When Real Estate Investors Hire Registered Agent Services For Their LLCs

As alluring as owning a real estate investment company may seem, those beautiful profits always come with a few risks.

To minimize those risks, you have to set up a limited liability company (LLC). These corporate structures, paired with the right legal tools, give your business a basic level of personal liability protection, asset protection and tax benefits.

And the logical thing would be to set up an LLC in your home state, right?

Maybe. But what if you happen to live in a state that isn’t friendly to small business?

The quick and easy solution is to form an LLC in another state, one where the tax laws are a little more favorable to what you're wanting to accomplish. This strategy can work brilliantly, and it’s 100 percent legal and even commonplace.

In fact, it’s something we help our clients do every day, every year.

But it comes with a caveat:

To remain on the right side of the law, you are required to name a person (or company) to act as your registered agent. This is the person who is responsible for sending and receiving all of your company’s legal correspondence.

If you have an out-of-state LLC, your registered agent is your point person for business matters in the state where your company is formed. This agent will be legally responsible for maintaining your LLC’s legal and tax documents and for sending and receiving all of your company’s legal correspondence.

registered agent service for llc runner jumpingA Professional Registered Agent Means You Sleep Easy

Your registered agent serves as your LLC’s “face.” Think of this person as your brand ambassador, but the duties go beyond simply making you look cool on Instagram. Your agent bears the responsibility for your legal and tax documents.

To have the peace of mind of knowing you are meeting the business requirements of the state where you incorporate, you need someone to assist you. Designating a registered agent for your LLC is one thing, but a registered agent service for LLCs will give you this peace of mind.

Can I be my own registered agent?

Some investors wonder if they can also serve as their LL's registered agent. Sure you can! However, you need to know this may be tedious. Will you be able to properly keep track of  your LLC's documents?

Unless you’re an attorney or a CPA, you probably don’t want to serve as your LLC's registered agent. Residency can be difficult, even if you’re splitting your time between states. You must be able to perform the registered agent’s role competently throughout the life of your business. For this reason, the vast majority of successful real estate investors do not serve as their own registered agents—and they’re better off for it.

Be sure to check out our article: Do I Need A Registered Agent In Every State?

Should I get a registered agent service for my LLC?

Ideally, it is best to have a qualified professional as your registered agent. There are law firms, CPAs and other professionals who can act as registered agent for real estate investors. A qualified legal practitioner will always be aware of changes in the law. He/she has enough knowledge in matters of law.

Every state is different, but here are three common rules of thumb when hiring a registered agent for your LLC.

  1. He/She must be a resident of the state.
  2. He/She must have a physical address in the state.
  3. He/She must operate during normal hours from Monday through Friday.

How Can a Professional registered agent service help?

Remember, to remain within the law, you are required to name a person (or company) to act as your registered agent.

Many real estate investors form an LLC in another state (at Royal Legal Solutions, we recommend the Texas LLC). This strategy can work brilliantly, but to remain within the law, you are required to name a person (or company) to act as your registered agent. As mentioned, this is the person who is responsible for sending and receiving all of your company’s legal correspondence. He or she will be legally responsible for maintaining your LLC’s legal and tax documents.

Registered agent services for LLCs come with a few other perks:

Conclusion

 

Each state has different rules for having a registered agent. You must retain registered agent services n the state where your LLC was created or does business.

Not designating a registered agent for your LLC is downright reckless. If you get caught, you can expect a legal backlash that may include anything from fines to exclusion from the court system, which will make it very difficult (and illegal) to run your business. Some states may even pursue criminal charges.

Knowing this, would you really risk prison time to save the $45 to $95 it’ll cost you to hire a registered agent service for your LLC? This tax-deductible fee should be regarded more as a small investment in asset protection than a shrewd cost-cutting opportunity.

A professional agent can help you focus your efforts where they belong: on your business.

 

 

 

 

 

Solo 401(k) Compliance for Real Estate Investors

Don’t worry about Solo 401(k) compliance. Let our experts do it for you.

A Solo 401(k) can be a clever and efficient way to save for retirement. But what many plan owners don’t consider is the importance of their plan’s compliance with law and regulation.

Fortunately, Royal Legal Solutions can handle this for you. You don’t have to spend time learning the ins and outs of prohibited transactions or ever-changing legal requirements when our experts are on your team.

Solo 401(k) Compliance For Real Estate Investors can include a broad variety of services to ensure your plan isn’t running afoul of the law or regulations. Most of all, investors must avoid making prohibited transactions, which can incur costly penalties. Royal Legal Solutions offers a comprehensive subscription service to allow you to stay compliant.

Yes, you can, but we don’t recommend it. Unfortunately, non-compliance can be very expensive in fees and penalties and lost time. Since mistakes can be expensive and this subject is complex, many of our clients are relieved when professionals assume the responsibilities. And rightly so.

Hiring Royal Legal Solutions to handle your Solo 401(k) Compliance takes the hard work off your own plate. Our team is well versed in current regulations and performs regular research to stay ahead of the curve. To learn more you can check out our Solo 401(k) articles and videos. You may want to start with our Solo 401(k) For Real Estate Investors.

NOT AS SIMPLE AS IT SEEMS FOR REAL ESTATE INVESTORS

The factors to consider when checking for compliance are beyond most people’s common knowledge. You may actually be surprised about what you don’t know regarding the conditions for keeping your Solo 401(k) compliant.

Did you know that you need to update your plan at least every six years? Are you currently tracking all sources of income into the account? Do you know which form you need to file with the Department of Labor, and when? Do you know that your income can influence which form you need?

Is your head starting to spin from the very prospect of all this paperwork?

It’s okay if you answered “no” to any of these questions. These are things that all account holders should be doing, or having done for them by a firm like ours. Our attorneys and other seasoned legal pros have devoted years to studying the subject so you don’t have to.

MAKES SOLO 401(K) COMPLIANCE EASY

With our legal experts handling your solo 401(k)’s compliance, you don’t have to. We have the knowledge and skills to ensure your plan’s compliance, while you continue to focus on your other priorities.

For the absolute highest level of service, consider pairing the Solo 401(k) with the Royal Protection Plan, our option for investors who want all of the paperwork taken care of. Sit back, relax, and enjoy the convenience of our subscription format. You can put all of that paperwork out of mind and direct your time and attention back to running and growing your business.

WHAT’S INCLUDED IN SOLO 401(K) COMPLIANCE SERVICES?

FILING SERVICES
If you never want to stress your 5500 or 5500-EZ deadline again, our filing services are exactly what you need. Let our experts stay on top of your paperwork.

MONITORING FOR PROHIBITED TRANSACTIONS
The ins and outs of prohibited transactions can be deceptively complex. If you’d rather not worry about incurring the fees they cause, let our experts help out. We keep our eyes peeled to ensure your plan’s transactions are on the up-and-up. Of course, we are always here if you have a question about a given transaction.

ENTITY COMPLIANCE FOR SELF-DIRECTED IRAS AVAILABLE SEPARATELY
If all of this sounds wonderful but you’re using an IRA instead of a solo 401(k), we can also assist you with compliance for that retirement plan.

Investors love the Solo 401(k) for its asset protection and tax sheltering applications. Let Royal Legal Solutions show you why.

IRA For Real Estate Investors

Get more control of your retirement plan, your investments and your real estate assets.

WHY USE ROYAL LEGAL SOLUTIONS?

We have experience in setting up the best asset protection structures and making them easy for an investor to use. Our system keeps things simple while making sure your needs are met.

With the Self-Directed IRA For Real Estate Investors, retirement plan isn’t limited to stocks, bonds, mutual funds and bank CDs.

The Self-Directed IRA lets you grow your retirement savings with smart real estate investments.

At tax time, you’ll report everything on Schedule E of your personal return (if you’re an individual/married partners) or a partnership return (if unmarried partners). You don’t need multiple bank accounts as long as you have accurate accounting records.

Before you go, check out the rest of our articles and videos about the Self-Directed IRA. You may also be interested in our Self Directed IRA Business Trust.

How The Qualified Personal Residence Trust (QPRT) Shields Your Home From Estate Taxes

A Qualified Personal Residence Trust (QPRT) is a specific type of irrevocable trust that allows you to remove your primary residence or another personal home from your taxable estate. While creating can be a QPRT complicated process, doing so lets you avoid estate taxes and reduce the amount of gift taxes you have to pay.

And guess what? When the feds take less, your heirs get to keep more of the wealth you’ve worked your whole life to accumulate. 

Keep reading to learn more about QPRTs, and when you're done, check out our article Three Ways To Properly Legally Protect A Personal Residence to discover more asset protection tips for your personal home.

qualified personal residence trust: young child catching football

How Does a QPRT Work?

For estates of several million dollars or more, a QPRT can allow you to keep the value of the home out of part of your estate that is subject to estate taxes. Although the QPRT is not used as often as other estate planning tools, it can save you a significant amount in taxes.

In order to create a QPRT, you have to transfer the title to your home to a trust. However, as part of the terms of the trust, you’ll include a provision that allows you to continue to live in the home for a specific period of time before passing to your heirs. The time in which you can continue to live in the home is known as a qualified term interest or a retained income period. So, while you won’t own your home anymore, you can still live there until this period expires.

How Does a QPRT Avoid Estate Taxes?

While there is technically no limit on how long you can keep your interest in the home, if you pass away before the end of your qualified term interest, the value of the home will be included in your taxable estate. So, you should always make sure the term chosen makes sense given your age and future life expectancy. 

If you survive until the interest expires, the title to the home will pass to your heirs and will not be included as part of your estate upon your death. After your heirs inherit the property, you can pay rent, relocate, or figure out other living arrangements. Any rent payments you make to continue living in the home will further reduce the value of your taxable estate. 

