappealing to most would-be plaintiffs and makes your assets inaccessible to the rest.

Most people struggle to pay the upfront costs of a lawsuit and agree to split the winnings with their attorneys. An asset protection plan for Royal Legal Solutions costs less than the typical attorney fees for a single lawsuit and lasts for a lifetime.

Lawsuit prevention is important, but cobbling together a complex network of business entities can be difficult and expensive. Each LLC requires its own filing expenses and management. It adds up fast and the maintenance doesn't scale. Compare that to our custom solution, which provides no hidden costs and comprehensive service. If you want to learn more, contact us today.

How To Take Money Out Of Your S Corp

If you’ve formed an S Corp to manage your real estate investments, you probably already know about the benefits that come with S Corp taxes. In fact, the primary difference between S and C corporations is the way the businesses are taxed:

That’s the beauty of an S Corp compared to a C Corp. C Corp income is taxed twice: once at the corporate level, and once at the individual level (as a dividend). S Corps avoid this double taxation by passing all of their income through to their owners. The business doesn’t pay taxes; only the owners do.

Whether you’ve started a corporation, an LLC, or a series LLC, you can elect to be taxed as an S Corp. If you’ve gone this route, congratulations! You’ve made a great economic decision that can save you some serious dough that would otherwise go to Uncle Sam. Now the question is: how do you take the money you earn out of your S Corp? 

 

Take Money Out Of Your S Corp: Cash Register

3 Methods: S Corp Distributions, Loans & Personal Salaries

In addition to tax benefits, a major advantage to forming a corporation is the protection it offers your personal assets in case the business gets sued. You should never use business money to pay for personal expenses; you could lose the protection of the corporation in the event of a lawsuit because you have commingled assets.

So how do you access the money that your S Corp makes? I’m assuming you didn’t start a business for your health: you’re doing it to make money to cover personal expenses.

If you want to take money out of your S Corp, you have three options:

Take S Corp Distributions

Distributions are the best way to get money from your S Corp. Because you’ll report it as “passive income” on your income tax return, it won’t be subject to employment taxes. This saves you money! 

Because S Corps are pass-through entities, you have to report your business’s income on your personal return whether you actually receive it as a distribution or not. The upside of this is that you won’t have to pay additional taxes on a distribution unless it constitutes a capital gain. A lawyer or tax accountant can help you determine the most advantageous way to take your distributions.

Transfer Money From the S Corp to Your Personal Account

Unfortunately, Uncle Sam won’t let you take all of the money out of your S Corp as distributions, because the government wants your tax money. For this reason, the IRS requires that you pay yourself a “reasonable” salary for your contributions to the company. You should try to minimize the amount of salary you take while still meeting the “reasonable” standard.

True to form, the IRS doesn’t give any specific guidance as to what “reasonable” means. Some factors that courts have considered when deciding whether a salary is reasonable include:

Another way to look at it is to pay yourself what you would pay somebody else to do your job.

Give Yourself A Loan From the S Corp

When you’re taking money out of an S Corp other than your salary, you can set up a line of credit between you and your business. Then, you’ll take cash out as a loan against that line of credit. At the end of the year, you and your accountant can decide if you should convert some of that loan to a distribution or leave it as a loan (you’ll need to pay interest on the loan). If you borrow money from the corporation (via a loan), you’re never going to have capital gains. 

However, even if you list your withdrawal of funds as a loan on your financial statements, the IRS can recharacterize it as a distribution. If Uncle Sam recharacterizes your loan, you’ll have to pay income taxes on it just as you would a distribution.

If you take out a loan from your S Corp, you need to dot your i’s and cross your t’s to make sure it stays characterized as a loan. For example, creating a legally enforceable promissory note helps prove that the transaction was actually meant to be a loan. Before you take a loan from your S Corp, you should seek advice from your lawyer and your accountant.

Can A Land Trust Get A Mortgage? One Creative Way To Finance Your Next Investment ...

There are many advantages to setting up an anonymous Land Trust for your real estate investments.

But did you know that you also can use these trusts to borrow money to buy additional property?

In this article, we will examine the advantages of a Land Trust mortgage and how to get one.

Over in our Tax Savings & Asset Protection Secrets For Investors mastermind group, you'll hear me recommend land trust mortgages pretty often, but before we go much further, let’s make sure we are clear on some definitions.

