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

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

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

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

How Uncle Sam Treats the Series LLC

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

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

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

How To File Taxes for Your Series LLC

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

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

How to Ensure You're Filing Properly: Get Help

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

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

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

Keep more of your money with a Royal Tax Review

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

What States Are Permitting Series LLCs?

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

States that Offer Series LLCs

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

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

States That Don't Permit Series LLCs

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

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

How to Form a Series LLC From Any State

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

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

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

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

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

Series LLC For Real Estate Investors

Whether you're a veteran investor, or a new investor just beginning to build your real estate empire, the series LLC for real estate investors has many features and benefits you should know about.

If you've been using a traditional LLC for asset protection and have never heard of the series version, prepare to have your investing world changed forever.

The series LLC is one of the most effective entities a real estate investor can form. When you take advantage of this structure, you'll not only be able to streamline and grow your business, but you'll also receive the benefits of lawsuit prevention and asset protection.

As both an investor and an attorney, I believe that the series LLC is the best structure for real estate investors who want asset protection while they build their real estate empire.

What is the Series LLC?

The Series LLC is very similar to a traditional LLC (see our Series LLC vs LLC article). The only difference is, instead of being one big company, the series LLC is a network of LLCs. It uses a parent-child structure. Your parent company is its own LLC, and it can have as many "children," or Series, as you have assets to place within them. Each asset will have its own LLC, complete with liability protections and many more benefits we'll discuss below. Take a look at the following diagram for an example of what this looks like in practice.

The set-up is elegant in its simplicity. The operating company, dubbed "Big Daddy" above, is in charge of the kids. Each kid is its own asset. Of course, you could have any combination of properties or property types.

Biggest Benefits of the Series LLC For Real Estate Investments

The benefits of a Series LLC are numerous. Here are the top reasons you should consider this structure.

Scalability: One Structure, Infinite Real Estate Investments Assets

With the Series LLC, incorporating new assets is easy. Suppose you spot a cute little fixer-upper property at a great price. When you buy it, all you need to do is a little bit of paperwork and have your attorney sign off on it to add it into the structure. If your Series looked like the one above, your new asset would be "Series 4."

 And you aren't restricted to just real estate, either. Any asset can go into its own series - cash, gold, cryptocurrency caches, your midlife crisis Jaguar, etc. If you can think of it, you can stick it in the Series LLC.

Tax Benefits and Cost Savings On Real Estate Investments

The Series LLC allows for pass-through taxation and its benefits. This means you'll dodge hefty corporate taxes and get to file any profits on your personal return. For most people, this is infinitely cheaper. With the help of a competent CPA, you could save thousands.

Other cost savings are relevant for Series LLC owners as well. The clearest of these is evident when you consider how much it would cost to have each asset in its own Traditional LLC. The annual fees would add up. With the Series version, you're getting an infinite amount of LLCs for the price of just one.

Asset Protection Made Simple For Real Estate

A Series LLC is the foundation of a superior asset protection plan. Real estate investors especially need this structure as a starting point. It offers the single most powerful liability protection of any entity one could possibly form. The reason for this is simple: each "Series" holding its own asset keeps it isolated from everything else you own.

How the Series LLC Prevents Real Estate Investment Lawsuits

You may think that you don't need any additional protection from lawsuits because you run an ethical business, have insurance, and try to treat your tenants and customers well. Sadly, if you believe this, you are mistaken. Did you know that one-fourth of Americans fall prey to a lawsuit at some point in their lives? This figure is even higher for real estate investors, up to one-third according to some sources. Why? Because we tend to have more assets for litigious people to want to pursue in court.

The cold truth is that lawsuits are a ruthless, cut-throat business. And like all businesses, they're after one thing: cash. That means, the more wealthy you become from your real estate ventures, the more likely someone is to try to come after your cold hard cash and any assets. Since success makes you an attractive potential payday for unscrupulous and greedy people. Insurance won't bail you out of this situation, and neither will your good reputation or even the best business practices in the world. Lawsuits don't even have to be valid or logical to cost you everything you've worked so hard for.

To avoid this fate, you will want as much protection as you can get. Fortunately, the Series LLC can have your back. In addition to being a less attractive target, the Series LLC's isolation of assets means that if you are sued, only that individual asset is on the line. When implemented properly along with other precautions, Series LLCs are the core of an asset protection plan that is powerful enough to stop lawsuits before your name is even typed out on filing papers.

How Do I Set Up My Series LLC?

Setting up the Series LLC is very simple, but it must be done correctly. Investing in an asset protection plan is one of the wisest moves you can make as an investor, but if you don't do it correctly, you won't get the full benefits of asset protection. One mistake with your anonymity or Operating Agreement, and the plan you've so cleverly devised could be rendered completely ineffective. That's why we offer a full-service product where we complete all of the steps for you, and guarantee your anonymity.

Maybe you already have an LLC for your property. This is great, but the Series version is far superior to the LLC alone. Fortunately, you can incorporate your existing LLC into a Series LLC easily. Even better: it won't cost you any more than you're already paying for your Traditional LLC.

It's never too early to establish or beef up your asset protection plan. But you can certainly wait too late, and the consequences will be dire. If you haven't set up anything yet, you are completely vulnerable. Take care of this before you consider buying any more properties. If you have property in your own name, this is even more urgent.

 

Our experts are here to advise you on what methods will work best for your individual situation. We're here to help you set up your Series LLC and everything else you need for a bulletproof asset protection plan. Keep the predators and money-hungry attorneys at bay: take action and set up your Series LLC consultation today.

Asset Protection For Real Estate Investors in Texas

The rumors are true, folks: everything really is bigger in Texas. This can be a double-edged sword for real estate investors in Texas, because while the state has many big opportunities for investors of any budget, the lawsuit business is also big. And real estate investors are more likely to be sued than the average Joe or Jane. So if you want to take advantage of the many opportunities and rewards available for investors in the Lone Star State, you will definitely want to be aware of the quirks of investing here as well as how you can protect yourself. A high-quality, iron-clad asset protection plan can prevent you from ever being victimized by a suit, but it will also protect the majority of your wealth even if you are sued.

In Texas, real estate investors have special concerns about asset protection that we will review below. But we will also show you how some simple precautions, the right information, and good professional help can protect your investments and other valuable assets. Let's dive in.

Why Do I Need an Asset Protection Plan?