QPRTs and Gift Taxes

Although a QPRT can help you avoid estate taxes, Uncle Sam isn’t going to let you get off scot-free: the transfer of your home is subject to gift taxes. However, since you’re retaining a qualified term interest, the property’s gift value will be lower than its fair market value, which means you’ll owe less in gift taxes.

This deduction can translate to significant savings, particularly when younger homeowners set up QPRTs with extensive qualified term interests. The longer the retained income period, the lower the gift value of the home, the lower your tax bill from the IRS. Just remember that you have to outlive the qualified term interest for your heirs to reap the rewards of your estate planning. An experienced estate planning professional can help you decide on the most strategic term for your situation. 

Another way a QPRT saves you money is by avoiding gift taxes on appreciation. When you transfer your home to the trust, you pay the gift tax on its current value, even though the title won’t pass to your heirs for years to come. That means that any increase in your home’s value during your qualified term interest won’t be subject to the gift tax, which can also save you a substantial chunk of change.  

Why You Should Talk To A Pro

While the QPRT can be a great estate planning tool for shielding your home from estate taxes, it’s not the right solution for everyone. It’s important to keep in mind that specific requirements must be met to qualify for the tax savings. There is also a complicated set of special QPRT/grantor trust valuation rules for estate and gift tax purposes, which are outlined in Internal Revenue Code §2702 and related regulations. 

As with most estate planning strategies, you should consult with an attorney who specializes in this type of law to determine if a QPRT is right for your situation. An estate planning lawyer who knows their stuff can help you decide on the best methods for saving your money from the IRS, determine if you can qualify for a QPRT and make sure it’s set up correctly if you choose to take that path. 

 

Property Transfers for Real Estate Investors

For Complete Protection You Must Have A Properly Drafted Deed Transferred Into An Series LLC Structure

Our property transfer service helps real estate investors move their investment properties into new corporate structures.

Whether you have a property you need to get out of your personal name, are acquiring a new property, or wish to transfer a real estate asset to a business partner or friend, the Royal Legal Solutions property transfer service can help you.

What's included with the Property Transfer?

Our property transfer package includes three related services: drafting the Deed, forming the Anonymous Land Trust, drafting the Series Document, and the Series Operating Agreement.

Do I have to use all three services?

Of course, you could order any of these services individually. However, Royal Legal Solutions offers them as a package deal to save your hard-earned money as we construct the most powerful asset protection plan possible.

Why would I need all three services?

Many of our clients also appreciate the convenience of transferring property with us. When you use the three services we offer in the package together, you can rest easy knowing that the asset is secured from unnecessary liability.

Who Should Use Our Property Transfer Service And Why?

This service is designed for those who already own a Series LLC or plan to buy one. For your Series LLC to give you the most protection possible, you must have a properly drafted deed that is properly transferred into the Series LLC structure. For a property to be incorporated into that structure, you will need an accurately drafted and legally binding Series Document and series OPAG.

These structures separate your assets and preserve your anonymity. When used together, you become a serious pain to sue. Not only will it be nearly impossible to prove you own your investments, but you will also appear to be personally much poorer than you actually are. Attorneys don’t like to waste time investigating whether you’re rich enough to make a civil case worth their while. They also don’t have many legal options for defeating a sound asset protection strategy. Essentially, using this plan makes you way more trouble than you are literally worth. A small investment now could save everything you own later.

Why Should You Choose Royal Legal Solutions For Your Property Transfer?

Of course, you have your choice about where you choose to create any of the documents you need for an effective property transfer. We strongly recommend against attempting to draft such items yourself. Despite the fact that you can find templates for such documents online, we find that these “free” options are rarely truly “free.” You may end up paying a great deal for cutting corners on your documents. Consequences for doing this can range from fines to losing your asset protection coverage, and in some cases, never even owning your property in the first place. Unless you happen to be both an extraordinarily experienced CPA and a licensed real estate attorney, it is unlikely that you will know all of the legal, financial, and technical requirements for creating effective and legally binding documents and entities. Don’t take that chance. Royal Legal Solutions is here to help investors like you.

Features Of Our Property Transfer Service

Anonymous Land Trust Combined With The Series LLC

Savvy investors can pair the Anonymous Land Trust with the Series LLC to achieve total anonymity and superior asset protection. To learn many more details about how these structures combine to make you nearly impossible to sue, check out our free educational resource on how the Series LLC and Anonymous Land Trust prevent lawsuits.

Prevent Lawsuits Before They Occur

The short version is that these structures separate your assets and preserve your anonymity. When used together, you become a serious pain in the ass to sue. Not only will it be nearly impossible to prove you own your investments, but you will also appear to be personally much poorer than you actually are. Attorneys don’t like to waste time investigating whether you’re rich enough to make a civil case worth their while. They also don’t have many legal options for defeating a sound asset protection strategy. Essentially, using this plan makes you way more trouble than you are literally worth. A small investment now could save everything you own later.

Royal Legal Solutions regularly uses this strategy to help investors protect what is rightfully theirs. In our experience, the Anonymous Land Trust and Series LLC combination stop lawsuits before they even start.

Our Property Transfer Package Is Cost-Effective

At other firms, you may find yourself having to order each of the services we provide in our property transfer package “a la carte.” The land trust alone averages $500 elsewhere. At Royal Legal Solutions, we will set yours up for a much more competitive rate. The costs you will incur plummet even further when you take into account the savings you receive from the Property Transfer bundle.

Our Property Transfer Package Is Convenient

At Royal Legal Solutions, we make it our mission to share the asset protection strategies long known by the wealthy. After all, well-employed asset protection strategies are just one reason that the “rich get richer.” But you don’t have to be exquisitely rich to protect your assets like those who are. We’re here to serve everyone, and believe all investors deserve access to high-quality asset protection strategies. This is why we’ve made this package both affordable and convenient. Whether you’re brand new to real estate investing or a seasoned investor with the portfolio to match, we can handle the paperwork and answer any questions you may have.

What If I Don’t Already Have A Series LLC?

You can still take advantage of the property transfer services we offer. But, you will have to do things a little bit differently. Many clients prefer to purchase their Series LLC first, then execute the transfer. Another option is to explore our Royal Protection Plan Package, which comes with a Series LLC at a reduced cost.

Why Use Royal Legal Solutions For A Real Estate Investment Asset Protection?

We have experience in setting up the proper asset protection and making it easy for an investor to use. Our system simplifies management structure as much as possible, and we also use common sense to ensure your needs are met. For example, just one tip we give our clients is that you don’t need multiple bank accounts as long as you have accurate accounting records. For taxation, they should stay exactly how they are now while being reported on a Schedule E of your personal return (if you’re an individual/married partners) or a partnership return (if unmarried partners).

Joint Venture Agreements For Real Estate Investors

Joint Ventures have been dramatically increasing in popularity since the 2009 recession. A Joint Venture Agreement is a partnership agreement. In the context of an LLC, it is known as an Operating Agreement.

Details about how profits and losses are divided, who controls the operations of the LLC, and which rights and responsibilities are designated to each partner are outlined in the LLC’s Operating Agreement. Properly created LLCs and Operating Agreements leave no room for the ambiguities that risk landing Joint Venture partners in court.

How do Joint Ventures help investors?

Joint Venture agreements offer investors a way to pool funds and split profits easily, allowing them to afford investment properties they may not be able to acquire on their own.

Who uses Joint Ventures?

New investors and veterans alike take advantage of these simple agreements, often in the name of securing profits on a relatively short timetable. That said, a Joint Venture is only as strong as the documentation accompanying it and the entity formed in its name.

How are Joint Ventures structured?

Typically, investors will form a venture-specific LLC. Royal Legal Solutions can assist you with drafting your Joint Venture Agreement and venture-specific LLC. Learn more about why many real estate investors need venture-specific LLCs and the assistance of a qualified attorney below.

Why Do I Need A Venture-Specific LLC For My Joint Venture For Real Estate Investors?

It’s helpful to think of a joint venture kind of like dating. You may really like your business partner. Perhaps they are successful in their own right, or you’ve seen how well some of their previous investments have gone. A joint venture allows you to take a test run at investing together. Maybe things will turn out great and you will go on to get “married” by going into business together formally.

But as with all things investing, success is never guaranteed. This is why we recommend a venture-specific LLC. You form this entity, alongside an ironclad agreement, to protect yourself and minimize the unavoidable risks involved in such investments.

The venture-specific LLC also offers liability protection. At Royal Legal Solutions, we always advise our clients to never keep property in their own name in the long term. Joint Ventures are no exception to this rule of thumb. There is no degree of safety conferred by two individuals having their names on a property. The only thing that will save your assets in court is the LLC structure. In addition to maintaining your anonymity, an LLC by design gives Joint Venture partners some very necessary liability protections. In the real estate industry, where anyone from a disgruntled tenant to an injured contractor or even your fellow investors can easily sue you, liability protection is essential for ensuring you won’t lose everything you have worked so hard for in a court judgment.

Why You Should Choose Royal Legal Solutions For Your Joint Venture For Real Estate Investments

At Royal Legal Solutions, we are real estate investors ourselves as well as attorneys. We have enjoyed Joint Venture successes, and also seen them go horribly wrong from a professional standpoint. Joint Ventures can be a great way to turn a quick profit and forge a good relationship with another investor. However, they are not at all without risk. We are here to help you protect yourself when you engage in any real estate transaction or business relationship.

Whether you choose Royal Legal Solutions or another qualified attorney, it is crucial to have some oversight for your Agreement and LLC. Improperly formed or filed LLCs will not give you the liability protection you need, and even worse, could end up totally useless. Usually, this happens when investors try to act as their own lawyers or seek out the assistance of Google, J.D. Don’t make this mistake. You don’t have to. You’ve worked hard to build up your real estate portfolio, and defending it with professional help is absolutely worth the investment. Contact Royal Legal Solutions today for more information about how we can help you minimize your risk in a Joint Venture.

