The Three Company Structure For Real Estate Investors

Many real estate investors buy and sell property without a company or LLC. While this is okay for investors with 1 or 2 properties, someone with multiple properties would be better off knowing how to structure a real estate investment company. He or she would be better off using the 3 company structure for tax and asset protection purposes.

Just think, the more properties you own, the more risk you're facing, and the more taxes you're paying. That's why it makes sense to use the 3 company structure, which is made up of 2 LLCs and your operating company, a corporation. Note: if you haven't already, see our info on how to start an LLC.

Three Ways to Use an LLC

  1. Buy & Hold LLC. This LLC is for your long-term rentals and other properties that you expect to hold for longer than a year. We can structure this LLC to make it friendly for long-term capital gains tax.
  2. Fix & Flip LLC. This LLC is for properties you plan on holding for less than a year. We can also structure this LLC to make it tax-friendly for short-term capital gains tax.
  3. Operating Company. The operating company will generally be a corporation. Having an operating company will shield you from personal liability.

By using the three company structure, your assets will be protected and your business will become more tax efficient. When you combine the Buy & Hold LLC and the Fix & Flip LLC, all your assets will be protected.

Now, all that's left are your personal assets. These will fall under the protection of your operating company, preventing liability and the risk of having to forfeit your assets in a lawsuit.

In essence, the three company structure protects you and your assets from lawsuits and allows you to get the most money out of your properties.

Why Should I Use Three LLCs?

If you're wondering why one LLC isn't enough, you're not the first investor to ask that question.

Remember the expression, "Don't put all your eggs in one basket?" Not to mix our poultry metaphors, but with one LLC, you're a sitting duck because all your assets can be found in one place. By separating them, not only will it make a lawsuit less likely in the first place, but you can also rake in more profits from these tax-efficient legal structures.

The name of the game (asset protection) is separation and anonymity. Your LLCs will hold everything that's valuable, and nobody except you will know they exist. Your operating company will exist only to sign contracts and negotiate with clients.

So if anything ever went wrong between you and a client business-wise, they wouldn't get anything if from suing you.

But let's say you don't flip homes. If that's the case, then you won't need a Fix & Flip LLC. The same applies to the Buy & Hold LLC if all you're doing is flipping homes. You could have two of each instead in these situations.

And sure, filing an LLC costs money, but unlike a lawsuit, you won't have to worry about bankruptcy. Get maximum asset protection and tax efficiency with the 3 company structure.

Protect Your Assets With An LLC & Property Management Company

As a real estate investor, your priority is to get a return on your investment. But if someone, most likely a tenant or other business, files a lawsuit against you, your profits and assets will instantly vanish. You have to protect your real estate assets. If you think you can rely on your insurance to protect them, think again. Check out our previous post on why insurance is not asset protection for details on protecting your assets properly.

Would you believe me if I told you there's a new real estate investment method that not only allows you to protect your investments, but also save money and increase your return on investment?

I'm referring to the traditional, single purpose LLC. My new method is simple. First you form an LLC. Then you put your property in it. For each property you have, you form one LLC.

By doing this you'll be able to limit your personal liability and reap tax benefits depending on what state you form your LLCs in. You can form an LLC in any state you choose. Smart investors "shop around" to find the state that suits their needs best.

Let's say you have two LLCs, each one holding one separate property. Note that you can also use a Series LLC for this purpose.

What Happens To My Real Estate Assets If One of My LLCs Gets Sued?

Only the property held in the LLC which is subject to the lawsuit can be used to settle judgments. And that's only if you lose, which is unlikely with me at your side.

But if you do lose your other property will be untouchable, your credit will be safe and nobody will be able to bring down your mini real estate empire.
Protecting your credit is essential. Without good credit you can't get future financing, which means your days of real estate investing will most likely come to an end. One lawsuit can ruin everything you've worked for.

Then there's your family to consider if you have one. By holding your properties in an LLC, you will protect them from the fallout of lawsuits as well.

Using An LLC Alone Won't Completely Protect Your Real Estate Assets

Do you want the greatest level of asset protection? Consider putting your asset protection strategy on steroids by forming a corporation to act as your property management company.

This property management company is completely separate from your LLCs. And for a good reason too!