The short answer is that anyone with assets worth having at all should have an asset protection plan. This is especially true for real estate investors, or other types of investors who own valuable assets of any type. The suggestions in this article work just as well for protecting an expensive vehicle or other asset as they do for real estate.
Attorneys are like vampires in more ways than we care to admit. Only instead of feeding on blood, we have an unhealthy dependency on money. And you better believe that we love money as much as vampires like blood. So asset protection keeps the legal vampires away by ensuring that they can't feed on your blood/money. Sucking the lifeblood out of a lawsuit makes it an unattractive endeavor for any attorney who might come after you or your assets. Even the most cash-thirsty lawyer in the world won't file against you if you're difficult to sue, or just plain not worth enough to make it a wise expense of his/her time. Asset protection makes you both of these things.

Key Asset Protection Tools for Texas Investors

The Texas Series LLC

The Series LLC is among the strongest asset protection tools that any real estate investor can exploit. Not all LLCs are created equally, and the costs and legal protections they offer depend heavily on which state the LLC is formed in. Fortunately for Texans, you can go local.  The Texas Series LLC is a highly effective asset protection structure. As an added bonus, it's easier to set up a Series LLC in your home state because you'll be free of the legal requirement to have a registered agent. Agents aren't free, so you'll be saving money by using this structure.
The Texas Series LLC is booming in popularity in part because it's the gift that keeps on giving. It operates similarly to a Traditional LLC, but has the distinct bonus of allowing you to add assets to the structure indefinitely. The Series LLC uses a parent-child structure which allows you to add new assets to the network as you acquire them. Each asset will have its own "child" LLC, complete with liability protection. In practice, this means that when you buy a new property, you will only need a few minutes at your computer and your attorney's signature to add it to your LLC network.

Anonymous Trusts

Anonymity is absolutely crucial to an effective asset protection plan. When you use an  Anonymous Trust alongside the Series LLC in conjunction with the Series LLC, your assets receive an additional layer of protection. The Anonymous Trust allows you to own and operate the Series LLC without your name ever even appearing on it.

This method protects you by making it nearly impossible to prove you own the assets in question in the event of a lawsuit. Even if someone knows you own it, they won't be able to prove it in court. The fact that you can't be reasonably or easily connected to the property will make it nearly impossible to sue you personally. Its placement in the series limits the amount you could be sued for in the first place, making both you and the asset highly unattractive targets for us money-hungry attorneys. We don't hunt if there's nothing to feast on.

Of course, there are other tools you can use to beef up your asset protection plan. Our experts combine land trusts, contracts, and many more legal and banking strategies to design the most effective plan for you.

Start Protecting Your Assets Today

Don't hesitate any longer. If you're an investor in Texas, you don't want to risk the investments you've poured your heart, soul, and hard-earned resources. All it takes is one suit to clean you out of everything. Don't let the vampires get to you. Use the tips above to form an asset protection plan that is more powerful than a house full of silver stakes, garlic, and crosses. At Royal Legal Solutions, we are here to make sure you get to keep the things you've worked your whole life for. Call us today to set up an asset protection consultation, and we will help you build the best possible asset protection strategy for your individual needs. Let us deal with the vampires while you focus on your business, free from the stench of garlic or civil court.

Thanks for reading, and if you have any additional questions about investing in Texas, fire them off in the comments below. We love making sure investors have access to this important information.
 

What is a Pass-Through Entity & How Does It Help Real Estate Investors?

A pass through entity is a business structure, such as an LLC, Series LLC, or S-corporation. We use the term “pass through” because you can claim the income of these types of businesses on your personal income tax returns. Ordinarily, you would have to file a separate return for your business (or businesses).

The chief benefit of using a pass-through entity is that you won’t be taxed twice. Nor will you end up paying a CPA  thousands of dollars to file a business tax return. Typically, other types of business structures will be obligated to file such a business return. We'll talk more about the best entity for real estate investors below.

Some of you may be starting to think this doesn't apply to you because you file a return jointly with your spouse. Well, you can relax. This poses no problems, and all the benefits described above would still apply. But there are some instances where you will have to file a separate return, despite using a pass through entity. The main case for this is if you're using a partnership return.

The Partnership Return and Taxes

Some states require at least two members in an LLC. So let’s say you file your LLC in one of these states and have another partner in it besides yourself.
In this scenario, you’re going to have to file a document called a partnership return. A partnership return is a separate return for your business itself. By separate, we mean separate from your personal taxes.

Due to the complexity of a partnership return and its filing process, you would be wise to recruit somebody to help you prepare it. I suggest you hire a CPA, ideally one who is also a real estate investor, to assist you in preparing your return. And now, onto the bigger concern for real estate investors.

Which Pass Through Entity Is Best For A Real Estate Investor?

I so love when the answers to complex questions like these are simple. This one can be answered in three words: the Series LLC. Hands down.
The Series LLC offers unbeatable asset protection, easy tax filing and is the foundation of a solid asset protection plan. To illustrate how this works, play along with the following example.

Say you own 6 properties. Instead of holding all 6 properties in one LLC, with a Series LLC you can create a “series” within your LLC. Each series will hold a single property.  So you'll have seven companies total: the parent company, and then 6 individual series for your assets.

The benefit of this is if someone sues one of your series and wins, only that one property in that individual series will be vulnerable to costly judgments. That means the remainder, and likely the vast  majority, of your wealth and assets would be protected. The Series structure protects those other assets and isolates them from the one in the line of legal fire.

Another great benefit is, no matter how many “series” you have within your LLC, they can all be filed on the same income tax return. This is a huge money-saver that you won't receive with a Traditional LLC. If you want to learn more, read my previous post about how the Series LLC works for real estate investors.

 

Asset Protection For Real Estate Investors in California

Real estate is big business all over the country, but savvy California investors must be aware of the limitations and unique concerns they face under state law. While California is a popular place for residents and investors alike due to its scenic nature and abundance of real estate opportunities. However, the state is not known for being especially pro-business. This means, you need to be aware of the information below before forming your asset protection plan. Read on to learn the importance of asset protection for your real estate investments, basics of what you will need for the most successful plan, the special circumstances of investing as a Californian, and how to get around state restrictions to grow your business at the lowest cost possible.

Why Do I Need an Asset Protection Plan?

All investors will need an asset protection plan eventually, and it's best to have one in place before you even start investing at all. The simple reason is this: without an asset protection plan, a lawsuit can absolutely ruin your life. Even if the suit is frivolous or irrational, you can still lose. You don't even have to be rich to become a target. You just have to have more than someone else. And everybody has something that is attractive to someone less successful than themselves. Unfortunately, we live in a country where 1/4 of our citizens will face a lawsuit in their lifetime. These figures are even higher for real estate investors.
As investors ourselves, we know that you work hard for your profits and properties. That is why we're so passionate about this subject. With a few simple preparations, you can be inoculated against a lawsuit that could clean you out of everything you own.