What Are The Parts Of A Joint Venture Agreement For Real Estate Investors?

Every partnership starts off with the best of intentions. If everything works out beautifully, there is usually no issue.

Most Lawsuits And Legal Disputes Stem From Misunderstandings

We have found these can often be prevented by using the proper structures and having detailed documentation. When we help you with setting up your venture-specific LLC, you will receive a well-crafted agreement that keeps everyone is on the same page in terms of understanding:

While Joint Ventures can be a great way to turn a quick profit and forge a relationship with another investor, they aren’t without risk. We are here to help you protect yourself when you engage in any real estate transaction.

When you choose Royal Legal Solutions, we offer crucial oversight for your Agreement and LLC. Improperly formed or filed LLCs will not give you the liability protection you need, and even worse, could end up totally useless. Usually, this happens when investors try to act as their own lawyers or seek out the assistance of Google, J.D. Don’t make this mistake. You don’t have to. You’ve worked hard to build up a real estate portfolio worth defending.

Self-Directed IRA Options: Choosing the Best Investment Plan

Everyone has a vision for their retirement, but planning how to fund your post-work years is a puzzle that too many people fail to solve.

You already know about the individual retirement account (IRA), which lets you make tax-deferred investments in mutual funds, stocks and bonds. Typically, someone else (a custodian) manages those investments.

But if you’re a smart real estate investor, you’re probably interested in knowing how to invest your retirement funds in real estate, right? A Self-Directed IRA (SDIRA) opens up investment options like real estate, precious metals, renewable energy sources and more.

What are the best Self-Directed IRA options? It depends on what investments you’re trying to buy. The SDIRA gives investors access to many different types of investments.

In this article, we’ll show you how that works and give you an overview of the best self-directed IRA options for your particular scenario.

What’s the Difference Between an IRA and a Self-Directed IRA?

The difference between an IRA and a Self-Directed IRA, in short, is what you’re allowed to buy using the IRA. This depends upon the IRA “custodian,” which is just another word for the financial institution that manages the IRA. When you open up a SDIRA, you can get many more options than when you open up a normal IRA.

Most brokers, financial planners and attorneys aren’t familiar with the tools that give you "checkbook control," letting you choose your investments yourself. 

Let's start with the basics ...

What’s an IRA? What Can You Buy with an IRA?

An IRA, in case you didn’t know, is an individual retirement account. 

It might refer to a traditional IRA, SEP-IRA, Roth IRA, or something else. IRAs can help investors save on their tax bill, either by lowering their taxable income and letting the gains grow tax-deferred or by paying taxes upfront and withdrawing the gains tax-free come retirement.

Typically, if you’ve opened up an IRA through your employer to get a match on your contributions, your employer will restrict the types of investments that you can make using that IRA. Usually, you can only buy low-risk investments—or ones that major lenders can easily collect money on through management fees (even if they’re low management fees, like for index funds).

Here’s a short list of assets that you can buy using an IRA:

If you’re interested in investing in different assets, that’s where a Self-Directed IRA comes in.

Here are the 3 most popular types of investments for our Self-Directed IRA clients. Reach out and we can help you decide whether or not they have a place in your portfolio.What’s a Self-Directed IRA? What Can You Buy Using a Self-Directed IRA?

If you’re self-employed or you have an old IRA from a previous employer, then you can open up the self-directed version. This will greatly expand your investment possibilities. For example, here’s a short list of assets that you can buy that you typically wouldn’t be allowed to buy using an employer-sponsored active IRA:

With a traditional IRA account, making specific investments means directing the custodian to execute a specific transaction. There are custodian fees involved (assuming your IRA custodian even approves the purchase), and there are delays that can cost you the investment in certain time-sensitive cases..

An SDIRA is a checkbook control IRA, meaning you can take over some of the responsibilities of the custodian. You do not need the consent of a custodian to execute a purchase.

What CAN’T You Do With a Self-Directed IRA? 

There are some things you need to know before opening an SDIRA: the investment isn’t allowed to be used for personal use. It’s called “self-serving,” and it’s explicitly banned by the IRS.

What does that mean? Isn’t everything “personal use?” Not really.

If you’re looking to use a Self-Directed IRA to buy your next vacation house or to buy a property for a loved one, for example, you’re going to possibly open up your entire IRA to taxation. Additionally, you can forget about DIY. If you work on the property yourself, that’s technically considered “self-serving” (or “self-dealing”). All business expenses need to stay inside the IRA.

You also can’t invest in collectibles or life insurance using a SDIRA. If you’re interested in using a Self-Directed IRA to fund those investments, you’re out of luck.

Altogether, managing a Self-Directed IRA can be difficult—but for some investors, the difficulty is more than worth it. The only problem is finding a custodian who will allow you to make your own investments without constantly checking in with them. 

Luckily, Royal Legal Solutions offers you that freedom and independence. When you want to make a new real estate investment using your IRA, we make it as simple as writing a check.

Buying Real Estate with a Self-Directed IRA

When you buy real estate with cash, you get the benefits of depreciation (and other deductions) on your tax bill. That means real estate can potentially save you quite a bit of money in taxes.

However, when you buy real estate using a Self-Directed IRA, all of your gains could potentially be tax-free. Although you won’t get the benefit of depreciation, you can possibly earn real estate investment income through your IRA that can then grow tax-deferred (or tax-free, in the case of a Roth) forever.

Buying real estate with a Self-Directed IRA, then, can be incredibly lucrative.

Self-Directed IRA Options

At Royal Legal Solutions, we offer two products for investors who are looking to buy real estate using a Self-Directed IRA: the SDIRA-owned Business Trust and the SDIRA-owned LLC.

Asset protection is an added bonus of these structures; opening a business trust or LLC with your SDIRA allows you to shield your account assets and personal assets from lawsuits and bankruptcy rulings.

Checkbook ControlSelf-Directed IRA-Owned Business Trust for Real Estate Investors

When you exercise "checkbook control" over your own retirement accounts, what you are doing is using a business structure that is owned by the IRA to execute transactions. Since you are authorized to act on behalf of that entity, you essentially have complete control of your IRA.

The self-directed IRA-owned business trust for real estate investors can give you the benefits of owning real estate through a land trust along with the benefits of buying real estate with an IRA.

You’ll be able to diversify your portfolio while shielding your investment from possible litigation. You get to keep your anonymity while we ensure that your retirement/investment account is in line with everything the IRS demands, so you can focus on the investment itself.

Self Directed IRA-Owned LLC for Real Estate Investors

The self-directed IRA-owned LLC is another great option for real estate investors and anyone looking to invest in assets that you typically wouldn’t be able to purchase using a traditional IRA.

The IRA will own the LLC and you’ll be set up as the manager of the LLC.

Unlike with a business trust, you’ll have to pay for a registered agent fee because the IRS demands that you have an agent representing the LLC.

Self-Directed IRA Options: Choosing the Best Investment Plan

The best SDIRA options depend on what you’re looking to invest in, as well as your individual risk tolerance. 

Again, with a traditional IRA, you only have access to certain assets (like stocks or bonds). With an SDIRA, you can invest in real estate, tax liens, gold, cryptocurrencies, and more.

If you’re a real estate investor, you might want to look into our SDIRA-owned business trust or SDIRA-owned LLC. They give you access all of the benefits of using a SDIRA (earning money completely tax-free or growing it tax-deferred) while protecting your anonymity and minimizing your exposure to litigation.

 

The Personal Property Trust: An Often-Overlooked Asset Protection Tool

Asset protection is a crucial component of financial planning for any real estate investor. There are many tools you can use to keep your property out of the clutches of creditors and would-be-litigants, and we’ve talked about some of them a lot on this site.

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

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

What Is A Personal Property Trust?

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

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

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

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

property trust

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

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

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

When Should You Use a Personal Property Trust?

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

Mortgages

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

LLCs

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

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

Vehicles

Any vehicle—including cars, trucks, and motor homes—that must be registered with the Department of Motor Vehicles is generally part of the public record, which can make your personal data open to public search. You can avoid this by titling your automobiles to a personal property trust. 

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

 

What Is Passthrough LLC Income for Tax Purposes?

There are two short answers to the title question: yes, and hell yes.

But don't just take our word for it. Passthrough LLC income is a hot topic in the investment community. If you're not sure what that means, you're not alone. Read on to learn about what exactly passthrough income is, how it impacts your LLC, and what benefits you will reap from it.

What is 'Passthrough' Income?

Passthrough LLCs allow you to collect the profits from your business as part of your personal income tax. The LLC itself is not taxed, but its owners are. This allows you to save substantially, simplify filing, and enjoy more of your hard-earned profits.

Businesses love this feature so much that at the time of this writing, roughly 90% of entities take advantage of passthrough income. While this access used to be primarily the domain of giant corporations, even the smallest business can also take advantage.

How Does a Passthrough LLC Benefit Me?

The most obvious benefit of passthrough entities is that it saves you tremendously on taxes. Opting out of passthrough benefits would mean you would essentially have to pay taxes on your income twice--both on your personal and your business tax returns. Few among us have the means or desire to pay the taxman twice. Fortunately, businesses don't have to if they take advantage of passthrough taxation. This is available for any type of LLC, including our personal favorite, the Series LLC.

What About the Taxman?

While passthrough has always had the benefits discussed above, there are even more perks you can take advantage of when Tax Season rolls around. Below are some of our favorite perks, along with a little update about the 2018 Tax Bill.

Can I Get Passthrough Treatment for Other Entities?