Let's say you have a contractor or tenant that would sue you. Or anybody else that's in business with your real estate company who would sue you. They would only be able to sue your property management company, because it's separate from your LLCs.

They won't have a single claim against any of your real estate investment properties. This is exactly what you want. If they sue you and win, they'd be lucky to get their legal fees paid. Learn more about how I can  make your real estate investment assets untouchable.

The Series LLC vs. LLC (Traditional): Which Is Better For Investors?

A limited liability company (LLC) is a popular way for real estate investors and other entrepreneurs to file a business entity. The LLC offers owners more flexibility than other types of businesses entities. As its name implies, an LLC also affords owners limited liability that can protect them from incurred debt or lawsuits.

The Series LLC is a type of LLC that has been around since 1996, originally starting in Delaware. The Series LLC has become popular because more and more states are allowing these companies to operate. Similar to a corporate umbrella, a Series LLC has a “parent” LLC with one or more “child” LLCs that are filed beneath it.

How does the Series LLC stack up against the traditional LLC? Keep reading to find out!

Think of the Series LLC as a Parent-Child Relationship

I know that sounds weird. I'll explain.

Series LLCs allow a company to separate and “box” specific assets into various sub-LLCs to isolate them from each other. If a lawsuit is brought against one of the LLCs,  the assets and earnings of the other LLCs are shielded from legal consequences.

Below the Series LLC, you have the series themselves. You'll have series A, series B, etc. The series are what I refer to as the "children," because they all come from the original Series LLC parent. In this way, the Series LLC looks like a family tree.

Let's say you have one Series LLC, a company you will form in the state of Texas. When you form a real estate LLC in Texas it will be recognized as a legitimate company inside of that state. However, unlike most LLCs, yours will outline special provisions in its operating agreement.

And it is through these special provisions that your LLC will have the ability to become a series and have "children". By children, I mean companies within a company. Separate, yet equal.

With a Series LLC, you're able to create as many "children" as you want. Each child is known as a series. This is a powerful advantage because each series is treated separately for liability purposes, just as if it were its own LLC.

As an investor, it's important that you do this from an asset protection point of view. As the saying goes, "never put all your eggs in one basket". I personally think the Series LLC is better than the regular LLC.

Series LLC vs. LLC: The Similarities

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

Series LLC vs. LLC: The Differences

Compared to a normal LLC, A Series LLC is:

And best of all, you'll be able to file each one of your series (no matter how many you have) on the same tax return. This means thousands of dollars a year in tax preparation savings for you.

How can a Series LLC reduce startup and ongoing administrative costs? For example, if you file for a traditional LLC in Kansas, the fee is $160. If you file for a series LLC, the master will cost $250 and each series will be an additional $100. If you want to protect three separate assets from debt and litigation, under a Series LLC, this will cost you $450. To get the same protection from a traditional LLC, you would need to file three separate LLC entities, for a total of $480.

Another great advantage of the Series LLC is that it receives one EIN Number (Tax ID), which is filed underneath the company name. (You won't have to use a new EIN number for each series you create.) This allows you to streamline your tax preparation so you don't have to file taxes for each individual company.

Series LLCs are not recognized by every state. Those that do recognize and permit the formation of a Series LLC may have varying laws that dictate how to do so.

Other states, like California, do not permit Series LLCs to be formed but do recognize those legally established in other states.

If The Series LLC is Better, Why Isn't Every Investor Using It?

It comes down to risk tolerance.

Some people think if a series was subject to a lawsuit that it wouldn't be recognized in a state that doesn't formally have a law regarding the usage of series. And if a series isn't recognized in a lawsuit, you'll lose all your legal protection. This means someone's attorney will "go to town" on your assets.

Unfortunately, there haven't been many cases regarding the recognition of a series from state to state. But there are a lot of good reasons and precedent suggesting a Series LLC would be recognized in any state. For example, states already recognize LLCs formed in other states.

At the end of the day, a Series LLC is still an LLC.

Is a Series LLC Too Risky?

You can always form a regular old-fashioned single-purpose LLC. However, these are more expensive than a Series LLC if you're looking to separate your assets.