How Does Asset Protection Work?

Asset Protection works by minimizing your liability as well as the appearance of your assets' value. A good asset protection plan keeps your personal name off of your property, so that you are incredibly hard to find and nearly impossible to tie to your assets. This way, if anyone comes after you or your business, you won't look like an impressive target. Your personal assets are safe if a business asset is sued and vice versa.

In short: asset protection works by making you a pain in the butt to sue. Attorneys are money junkies. If you don't look worth their time, you're safe.

Key Asset Protection Tools for California Residents

California residents will run into unique issues as real estate investors. All investors should use an entity as the basis of their asset protection strategy. But in California, you will pay a lot more for an in-state entity. Some of the costs you will face are an $800 minimum franchise tax, higher annual fees to maintain the LLC, and unfavorable tax treatment. There are also more restrictions on how you're able to run your business. Fortunately, the following tools can help you minimize these costs, simplify your business's growth, and give you greater control over your burgeoning real estate empire. When employed together, these tools have proven time and again to be extremely effective lawsuit prevention methods as well. Let's talk about them one by one.

Series LLC from Out of State

California LLCs have high annual costs and do not offer the most effective structures for real estate investors. Fortunately, you have alternatives. You can form an LLC in a state with more favorable liability protections and overall costs. Even better, you can form a Series LLC. This entity will allow you to develop your real estate investments infinitely, streamline your business, and serve as the key structure for your asset protection plan. The three best options for Californian investors are:

No matter which of these options you decide to go with, you will have to register an agent. This person is your point-of-contact for all legal and business matters. Think of him or her as your in-state representative for business purposes. We've written more extensively about Registered Agents and how to find them, but all you need to know for now is that Royal Legal Solutions is here to assist you through this process. We can find you an affordable agent so that you can take advantage of the best Series LLC product for you. We can even serve as your agent for a Texas LLC.

If you already have an LLC, that's fine! Our experts at Royal Legal solutions can help you incorporate your LLC into a Series LLC based in another state.

Trusts and Anonymity Protections

Anonymity is absolutely essential to the success of your asset protection strategy. As you may recall, anonymity protects you by distancing your individual means from your investments and other assets. You may be wondering what tools you will need to accomplish this. Fortunately, we offer a full-service Series LLC with Anonymity Protection. We use lesser-known legal and financial tools such as:


Of these, trusts are the most effective legal structures. Anonymous trusts work by placing the ownership of your Series LLC or other business entity in a corporate name of your choosing. Employed correctly, this effectively prevents anyone from finding any record that you even own the property in question. Your name will be nowhere to be found on the public record. Even better: if the person suing you knows for a fact you own the land, they won't be able to prove it. Land trusts serve a similar function, and can be used on their own or in conjunction with Anonymous Trusts to further distance you from your property. But land trusts also have distinct tax benefits and can be held by accounts as well as entities.
So for all our Golden State readers, are you ready to form your asset protection plan? Proactivity on your part can guarantee the success of your business and security from lawsuits in the future. If you're already investing, don't wait until it's too late: consult with a qualified attorney and develop the best asset protection strategy for you today.
 

How the 'Three Company' Structure Protects Real Estate Investors

A typical real estate investor should be looking at a three-company structure.

The first of these companies should be a buy and hold LLC. The buy and hold LLC is going to be for long-term rentals. It's going to hold a number of different properties that you will be holding for longer than a year.

The next company that you're gonna have is your fix and flip LLC. Those are properties that you're gonna be holding for less than a year.

The reason that we need two of these is because they have different tax treatment. Your buy and hold is going to be a long-term capital gains taxation, your fix and flip is gonna be short-term capital gains.

Your third company will be your operating company (corporation or operating LLC). Typically we use corporations for some instances and LLCs for other instances. The corporation shields you from any personal liability in conducting your business. If you run your business personally, you're collecting the rent, you're negotiating with contractors, entering the contract, etc. This all can mean a lawsuit against you personally.

Even if you were smart and protected all of your assets inside of the LLC, what will happen is that a judgement against you gets recorded onto your credit report, impacting your credit score. The lower the credit score you have, your less ability to have financing. And that means real dollars out of your pocket.

 

How Should I Separate My Personal Property From My Real Estate Investments?

Separating your personal property from your investments is absolutely critical for real estate investors. Ensuring that you do this correctly is important for both saving and making as much money as possible. Also, doing so will ensure your assets are protected.

Fortunately, the law is on your side. Even ice-cold Uncle Sam respects the needs of homeowners. Your home gets certain protections that your investments do not. We will show you below how to take advantage of these protections, establish clear boundaries between your investments, and defend all of your properties with simple legal tools.

Keep Your Home in Your Name

The law distinguishes between your home and your investment properties for a reason.  It may not surprise you that this reason comes down to taxes.

Some investors get so fired up about the LLC or Series LLC structure that they want to protect their home by sticking it in a corporate structure, just as they do with their investments. This is a bad call for two reasons:

  1. You will save far more money keeping it in your own name and taking advantage of the tax benefits, like the homestead exemptions discussed below.
  2. Having your personal home in your SLLC or other structure will "comingle" your personal property with the company.  This is a legal no-no that completely destroys your anonymity and undermines the asset protection properties of the Series LLC.

Know and Exploit Homestead Exemptions

All Americans receive homestead exemptions on the federal level, and 48 of the 50 states offer them at the state level as well. These exemptions are amounts you can claim on your taxes to save you costs related to your home. How much you will save will depend heavily on where you live, but this is fairly easy to research. Of course, our professionals at Royal Legal Solutions are well-versed in this information and are also happy to walk you through it.

However, if you try to use the business strategies for your home, you will almost certainly end up losing access to these exemptions.
 

Use the Series LLC Structure for Your Real Estate Investments

Of course, you could use other business entities as well. A Traditional LLC is just fine for a single property. But if you're even considering growing your investment portfolio over time, level up to the Series LLC. We tend to recommend the Series LLC for real estate investors, primarily because it comes with all the perks and protections of a Traditional LLC, and many, many more. We're so passionate about this tool because it costs the same as an LLC (sometimes less, depending on your state), but offers asset protection, liability, and taxation benefits.

And it gets better: the Series LLC costs exactly the same as the Traditional LLC, but has a host  of additional benefits. The biggest perk for investors is that you have the ability to grow your real estate business infinitely, and create as many Series as you like--and you won't pay a penny more than you would for a Traditional LLC. Essentially, you're getting an infinite amount of LLCs for the price of one. Not all LLCs are equal:  the best states to form your Series LLC in are Texas, Delaware, and Nevada.