You bet! S-Corps, Limited Partnerships, and many other types of entities are eligible for passthrough taxation. Of course, we recommend the Series LLC for real estate investors. All of the information above applies to the Series LLC the same as it would to its Traditional counterpart.

That's all for our discussion of passthrough income for LLCs and Series LLCs. That wasn't too painful now, was it? You learned the basics in under ten minutes, but please feel free to reach out for personalized recommendations by taking our Tax Discovery Quiz below.

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

Thinking About Buying Real Estate with Your IRA? Read This First

Thinking about buying real estate with your IRA? Read this before you do.

An individual retirement account (IRA) typically offers massive tax-saving benefits while you’re planning for your retirement, like tax-deferred growth or tax-free withdrawals after a certain age—and they can even allow you to lower your taxable income.

So, naturally, just about every personal finance guru will give you the same advice when it comes to withdrawing money from your IRA before retirement: Never do it.

So why is buying real estate with your IRA any different?

First, you’re not actually withdrawing money from the account. If you’re a responsible real estate investor, you can use your IRA in a way that allows you to utilize the account’s tax-saving benefits, potentially saving you thousands, if not tens of thousands, of dollars.

But there are drawbacks (which we'll cover below).

Second, using your IRA to fund a real estate investment isn’t all that different than using your IRA to purchase any other investment, like bonds or shares, but you need to know how to do it responsibly so you don’t end up disqualifying your IRA.

In this article, we’re going to explain how to go about buying real estate with an IRA.

How to Buy Real Estate with a Self-Directed IRA

Using a self-directed IRA for real estate can be a bit more complicated than opening your Vanguard account and buying VTSAX.

Most financial institutions won’t allow real estate investors to use their IRA to purchase real estate, since it doesn’t generate any income for the bank. So, you’ll have two options:

  1. “Custodian controlled’ self-directed IRA
  2. “Checkbook controlled” self-directed IRA

What is an IRA Custodian?

A custodian is any financial institution that the Internal Revenue Service has approved to take care of an IRA. As we mentioned before, most custodians restrict the use of the IRA for certain investments.

Custodians for self-directed IRAs, though, work differently. The SEC defines self-directed IRAs custodians very succinctly:

“A self-directed IRA is an IRA held by a custodian that allows investment in a broader set of assets than is permitted by most IRA custodians.  Custodians for self-directed IRAs disclaim most duties to investors, and may allow investors to invest retirement funds in “alternative assets.’”

What does this all mean in layman’s terms? If you want to set up a self-directed IRA for real estate, you have to go with a bank that’s going to allow you to do that.

What is a Checkbook-Controlled IRA?

On the other hand, if you go with a checkbook-controlled IRA, you’re setting up a real estate IRA LLC for, of course, the purpose of buying and holding your real estate, and then you’re using the funds from your IRA to invest in that LLC, which is then investing in the property you wish to purchase.

In this case, the IRA needs 100% ownership over the LLC, but it opens up the possibility for making quick cash deals using the money in your IRA.

Can an IRA Be Held in a Brokerage Account?

Since we’re on the topic of alternative investments that you can make with your IRA, you might be wondering, “Can an IRA be held in a traditional brokerage account?”

The simple answer is yes. You can hold an IRA in a brokerage account, but the IRA is its own account. Most of the time, when you open a brokerage account—or any additional account within your current brokerage—they’ll typically ask you whether or not you want to open it as a traditional (taxed) account or a tax-deferred IRA (or a Roth, or SEP, or any of the other types of IRAs).

6 Things to Keep in Mind While Using a Self-Directed IRA to Buy Real Estate

Finally, here are some important things to keep in mind if you’re interested in using an IRA to buy a property:

  1. You can’t mortgage a property using the funds in your IRA. Since you can’t borrow money against your IRA, you’ll need to make the purchase in cash using the funds that you have available.
  2. Your IRA needs to be large enough to cover the investment’s ongoing expenses. Not only do you need enough money to cover the down payment and closing costs, but you also need to make sure you have enough money in the IRA to keep running the business before it starts generating income itself (if ever). Crunch the numbers on the property taxes, special assessments, HOA fees, home insurance, and maintenance. Make sure you have enough stashed away in the IRA to cover those costs.  
  3. You can’t personally use the investment. If you’re looking to use your IRA to purchase a primary residence (or a vacation home or anything for your relatives), you’re out of luck. It needs to be strictly arm’s length, and you can’t receive any direct or indirect benefit from it.
  4. You can’t withdraw any of the gains from your IRA until you’re 59.5 years old without incurring penalties—and that number may go higher in the coming years.
  5. As soon as you reach 70.5 years old, you’re required to start taking required minimum distributions regardless of whether or not you need them (unless your IRA is a Roth). This could cause you to sell your IRA-funded property in a down market.
  6. If you break any of the IRS’s rules on managing your IRA, you subject the entire IRA to taxation.

The Takeaway

In this article, we examined the relationship between the IRA and real estate. This includes opening up a self-directed IRA with a custodian (a financial institution) that will allow you to use the IRA for “alternative investments” and to set up a real estate IRA LLC so that you can then buy that LLC through your IRA, which is known as a “checkbook-controlled IRA.”

Sometimes it might sound like a bunch of alphabet soup, but if you’re an experienced real estate investor who doesn’t need access to the gains until you’re past 60 or so, you can save a bundle on your tax bill by using your IRA to fund your real estate investment. It’s really no different than using your IRA to fund any other investment, it’s just a bit different than what most investors use the account to do.

Remember, though, there are some drawbacks. First off, depending on the real estate you’re looking at, you’ll need quite a bit of money inside the IRA to start, and this can take some time to build up. Second, you can’t use the property yourself, or for your relatives. Finally, if you break any of the IRS’s rules, you could possibly subject your entire IRA to taxation, so make sure you know what you’re doing by working with an experienced professional.

Understanding Your Risk in a Joint Venture (JV) Partnership

Understanding Your Risk in a Joint Venture (JV) Partnership

Joint Ventures in real estate investing are pretty common.

Most of these partnerships are created by placing a property into an LLC and having the partners all own a portion of that LLC. If anyone wants to sue you or your partner they will not be able to go after the other person—the LLC makes that protection possible.

In the video above, Scott talks about how charging order against the LLC can make things messy and painful.

The best strategy to deal with this type of situation is to have both yourself and other partners enter into the Joint Venture LLC through your personal LLCs. This takes minimal effort to establish, but can prevent the messy and costly potential of dealing with a charging order.

How To Structure Your Partnership To Protect Your Assets

Say you and your friend that start a company together to invest in real estate.

Now say your friend gets sued, and next thing you know there's a charging order against the LLC. If you don't know what a charging order is, start with this article and come back.

The Cliff Notes version is this: If there's any money distributed from the LLC, it has to be used to pay off the creditors to the extent that your friend has an interest in the LLC.

This means you can't get any money out of the investments you and your partner made—even though he (or she) is the one being sued!

This is not the case if you guys both enter into a Joint Venture LLC. This means using your personal LLCs to become members of the LLC used for the Joint Venture agreement.

This will allow you to distribute money that you can now control without having to pay off those creditors and hurt your friend or your business partner. It keeps everything nice, smooth and amiable.

Which Type of Business Entity Needs an Employer Identification Number (EIN)?

Businesses pay taxes. It is a truth as old as time. However, how a business entity pays taxes vary. For many, the Internal Revenue Service (IRS) requires them to file for an employer identification number (EIN).

The EIN, also referred to as a taxpayer identification number (TIN), is a unique number assigned by the IRS that allows it to monitor any payments, wages, or other financial transactions that occur through your daily business activities.

Furthermore, if you plan to open a business bank account, an EIN will help you establish one that is independent of your own personal account. 

Does a general partnership need an EIN? What about an LLC taxed as a corporation? To find whether or not your business entity requires an EIN, keep reading.

does a general partnership need an einBusiness Entities that Do Require an EIN

Business Entities that Do Not Require an EIN

Business Taxes

The nuances of the tax world can be confusing and hard to understand. If you run a business and would like to discuss taxes with a professional, call Royal Legal Solutions today to set up a consultation. Our professionals have years of experience helping clients make the most of their business while remaining in compliance with all laws and regulations.

 

Interested in learning more? Read How to Get an Employer Identification Number (EIN) for a Foreign Entity and When Does a Sole Proprietor Need an EIN?

2021 Is A Critical Year for Estate Planning—A Trust Is A Great Start

Real estate investors were thrown a few curveballs last year, to say the least.

The stress and uncertainty of 2020 motivated a lot of you to stop procrastinating and get your financial affairs in order. Trust me ... Financial planners and asset protection attorneys have been working overtime.

On top of an unprecedented global pandemic, another election cycle brought the prospect of legislation that could change how our businesses (and our estates) are taxed.

With the current estate credit set to end in 2025, proactive business owners were calling us before COVID spread throughout the globe. But the events of 2020 have even more of you thinking about the gloomy prospects for recession, disability or death.

Whatever happens with the pandemic and the fallout for landlords, 2021 is shaping up as a critical year for estate planning because of President Joe Biden's proposal to lower estate tax exemptions. Biden proposals include limits to the gift, estate, and GST exemption amounts a taxpayer can take. According to The National Law Review, it is now more important than ever to create an estate plan or review the terms of an existing one.

Worried yet?

Don't be. As with many things in life, a little preparation goes a long way. You have a lot of options.

For example: Setting up a trust, which allows a third party—or trustee—to hold assets on behalf of your beneficiaries, can offer you valuable peace of mind. With a trust in place, your heirs will not have to go through the time and expense of probate. A trust also allows you to protect your assets, maintain privacy, and reduce estate and gift taxes.

Even if you have an estate plan in place, it is critical to update it each year to allow for life’s many changes, including births, deaths, weddings, divorces, illnesses, and children reaching the age of majority.