A Land Trust is a legal entity that has control over a physical property and other real estate-related assets at the instruction of the property’s owner. As a living trust—one that is created during your lifetime—a Land Trust is typically revocable, meaning it can be amended or terminated at any time.

A Land Trust can protect both your assets and your privacy and prove to be a valuable part of your estate plan. Let’s say you own an investment property. If you deed the property to the trust, your name comes off the property deed as the owner, and the trust becomes the owner.

The terms of a Land Trust can be unique to the type of real estate it owns. You, as the grantor, then choose someone, called a trustee, to make sure your instructions in the trust agreement are carried out to benefit your heirs (beneficiaries). The trustee can be a friend or a relative, your attorney, or a professional appointed from a financial institution.

Unlike a will, which is a public document, a living trust is private. No one can know the details of your Land Trust other than the trustee.

REN 12 | Real Estate Investment And Tax

Okay ... But Can My Trust Borrow From The Bank?

Now, let’s say you want to borrow money to make improvements or preserve assets that are held in a Land Trust. Or maybe you need to refinance a property held in the trust. As long as the trust is revocable, you can apply for a mortgage.

Not all lenders extend loans on trusts, so your first step is to notify the lender that the property is included in a trust and provide them with a copy of the trust agreement. If the lender is on board, you’ll next need to check the trust deed to determine if the trust allows the trustee to take out a mortgage on the property. (It is not always the case.) You’ll also need to confirm that the trust allows the property to be used as collateral or security for a loan.

How to Obtain Financing Through Your Land Trust

If the trust does allow the loan, the trustee will need to sign the mortgage or a promissory note. The note stipulates that the trust will be responsible for paying back the loan and that the refinanced property will be used as collateral for the loan. If the trustee won’t be signing personally, you will have to apply for the loan and sign the guarantee or the note.

If the trust doesn’t allow for the loan, the trustee cannot sign the mortgage. If the property can still be used as collateral, however, the lender may require you to re-title the property. This requirement means you will have to take the property out of the trust and return it to your personal ownership before you can take out a new loan.

This process requires the preparation and recording of two deeds with your county recorder or registrar. One deed takes your property out of the Land Trust, and the other one puts it back.

Some lenders will accomplish this deed paperwork for you, or you can ask your attorney to handle it. Your attorney should then draw up a document that states the property can be used as collateral on the new loan.

Suppose your property is already in a Land Trust and you want to borrow against the beneficial interest. In that case, the lender must serve a Notice of Collateral Assignment on the trustee. Then the trustee will write an acknowledgment of the assignment. When this situation occurs, the trustee cannot transfer the property’s title in the trust or encumber or mortgage it without the lender’s written consent.

Now, here are the five steps the lender will take before granting the loan.

  1. The lender will review the trust instrument, also called a deed of trust.
  2. The lender will confirm the identities of both the grantor and trustee.
  3. The lender will establish whether the trust grants the trustee power to borrow money and pledge or encumber trust assets.
  4. The lender will determine if the trustee needs to sign a trustee certificate to stipulate the trust’s terms and confirm the trustee’s authority to apply for a loan.
  5. The lender will require the deed on record as legal evidence that the trust actually owns the property. (You’ll need to provide the deed on record for this step.)

Advantages of Land Trust Mortgages

Borrowing money on property held in a Land Trust gives you more options than a conventional loan can provide. In addition, selling property held in a Land Trust to current tenants is often more secure and less risky than conventional sales.

In addition to maintaining your privacy as an investor, you also can avoid transfer taxes because the sale of a beneficial interest in a Land Trust does not involve the property itself. Another advantage is that tax assessments are lower because the sale price of the property is not publicly available for real estate assessors to view. You also can skip lengthy and costly probate procedures after the death of an owner.

What About The Due On Sale Clause?

Many investors worry that they will sacrifice their anonymity by triggering the due on sale clause if they finance a property purchase through a Land Trust. This clause in a loan or note states that the full balance of a loan may be called due upon sale or transfer of ownership of the property used to secure the note.

It's important to understand that banks rarely invoke the due on sale clause if mortgage payments are being made regularly on a property. After all, banks profit from your mortgage payments.

You are able to transfer your property or obtain better financing for an investment property without the worry of triggering this clause. Here are the basic—and perfectly legal—steps to take.