Ensure You Are Banking Properly

Use personal accounts for matters related to your home. As discussed above, you want your home in your name. So you want to treat any expenses related to your homestead as personal expenses. The best way to ensure the lines don't blur between your own house and your investment properties/corporation is to keep absolutely separate accounts for both.

If you're making a real estate transaction, or an expense related to your rental property, you will want to use a business checking account. The owner of the account isn't you--it's your corporate structure. This will ensure you have the legal standing to prove they are separate entities, should you ever find yourself in court.

Don't worry, you can still pay yourself for your rental properties. Just make sure you're doing it correctly. Check out our play-by-play on how to pay yourself from your LLC structure for more details.


Bottom Line: Separate Business and Pleasure

The old axiom is true. Think of your home as your pleasure palace, and your investments as your business.

We're here to help you set up your Series LLC and everything else you need for a bulletproof asset protection plan. Keep those money-hungry attorneys at bay: take action and set up your $150 consultation today.

The Benefits of Series LLCs (Protection, Business Growth & More)

Real estate investing is an excellent way to put your money to work. The returns consistently outperform traditional savings and common investment vehicles, with little risk and low management.

There's only one problem. We live in the most litigious society on earth. Did you know one in four U.S. citizens will be sued in their lifetimes? Real estate investors face an even greater risk of lawsuit.

For years, the wealthy and powerful have shielded their wealth within layers of anonymous companies. Now you can do the same. The Series LLC is one of the central legal structures in any asset protection plan. Let's look at the benefits of using one.

A Traditional Limited Liability Company Isn't Enough To Protect Your Assets

Property in your name leaves you open to losing it all: Litigation doesn’t even have to have anything to do with your property in order to wipe you out. If you have property in your name, or even worse, in a general partnership, and are found liable in a car wreck or other random accident, you could lose everything. Insurance is not going to stop a plaintiff from going after anything and everything you own to repay damages for extensive hospital bills or a wrongful death action.

Property in a traditional LLC or corporation isn’t much better. You are in a little better shape if you have all your assets in one traditional LLC or corporation. In that case, lawsuits against you personally can’t normally touch your business assets. But if you have all your assets in one LLC, and there is a slip and fall at one of your properties that results in serious injury or death, a plaintiff can go after all your properties. It doesn’t matter that your other properties are unrelated to the incident.

Insurance Won't Protect Your Investments

Insurance can help with minor incidents, but it’s not going to save you from losing everything in the case of a big, catastrophic lawsuit. If someone falls through your stairs and the court finds you are at fault because of the nature of the structure or maintenance, your insurance will likely not cover you at all. And certainly, neither your property nor your automobile insurance will cover you if you are found negligent in a serious accident.

The one thing that can save you from disaster is setting up an LLC Series and Anonymous Trust. Plaintiffs can never reach all of your assets because they are owned by separate legal entities and never in your name.

How the Series LLC Structure Protects You

1. Compartmentalizes Your Risk

Setting up an LLC Series Structure legally isolates your equity into separate limited liability companies inside a holding company. Even if you lose a lawsuit, the damage is limited to a single property or asset within the individual series.

The Series LLC works for multiple types of investments. It's great for property management but is equally effective at protecting other investments like a stock portfolio.

2. Hides Your Assets

In a Series LLC, your assets are each separated into individual entities. You can add an anonymous trust to each of these entities for further protection.

Limited liability companies and other business entities are exposed to the public. Anybody can look up your company name and see what type of assets it contains. Trusts, on the other hand, do not need to list their holdings publicly. When combined with the Series LLC, it makes all of the individual holdings essentially invisible. The anonymous trusts own the LLC itself and serve as title trusts for the real estate asset.

How a Series LLC Protects You From Lawsuits

There are three pillars of any lawsuit: opportunity, incentive, and the judgement. Winning a judgement requires a good lawyer, a friendly judge or jury, and a little luck. Clearly, that isn't the pillar we want to focus on. Instead, asset protection strategies target opportunity and incentives.

1. Plaintiff Attorneys Can't Sue What Isn't There

An accident on your property plants the seed of opportunity, but it isn't enough to kick off a lawsuit. In order to put things in motion, the lawsuit attorney must be able to sue you.

An anonymous Series LLC can remove this opportunity in two ways.

Using a Shell Company: Did you know you can break your company into two separate companies? The first is an asset holding company, which isolates assets into individual entities. The second is an operations company, which manages the day-to-day affairs. With some minor adjustments to your contracts, you can require all lawsuits to be brought against the operations company. This acts as a shell company, which means even if you lose the lawsuit there is nothing of value to be lost.

Using Trusts: As mentioned previously, hiding your assets within trusts means your assets are invisible. Even if you could be sued, your opponent's legal team won't be able to find which company to bring the case against. This dramatically reduces the opportunity to bring a lawsuit against you, even if there was some event that could be used as justification for doing so.

2. Attorneys Won’t Gamble or Chase the Money

Not only does a series LLC structure legally protect your assets, because your equity is in multiple legal entities, but it also discourages most lawsuits from ever being filed. Attorneys will not take a case unless they know how they will get paid. If equity is held in multiple LLCs set up with anonymous trusts it will appear on a search that you own very little – if anything at all. Attorneys will look elsewhere for an easier payday.

Plaintiffs need to pay at least $5,000 to even start litigation, and the amount quickly escalates to over $10,000 once discovery starts. It simply does not make sense for a plaintiff to file a lawsuit when they cannot find any assets that can be seized if they win a damage award.

Series LLCs Let You Grow Your Business Forever

With the Series LLC structure, there's an operating company on top, and multiple companies beneath. We use the metaphor of "parent-child" relationships to make the point that this structure lets you have as many "kids," or Series, as you like.

Each Series is its own LLC, and you can create new ones easily as you acquire more investments or other assets. As a bonus, you save money by using a Series LLC rather than the same amount of Traditional LLCs. You pay the costs of establishing the LLC once, and only once.

Series LLCs Protect Your Valuable Assets

The Series LLC's structure isolates your assets, allowing you to have full liability protection for each one. Each asset is secured in its own Series, which functions as its own LLC.

In practice, using a Series LLC makes you very difficult, or at least highly impractical, to sue. Even if someone has a good reason and the resources to sue you, their attorney may not want to. Why? The reasons are pretty simple:

This is just the quick and dirty version. See our previous article on how the Series LLC prevents lawsuits to learn more.

Series LLCs Offer Great Tax Benefits

That's right, even Uncle Sam is kind to the Series LLC. We could write a whole article on tax benefits alone, but here are our top two.

1. Save on Business Taxes

The Series LLC is represented only in its "home state." This means, if your Series LLC is formed in a state with no sales tax, you get to skate on sales tax. For real estate investors, this means rental payments between Series aren't subject to sales tax.