In this article, we'll examine one of the primary components of estate planning—selecting who will serve as your personal trustee. But first, let's look at the changes that 2021 could be bringing to the way estate planning attorneys like me handle our clients' affairs.

estate planning: biden changesWhat Estate Law Changes Will 2021 Bring?

Changes that impact the way we leave assets to our families are afoot.  These include:

The world is changing. Your family and your needs are changing. Estate plans should be updated every year to reflect these shifts, to give you peace of mind and preserve your wealth for your loved ones.

Creating a Trust Is A Great Start

Updating your estate plan for 2021 means finding ways to control where your assets will go should you die or become otherwise incapacitated. Establishing a land trust or another kind of trust can do exactly that.

Determining who will serve as your trustee is a key step. This individual acts as a fiduciary, overseeing the management of property owned by the trust. The person (or persons) you choose must have a clear understanding of the role. The primary expectations of a personal trustee include:

While those duties align with moral responsibilities, the position also comes with distinct hands-on tasks such as paying bills, reporting taxes, fulfilling obligations to beneficiaries, and following all compliance requirements. Making investments may also be part of the job.

Particularly with large estates, the trustee may be exposed to legal action by the beneficiaries of the trust. As you can see, the position or the offer of the position should not be taken lightly. You'll want to make sure the person fully understands the responsibilities and isn't blindsided with them after your death.

In addition to being a trusted friend or family member, a trustee can be a professional (such as your attorney) or an institution (like a bank). You also can to have an individual and an institution serve as co-trustees. A professional trustee can help shift the legal liability of the position away from the personal trustee while keeping them informed and part of critical decision-making.

How is a trustee compensated for their time?

Choosing who will serve as your personal trustee is an important decision. It should be someone who knows you well and who gets along with your family members. It's more than an honor; it's a serious commitment to you and your heirs.

Both personal and professional trustees are entitled to payment for their work. As you might expect, the compensation depends on the size of the estate and the amount of work the position requires.

There is no set fee for a trustee, and most trust documents and state laws state that trustees should earn a "reasonable" amount for the work. What is a reasonable amount? Here are some guidelines:

In some cases, a trustee may not want to receive financial compensation for their work. One consideration is that a trustee's remuneration is taxable as income. But family relationships also can enter into the picture.

For example, a relative may choose to forego payment for their time as a trustee because they view the position as a family responsibility. Others may think that accepting payment could cause friction or strain within the family.

curve ballThe Takeaway

With the rate of COVID vaccination increasing, many of us are looking forward to returning to some semblance of normal life in 2021. However, we would be wise not to ignore the wake-up call that the pandemic has given us to get our affairs in order. And thanks to legislative changes, investors are faced with a whole new ball game going forward. 

None of us knows what the future holds. No matter the size of your estate, you'll gain valuable peace of mind when you create or update your estate plan in 2021.

IRA Rollovers: Yes, Rolling Over Your 401(k) Into An IRA Is Smart!

Changing careers? Deciding what to do with retirement funds is going to be a primary concern. While there are a number of options available, many choose to roll these funds over into an Individual Retirement Account.

There are a number of good reasons for this, and we'll be looking at seven of them here in a minute. But first ...

What Exactly is a Rollover IRA?

IRA rollovers can be deposited into an IRA from another retirement fund, such as a 401(k). Those who don’t already have an IRA can open one for the express purpose of rolling over funds from a previous employer’s retirement plan. Those who already have an IRA can simply roll over the money into the existing IRA.

IRA Rollovers

7 Reasons an IRA Rollover Makes Sense

Many folks are content to let their 401(k) plans accrue money over time, and there’s nothing wrong with that option. Why would you fix something that isn’t broke?

Well in this instance, you would not be fixing something that is broken so much as replacing it with something better.

What do we mean?

Those who have just switched jobs have a short list of options concerning their retirement funds. These include:

Cashing the funds out immediately is not advisable. While leaving the money in the original 401(k) or rolling it over into the new one aren’t bad options, there are a number of reasons why an IRA rollover is the best option on the list.

Reason #1: Rollovers Can Preserve Tax-Favored Status

Those who choose to cash out their accounts early are not only subject to a 10% early withdrawal penalty if they are under the age of 59 ½ but will also need to pay income tax on the balance.

By contrast, rollovers can preserve tax-favored status so long as they’re transferred from one trustee to another. In other words, the IRA will continue to grow tax-deferred until a retiree begins collecting on their investment.

Reason #2: IRA Rollovers Can Increase Investment Options

Some folks choose to leave the funds in their old plan alone or roll the funds over into a new employer-offered plan. There’s nothing wrong with this per se, but rolling the money over into an IRA can increase the number of options that are available to you. For instance, IRAs typically offer a broader range of investments. 401(k) plans, on the other hand, may be limited to a handful of mutual funds.

This advantage will contribute to a better investment strategy and can prove more lucrative in the long run.

Reason #3: IRAs Have Lower Fees

Generally speaking, employer-sponsored 401(k) plans typically have higher administrative fees than IRAs.

Reason #4: An IRA Centralizes Control of Your Retirement Monies

There might some good reasons to keep your old 401(k) open, particularly if you’re satisfied with the returns. On the other hand, it’s much more convenient to have one centralized location from which to manage all of your retirement funds. IRAs are easy to figure out and significantly reduce the complexity of managing separate accounts.

From one centralized location you can access:

Reason #5: Brokers Will Compete For Your Business

Brokerage firms are more than willing to offer incentives to bring your business to them. In some instances, this could even mean free cash. In other instances, you may be entitled to free trades. It’s certainly something to look into as you figure out how you want to invest your retirement money.

Reason #6: 401(k) Plans are Subject to Rules an Individual Company Establishes

Every company has a great deal of wiggle room when it comes to setting up a 401(k) plan for their employees. IRAs, on the other hand, are subject to a centralized set of rules established by the IRS.

This is better for two reasons:

Reason #7: The Rollover Itself is Free

While there are other costs to consider, rolling over a 401(k) into an IRA is free. There will be transaction costs for individual investments and other costs to bear in mind, but setting up and rolling over the money is a relatively pain-free process.

The Bottom Line

The advantages of rolling over your 401(k) into an IRA far exceed the risks. It makes sense not because the other options are bad, but simply because IRAs are better for some. With more investment options to choose from, lower administrative costs associated with the account, a simple centralized location from which to access your retirement investments, and more transparency regarding how the fund operates, IRAs make the most sense  for your retirement plan.

Should Rental Property Be in an LLC or Trust?

Should rental property be in an LLC or trust? Unfortunately, the answer is not as straightforward as you might think.

Whether you’re planning your will or setting up a company to manage your growing real estate portfolio, you need to know exactly what type of entity you should use to shield your properties from legal trouble. If you make the wrong decision, you could potentially expose your holdings to unnecessary risk, costing you hundreds of thousands of dollars down the road (or, at the very least, giving you a big headache).

So, first, let’s start with a basic definition of "LLC" and "Trust" as they apply to real estate investing. 

(If you just want the pros and cons of each option, feel free to scroll down to the bottom of this article).

Why Use an LLC to Hold Your Rental Properties?

An LLC is a limited liability company. 

It’s one of the most popular legal entities that a person can set up to operate their business. You don’t need any employees or a board of directors, and you can use it to separate your business assets from your personal finances. That way, if you ever find yourself on the losing side of a lawsuit, the only assets you’ll be forced to give up are those assets held within the LLC (in this case, your rental properties).

If someone sues you and wins, they can’t take away your personally-owned assets (like your car, primary residence, and your kid’s college fund).

Sounds like a pretty sweet deal, right? You could theoretically make some risky moves with the assets you put under an LLC and then dissolve that LLC in case you get into any trouble. The only risk is the asset, right?

Well, not so fast. There are some instances when your personal assets might be at risk, and you definitely shouldn’t start an LLC for the sole purpose of doing something nefarious. 

When Does an LLC Fail to Protect Your Personal Assets from Lawsuits?

There are a few instances when, if you use an LLC to hold your rental properties, you’d be putting both your rental properties and personal belongings at risk. Those instances include:

Furthermore, an LLC can create a kind of avalanche effect. As soon as one property is attacked under an LLC that holds multiple rental properties, your entire portfolio can take a hit.

Why Use a Trust to Hold Your Rental Properties?

You’ve probably heard about trusts as they relate to estate planning. By putting certain assets in a trust, you can guarantee exactly how and when they’re distributed. This way you can avoid a solid chunk of estate taxes, since the assets in a trust aren’t considered your personal property, or even protect your assets from heirs that are likely to mismanage them.

One solution is putting all of your properties under separate trusts. There are a few different types of trusts: revocable, irrevocable, pay-on-death (POD), and living trusts. For our purposes, we’re just going to focus on revocable and irrevocable trusts.

What are the Benefits to Using a Trust Versus an LLC?

What are the benefits to putting your rental properties in a trust rather than an LLC?

Should You Put Rental Property in an LLC or Trust?

So, to review, what are the pros and cons of each option?

Putting Rental Property in an LLC Pros

Putting Rental Property in an LLC Cons

Putting Rental Property in a Trust Pros

Putting Rental Property in a Trust Cons

 

Do I Need a Medical Power of Attorney?

It is said that change is the only constant thing in life. And while this saying has fallen into the realm of overuse, it remains true today.

So how does this affect your estate planning? When planning, it will do you well to account for all eventualities that may occur. One of the ways to do that is via power of attorney.

Here is a checklist for estate planning you can use to get started. This article covers one aspect of the checklist—the medical power of attorney and how you can use it to protect yourself.

Do I Need a Medical Power of Attorney?What Is a Power of Attorney?