I like to encourage my clients with this advice–a Land Trust is simply a tool for an investor. You can use this tool to protect your anonymity, prevent frivolous lawsuits, or manage certain pieces of property. Yes, an unethical person can use a Land Trust in a dishonest way, but that reveals more about that individual’s integrity (or lack thereof) than it does about the Land Trust as an investment entity.

Finally, if you’re seeking to obtain a loan against your Land Trust assets, you’ll need the advice of an expert trust administration attorney. Our dedicated professional team at Royal Legal will prevent you from taking any action that might harm the assets of the trust.

Note: You also may be interested in our article about S Corp distributions here.

Land Trust Mortgages: How To Borrow Money Using a Land Trust

I’ve been harping on for years about the importance of setting up a land trust for your real estate investments. Today I want to touch on one of the issues many real estate investors struggle with – how to borrow money using a land trust.

There are times when you may want to borrow money to make improvements or preserve assets held in a land trust. There may also be a need to refinance the property at some point. You need to make sure that the trust has the power to borrow money. It may not always be the case and this is normally covered in the trust deed.

Let me get right into the mechanics of it all.

What Do I Need to Get a Mortgage Loan Using a Land Trust?

The first step you’ll need to take is to have the trustee sign the mortgage or note. However, you will need to apply for the loan and sign the guarantee or the note since the trustee won’t be signing personally.

Alternatively, if you have your property in a land trust already and want to borrow money against the beneficial interest, then the lender will need to serve a Notice of Collateral Assignment on the trustee. The trustee will then write an acknowledgment of the assignment.

When this happens, the trustee is no longer able to transfer title of any property held in the trust or encumber or mortgage the property without the lender’s written consent.

Here are the five things the lender will be looking for when granting the loan:

  1. The lender will need to review the trust instrument.
  2. The lender will need to confirm the grantor and trustee identities.
  3. The lender will need to establish whether the trust grants the trustees power to borrow money and pledge or encumber trust assets.
  4. The trustees may be required to sign a trustee certificate reciting some key terms of the trust and confirming the authority of the trustees to take out a loan.
  5. The bank will need evidence that the property is actually owned by the trust. For this, you will be required to provide the deed on record for review.

If you’re seeking to obtain a loan against trust assets, you need to consult with an expert trust administration attorney. You do not want to take any action that might potentially harm the assets of the trust. 

You may also be interested in our article that answers the question, "Can I take a loan from my S Corp?" 

Deal Structuring Secrets

Unlocking deal structuring secrets can make or break an investment, and these powerful insights often hide within the pages of a Private Placement Memorandum (PPM). 

Watch Episode 59: Deal Structuring Secrets with Seth Bradley, Esq.

Get ready to dive into the captivating world of deal structuring secrets within a PPM! Discover how these hidden gems can unlock tremendous benefits for you as a savvy real estate investor. 

Deal Structuring Secrets In A Private Placement Memorandum

A Private Placement Memorandum (PPM) is a document that provides detailed information about a company's business, finances, and investment offering. Its primary purpose is to inform potential investors for private offerings, especially in real estate, about associated risks that vary depending on project specifics.

Summary Of The Offering

The Executive Summary of a Private Placement Memorandum (PPM) is a concise overview of the investment offering and the company:

  1. Company Overview
  2. Offering Overview
  3. Business Model and Strategy
  4. Market Opportunity
  5. Key Personnel

Offering

The Offering section details the specifics of the investment opportunity in detail:

  1. Securities Offered
  2. Offering Amount
  3. Price Per Security
  4. Minimum Investment
  5. Use of Proceeds
  6. Risk Factors
  7. Exit Strategy
  8. Subscription Procedures

Rule 506(b) vs. Rule 506(c) 

While similar, these rules differ in who they allow to invest and how advertising occurs.

Rule 506(b)

Rule 506(b) allows a company to raise unlimited capital from accredited investors and up to 35 non-accredited investors. 

Rule 506(c)

Rule 506(c) was introduced through the JOBS Act of 2012 to make it easier for companies to raise capital. Under this rule, a company can advertise its offering and solicit investments publicly, a significant departure from the limitations of 506(b).

The choice between Rule 506(b) and Rule 506(c) depends on the company's fundraising strategy:

Use of Funds

The Use of Funds section outlines how the company will allocate the capital raised from the offering across different areas.