If you know what the LLC costs, you may be wondering how are they more expensive? Well, you have to pay for the tax preparation for each one of those companies at the end of every year. Then you'll get a nice bill for those LLC fees too. You'll have to pay formation fees, operations fees, management fees, and registered agent fees for each LLC you create.

Those fees will cost you about $1000 every year.

In the end, all you can do is weigh your odds and consider the risk. How do you feel about the Series LLC versus the regular LLC? Let me know in the comments below, I'd love to hear your opinion as a fellow real estate investor.

A Series LLC Can Grow Forever

A Series LLC is just like a parent, so it can have as many children as it wants (unlike a normal LLC). And this might surprise you, but just like in real life, these children don't cost any extra money to create. That's true before AND after they're born.

Whereas, if you want to put 10 properties in 10 normal LLCs, you'd have to pay state filing fees for each LLC you form.

Each series in a Series LLC is going to be treated for liability purposes as if it were its own LLC. You can take advantage of this by putting one property in each series/child.

This means if you ever have a lawsuit resulting in some type of action against a house belonging to series A, it won't affect the houses held in series B or C, etc.

I forgot to mention, do you like doing joint ventures? The Series LLC is perfect for doing joint ventures!

For example, series C could be a joint venture agreement with as many people as you would like without involving the other series. It'll have its own EIN number, tax return, and its own operating agreement to conduct the business of your JV agreement.

Need Help Deciding Between an LLC vs. A Series LLC?

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

The 3 Best States to Form a Limited Liability Company

When forming a Limited Liability Company (LLC), not all states will treat you kindly. What it comes down to is the restrictions and benefits they provide under their jurisdiction. Some states offer more legal protection for a limited liability company, while others offer operational benefits.

So what are the best states for LLCs? I have to tell you, there are plenty of advantages for forming an LLC within your home state. But they will likely pale in comparison to places like Nevada, Texas, or Delaware. You may also be interested in our article, Anonymity & The LLC: States Where Business Owners Love The Laws.

Certain states, like those mentioned above, optimize their internal legislation to be extremely business friendly. And why? Because the filing fees for establishing an LLC generate huge revenue for these states. It's almost like a contest since an LLC can be established in any state whether you live there or not.

Now then, let's go over the 3 best states to form a limited liability company, starting with Texas-—where everything really is bigger (especially the asset protection).

best states for llc

Texas: Low Maintenance LLC Bookkeeping

The main benefit of forming a Texas series LLC is the management fees. Or should I say, the lack of management fees.

LLCs are required to produce a significant amount of legal documentation to be fully covered from an operational standpoint, such as taking meeting minutes.

In Texas, companies can bypass this costly annoyance without losing their legal protection. This will make your life a thousand times easier and also improve your chance of beating a potential lawsuit. (Something you definitely want to make sure you do.)

You can read about Texas LLC laws directly on the state's website.

Next up is Nevada. The place nobody would visit if it wasn't for Las Vegas. (Just joking.)

Nevada: Privacy & Lack of Taxes

Unlike Texas, companies formed in Nevada have two major benefits instead of one. These may seem more enticing than the benefit provided by Texas. However, they're merely operational benefits and do little in the way of fully covering you from lawsuits.

The best thing about forming an LLC in Nevada is the lack of taxes. Nevada LLC's don't have to pay any state level taxes, from corporate to personal.

There's also the privacy to consider. If you form your LLC in Nevada you won't have to disclose who the owners are. Needless to say, many shady individuals form an LLC in Nevada just for that reason alone.

So yeah, you might just want to move to Nevada to do business. You'll get over the year-round heat before you know it. And you might even pick up a gambling habit or two with Las Vegas being so close.

Learn more about forming an LLC in Nevada by speaking with Royal Legal. Anyway, enough talk about glorified deserts Nevada.  Next up is Delaware!

Delaware: Favorable Courts, Legal Protection & Operational Benefits

You may have heard about the excellent business terms provided by Delaware. When it comes to legal protection, the key benefit in Delaware is the Chancery Court.

The judges presiding over this court specialize in business law and are known to provide fair rulings. Just remember this won’t help you if you don’t have proper legal coverage or haven’t maintained your records correctly.