Hold on, what is a power of attorney? To some, it might sound like something a fairy godmother does to magically transform you into a lawyer. Pumpkins and all. But hold your horses. Even though that might be great to see, a power of attorney is a document that confers specific powers on someone, and we’re not talking about superpowers.

A power of attorney (POA) gives one person (called the attorney-in-fact or agent) the authority to make decisions on behalf of another (called the principal). These powers come into play when the principal is incapacitated and can no longer make those decisions themselves. A POA can be of utmost importance to a real estate investor for the following reasons:

There are several types of POAs. For this post, we will concern ourselves with two of them; the medical POA and the durable POA. Each serves a slightly different purpose, as we will see.

Durable Power of Attorney

A durable POA is one that confers the decision-making power on the agent after the principal gets incapacitated. The POA grants decision-making powers for financial, legal, and property matters. It is called a durable power of attorney because it needs to be explicitly revoked once the principal is available to make decisions once again.

The durable POA does not give the attorney-in-fact authority to make decisions regarding health matters of the principal, except for paying health bills. A medical POA is created to give someone authority to make health-related decisions on your behalf.

Medical Powers of Attorney

A medical power of attorney gives the agent authority to make health-related decisions on behalf of the principal. The medical POA springs into action only after the principal’s doctor says they are unable to make critical decisions themselves. The medical POA is sometimes called an advance directive, a health POA, or an advance healthcare directive.

The requirements for POAs vary from state to state, so if you move, you might want to check with an attorney to verify that your medical POA is still valid in your new home.

How Does A Medical POA Work?

You might be skeptical about ever needing a medical POA. After all, what could ever stop you from talking with your doctors to make your decisions known? Well, a medical POA usually kicks in when the principal:

Sadly, these situations happen often enough that you should be prepared. Better to have it and not need it than otherwise. If you eventually need it, then the POA works to make your decisions known through your agent.

How To Select An Agent/Attorney-In-Fact

Your life is literally in your agent’s hands in a medical POA. This means that you should try as much as possible to appoint an agent that is trustworthy, reliable, mentally capable, isn’t your healthcare provider (most states have this requirement), has discussed your wishes with you, and understands what you want to be done is specific scenarios.

Here are some of the decisions your agent has authority over:

The gravity of these decisions suggests you want to select the best possible person to be your agent.

As Scott discusses in the video above, the healthcare power of attorney and durable power of attorney let people help you when you become incapacitated. All the operational pieces can be done in your home to allow others to make health decisions for you when you aren't able to do so on your own behalf.

Should You Get One?

With all the information we’ve put at your disposal, the decision is still yours. However, we think it is better for you to be prepared for any eventualities and to streamline the decision-making process as much as possible when you’re not available to make them yourself.

Interested in learning more? Check out our articles Do I Need a Durable Power of Attorney? and Using a Power of Attorney With a Land Trust.

Do I Need a Durable Power of Attorney?

Life is unpredictable. But it’s not for nothing that the cliché says: if you fail to plan, you plan to fail.

One of the best things you can do to safeguard your assets is to prepare for the worst, including death and debilitating illness. You should also plan for a scenario where you’re not able to be physically present when business decisions have to be made.

Here is a checklist for estate planning you can use to get started. This article covers one aspect of the checklist—the durable power of attorney and how you can use it to protect yourself.

What Is A Power of Attorney?

A power of attorney (POA) is a legal document that gives someone (called an attorney-in-fact or an agent) the authority to act on behalf of another person (called a principal). A power of attorney is usually used when the principal becomes ill, is disabled, or cannot be physically present to sign legal or financial documents. A POA is especially important to real estate investors because it means your investments are not neglected when you’re indisposed.

Now, there are several types of powers of attorney. What we will concern ourselves with here are two types that are vital in your estate planning journey.

Types of Powers of Attorney

Building on our earlier statement, we will broadly cover two types of power of attorney; durable and medical power of attorney.

Durable Power of Attorney

A durable POA is a type of power of attorney that comes into effect in the event of the incapacitation of the principal. It is called a durable power of attorney because it can last for the entire principal’s lifetime unless it is revoked. The power isn’t activated until the principal is incapacitated, though.

The durable POA only covers legal, property, or financial issues. The agent or attorney-in-fact doesn’t have the power to make decisions concerning the principal’s health except when paying the principal’s health bills. To be able to do that, a medical or healthcare POA is needed.

Medical Power of Attorney

A medical power of attorney gives the attorney-in-fact the power to make decisions regarding the principal’s health. You might also hear it called a health power of attorney, an advance directive, or an advance healthcare directive.

As Scott discusses in the video above, the healthcare power of attorney and durable power of attorney let people help you when you become incapacitated. All the operational pieces can be done in your home to allow others to make health decisions for you when you aren't able to do so on your own behalf.

How Do You Prepare a Durable Power of Attorney?

Thanks to LegalZoom and a ton of other online sites, you can download or buy a power of attorney template online. However, because of how the requirements vary by state, we recommend you contact a asset protection attorney to guide you through the process.

While a POA is extremely useful, it doesn’t allow the delegations of a few rights, such as the right to vote, the right to make, amend, or revoke a will, and (in some states) the right to contract a marriage.

While the requirements of a POA vary from state to state, here some general recommendations:

Choosing an Agent and the Risks Involved

Creating a durable power of attorney can have tremendous advantages: it means you can still be in charge (in a sense) if you are incapacitated. However, in essence, you are signing over your entire financial and legal life to someone else to control. Even though there are means to help make creating a power of attorney safer, such as choosing multiple agents and having them check each other, you should take note of who you select as an agent.

Here are some characteristics you should check for when naming an agent:

  1. Trustworthiness: the agent should be someone you trust to handle your affairs diligently and fairly. Avoid agents with a history of substance abuse, gambling, stealing, and unreliability. You should be able to trust that they will follow your instructions, even over other peoples’ objections.
  2. Competence: your agent should not have a history of irresponsibility with their finances.

Do You Need a POA?

A durable power of attorney document will help safeguard your investments when you’re not able to do so personally. You should take care to select an appropriate agent when creating one, to ensure optimal protection.

Interested in learning more? Check out our articles Using a Power of Attorney With a Land Trust and Do I Need a Medical Power of Attorney?

Estate Planning for Unmarried Couples

There are many reasons couples decide not to get married. Some choose to live together before getting married, while others see no need to walk down the aisle to make the relationship official. According to a Pew Research study, there is a growing acceptance of cohabitation in America.

The study also revealed that the number of adults in the U.S. who are currently married is down from 58 percent in 1995 to 53 percent today. Over the same period, the number of Americans living with an unmarried partner increased from 3 percent to 7 percent.

In spite of these trends, unmarried couples may not realize that they do not have the same legal rights as marriage partners. This article will explore estate planning for unmarried couples and why it should be a priority for you and your significant other.

lionsWhy Unmarried Couples Should Have An Estate Plan

The law protects spouses and children in the absence of a will or an estate plan. However, no such safeguards are in place for surviving unmarried partners.

When you have an estate plan in place, you are able to dictate who gets your assets after your death and who can make decisions for you if you cannot make them for yourself.

Here are two scenarios to illustrate why it is so important that you and your partner create an estate plan.

#1 If you die without an estate plan, your partner will not be entitled to receive your Social Security or other benefits, any notice of probate proceedings, or any homestead rights usually granted to married spouses. Your partner also may not be able to inherit any of your property or belongings.

#2 If you are unconscious or otherwise unable to communicate, your partner will not have the legal authority to make decisions for you or even receive medical information from the doctors.

The good news is that you can take care of these concerns with an estate plan.

9 Steps Unmarried Couples Should Take

Here are nine steps unmarried couples should take to safeguard their future.

#1 Discuss your wishes for your estate with each other. No one likes to talk about what happens to their assets after they die. It is an uncomfortable topic at best. But having a frank discussion now about who you would like to get what can alleviate many problems and concerns later for the surviving partner.

#2 Write a letter of instruction. Especially in today’s digital world, a letter that tells your partner and your estate representatives the details they need to know to manage your estate can be invaluable. This letter might include the following:

#3 Tell family members about your estate plan. To avoid any unpleasant surprises, let your parents, siblings, and children know that you have included your partner in your estate plan.

#4 Own property jointly. You can avoid probate, which can be expensive and time-consuming, by owning property together with your partner. With joint ownership, if one tenant dies, the surviving tenant owns the entire property.

#5 Designate your beneficiaries. An unmarried partner will not have access to your bank accounts, retirement funds, or life insurance unless you have named them as the “pay-on-death” beneficiary. Review these accounts and make any changes that reflect your desires for your estate.

#6 Name a Durable Power of Attorney. As part of this critical step, you can appoint one or more individuals to act on your behalf in legal and financial matters in the event you are unable to manage them yourself. Without a power of attorney document in place, your partner might have to go to court to seek the appointment of a conservator. Not only would this take time and money, but it would cause your partner more stress at an already difficult time.

#7 Appoint a Health Care Proxy. By naming your partner as your health care proxy, you enable them to make medical and end-of-life decisions for you if you cannot make them for yourself. Without this document, your family members may make medical decisions for you without your partner’s knowledge or agreement.

This document will also give your partner access to your medical information. Without it in place, the Health Insurance Portability and Accountability Act (HIPAA) prohibits medical personnel from sharing private information with others.

#8 Write your will. A will is an integral part of an estate plan because it allows you to name guardians for your minor children and to name your personal representative or executor. The executor, who should be someone you trust implicitly, will be responsible for distributing your possessions, paying any remaining bills, filing your last tax return, and closing out all your accounts.

#9 Create a revocable trust. A revocable living trust is a legal entity that holds an individual's or a family's property and other assets. Creating a trust allows you to state how you want your assets handled during your lifetime and after your death. You can name your partner as a trustee to manage and make financial decisions over your assets after your death or if you become incapacitated.  The assets placed in the trust would not have to go through probate since their ownership remains unchanged after your death.

