Corporate Transparency Act: What It Means For You

Updated: October 31, 2023

NEW REQUIREMENTS FOR U.S. COMPANIES STARTING JANUARY 1, 2024

The Anti-Money Laundering Act of 2020 (AMLA) established the Corporate Transparency Act (CTA). The CTA requires certain U.S. and foreign entities that are defined as reporting companies to report beneficial owners and company applicants to FinCEN (the Department of the Treasury’s Financial Crimes Enforcement Network), beginning January 1, 2024. FinCEN will establish and maintain a non-public national registry of beneficial owners and company applicants of reporting companies to prevent and combat money laundering, terrorist financing, corruption, tax fraud and other illicit activity.

As we understand the law, it is no different than providing information to the IRS. The information will not be publicly available as the law is currently written. Anonymity is almost never perfect, and it does not provide anonymity from the Government. The structure that you have created provides anonymity from the public. Additionally, anonymity is only part of what the structure offers. Limited liability is arguably the most important piece of the structure. 

Which companies are affected?
All companies incorporated with one of the 50 Secretaries of State. This includes all corporations and LLCs. It does not include most Revocable Trusts, for example Living Trusts and Land Trusts, and general partnerships (equivalent to a GbR or OHg). Also excluded are foreign companies. In addition, there are 23 other exceptions.

What does the CTA require of me?
Companies required to report must disclose all direct or indirect owners of at least 25% of the shares. In addition, such individuals who have substantial control over the company must be disclosed. This includes all officers, the board of directors, and the authorized signatories of the parent company. Names, dates of birth, place of residence and passport information (including copy of ID) are requested.

Who receives the information?
The Financial Crimes Enforcement Network ("FinCEN") at the U.S. Treasury. Access is also provided to law enforcement agencies, financial institutions, and other authorized persons, including foreign tax authorities.

What is the cost of filing the report?
FinCEN fees are not known at this time.

When does the law go into effect?
January 1, 2024

When does the report need to be filed?
Companies formed before the effective date of January 1, 2024 have until January 1, 2025 to file their reports. Companies incorporated after January 1, 2024, have 90 days.

Where is the report filed?
The filing is done electronically. The system is currently being developed by FinCEN.

Who will file this report?

Royal Legal will do this on your behalf. It will be your responsibility to report any changes to us after the initial filing so we can determine if additional reporting is required.

Royal Legal will be offering this service and will communicate next steps and any costs once FINCEN has finalized their website, filing requirements and filing process.

Is it a one-time report or does the CTA create a recurring obligation?
At this time there is no set frequency but any changes among the relevant persons must be disclosed.

What happens if I file the report late or not at all?
Violators face civil penalties of up to $500 per day. Criminally, one could face up to 2 years in prison and up to a $10,000 fine. A timely filing of incorrect information will go unpunished if corrected within 90 days of filing.

Additional Resources:

https://www.fincen.gov/boi

https://www.fincen.gov/boi-faqs

https://www.americanbar.org/groups/business_law/resources/business-law-today/2021-may/the-corporate-transparency-act/

Next Steps:

Once the government has finalized the Beneficial Ownership Information (BOI) reporting website Royal Legal will communicate next steps and any costs for this service. 

Safeguarding Your Wealth In The Face Of Uncertainty: Strategies To Thrive

Silicon Valley Bank, founded in 1983, was once the 16th largest U.S. bank. The bank served venture capital firms and numerous tech executives and had $209 billion in assets as of the end of 2022. Over the course of two days in March 2023, the bank failed, making it the 2nd major bank collapse in history.

The collapse occurred due to various factors, including:

Depositors withdrew their funds simultaneously due to concerns about the bank's solvency.

Watch E61: Macro Events and Investment Thematics with Hicham Hajhamou

A bank's failure may make you skittish about your capital. How could it not? This article will cover how to protect yourself and your wealth. 

What Is The FDIC? 

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the U.S. government that protects the funds depositors place in banks and savings associations. The FDIC was created in 1933 in response to the thousands of bank failures in the 1920s and early 1930s.

How Does FDIC Insurance Work? 

FDIC insurance automatically applies to all deposit accounts at insured banks. The full faith and credit of the United States government back the insurance up to the insurance limit. The full faith and credit of the United States government back the insurance. Even if a bank fails, the government guarantees depositors will receive their insured balances.

What Protections Does FDIC Offer? 

FDIC insurance covers all deposit accounts, including:

The protection is up to the insurance limit of $250,000 per depositor, per insured bank, for each account ownership category.

FDIC insurance does not cover the portion over that amount

What If An Account Exceeds The FDIC-Insured Amount And The Bank Fails? 

If a depositor's accounts at one FDIC-insured bank or savings association total more than $250,000, FDIC insurance does not cover the portion over that amount. In the event of a bank failure, the depositor may lose funds that exceed the FDIC insurance limit.

How Can I Evaluate The Health Of A Bank?

Evaluating a bank's health involves assessing various financial indicators and understanding the overall banking environment. Here are some steps you can take:

  1. Review Financial Statements: Banks' financial statements are public documents that provide information about their financial health. Look at key metrics like return on assets (ROA), return on equity (ROE), non-performing loan ratios, and capital adequacy ratios.
  2. Check the Bank's Credit Ratings: Credit rating agencies such as Moody's, Standard & Poor's, and Fitch Ratings provide ratings that reflect their assessment of the bank's ability to repay its debts. A high credit rating is usually a good sign.
  3. Look at the Bank's Tier 1 Capital Ratio: This ratio indicates how much of the bank's core capital is available to cover unexpected losses. The higher the percentage, the better the bank prepares to handle economic downturns.
  4. Examine the Efficiency Ratio: This ratio reflects the bank's overhead as a percentage of its revenue. Lower ratios typically indicate an efficient bank.
  5. Check FDIC's Bank Data & Statistics: You can use FDIC's online database to find out if a bank is FDIC-insured and obtain a wealth of other information about its financial health.
  6. Consider the Economic Environment: A bank's health often reflects the state of the economy. In a booming economy, banks generally perform well. In a recession, however, even a well-run bank may struggle.