  1. Debt Repayment
  2. Operational Expenses
  3. Capital Expenditures
  4. Acquisitions
  5. Reserves

Misuse of funds can lead to legal repercussions and damage the company's reputation. 

Company 

The Company section gives potential investors comprehensive information about the company's history, operations, and products or services. Here are some key elements that are typically included in the Company section:

  1. History and Background
  2. Business Model
  3. Market Overview
  4. Management Team
  5. Corporate Structure
  6. Financial Information
  7. Legal Proceedings

Management

The Management section is crucial for potential investors to evaluate the qualifications, experience, and track record of the company's leaders and their investment:

  1. Biographies
  2. Track Record
  3. Ownership
  4. Compensation
  5. Board of Directors or Advisors

A competent, experienced management team can often be a significant factor in an investor's decision to invest in a company. 

Business Plan

The business plan section overviews the company's strategy to achieve its objectives. Key elements typically included in a PPM's business plan section are:

  1. Company Overview
  2. Products or Services
  3. Market Analysis
  4. Marketing and Sales Strategy
  5. Operations
  6. Financial Projections
  7. Risk Factors
  8. Exit Strategy

Fees

These fees are usually subtracted from the capital raised, greatly affecting the net proceeds and overall return on investment (ROI). Here are some common types of expenses in a PPM:

  1. Management Fees
  2. Performance Fees or Carried Interest
  3. Placement Agent Fees or Underwriting Fees
  4. Legal and Accounting Fees
  5. Organizational and Offering Costs
  6. Broker-Dealer Fees
  7. Exit Fees

Distributions

The Distributions section outlines how and when investment profits or returns go back to investors. It usually covers aspects like:

  1. Distribution Policy
  2. Distribution Method
  3. Distribution Priority
  4. Reinvestment Options
  5. Tax Implications

Risk Factors

The Risk Factors section assists investors in making informed decisions based on their risk tolerance, investment objectives, and personal circumstances. It discloses common types of risks in a PPM.

  1. Business Risks
  2. Financial Risks
  3. Market Risks
  4. Investment Risks
  5. Legal Risks

Investor Suitability and Qualifications

Accredited investors meet specific financial criteria set by the SEC, like having a net worth over $1 million (excluding their primary residence) or an annual income above $200,000 for the past two years (or $300,000 combined income if married).

Non-accredited investors in a 506(b) offering must be 'sophisticated' - possessing enough financial and business knowledge to evaluate the investment.

Instructions To Invest And Subscription Agreement

Instructions to Invest 

This section provides potential investors with step-by-step instructions on how to invest: 

Subscription Agreement

A contract between a company and an investor that outlines the terms of the stock sale:

Operating Agreement

The operating agreement establishes rules and procedures for managing the company or investment fund. It's a contract between partners or members outlining their rights, responsibilities, and financial interests. Includes:

  1. Company Structure
  2. Roles and Responsibilities
  3. Capital Contributions
  4. Profit and Loss Allocation
  5. Voting Rights and Decision-Making Procedures
  6. Transfer of Ownership
  7. Dissolution Procedures

Key Takeaways

Mastering key aspects like management and performance fees, distribution policies, and exit strategies is crucial for a successful PPM. These elements significantly impact net proceeds and ROI, necessitating careful assessment and negotiation to protect investor interests. Diligent due diligence and skillful deal structuring are essential for successful private placements.

Master due diligence & deal structuring with our Royal Investing Group Mentoring Session. Learn from experienced investors, gain insights into their strategies, & get real-time answers to your questions. Maximize your investment potential. Sign up for our free group mentoring & become a more savvy investor.

Unlocking The Secrets Of Self-Directed Tax-Sheltered Profits

Are you looking to take control of your financial future? Self-directed IRAS are a popular option for investors who want to diversify their portfolios. Amanda Holbrook with Specialized Trust Company joined us and explained how to maximize sef-directed tax-sheltered profits. 

The current financial climate is unpredictable, making it more critical than ever to make smart investments that will protect your wealth and help you reach your retirement goals. A self-directed IRA offers the potential for higher returns on investment (ROI) than traditional IRAs while also providing diversification opportunities that can help reduce risk.

Read on to learn more about the advantages of investing in a self-directed IRA.

