The Land Trust: The Real Estate Investor's Secret Weapon

For longer than any of us has been alive, real estate investors have struggled to prevent lawsuits. And honestly, there is no surefire way to do that. But one of the best ways is using a trust, or specifically, a land trust.

Land trusts are trusts you can use to exclusively hold real estate titles. On their own, they don't protect you from lawsuits, but they can be a critical component of an asset protection plan. They are different from the typical trust because they don't usually involve family.

A land trust is great if you want to remain anonymous. This prevents lawsuits in one simple way. The logic is, if the "other side" doesn't know you own the property, how can they sue you?

Parts of a Real Estate Land Trust

A land trust has three parts. You have a grantor of the trust, a trustee, and a beneficiary. A trustee has control of the property and manages the trust itself.

The beneficiary is the person who receives all the benefits of the land trust (i.e., the income made from the land trust). In some circumstances you'll have to disclose who the trustee of a land trust is. But let's say you don't want to let people know who the trustee is.

For that situation, you can use a nominee trustee. This is a person whose name appears on the trust document. He or she has specific powers which allow them to file tax returns on behalf of the trust. It is the nominee trustee's responsibility to send the tax returns of the trust to the proper tax agency or for filing purposes of the deed(s).

Selling Real Estate From A Land Trust

If someone is looking to actually alienate a property, sell it, or dispose of the trust asset they will want to look at the trust agreement before they buy an asset from a land trust. In that agreement they will see that the nominee trustee doesn't have those powers. Which means you don't have to worry about somebody "running away" with your property. The person who will have the power to sell assets of a trust will be stated in the trust agreement.

The best part is, this person can be you.

If you want to learn more about how land trusts can protect your real estate investments, contact us today. I'd be glad to answer any questions you have.

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.

Why Real Estate Investors Can't Afford To Rely On Insurance For Asset Protection

If you're a real estate investor, it's time to ask yourself an important question: are you protected?
Before I began specializing in asset protection I would play for the other side. Meaning, I would sue people. Take it from me, it's easy for an attorney to sue you if you don't have a proper asset protection strategy in place. There are many ways to protect yourself, such as with a Series LLC, or a self directed IRA LLC.

Insurance Won't Always Protect You From Claims on Your Property

An insurance claim usually results from a "slip and fall" on a property or something else you would normally characterize as an accident. Typically this is what your insurance is willing to cover. But your insurance doesn't cover you from any intentional acts that might occur.
What's considered an intentional act? Well, that's depends what you consider to be intentional.
And that's where the law comes in!

How Insurance Failed One of My Clients.

A client of mine flipped a house and renovated it by replacing some of the plumbing underneath the house. However, my client told the buyer that all of the plumbing had been replaced underneath the house. But unfortunately she told the buyer in one email that all of the plumbing had been replaced.
As a result, my client was hit with a lawsuit alleging intentional fraud, an incident that insurance doesn't cover. Yet even after this simple misunderstanding, my client walked away from that lawsuit without paying a dime. This was all because she had a proper asset protection strategy in place.
At Royal Legal Solutions , we help real estate investors maximize their asset protection.
My name is Scott Smith. In addition to being an attorney, I'm a real estate investor myself. I created this company to help investors like you protect your assets. Don't wait until you get sued. Be proactive. Call Royal Legal Solutions now at [GLOBAL VAR=phone-number] to schedule your asset protection consultation today.

How to Transfer An LLC's Ownership

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 any missteps made during the original company formation.

And if that happens you may end up screwed. You may even 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.

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.

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.