The law is definitely on the side of married couples when it comes to asset distribution. By carefully creating an estate plan, you and your partner will gain valuable peace of mind in the event something happens to either one of you. Your attorney can help you create an estate plan that is right for your situation.

Image by Christine Sponchia from Pixabay  

Do I Need A Registered Agent In Every State?

Real estate investors who use an LLC for business operations may wonder if they need a registered agent in every state where they have properties or transact business.

Sometimes, entrepreneurs choose a state other than their residence for forming an LLC, and different jurisdictions may have different rules about registered agents. Here is what the law says about registered agents and options you should know about.

best states for llcWhere Do You Need A Registered Agent?

The state laws are clear on where you should have a registered agent:

Registered Agent In Your Home State

Those who form an LLC in their home state and invest only in local properties will need to have a registered agent only in the home state.  In this situation, many real estate investors consider becoming their own registered agents, saving the annual service fees.

While becoming your own registered agent in your home state might seem a no-brainer,  there are still things to consider. First, the registered agent must physically reside in the state of business formation. Secondly, the registered agent should be able to accept service of legal papers during regular business hours.

He or she is also responsible for all legal and tax filings. Last but not the least, the registered agent should disclose his or her address in all company documents, which may raise privacy concerns. Meanwhile, there are other options for a registered agent in your home state, as we'll see.

Registered Agents Where You Are Doing Business

Whether you have a traditional LLC with properties across several states or a Series LLC, you need to have a registered agent in every state where your company is doing business. Although it may sound clear at first sight, the tricky part of this requirement is what is considered as "doing business" in the state.

For example, the Texas Business Organizations Code doesn't provide any clarification of the meaning of "transacting business." Thus entrepreneurs and lawyers are left with a non-exhaustive list of what is not considered a business transaction.  The confusion is similar in other states.

Meanwhile, those real estate investors who buy properties in other states and then flip them are considered as "doing business" in these states.  Remember, you are required to have an LLC registered agent in each such state.

Registered Agents For Out-of-State LLCs

Some investors register their LLCs in business-friendly states such as Delaware, Nevada, Wyoming or Texas even if they reside in other states.

To do this, you'll need a registered agent at the place of LLC registration—you cannot even file the initial paperwork for your LLC without it.  You should also have a registered agent in all other states where you conduct business.

What Happens If You Fail To Appoint A Registered Agent?

As you already know, there is no way to skip appointing a registered agent when forming an LLC.  However, when buying or selling local properties in other states, you may be tempted to delay or totally skip appointing a registered agent in the state where you are now doing business.

This could lead to legal expenses, loss of limited liability protection, and even criminal charges. In Texas, a failure to appoint or maintain a registered agent (and registered office) may result in the closure of the business along with other liabilities.

The best solution is to have a registered agent immediately before your company initiates any business transaction in any state.

Registered Agent Services

As was already mentioned, you can be your own registered agent in your home state if you are comfortable with tax and legal filings, if you are ready to disclose your address to the public in company documents, and if you can receive legal papers during business hours (even when on vacation or sick).

If the above doesn't sound like a good fit, another option would be to hire a company offering registered agent services for a small fee, ranging from $45 to $75 per year. These companies offer a standard set of services, and many of them are present in multiple states.

Another alternative would be to hire a law firm offering registered agent services. A professional lawyer would not only act as your registered agent but will be able to assist with other aspects of company formation and compliance.

The Takeaway?

Now you know that not having a registered agent in the state where you do business can lead to high penalties and injunctions and even criminal prosecution.

There are numerous companies offering the services of professional registration agents for a small annual fee. It is even better to involve a professional attorney as your registered agent—he or she can assist with whatever legal issues may arise and ensure compliance across the board.

What Are The Different LLC Types Used By Real Estate Investors?

LLCs are one of the most popular ways to hold title to a property, providing real estate investors with a number of benefits, including limitation of liability, confidentiality, and asset protection.

Like ice cream, LLCs come in many flavors, and each has its advantages. Here is a short overview of the different LLC types and how they can benefit you.

Single-Member, Husband-And-Wife, And Multi-Member LLCs

Single-member LLC. As suggested by its name, this structure has a single member/owner. These LLCs can be formed quickly and cheaply. A single-member LLC is taxed as a pass-through entity:  the owner reports business income or loss on his or her personal tax form while the company doesn't file any taxes.

Husband-and-wife LLC. A married couple LLC includes .... You guessed it ... both spouses as members. Tax treatment can be either pass-through or partnership-type when the LLC is formed in a community state. For more information on the tax treatment of a married couple LLC in community states, check out our article The Different Kinds of LLCs and the Way They Pay Taxes.

Multiple-member LLC. When an LLC has two or more members who are not spouses, each member claims profits and losses on their personal tax returns unless the company elects to be treated as S Corp or C Corp (more on these later).

Member-Managed Vs Manager-Managed LLCs

Many real estate investors take a hands-on approach to LLC management. Others prefer to hire an independent professional to operate the company and represent it in the filings.

Member-managed LLCs. This is a typical structure for a single-member LLC or a company with very few members where the owners are also responsible for the day-to-day operations. It allows each member to have a direct impact on the company's business without limitations.

Manager-managed LLCs. In this scenario, the LLC is managed by a third-party professional manager who leverages his or her expertise in operating the company. This arrangement caters to large LLCs whose operation may become unwieldy if managed directly by members. Manager-managed LLCs offer the members the benefit of passive ownership without the need to take an active role in the business, along with increased privacy.

LLC Tax Classification

LLCs give you flexibility in how you will be taxed. While an LLC is a pass-through entity by default, you may opt for different types of LLC taxation. Here's where things get fun. You stand to save a lot of money, so choose wisely.

Key terms to know:

Traditional LLCs Vs Series LLCs

The concept of a Series LLC was introduced in Delaware in 1996 and quickly gained popularity. Today, Series LLCs can be established in Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas, Utah, and Puerto Rico. While Series LLCs are still not available in other jurisdictions, all states have to recognize LLCs formed in other states.

The Series LLC is different from an LLC in its traditional sense by offering a "parent-child" structure. This lets you create multiple LLCs treated as separate entities for liability purposes while having the same EIN (Tax ID) Number and operating under the "parent" LLC.

Unlike traditional LLCs, which own all assets, Series LLC lets you allocate properties to individual "child series," insulating them from potential claims to other "child series." Meanwhile, the Series LLC is a more cost and tax-efficient structure, allowing to file each one of the "child series" in the same tax return.

LLCs By State

Many real estate investors register LLCs in their home state. Meanwhile, several states have legislation that is particularly friendly towards LLCs, offering numerous benefits in terms of taxation and asset protection. Here is the list of LLC-friendly states where entrepreneurs and investors seeking additional benefits can incorporate (even if they live elsewhere).

Delaware LLC. Traditionally, Delaware provided the most flexible and liberal treatment for entrepreneurs and is a very popular jurisdiction for LLC formation. It was Delaware which has introduced the concept of Series LLC in the United States. Besides tax benefits, ease of LLC maintenance, low annual fees, and chancery court system, Delaware allows LLCs to file privately without mentioning the owners' names in public records.

New Mexico LLC. New Mexico is the only state which provides maximum privacy when forming an LLC. Unlike other states, New Mexico allows those who form an LLC to avoid disclosing their identity to the government, making it fully anonymous.

Nevada LLC. Nevada is another state with a business-friendly environment often chosen by real estate investors for LLC formation. Nevada offers strong privacy protection, doesn't' tax income on the state level, and provides for easy registration.

Wyoming LLC. Being the first US state to allow limited liability companies, Wyoming remains one of the main popular destinations for forming an LLC. With the absence of capital, state, or corporate income tax, Wyoming offers a simple setup procedure with the lowest filing fee of only $50 per year. Wyoming allows creating an LLC without making the owner's name a public record, same as Delaware, New Mexico, and Nevada.

Texas LLC. Texas is famous for its company protection laws. Unlike other states, where bureaucracy is king, the only requirement to ensure an LLC is in good standing in Texas is the "No-Tax Due" filing, which can be done online within minutes. With no annual registration fee, Texas is one the most cost-effective states for LLC formation.

Be sure to check out our article on the tax benefits of an LLC.

Where Do You Begin?

Real estate investors have options for structuring their investments and asset protection. While a traditional single-member pass-through LLC registered in the state of residence continues to be the most popular choice, there are different LLC types that may be better suited for certain situations.

The new structures, such as the Series LLC, provide additional protection by segregating assets among individual child LLCs and further limiting liability. Meanwhile, registering an LLC in one of the most business-friendly states provides for an extra layer of privacy protection, more simple filing, and cost reduction.

How To Protect Your Estate From A Predatory Remarriage  

People tend to put off estate planning because no one likes to think about their own mortality. That makes sense, but more than 60 percent of Americans don't even have a will in place, and you should not be among them.

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

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

How Can Your Spouse's Remarriage Harm Your Estate?

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

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

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

How Can You Protect Your Assets?

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

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

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

What is A Family Wealth Trust?

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

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

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

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

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

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

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

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

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

An Attorney Can Help You Protect Your Estate

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

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

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

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

Estate Planning For An Irresponsible Child 

Having an estate plan in place is one of the most important gifts you can give your children. You've worked hard to build up assets that will help them in the future.

But a difficult question that is on the mind of many investors we work with is, "How can I prevent one of my kids from wasting their inheritance?"

Your concern may come from your child's reckless overspending, or your worries could be rooted in your child's history of substance abuse or destructive relationships. This article will offer tips for estate planning for an irresponsible child.