Characteristics Of A Self Directed IRA

Unlike traditional IRAs and Roth IRAs, which limit investments to stocks, bonds, mutual funds, and other securities approved by the IRS, SDIRAs allow investors to invest in alternative assets.

Types of Investments Available

SDIRAs offer investors many investment opportunities beyond those available with traditional IRAs or Roth IRAs. These include:

Tax Benefits of Self-Directed IRAs

A self-directed IRA gives you more flexibility and control over where you invest your money. 

In addition to increased flexibility and control over investments, self-directed IRAs offer more significant potential for higher returns than other retirement accounts due to their ability to invest in real estate or private businesses.

Investors can use funds from their self-directed IRA to purchase properties or start businesses without paying taxes if they follow IRS rules and regulations regarding prohibited transactions.

If you're interested in taking advantage of the potential benefits offered by a self-directed IRA, there are several steps you should take:

  1. Choose an administrator who specializes in self-directed IRAs;
  2. Open an account with your chosen administrator;
  3. Fund your account with cash or rollover funds from another retirement plan;
  4. Select investments that meet IRS guidelines; and
  5. Monitor your investments regularly and comply with all applicable laws and regulations related to investing with a self-directed IRA.

The bottom line on SDIRA tax benefits:

Investing in Real Estate with Tax-Sheltered Capital

Investing in real estate with a self-directed IRA is attractive for diversifying your retirement portfolio. It allows you to invest in real estate without paying taxes on the profits until you withdraw them from your account. But certain restrictions and requirements apply when investing in real estate with a self-directed IRA.

Basic Requirements and Restrictions

To invest in real estate with a self-directed IRA, you must have an existing traditional or Roth IRA account. You must also set up a qualified custodian to oversee the transactions and ensure you follow IRS rules. The custodian will also handle the paperwork associated with the investment, such as filing tax forms and other documents.

The IRS dictates the types of investments that are allowed. Generally, you must invest in "real property," including the following: 

Transitioning to a Self-Directed IRA

There are several accounts that you may transition to an SDIRA. The following are among the most common.

Traditional and Roth IRA

Both Traditional and Roth IRAs can be transitioned into self-directed IRAs. The process is relatively simple:

Employer-Sponsored Accounts

401(k)s and other employer-sponsored accounts can also roll into a self-directed IRA. The process is similar to transitioning from a traditional or Roth IRA. 

Brokerage Accounts

While brokerage accounts offer a wide array of stocks, bonds, and mutual funds, they typically do not provide the alternative investment options of a self-directed IRA. Converting a brokerage account involves:

Key Takeaways

The key points to understand when investing through a self-directed IRA are the range of investment options, the IRS restrictions, and the responsibility and risk that come with a self-directed IRA. 

If you're looking to take advantage of the unique benefits offered by a self-directed IRA, Royal Investing can help you on your journey. Sign up for group mentoring to learn how to maximize your investment opportunities and capitalize on the potential benefits of a self-directed IRA.

Solo 401k Custodian Duties

You’ve decided to save for the future using a solo 401k, and you’ve named yourself the solo 401k custodian. But what does that mean? 

A solo 401k, also called a self-employed 401k, or an individual 401k, is a unique savings vehicle for small business owners without employees except for their spouses. 

That makes a self-employed 401k a solid choice for real estate investors searching for a retirement plan similar to that in a larger corporation. 

An individual 401k is similar to a standard 401k in that a person would contribute pre-tax earnings, and those contributions would be invested in other investment opportunities to grow. Those investments enjoy tax deferment until you retire and withdraw the funds. 

A critical difference between a solo 401k and a traditional 401k is the role of a solo 401k custodian. This post will explain who can be a solo 401k custodian and their duties.

Who Can Be A Solo 401K Custodian? 

You can be the custodian of your solo 401k. Section 401 of the IRS Code controls your ability to be the custodian. 

A custodian is a person or entity with fiduciary responsibility or authority over the assets in the account. 

The required custodian does not have to be a third party in a self-directed 401k plan. The requirement allows you more freedom to invest your money on your terms without a third party's permission. 

The Employee Retirement Income Act of 1974 (ERISA) and the Pension Protection Act of 2006 provide the legal basis for small business owners to start and act as custodians of their solo 401k 

You can be the trustee for a solo 401k; the tax code refers to where the assets are held rather than a third party in charge of funds. 