Also worth mentioning is that Delaware provides some of the same operational benefits as Nevada. You can learn more about forming an LLC in Delaware on the state's handy website.

So which state do you think is best for forming your LLC? Tell me in the comments below, I'm always interested in hearing your perspective!

Do you need personalized advice on the best state for forming an LLC? Get in touch with us! Or see my article on the Best States To Form LLCs for Real Estate on BiggerPockets.

How To Hide Ownership Of A Company: 3 Simple Steps

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

With that being said, the purpose of this article is to introduce the concept of anonymity, and one of the most effective tools for maintaining your anonymity is the Anonymous Trust. When set up correctly, the anonymous trust can be extremely effective at hiding ownership of your company—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

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.

How to Easily Transfer The Ownership of Your LLC

Transferring ownership interest in a Limited Liability Company (LLC) may seem like a straightforward process. But you need to be careful! The proceedings can easily be sidetracked by anything going back to the original company formation. And if that happens you may end up missing out on opportunities. Even worse, you could lose the protections that you wanted the LLC for in the first place. All while spending unnecessary time in paperwork hell. So how do you safely and easily transfer the owner the ownership of an LLC? I came up with a few simple steps. Check them out below!

Step 1: Identify the Transaction Process Of Ownership

The first thing you want to do is identify what type of transfer process is appropriate in your particular case. There are several reasons for transferring ownership. They can be put into two core categories.

Changing LLC Membership

Whether you're adding new members or losing existing ones, changes to the LLC’s membership must look to your company's buy-sell agreement or buyout provisions. Both terms refer to the same concept: a set of guidelines for how to transfer ownership interest within the company.

If this is your objective, then skip down the page to step #2 where we talk about operating agreements.

Selling the Business Itself

Preparing for an acquisition is much more complex and requires a good understanding of legal and fiscal options. You can draft the initial sale agreement in a memorandum of understanding or term sheet. However you will need to follow-up with a formal contract of sale. For this type of process, it’s always a good idea to consult a lawyer who specializes in buying and selling LLCs.

Step 2: Abide By Legal Requirements

Next, you need to look at the legal and operational requirements to execute the transfer. It’s important to abide by external law as well as internal policy. Let’s take a quick look at how both of these can affect your business transfer.

The LLC Operating Agreement

Members of an LLC generally sign a binding contract called an operating agreement. This document specifies the way a company will operate and covers various aspects of business processes. Including buy-sell contracts and buyout provisions.

It’s essential to determine whether your company has an operating agreement. If it does, you should find out whether it has any guidelines or requirements for transferring ownership.

Laws Of The Company's Home State

Limited Liability Companies are entities of the state in which they were formed. Which means they're subject to state laws. Each state takes its own unique stance on business law. Some are lenient, others not so much. You can read about my advice on which to form an LLC here. Spend some time looking through the governing state’s laws regarding your LLC. Take notes related to any restrictions or requirements you may need to follow. It’s also a good idea to make sure the operating agreement proceedings fall in  line with state statute. If you're lost, get an attorney with experience in entity formation and similar transactions to help. Being a great investor doesn't mean you can also be your own lawyer. State LLC law is complex. You can view a this example of Texas's LLC laws if you want to know my pain.

Quick Recap: Follow Instructions and Get Professional Help With Your LLC

If you're interested in transferring ownership or membership of your Limited Liability Company, make sure to read your operating agreement, buyout provisions, and state legislation. And if you want to sell your company or are considering purchasing a business, then you should consult a legal expert to make sure your transfer goes smoothly. Royal Legal Solutions offers full-service LLC and (S)LLC formation. This means, we can help you transfer ownership while you get back to what you do best: running your business. Reach out for your LLC transfer consultation today.

Which One Protects You More From Lawsuits: An LLC or The Series LLC?

If you've got money, people want it. Lawsuits are one of the easiest, yet still legal, ways to get your money. The more money you have the more likely it is someone will try to take it from you in a lawsuit. The same applies to your LLC if you have one.

The more money or equity you have inside your individual LLC, the more attractive it's going to be for someone to sue you. And when they do, all of your assets will be caught under one legal net.

That's why, compared to an LLC, a series LLC offers far more protection for you and your assets when it comes to lawsuits.