The beautiful part is, you don't even have to reside in the state you form the Series LLC in. If you're itching to save on taxes, consider the Texas Series LLC. This entity will also help you save money via pass-through taxation.

2. Simplify Your Tax Returns

Even though you can have as many Series and assets as you want, you'll still only file one tax return for the whole shebang. The operating company, or parent company, is the only one that you're required to put on the form. Of course, you're still paying taxes on the "children" (Series), but it's all reported as a single entity.

Is There a Catch?

Setting up LLC protection for your real estate business is fast, cost-effective, and scalable. You can be fully protected inside of only a week! There is a one-time set-up of the series structure for the limited liability company. Then you simply purchase a title transfer for each property you want to move within the asset protection vehicle.

There is no more work for your accountant with a series LLC. Though there are separate legal entities, there is a holding company LLC which is owned by an anonymous trust. This means there is still just one tax return, one LLC filing, one EIN, and one operating agreement. After it is set up, you won’t even notice it’s there in your normal course of business.

Setting up the initial structure is inexpensive considering the massive protection you will get and its infinite scalability. You can sleep better knowing your real estate investments and passive income have full asset protection with an LLC series structure and anonymous trusts.

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

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

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

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

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

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

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

anonymous trust graph

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

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

How To Stop a REI Lawsuit Before It Even Starts

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

Step One: Understand What Motivates Real Estate Lawsuits

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

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

Step Two: Attack the Recovery Phase

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

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

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

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

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

anonymous trust graph 2
Bottom Line: A properly implemented Anonymous Trust and Series LLC structure can give you total anonymity. Your name won't appear anywhere, making even filing a lawsuit incredibly difficult.

What Should I Expect For Tax Planning?

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

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

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

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

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

 

Delaware Statutory Trust Advantages: Protect Your Assets Like the Pros

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

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

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

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

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

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

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

delaware statutory trust advantages

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

How Does the Delaware Statutory Trust Stop Lawsuits?

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

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

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

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

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

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

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

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

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

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

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

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

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

Parent = Delaware Statutory Trust

Child = Individual Child Series of a Delaware Statutory Trust

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

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

How Does Bookkeeping Work for My DST Structure?

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

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

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

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

How Do I Set Up My Delaware Statutory Trust?

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

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

Series LLCs (SLLC) 101: A Primer

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

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

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

SLLC Definitions

Series: 

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

LLC:

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

The Delaware Model:   

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

Origins of the Series LLC

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

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

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

Some Advantages of the Series LLC

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

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

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

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

Caveats  

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

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

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

Series LLC Examples: When Things Go South Legally

There is no business model that provides complete immunity from market reversals, natural disasters, or changes in laws and regulations.  Stuff happens to everyone, in every business.

And when even the best-laid plans of talented and successful business people go awry, the polygamous marriage among companies, creditors, or customers often end up in court.  Unlike holy matrimony or other business models, Series LLCs can protect all parties in advance.

Most often, with the right lawyer as “Best Man” or “Maid of Honor” chaperoning the courtship, the headaches and heartache of divorce court can be avoided altogether.

When The Series LLC Saves The Day: Two Examples

The first comes from real life: the premier, if not only, case in which a federal bankruptcy court upheld the concept and validity of SLLCs and denied a creditor’s attempt to game the system in their favor.  The second is hypothetical, but has real-life implications. After all, “happily ever after fairy tale marriages” are exactly that: fairy tales.

Regardless, all levels of state, local and federal government (courts, legislatures, regulatory agencies, the I.R.S. itself) are interpreting and enforcing myth as reality.  Judges, politicians, and bureaucrats don’t like change. They love inertia, momentum and precedent–campaign speeches notwithstanding.

Example 1: In re Dominion Ventures, LLC, No. 11-12282 (Bankr. D. Del.)

Now, it’s impossible to get two lawyers together without getting lost in a gigantic bowl of word salad or a maze of rabbit holes.  Put them in a courtroom in front of a judge (who’s also a lawyer) and things actually get simpler.  The focus and facts are limited to a relevant Reader’s Digest version.  Legalese will be kept to minimum.

Dominion, a legitimate and reputable group of businessmen, established an SLLC in full compliance with state law.  Both the “parent” company and each of the “children” cells operated independently, maintained separate accounting, and did everything “by the book.” That included using sound business practices.  One thing led to another and Dominion needed some help on credit and cash flow.  “Creditor X” to the rescue!

All that was required was a change in the original Operating Agreement and absolute veto power over all operations and decision making.  Well, the bailout didn’t prevent the boat from sinking and ultimately everyone ended up in Bankruptcy Court.  Now remember, the issues had nothing to do with SLLC legislation. Things just didn’t work out.  “Creditor X” claimed that its after-the-fact position prevented SLLC protection and that all assets of all “children” should be consolidated to satisfy the debt.

Maybe “Creditor X” should have retained a lawyer who had the experience and expertise to advise against the unenforceable loan at the altar.  At the end of the day, the assets of Dominion, its members (owners), and all other respective creditors of the individual “parents” and “children” were protected.

Example 2: Moldy Mary vs. Larry Landlord, (S) LLC

Larry Landlord bought his first duplex just after his graduation from high school.  The property wasn’t much to look at, but it was cheap and he was handy with his hands.  Four years later, a complete repainting of the exterior, and a brand new roof had improved the curb appeal.  The kitchens were remodeled.  The flooring, plumbing, and paneling were upgraded.  Weeds and dirt had been replaced with immaculate landscaping.  Prospective tenants had to get in line on a waiting list.

So, he bought another rental property. And another.  And another. All under the protection, as independent series, of an SLLC.  Tenants clamored for a space in his well-maintained, well-managed rental properties.  As many investors were knocking on the door to participate in the next project.

Eventually, Larry had expanded operations to include 14 properties (and 14 segregated series), to include 5 apartment complexes and 10 members (owners).  Each was fully compliant with state law requirements for documentation, maintaining separate bank accounts, tax filings, and accounting.  Some participants were members of a dozen common projects.  Some had invested in only one.  According to sound business practice, common sense, and the exercise of due diligence, the group hired a a highly reputable building inspector. He gave the building a comprehensive evaluation for each unit.
A sixth property, a high-rise apartment complex costing as much as all other holdings combined, came onto the market and Buster Bankroll contacted Larry.  Knowing nothing about real estate or property management, Buster wanted to invest as an absentee landlord.  Negotiations went well.  Occupancy was at 94% after the first month.