For instance, you can have your solo 401k in cash in a bank, precious metals in a safety deposit box, real estate, or assets in a brokerage account. As the trustee of the solo 401k, you're the controlling party and decide where the money goes. 

What Are The Duties Of A Solo 401K Custodian?

A trust must hold all your 401k assets in a trust, and the plan must name a trustee. The trustee can be you, and you'll be responsible for the following items: 

Crucial Events In A Solo 401K

As the trustee, you'll be responsible for the maintenance of the individual 401k. As the solo 401k custodian, you'll need to pay attention to specific benchmarks, including: 

Exceeding $250,000 

Your solo 401k custodian duties revolve mostly around keeping good records. Typically, you won't even have to file taxes on your plan. 

The few administrative duties change when your plan hits the $250,000 benchmark. You must file a tax return when you hit that amount in the plan. For the tax return, remember these essential items: 

When Your Real Estate Business Grows

The solo 401k is crafted explicitly for self-employed people (like yourself) and their spouses. To qualify for this type of 401k, your business must:

If your business scales to the point you need to hire a full-time employee (outside of your spouse), you no longer qualify for the solo 401k. 

If you hire a full-time employee (other than your spouse), you have two options:

Should you close the account, you must inform the IRS via your final 5500-EZ form. 

When You Hit The Age Limit

When you reach 72 years old, the solo 401k triggers a minimum required distribution. Even if you work well into your golden years, you'll be required to start making withdrawals from your solo 401k. 

As the custodian, you'll need to ensure that you do the following: 

Key Takeaways

A solo 401k is designed for small business owners to save using a 401k. Unlike most retirement plans, you can act as a solo 401k custodian. 

As a custodian, you're responsible for the following: 

You'll also need to be aware of crucial benchmarks in the plan, including: 

Ready to take the next step in securing your financial future? Book a free discovery call to see how we can customize a tax savings strategy for your real estate investment empire. 

Tax Filing with Partners Using an LLC or Series LLC

While having a partner may make business sense, tax filing with partners can be complex and confusing. Paying taxes is painful. It’s tough to part ways with your hard-earned money when you have business expenses and maintenance to handle. 

This article doesn’t include every tax break or loophole available. But it provides helpful, clarifying information about tax filing with partners in an LLC or Series LLC. 

Tax Benefits Of An LLC Or Series LLC

There are several advantages of selecting a series LLC as your business structure. It provides you with asset protection and anonymity, but there are also tax implications. Let’s check out some things you need to know about how tax filing with partners works with an LLC. 

Remember, a series LLC is unique because it has a parent LLC and a series of children LLCs under it. Each entity in the structure provides its own layer of asset protection and anonymity and is protected against risk from other series. As a real estate investor, this allows you to segregate risk and hold several different properties without incurring the cost of setting up new business structures for them. 

First, the IRS treats a series LLC as a single entity. Since it’s a pass-through entity, you can choose how you want to be taxed by the federal government. You have the option to choose between being taxed as a: 

We will focus on the partnership or filing taxes with partners. 

What Options Do I Have For Filing Taxes With Partners?

Filing taxes with partners depends on a few factors. But first, let’s talk about what it means to be a partner. The IRS considers any individual who owns an asset with another individual to be partners.

In most cases, partners must file a Form 1065 to report their income, gains, losses, deductions, and credits. An exception to that is if you are married to your partner. In the case of marriage, you can file Form 1065 and then do your taxes as you normally would. 

There are some benefits of filing taxes with partners using Form 1065. 

Cash In On These Tax Tips 

Filing taxes with partners using Form 1065 can benefit you and your partner. Recall that if you’re in a partnership, you’ll have to file a Form 1065 (unless you’re married to your partner). The 1065 (and Schedule K1) may be beneficial. 

For instance, Form 1065 allows you to: 

Protect your assets

When you file Form 1065, you can move the tax liability of your business entity to the partners who have an interest in it. The form tracks your and your partner’s financial participation in the business on Schedule K1. 

The 1065 and K1 protect your assets because the total income and expenses are a single line item. There aren’t separate spaces for your properties, just for your overall income and expenses. 

Simplify your expenses

Through the ordinary course of business operations, you may encounter expenses that do not directly tie to one of your properties. When you file with Form 1065, it’s easier to specify those expenses and claim them on your taxes. 