The series LLC allows you to "compartmentalize" assets. Which simply means you can spread your assets out so in case someone does sue you, only one of your assets will be at risk. I've already written a lot about the series LLC, you're welcome to read about them here. You can also read about what the IRS thinks about an LLC here.

Today I'd like to answer a question I've never answered before, at least on this blog. I know you might be wondering...

How Much Money Will Setting Up a Series LLC Cost Me?

Our pricing packages for setting up either an LLC or Series LLC at Royal Legal Solutions range from $850 to $4000.

So why should you bother paying for an LLC when you technically don't need to have one? I hate to answer a question with a question, but I've got no choice this time! Ask yourself this: Would you rather risk losing hundreds of thousands of dollars in a lawsuit or spend a couple thousand protecting your assets?

I don't want to see you caught up in a lawsuit with your pants down. I bet you don't either. And remember, you're not just paying for an LLC when you come to Royal Legal Solutions. You're paying for our expertise, professionalism, and unwavering commitment to making sure your assets are protected from lawsuits.

The Benefits Of Homestead Exemptions

Homestead exemptions protect your property from taxes and creditors. Homestead exemptions are available in 48 states, notably Texas. If you live in one of the states that have these exemptions you can save you thousands in taxes.

Also, If your state has homestead protection, never put it into an LLC. Homestead protection is usually superior to what you can get from an LLC. But you may want to put it into a trust for estate planning purposes.

Every state that has homestead protections and exemptions will have different amounts for what they allow to be exempted. Whatever the exempt amount is, neither the IRS nor creditors can touch your property.

Let's Look at an Example of Homestead Exemptions

If your homestead exemption is $100,000  and your house is $50,000, well then it makes sense to pay off your entire house because we know all that money is going to be protected from a lawsuit since the exemption tells us that no one can get to it.

However, if your house values $200,000 and your homestead is $100,000 then what we want to do is create a lien (harmless debt) against your property to cover that gap so you can pay less in taxes and be protected more from creditors.

Homestead Exemptions Can Be Superior to LLC Protections

If you live in a state which has homestead exemptions, you're better off filing for those then an LLC. It will not only be cheaper (in most cases) but also more beneficial as far as property taxes go.

There are many ways to lower the value of your home and meet a homestead exemption limit. You could use a home equity line of credit and another bank loan or establish your own mortgage company.
These options aren't as complicated or expensive as you might think, especially when it comes to establishing your own mortgage company.

Always Know What Your Homestead Protections & Exemption Limits Are!

They're powerful, cheap to get and "old". The homestead laws have been around for over a century, which means they're not going anywhere.  Remember, never transfer your property to an LLC if you live in a state with homestead laws.

If you're interested in learning more about homestead protections & exemptions, call Royal Legal Solutions now to schedule your free consultation.

3 Key Bookkeeping Requirements For Your Series LLC

Don't turn back if you own a traditional LLC--the information about LLC bookkeeping below applies to both the traditional and series LLCs.

The series LLC is a powerful tool for real estate investors. It helps spread your assets across multiple legal entities, which protects your assets during a lawsuit.

Remember that old saying, "never put all your eggs in one basket"? A series LLC is the best way to spread your "eggs". 

As great as this structure is, it's no substitute for sloppy bookkeeping. If you as a business owner fail to abide by State requirements regarding their LLC essentially violate their agreement with that State. This leave you vulnerable to lawsuits.

LLC bookkeeping can be complex since the rules and regulations vary between States. We strongly recommend hiring a seasoned professional to help in this area. Today we’ll cover three of the most common mistakes business owners make with Series LLCs.

Mistake #1: Failing to Maintain Separation

A series LLC is multiple, individual LLCs. Each LLC within the series is distinct and needs to maintain its own records. Once you know how to start an LLC, you know that a series isn't that much more complicated (and often brings you added protections).

The purpose of the series structure is to make it easier to manage multiple businesses. It streamlines the management process. However, you should not try to combine  the different accounting records of your LLCs. Doing so can invalidate the series structure, leaving you unprotected, among other things.