Moldy Mary was one of Larry Landlord’s very first tenants.  She’d been living in the same apartment, owned by a different series, for about 8 years.  A few years previously, after a particularly heavy rainstorm, she’d noticed water spots on her walls and a peculiar smell in her bedroom. The next day, Larry Landlord’s maintenance crew arrived, replaced a section of roofing shingles as well as some interior sheet rock.

Fast forward to 6 months later. Mary got sick. Really sick. So did her husband and three kids. Medical bills exceeded insurance limits. Neither spouse could work and lost their jobs.  The entire family was forced to leave the apartment and move in with relatives.

But to prove a point, when the family contacted Louie Litigator, lawsuits were filed the same day. Multiple, massive lawsuits. Fortunately for Larry and Buster and all other members (including those who owned Mary’s series), the SLLC was on their side.

Based on every legal protections provided to the Delaware SLLC structure only one of the choices below are NOT true.  Let us know which you chose:

  1.  Larry Litigator did an hour’s worth of research and determined that liability lies with only the series that owns Mary’s apartment. He has withdrawn from the case and the “blood-from-a-turnip" strategy.
  2.  The members of the series who own Mary’s apartment have no exposure beyond their investment.
  3. The very specific language of statutes and growing legal precedent will not threaten the assets Buster or Larry or all other members of any and all other series (or Larry Landlords, (S)LLC).

Guess in the comments section below.

Learn More About the Series LLC

Learn more about the Series LLC here on the Royal Legal Solutions website. We've written extensively about the benefits of the Series LLC, and given much more information about how the Series LLC works. We offer many more educational materials on this subject because we believe all real estate investors have the right to be informed. If you're considering forming a Series LLC, contact us for your consultation today. We'll get the job done right, and keep your head above water if things go South!

Delaware Series LLC & Tax Strategies

As a refresher, the concept of a Series LLC (Limited Liability Company) was created by the Delaware Legislature back in 1996. It's still considered the “Granddaddy” of a hybrid “parent-child” (or a brood of children) business structure in use today.

The Delaware LLC tax structure boasts many benefits. Asset protection may be the top priority among many participants and of special appeal to both rookie and professional real estate investors alike. Additional advantages include anonymity, simplicity, and flexibility.

As we described in our article, Series LLCs  101: A Primer, this legal innovation is a business model unique among sole proprietorships, partnerships, corporations, non-profits or any other LLCs. But it does share similarities to all other organizational structures.

Your Delaware Series LLC is Like a Honeycomb

Consider a beehive and honeycomb as an analogy.  In a Series LLC (SLLC), one master entity (the honeycomb) includes as many or as few “cells” as the “members” of the colony decide to create.  Each is independent, or each can be codependent.  The extent of the relationship is determined solely by the bees (investors, members, “owners”).

Ignoring all the other potential advantages and benefits of an SLLC, the focus here is on minimizing or avoiding tax liabilities by legally exploiting local, state, and federal regulations.  But before we start, a few ground rules:

  1. There are no residency requirements for members. While increasing legislation in 16 states, D.C. and Puerto Rico – with much more on the horizon – has adopted some version of the original Delaware Model in the past few years, there is no residency requirement for participation as Founders or Members. This is true whether the business, entity or individual is based in another state, territory, Canada, or Antarctica.
  2.  Tax concerns are complex and ever-changing.  There are innumerable municipal / local, over 3,000 county, 50+ state categories (fuel, sales, excise, “fees, assessments and levies” and hidden costs in the conduct of business and investment.  The “smoke and mirrors” continue in dealing with the IRS, where the average effective or, “Actual Tax Rate” (ATR) is not 35% … ‘more like 22%.
  3. These are just the basics. The following overview is not, cannot be, anything but an outline of considerations. We always recommend discussing your individual circumstances and objectives with experienced experts who specialize in the field of SLLCs and tax planning. Start with our investor quiz and we'll have the right person connect with you.

But, understandably, most folks pay most attention to the impact that the IRS makes on net revenues and income.  Since the feds are the biggest and most commonly shared threat to putting money into the bank, let’s focus on the 800-pound bear in the room.

Uncle Sam's View of Series LLCs

Think of the Taxman like a bear who wants to raid our beehive. Maybe it’s a “chicken or the egg” paradox, but regardless the of money ("honey"), the bees and the entire beehive suffer when the IRS gets involved.

The good news is that Papa Bear/Uncle Sam has consistently issued letters, opinions, and directives that incorporate language in favorable to, in support of, protecting the legal rights of  SLLC‘s and their participants.  Even with those cases wherein the treatment of each series was not at issue, U.S. Tax Courts have classified each series as a separately-regulated investment company.

Although the case at hand involved a “trust” participating in a “series trust,” the message was clear in creating solid steel walls, rather than just wax, between each cell of the honeycomb.  Whenever well-documented accounting procedures, a clear Operating Agreement, and sound business practices support the integrity of an SLLC, any and all tax benefits are due the participants.

While banks, insurance companies, statutory entities (or those owned by any government or political agency) cannot be registered as an SLLC, the IRS itself has stated that, “Generally, LLCs are not automatically included in this list, and are, therefore not required to be treated as corporations.  (Any) LLC can file “Form # yadda-yadda-yadda” to elect their business classification.”  Further provisions allow for changes of category, with 75 days notice.

Moreover, unlike most other business structures, multiple options are available to taxpaying members. Each can choose independent classifications as a non-profit, corporation, individual or as part of the “parent” LLC itself.

“Check the Box” and "passthrough LLC" returns are options available to all, as mandated by state and federal law.  With the advance guidance and advice of experts during the planning stages, individual circumstance allows for individual strategies, regardless of fellow members’ decisions.

Constitutional provisions require other states to give, ‘full faith and credit” to taxpayers who reside elsewhere.  If the legal entity is domiciled in, for example, Texas or Delaware, then Connecticut and Wyoming are obligated to honor the controlling tax laws of sister states.

As the popularity of series LLCs continues to grow exponentially, lawmakers and taxing agencies have been hard-pressed to maintain the pace.  At the same time, such states as New York (through its Department of Taxation and Finance) has already issued the opinion that, “… for the purposes of personal income tax, all of the series will be treated as ‘partnerships’, which the authors interpret to mean that each series is to be treated as a separate LLC.”

We’d be lying if any claim were made that there is a universally-applicable “silver bullet” or magical solution to the tax ramifications of any investment or enterprise.  One size does not fit all.  But no matter what your federal tax bracket, your local and state tithes, may be … whether building your first home or investing in a casino on the Las Vegas Strip … even if you’ve owned a “Mom & Pop” family business for 3 generations … series LLCs are worth exploring.