The Living Trust: Your Bulwark Against Irresponsible Behavior

Although a will lays out how your assets will be distributed, a trust is often a better option for many families. A trust is a valuable estate planning tool that allows you to deposit assets, including cash, property, and other investments, into the trust account during your lifetime.

There are two main types of trusts – testamentary and living. A testamentary trust is created after your death by your will, while a living trust is established during your lifetime.

A living trust is usually revocable, meaning it may be changed during the trustor's lifetime, and it becomes operational at the trustor's death. Unlike a will, a living trust does not have to go through probate court. Your assets can be passed immediately and directly to your named beneficiaries.

How is a trust a solution for an irresponsible heir? 

When you create a trust, you give another party (your trustee) the authority to handle your assets for your beneficiaries' benefit. You can select a trusted friend or family member to serve as your trustee. Your trustee could also be your attorney or a financial institution.

Understanding living trusts is an important way to protect your assets from misuse. While your assets are in the trust, they are safe from a beneficiary's irresponsible spending and any other relatives or in-laws who may want to misuse your assets. 

Different Ways to Structure A Trust

Trust assets may be distributed to your children with regular installments giving you a level of control over their use. Depending on your financial and family situation, there are several different ways to structure a trust.

You also can use a trust to provide non-monetary assets for your heirs. You could place a home in a trust, for example. However, since we're on the subject of irresponsible children, you might want to place the home in a trust that stipulates that any money from its sale must be reinvested in another house.

The Spendthrift Provision

Another answer to the problem of estate planning for an irresponsible child is to include a clause known as the "spendthrift provision" in your trust. A spendthrift clause limits the transfer of a beneficiary's interest in the trust assets.

A spendthrift trust directs the trustee on how to distribute the beneficiary's entitlement. Limitations might include paying only for a beneficiary's basic living needs or making only limited payments directly to the beneficiary.

A spendthrift trust might be useful if the beneficiary has a history of

Each spendthrift clause is written according to the trustor's specific preferences. For example, the clause can include protection of the trust assets if your child goes through a divorce. In some cases, the trustee of a spendthrift trust can cut off benefits to a beneficiary. The benefits could be distributed to that child later or paid to another beneficiary instead.

The trust document can also spell out that the trustee only makes payments on the beneficiary's behalf and may withhold direct payments of cash from the beneficiary.

Individual states vary on the extent of the protection they allow under a spendthrift clause. For example, some states allow creditors access to a trust with these clauses. Some state laws also allow for alimony or child support payments under the provision.

For the strongest protection, aim to be as specific as possible on the conditions under which your assets are to be distributed. Here are two examples:

The spendthrift provision must be worded very carefully to avoid placing the trustee in a difficult situation. An overly strict clause could prevent your child from obtaining money when there is a genuine need. On the other hand, a too lenient clause leaves a trustee having to deal with an angry heir demanding their assets.

How to Set Up a Spendthrift Trust

Your lawyer will help you create a spendthrift trust that fits your particular needs. Here are some questions you should be ready to answer:

You've worked hard to provide for your family both now and in the future. No one wants to think about their money disappearing in a few years due to an heir's reckless spending or poor lifestyle decisions. A spendthrift trust can offer you a combination of protection and freedom.

Image by PublicDomainPictures from Pixabay

The DST 1031 Exchange: What Smart Real Estate Investors Know

The Delaware Statutory Trust (DST) is a bona fide legal workhorse.  For the right investors and circumstances, it’s often an excellent tool that preserves passive investment income, prevents lawsuits, and has special tax benefits for Californians. It can pull double duty for asset protection and estate planning, but that’s hardly all. 

The DST can bring even greater rewards to DST 1031 exchange real estate investors.

Real estate investors in California use the Delaware Statutory Trust  to dodge franchise taxes, escaping the state’s harsh regulations and Draconian tax enforcement agency.

But all investors (regardless of where they live) can exploit the DST for its 1031 Exchange compatibility, flexible asset protection and estate planning benefits. The DST 1031 Exchange also gives you a high degree of control over the structure’s protected assets and beneficiaries.

Consider this your quick guide to understanding how DSTs work with 1031s and your crash course into the wild, flexible, world of the Delaware Statutory Trust.

2021 UPDATE: The Biden administration has proposed the 1031 Exchange for real estate investors with incomes above $400,000. The policy proposal, entitled “The Biden Plan for Mobilizing American Talent and Heart to Create a 21st Century Caregiving and Education Workforce,” states that it will roll back "unproductive and unequal tax breaks for real estate investors with incomes over $400,000.” Experts believe the 1031 exchange program is on the chopping block for high-income earners because Biden campaign officials stated that they will take aim at “so-called like kind exchanges.”

Understanding the Essentials of the DST 1031 Exchange

So, while you can still take advantage, if you want to brush up on the basics of this structure fast, you should check out our Delaware Statutory Trust FAQs to learn about the basics of the structure. It’s the quickest way to get a comprehensive understanding, but we’ll touch on why asset protection attorneys even use these darn things in the first place.

For the moment, we’re confining this conversation to DSTs in the context of 1031 exchanges (but we’ll get to other benefits, we promise!).

All you need to know that these revocable trusts can designate many beneficiaries, a feature we'll illustrate with a whimsical example shortly. Theoretically, since you’re a beneficiary, you can hide among them for extra anonymity around your asset protection measures. But that’s far from the only perk of the DST for 1031 investors.

Delaware Statutory Trusts Go With 1031 Exchange Like Peas and Carrots

Despite their many uses, most online info about the Delaware Statutory Trust relates to estate planning or 1031 features, often vaguely. These are great structures for managing and defending 1031 investments. Why these basic concepts have become intertwined in the real estate world:

No tool is perfect though. We’ve written about the DST’s drawbacks too. It’s up to you to decide what’s best after gathering the vital information.

Can I Have More Than One Beneficiary for My Delaware Statutory Trust?

The beneficiary is anyone receiving funds from the trust structure. Not only can you have more than one, you can have dozens, even hundreds, if you so desire. So if you’re using your DST to secure the 101 homes you’ve selected for your 101 pet dachshunds, each dachshund could have its own share.

[Note: Your dachshunds would need HUMAN legal reps/guardians to express their interests--sadly they’re property under current law. But if dachshunds gain full legal rights of humans, and they may just be cunning enough to pull such a feat off, each one could own his/her DST shares independently. But you could do this same move with 101 children if you had the time, funds, and inclination to set them all up for life. Parents frequently leverage land trust appreciation to pay for expenses including college tuition for children, and you can too.]

We use this ridiculous example because you can easily imagine pulling in many JV partners, family members, and others who care about your business into your DST network as beneficiaries.

But we’re guessing you aren’t making customized estate plans by the dozen, so yes, you can have up to several hundred human beneficiaries according to the state who designed the trust. You will be one of them. So can any partners, children, or people in life you wish to do business with or support using your DST’s earnings.

Perks of Managing Beneficiaries with a Delaware Statutory Trust

Both you and your beneficiaries can benefit from the DST easily. You stay in control, pick who gets what with precision, and can modify your plans at any time.

#1 Easy to Change Your Beneficiaries

Adding a new beneficiary is easy when you’ve got a DST. Removing one is a separate process, but no harder. Let’s go over some of the best benefits of using a DST to pay out certain people as beneficiaries. 

#2 Divide DST Property Easily with Beneficial Interests

DSTs offer both a high degree of control over and tremendous flexibility for handling beneficiaries., thank the concept of beneficial interest. You can think of it as a way of issuing “shares” from your DST to reflect a person’s interest in a property, or even the whole trust, is.

The concept is known as beneficial interest in the trust. You can even have them issued for minors (though regrettably, not dachshunds as of July 2019). Parents often do to offset college or living expenses of the child beyond age 18, and you can sell/give fractions of a property to others under the same reasoning.

See? Even silly examples are important. The accuracy and control you’ll have over how your beneficial interests are distributed is unique to the DST. It’s a form of co-owing that doesn’t put you at risk and is strictly, clearly defined. Whether Johnny gets 1/16th of a single DST property or the entire trust, you’re the decider.

#3 Asset Protection Benefits of DSTs

The Delaware Statutory Trust’s compartmentalization ability makes it a fantastic choice for investors with many assets, anyone with multiple investments, or those hoping to grow rapidly. This isn’t a beginner’s tool, Californians excluded. This privately filed legally-binding agreement can theoretically protect assets in a way identical to the Delaware Series LLC.  DSTs do this by simply holding title to property for you, getting it out your name.

In fact, many of our Californian clients demand series LLCs until we convince them how much better the DST is. If you’re considering asset protection, this is by far one of the strongest individual structures available. It need not be excessively complicated, but the DST will require effective legal counsel to pull off if you want its protections guaranteed. This is particularly true for REIS or anyone wanting to try out the 1031/DST combo. Not every attorney is equally skilled, but a real estate lawyer with corporate chops or asset protection pro can handle this job easily. Pick yours wisely, because you’ll come to rely on their advice.

Estate Planning with DSTs: Create a Dynasty Trust That is Truly Immortal 

If you love the idea of your business outliving you, you can make it happen with the DST. While other tools and trusts can help estate planning for REIs, the DST comes with everything you need for a business that can outlive you. And not only that, you get to stage-direct exactly how the whole affair goes down.

When you grab that handy attorney, they can explain the full estate planning potentials in your particular situation. But most investors love the DST’s ability to become a legacy business that doesn’t rely on any one person. Your real estate empire could exist in its own right, simply passing through the hands of different “managers” as generations click by. If this idea appeals to you, take a good look at your estate plan, your options, and use our checklist to know if it’s time to update the plan.

If you proceed with buying new entities or assets, these should always be included in your estate plan. Real estate investors can use tools to account for everything, but with good asset protection, you’ll want to plan ahead for business succession or liquidation. You get to call the shots with your DST 1031, no matter how you use it.