Some examples of typical expenses you may claim on Form 1065 include the following:

Using Form 1065, you can enter the whole number as an expense, preventing messy records and bookkeeping. 

Secure loans

Banks sometimes favor Schedule K1 income over Schedule E income when you apply for a loan. The bank may look at your Schedule K1 income and accept the number of expenses you claim. 

On the other hand, if you supply your Schedule E income, banks will have predetermined vacancy credits, repairs, and maintenance that may lower your income. This may be especially harmful if you have new houses in your portfolio where you can get dinged for nonexistent expenses. 

There are some considerations when filing Form 1065. For instance, it takes a long time to get a K1, so your taxes are due on March 15. If you need to file for an extension, you must submit it by September 15. Another issue is that a 1065 and K1 can be complicated, so you may need a professional to help you prepare the forms. 

Key Takeaways

Filing taxes with partners through an LLC requires you to complete Form 1065 and Schedule K1. That rule applies to all partnerships unless you’re married to your partner. In that case, you can file a 1065 or in a different way. 

There are some benefits to filing using Form 1065, including, but not limited to, its ability to: 

It takes a long time, and it may be complicated to file taxes with partners using Form 1065, but we’re here to help. Book a free discovery call to find out how we can best solve your tax needs.

The Cost of Probate on an Estate

Dying isn't fun. What's worse than dying is the emotional, financial, and legal mess that you've left your family to navigate. That mess is the actual cost of probate. 

As a real estate investor, you've planned and prepared all your life. Don't drop the ball in death.

Do you want to leave your family in a stable financial situation when you kick the bucket? Do you want to care for your spouse and kids after you shed loose your mortal coil? 

Taking care of your heirs, sound like you? You're exactly in the right place.

What I'll show you is the cost of probate on an estate. I'll also reveal how to avoid probate's legal and financial pitfalls. 

That's important for a real estate investor because your estate may be larger than average. With that larger estate comes the potential for a larger legal and financial headache. 

Keep reading to learn more about the cost of probate. You'll also see some practical and actionable steps that you can take to protect your estate.  

What Is Probate?

Probate is the legal process to prove the validity of your will. When you die, the court-appointed executor of the will executes the probate process. 

The executor will collect all the dead person's assets, pay debts, and divide the estate between the beneficiaries. The executor and the court ultimately determine the final verdict on how to distribute your assets. Not you. Not your loved ones. 

The Startling Cost Of Probate

The true cost of probate is both time and money. For instance, probate potentially lasts up to a year. 

Additional time costs of probate include:

That's the best cast scenario where you have a will and named beneficiaries. 

If you don't have a valid will, you're in a state of intestacy. In other words, you're dead, and there is no will. Having no will virtually guarantees a lengthy and costly probate process. 

Even with a will, probate may still take a few months. In some cases, there will be legal wrangling for up to a year. That costs a lot of money.

Additional financial costs of probate include: 

All in all, probate can cost up to 10% of your total estate. 

Here is an illustration for probate’s potential costs. Suppose your estate is worth $400,000. In some cases, probate can cost as much as 10% of $400,000. 

That's $40,000 that doesn't go to paying your kid's college tuition. Or money not there for your wife's life-saving surgery. 

Probate is expensive, but there is a safe and legal way for you to avoid it altogether. 

Beat The Cost Of Probate, Guaranteed

A guaranteed way to beat the cost of probate is with a living trust. A living trust enables your family to skip the probate process. When you use a will, your estate becomes probated. In a living trust, there is a probate process. 

That means your estate passes promptly to your beneficiaries. All you have to do is create a trust document. Then, you transfer ownership of your estate to the trust and name a trustee. Typically, you'll name yourself the trustee to control the trust's estate. 

A nice benefit of a living trust is that it gives you operational anonymity. For a real estate investor, anonymity is critical because it can help avoid being sued.  

The other benefit of a living trust is that your heirs don't have to wait to get the estate. Also, people with ill intentions will find it difficult to challenge a living trust in court. 

One way you can add another layer of protection to a living trust is with a pour-over will. A pour-over will stipulates any property not put into the living trust is "poured" into the trust. Then, the trust divides and distributes the property among your beneficiaries.

All in all, probate can be an expensive process, but a living trust eliminates that cost. You are the ultimate decision maker with how you distribute your estate. Not the attorneys. Not the courts. It's impossible to overstate the value of the peace of mind that comes with a living trust.  