Do the homework.  Consult experienced experts who specialize in series LLC law and tax planning.  Protect the honey.

Self-Directed IRA LLCs: The Best of all Worlds

The self-directed IRA LLC gives you one hundred percent control over how you invest. Most investors lack this ability.
It’s not the right move for everybody, but if you want to truly maximize the return on your investment, and you don’t mind going the extra mile to set up a company that handles your funds, there are some very sexy benefits.

1. Tax Benefits

You will get tax deferral and tax-free through your LLC along with the benefits of a traditional IRA. All income and gains generated by your IRA LLC will land in your IRA tax-free.
You’re IRA LLC will also grow tax-free. This is the tax equivalent of finding El Dorado. It is possible. You will pay tax on distributions, but all of your growth is tax-free.

2. Options for Diversification

If this doesn’t get you excited, you don’t have a pulse. With a self-directed IRA LLC you can invest in anything, including real estate and private business entities.
I know you kids love my man Randy. Randy, that sly old fox, invested in his own fishing business with his IRA LLC and got WINDFALL fishing up off the ground without giving the IRS a dime. That’s why he catches so many
fish. Randy is a whale.
You don’t need to grow your own business with your retirement’s funds of course. You’ll be making fat stacks of green with a solid portfolio in both bad times and good if you diversify.

3. Access to Your Own Account

You aren’t retiring and starting an IRA LLC to have a boss. With this option you will have direct access to your IRA funds. You can make an investment quickly and efficiently. No need for approvals. No need to pay a custodian. It’s just you baby, and you’re calling the shots.

4. Speed

The handmaiden of access. If you want to make an investment, all you need to do is write a check. You can transfer funds straight from your LLC bank account.

5. Lower Fees

No custodian means one less person to pay. There are also no account valuation fees.

6. Limited Liability

Any assets you hold outside of the LLC are protected from litigation against the LLC. This is important for real estate investors, as claims arising from defects in the design or construction improvements are subject to statutes of limitations.

7. Asset and Creditor Protection

You are covered for up to a million in bankruptcy protection. Markets do have massive fluctuations. It’s good to be backed up.
The Self-Directed IRA LLC is like an IRA on steroids. If you want to take back control of your finances, get yours in the game.
For assistance forming or investing with your Self-Directed IRA LLC, schedule your consultation today.

LLC or Corporation Vs. Umbrella Policy: Which Is Better For Real Estate Investors?

Are you a real estate investor? Chances are you either use an umbrella insurance policy or an LLC to protect yourself from liabilities concerning your property. There are, however, certain situations one can be more beneficial than the other.

To understand fully, you need to understand the different protection that each one provides. Many real estate investors don't fully understand the implications of using an LLC/Corporation, but this is especially true when it comes to umbrella policies.

What Is An Umbrella Policy And What Can It Do For You?

Umbrella insurance is a policy that adds extra protection beyond the existing limits of current in-force policies. Umbrella policies usually provide extra coverage for things like injuries, property damage, and certain lawsuits. Depending on the type of umbrella, it may cover different types of liability situations.  

Let's say you have pool insurance under your homeowners or landlord policy with $100,000 of liability coverage and business general liability insurance of $500,000. Then, you also have a $1 million umbrella policy that could give you $1.1M of pool liability coverage and $1.5 million of general business liability coverage.

An umbrella policy doesn't cover any additional areas of liability or risk. It only adds more coverage to your existing coverage. The umbrella policy isn't as great of an asset protection tool as its name implies after all.

Example: A Typical Umbrella Policy Situation

Hypothetically speaking, let's say you own a business that provides home appliance services to residential customers. One day a claim is made against you by a customer against your LLC for damages from a failed, and expensive, appliance repair.

Now, this customer is going to file a lawsuit against your LLC. But that doesn't matter, because you're covered! You don't just have liability insurance, you also have an umbrella insurance policy, that's two layers of protection! But when you go to the insurance company with the claim, you get denied on both policies.

Why? Because your general liability policy didn't provide coverage for failed repairs. But it gets worse … Because your primary General Liability policy denied the claim your umbrella policy is also not going to pay out. This is why it is imperative to have a thorough understanding of your insurance coverages and to make sure that you take the necessary steps to protect yourself and your assets.

The good news is, you are here. You have learned the fundamentals of asset protection that we teach through Royal Legal Solutions. After identifying your vulnerabilities, you may even have gotten an LLC set up. Because of that action, your personal assets are not at risk, but your business could still end up having to pay a large settlement.

An umbrella policy is a great tool when you have your defense wall set up properly. However, keep in mind, that umbrella policies only cover above existing levels of the underlying policies. They are not a catch-all. That said, if you have them set up properly, they are a cost-effective way to achieve the extra security you may want and need.

LLCs & Corporations: Always Reliable

Think of the LLC or corporate structure as Old Faithful. Insurance can and will drop you the minute you actually need it. An LLC (or other corporation), on the other hand, protects you from liabilities that arise in the LLC and prevents a plaintiff from being able to go after you personally.

What is at risk in a lawsuit against the business entity (LLC or corporation) however, is the assets of that business itself. A creditor could collect against the assets of that business. So, for example, if you have an LLC with multiple rental properties with equity, then those properties and their equity would be at risk in a lawsuit.

Next, let's go over the cost of both LLCs & Umbrella policies.

The Cost of an LLC

The cost of an LLC, depending on how you go about getting one, will cost you a few hundred dollars. You can also expect about $50-$200 in fees per year to keep your LLC active with the state (each state is different, Arizona is $0 and California is about $900 annually, for example).

If you have a partnership LLC or a corporation then you also have the cost of an LLC partnership tax return or a corporate partnership tax return.

The Cost Of An Umbrella Policy

Umbrella policies typically cost between $150 and $300 dollars for the first $1,000,000, and then on average, another $100 dollars per additional million dollars per year.

Umbrella policy benefits include access to attorneys who your insurance company will appoint and pay to defend you in order to get the lowest possible settlement payout. There may be certain exclusions to your coverage that leave you without coverage for your risk. (You might have some costly holes in your umbrella). This is why it is critical to work with a knowledgeable insurance agent who is going to do everything in their power to ensure that you have the appropriate coverage you need to protect yourself.

Now we can finally get to the part you've been waiting for!

Which Is Best For You, An LLC Or An Umbrella Policy?

What it comes down to is what kind of property you own. If you own a multi-unit property or commercial property you should consider having both an LLC and an umbrella policy because you have more liability exposure when you have more tenants.

On the other hand, if you have a single-family rental in an otherwise good neighborhood where you feel you are less likely to be sued, then you could consider having just one, an LLC or an umbrella policy.