Mistake #2: Not Naming a Registered Agent

Most states require your company to name an LLC registered agent, which is a physical address within the state. If this is one of the requirements in the state you filed your business, then foregoing that responsibility will invalidate your LLC and leave you unprotected.

Mistake #3: Being Unlicensed To Manage a Series LLC

Some states require you to have a special license in order to manage properties held by another entity or to run a property management company. Violating that specific state’s laws can put your series LLC in jeopardy and result in a costly lawsuit.

That's it for the requirements. But If you're interested in learning more about how to protect yourself and your assets from lawsuits, check out this article on the power of the series LLC with Anonymous Trusts.

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.

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.

Without An Anonymous Trust, Your LLC (And Investments) May Be At Risk

When it comes to protecting your property, you should build a castle, not a fence. This is where an asset protection plan comes into play. Think of an LLC as a fence. It offers you decent protection, but you could do better. How? By getting an Anonymous Trust. When you compare a trust to an LLC, it's like comparing a castle to a fence. A trust offers superior asset protection you can't get from an LLC.

Protecting your assets is about building legal walls. When you get a trust, you're putting up high walls to defend against an attacking litigation attorney. A trust isolates your assets so even if an attorney files and wins a lawsuit against you or your LLC, they can’t get at the prize assets. Poor guys, all that work for nothing!

Why An LLC Doesn't Completely Protect You

Are you a real estate investor with one or more properties held in an LLC? There are many tricky ways litigators are able to break into an LLC and get access to all your assets even when the lawsuit pertained to a single property. The LLC will protect the properties from suits against you individually, but a lawsuit relating to the sale or lease of property will go against the owner (the LLC).

In a landlord/tenant dispute or a dispute relating to the sale of a property, the LLC is liable as the owner. If the opposing party is successful in the lawsuit, they will be able to collect on their judgment against the assets of the LLC (as in ALL of your properties). They will be able to foreclose and auction off your properties at a discount until they have collected enough money to satisfy their judgment.

Poof. There went your years of hard work into the pocket of an attorney.

Anonymous Trusts Stop Lawsuits Dead

The more walls you have, the harder it is for the other side to recover your hard earned assets and the more likely it is that they will not even bother filing suit. Lawsuits are a three legged stool, and a Trust destroys one of the legs, which causes the lawsuit to crumble. The three stool legs which support a successful lawsuit are:

In layman's terms it translates respectively to:

  1. The law recognizes liability either by common law or statute,
  2. The facts show that the party suffered money damages because of the defendants conduct, and
  3. Assuming that previous two are true, there are assets which we can take from the defendant to satisfy the judgement.

A Trust Makes Attorneys Think Twice Before Suing You

An attorney won’t file a lawsuit without all three legs being in place. Using a trust cripples litigation because it makes the pool of assets for recovery, the third leg of our stool, unattractive. Ten properties held in an LLC makes an attorney drool like a hungry dog. That’s a lot of assets, and likely some equity an attorney can get a hold of.

A single property held in trust doesn’t even get an attorney to the keyboard to type out a petition to file suit. There just isn’t enough equity to recover against.

A Trust Is The Castle Protecting Your Assets

Let's say you have all your property held in an LLC and want to transfer each of those properties into individual trusts.

The first step toward developing your asset protection plan is to establish an irrevocable trust. You can hold property in the name of this trust instead of your LLC or personal name. Now that the trust owns the property, you or your LLC are merely beneficiaries. This entitles you to the income from the property without exposing you to liability.

In a dispute regarding the property, the opposing party will only be able to collect against the asset of the Trust, the Trust property, which hopefully has limited equity. Why do I hope that the Trust property have limited equity? The lawsuit that is filed against the Trust is limited to recovery against the Trust property.

If the mortgage on the property is close to the value of the property, then there isn’t enough equity in the property to justify a lawsuit. Remember, the litigation attorney only gets paid after he auctions off the property and pays off all the liens including the mortgage. And it just so happens that there are several ways to hide the equity in your property.

An Auction Can Work In Your Favor

The fees for the auction and the costs in litigation to get it to auction are also subtracted from the equity. In the end, there is hopefully little that an attorney and his or her client will make any profit.  Especially for the client, who also pays large litigation fees. If neither the attorney nor the client can make money, they won’t file suit.