Key Takeaways 

If you don't have an estate plan, it might be time to get one now. The cost of probate can be substantial, especially for real estate investors. Lucky for you, it's easy to avoid probate. Our favorite option is setting up a living trust. 

A living trust makes it easier for you to pass on your wealth to your family. It also provides a layer of protection by giving operational anonymity. In our litigious society, that is a huge advantage.  

Are you ready to speak with an expert? Learn about our comprehensive solutions you can use to achieve financial freedom, reclaim your time, protect your assets, and build your legacy. Book a FREE discovery call now.

Avoid Probate and Spare Loved Ones Pain: Why a Will Isn't Enough

No one likes thinking about their death. But the only thing worse than your death is leaving behind a complicated legal mess for your family. As a responsible real estate investor, you should commit to estate planning to avoid probate court; and the headache probate brings.

This article doesn't cover all the myriad aspects of estate planning.

Instead, I'll show you a strategy that works—an approach that enables you and your family to avoid probate and protect your assets.

This article will delve into the definition of probate, how to avoid it, and describe a living trust and its advantages in estate planning.

What Is Probate?

Probate is the legal process governed by state law, in which a court evaluates a will. If the will is valid, then the court splits the deceased person's assets according to the terms of the will.

Probate is not a simple process. It's time-consuming, expensive, and can get incredibly messy for those involved. Like vultures, people suddenly want to snatch a piece of your assets for themselves once you're gone.

If you don't have a will or a power of attorney, the government decides how to split your assets after you die. Even if you do have a will, you can't avoid probate. Your grieving family will have to go through a court proceeding where:

Your assets get snarled in the tangled mess of court proceedings. Those court dates and lawyer fees eat up even more of your estate. Ultimately, if you want to leave your family in the best financial position, it's better to avoid probate altogether.

How Do I Avoid Probate?

You avoid probate through clever estate planning and using a living trust. A living trust provides you ultimate privacy and control in the event of your untimely demise.

Think of a living trust as your corporate shield that sits atop your estate planning structure. Here's how it works–the trust document holds all your assets including, but not limited to:

The living trust is at the top of the structure, and it owns the LLC(s). The LLC(s) own all your assets and provides a convenient, anonymous, and lawsuit-resistant way to hold your assets when you're alive.

Dying is scary, and thinking about your death is an existential crisis that no one wants to experience. To achieve peace of mind, consider a living trust as an investment in your family's future.

What Is a Living Trust?

A living trust is a legal strategy that enables you to avoid probate. A living trust is a legal protection mechanism for your property and investments. You create a trust agreement, and that trust takes control of your properties and assets.

You designate a trustee to control the assets. In virtually all scenarios, the trustee is the person funding the trust (you).

Why should you do this? Simple, a living trust completely negates the stickiness of probate court proceedings.

How Does a Living Trust Help Me Avoid Probate?

An enormously valuable benefit of the living trust is the ability for you to name the beneficiaries of your assets when you die. That benefit helps your heirs avoid probate.

Also–when you kick the bucket–your living trust still controls your assets. The trust is the legal vehicle you will use to pass your assets on to your heirs. Your assets stay within the structure, and the living trust and LLC prevent your assets from entering probate.

Your living trust enables your family or heirs to:

Since your assets are still anonymous, your heirs and beneficiaries are lawsuit-resistant. They can enjoy the assets immediately upon the transfer.

You can support your living trust with a will that directs your trustee to place anything not in the living trust into the trust so that it can distribute the assets. These are things like:

With the combination of a living trust, LLCs, and careful estate planning, you can enable your family to avoid probate and its expensive obstacles. Remember, you won't be there to protect them, so you should make their grieving process as clean and organized as possible.

Key Takeaways

To avoid probate, create a living trust. Probate courts can result in unnecessary hardship while eating up your assets. Those assets don't belong to the government or lawyers but to your heirs and beneficiaries.

An estate planning strategy prevents your family from having to make tough decisions after you die. A living trust gives you the control and privacy that you need to keep providing for your family once you shed loose this mortal coil.

Are you ready to take control of your financial future and ensure your family is taken care of when you die? Check out our FREE Estate Planning Masterclass and Estate Planning: Know More than Your Attorney in 15 Minutes.