You should always consider both an LLC and an umbrella policy. But most of all get all the information you need to make an informed decision. That way you are protecting your assets in the most efficient and cost-effective way possible. Royal Legal Solutions can assist you in forming the best structure for your situation. Schedule your asset protection consultation today and let the professionals worry about your liability instead.

What Makes a Series LLC Different from an LLC?

Have you heard about the Series LLC? It's basically a newer and better version of the normal LLC. Now you might be wondering, what makes the Series LLC different from a normal LLC? Hint: if you have children, you'll catch on fast.

The Series LLC works as if it's a parent-child structure. At the top you have the parent, the Series LLC. It'll have an EIN number and an official formation document stating what state you formed the Series LLC in.

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.

A Series LLC Can Grow Forever

A Series LLC is just like a parent, 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.

The Series LLC Is More Efficient Than a Traditional LLC

The Series LLC is the next evolution of the normal LLC. 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.

If you have any questions about forming a Series LLC I'd be happy to answer them in the comments below. Learn more about how a Series LLC can help you expand your business. If you're ready to form yours, contact us today.

The Different Kinds of LLCs & The Way They Pay Taxes

Surprise surprise, for every different kind of LLC, there are also different taxes. It's important for you to know the different taxes for each kind of LLC. You want to keep your friends at the IRS on your good side, don't you?
Let's go over the different types of LLCs, along with the taxes you have to pay for each particular LLC.

The Single-Member LLC

The single-member LLC is an LLC with only one member, as its name suggests. The single-member LLC will always have passthrough LLC tax treatment. This means that instead of having to pay the 39.1%  corporate tax, you can include the profits of your LLC on your personal income taxes.

A Married Couple LLC

A married couple LLC is an LLC whose only members are two people who are married to each other. A married couple LLC will usually have pass-through tax treatment. But this isn't the case if the LLC is formed in a community property state.

If your LLC is formed in a community property state, you will have to file a partnership tax return for your LLC. As of 2018, the following states have community property laws: Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico, and Wisconsin.

If you file a partnership return, you and your spouse will have to include your respective share of the profits on your income taxes.

Multi-Member LLC

If your LLC has two members that aren't married, then it's considered a multi-member LLC. A multi-member LLC receives pass-through tax treatment. Each member will claim his or her share of the LLC's profits on their respective personal tax returns.

The Series LLC

If you've read my blog before, you may already know a bit about the Series LLC. The Series LLC allows you to create as many "series" as you want. They operate directly under your original LLC, but are treated separately for liability purposes. When it comes to paying taxes with an LLC, things can get tricky.

For example, in California, each series in a Series LLC will have to pay an $800 franchise tax. But in Delaware, no matter how many series you have in your Series LLC, you'd only pay the $300 franchise tax one time.

Because the Series LLC is fairly new, most states allow you to choose the way it gets taxed. Although as new laws get passed, this may or may not change from state to state.

If you have any questions about the tax treatment of LLC's feel free to ask me in the comments below, I'd be glad to help you! In the meantime, check out our previous posts to learn more about pass through tax treatment.

How To Protect Your Series LLC: Doing Your Part

The Series LLC is an excellent legal structure. Assuming you're doing your part, you don't have anything to worry about. If you don't know about the Series LLC, read this Series LLC Primer now. Then come back for the rest.

Everyone else, keep reading.

Protecting the series structure of an LLC is much like protecting multiple LLCs. Each series of a Series LLC is treated just like an individual LLC.

This is something you need to remember when you're running your LLC business. Let's imagine you hae a Series LLC with five different series underneath it. You have to treat each series as if they were five different LLC's.

Keep Adequate Records To Protect Your Series LLC

There's a few things you need to do to protect your series LLC.

One is you must track the money for each different series separately. You must keep those records as if the series are their own LLC.

You should also consider having separate bank accounts for each series. While this isn't a requirement, having separate bank accounts will make the accounting process so much easier.

What Happens If You Fail To Keep Adequate Records?

What happens is that all your series will be merged together by the court as if they were all one company. This completely defeats the purpose of the series.

It's not that your LLC will completely go away and then you end up with no protection. It's just now all of your money is in one pool. This cripples your asset protection strategy. Remember, the reason you have a Series LLC is to minimize the amount of money anybody can come after at any one time.

Let's say you find yourself in a lawsuit and the court decides to treat all the series you've made as one company. If all of your series get treated as one company you better believe the attorney for the other side is going to do everything in his or her power to win that lawsuit.

After all, the more assets you have for the taking, the more money an attorney can earn from suing you. Then let's say you actually lose the lawsuit. That's the equivalent of someone winning the power-ball, with the prize pool being all of your assets!

On the other hand, if your series hadn't all been merged together, the majority of your wealth and assets would have been untouched.

So remember: keep separate bank accounts, keep adequate records, and make sure you're doing your part!

If you have any questions about what we just went over don't hesitate to ask me in the comments! I'd be glad to help you by answering any questions you have below. If you want to discuss your unique situation, schedule your personal consultation today.

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.

Litigation Proof? How the Right Business Structure Can Save Your Hide

Making your company litigation-proof is like trying to make a house tornado-proof. There's a lot you can do, but there's always going to be some vulnerability there.

Business owners and investors might as well think of lawsuits as a force of nature. You can't predict them, and you can barely protect yourself from one. This is even more true once the lawsuit has been filed. These life-ruining events pick up momentum from the beginning, just like a tornado.

The reality is you will be sued as long as the conditions are right. The only thing preventing a lawsuit is the correct set of circumstances.

Don’t assume probability will save you. One in four Americans are sued in their lifetimes. Business owners and investors are even more likely than a regular Joe to be sued. It could easily happen to you!

Remember, lawsuits are like nature: they're inevitable. It's a question of when, not if, they will happen or not.

Litigation Proof: Tornado

Why Do Lawsuits Happen?

There are three conditions that make a lawsuit extremely likely. If all three are active at the same time, then a lawsuit is almost guaranteed to happen.

How To Make Your Company Litigation Proof

While there is no way to make your company immune to a lawsuit, you can definitely lower the probability of one taking place. A good asset protection plan addresses each of the conditions/steps I mentioned above. The goal is to stop, prevent, or make it extremely difficult for a plaintiff's legal team to go through each step.

So how do you make it difficult for them to go through each step? The solution is simple.

Spread out your company assets with a series LLC.

Limited Liability Companies (LLCs) prevent someone from suing you personally. You can learn how to start an LLC here. However, storing all your assets in one place is still a risky strategy. What you want to do is spread your holdings across multiple business entities. This will reduce your exposure and make it difficult for someone to determine your net worth.

 

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.