These are just indicators and should be part of a broader analysis. Each measure has limitations and may not provide a complete picture of a bank's financial health.

How Can Individuals Mitigate This Risk? 

There are several strategies to ensure your deposits stay within the FDIC coverage limits:

Spread Money Across Different Account Ownership Categories

The FDIC provides separate coverage for deposits held in different account ownership categories, such as:

Depositors may qualify for over $250,000 in coverage at one insured bank if they own deposit accounts in different ownership categories.

Open Accounts With Multiple FDIC-Insured Banks

You can increase your coverage by opening accounts at more than one FDIC-insured bank. Each separate bank has its own $250,000 insurance limit.

How Can Real Estate Investors Hedge Against Future Bank Failures?

Real estate investors can hedge against future bank failures by diversifying their investment portfolios. Here are some strategies:

  1. Invest in Real Estate Investment Trusts (REITs): REITs allow individuals to invest in large-scale, income-producing real estate. They provide a way to access real estate markets without buying or managing property directly. REITs are traded on major stock exchanges, offering liquidity, which real estate itself does not. 
  2. Bonds and Treasury Inflation-Protected Securities (TIPS): Bonds, especially U.S. government bonds, are considered safe investments during economic downturns. TIPS mainly protects against inflation, which can often follow bank failures. 
  3. Keep Cash Reserves: Keeping a portion of capital in cash or cash equivalents provides flexibility in an economic downturn and allows investors to take advantage of opportunities during such periods.

All investments carry risk, and it's essential to research and seek advice from a financial advisor before making investment decisions.

Key Takeaways

Banks can fail at any time. As a result, the FDIC insurance covers up to $250,000 per depositor, per insured bank, for each account ownership category, but amounts exceeding the FDIC insurance limit are not insured.

Individuals should spread money across different account ownership categories, open accounts with multiple FDIC-insured banks, or use the CDARS program.

Real estate investors can hedge against future bank failures through diversification, including investing in REITs, stable foreign currencies, bonds and TIPS, non-correlated asset classes, and keeping cash reserves.

Join our community in weekly Royal Investing Group Mentoring. You'll hear from other investors about their journeys while having the opportunity to share your insights and experiences.

Syndication: Deal Structuring Secrets

A private placement memorandum is a legal document companies use to raise funds from private investors or venture capitalists. For real estate syndication, the deal structuring document outlines the terms of the investment opportunity.

Watch Seth Bradley, Esq. discuss PPMs in great detail on Episode #59 of our Royal Investing-Strategic Growth Membership. 

Summary Of The Offering In Syndication

The Summary of the Offering refers to a crucial section of a PPM. It's used in real estate syndication to give potential investors an overview of the investment opportunity.

The purpose of the Summary of the Offering is to provide:

The Summary comes immediately after the cover page and the table of contents. It grabs the reader's attention and provides a concise overview of the investment opportunity.

Offering In A Real Estate Syndication PPM

An offering in this context refers to the opportunity for investors to purchase shares in a real estate syndicate and:

506(c) vs. 506(b)

506(b) is a popular exemption for real estate syndicators because it allows for up to:

However, some limitations exist on how those non-accredited investors may learn of the investment opportunity.

One significant aspect of 506(b) is that it prohibits general solicitation and advertising, which means you can only market the investment to people you have an existing relationship.

506(c) is another regulation used by real estate syndicators that allows them to solicit investment offerings to anyone without limits on how many accredited investors they can accept.

Unlike 506(b), syndicators using 506(c) advertise publicly and attract investors through various marketing channels.

Importance of "Use of Funds" In A Syndication PPM

The "use of funds" section is crucial in a real estate syndication PPM, as it outlines how the syndicate uses investors' money.

The "use of funds" section typically includes expenses such as:

Real Estate Syndication Private Placement Memorandum: Company Section

The "Company" section is a critical component that outlines important information about the company offering the investment opportunity.

The Company section typically includes the following information:

Key Elements Typically Included In The Management Section Of A PPM

The management section of a PPM document typically includes the following key elements:

The management section is essential as it provides insight into how the syndicate: 

Private Placement Memorandum: Business Plan Section

The business plan section of a PPM outlines the syndication's investment objectives, strategies, and plans to achieve the set goals.

Below are the essential components of the business plan section:

Deal Structuring: Fees Section Overview

A PPM typically includes a fees section, which details all the fees associated with acquiring, managing, and eventually disposing of the property.

Acquisition Fees

This fee covers the expenses incurred during the purchase of the property. These expenses include legal work, due diligence, and other transaction costs.

Management Fees

This compensation goes to the syndicator or a property management company that oversees the property's day-to-day operations, including leasing units, maintenance, and repair work.

Disposition Fees

This fee covers the expenses incurred during the sale of the property.

Asset Management Fees

Asset management fees go to the syndicator for overseeing the investment and managing the property's overall performance.

Other Fees

Other fees may include legal expenses, accounting fees, and additional regulatory costs associated with the syndication process.

Distributions In A Real Estate Syndicate PPM

Different types of distributions can be included in a PPM, including:

  1. Preferred return refers to the fixed rate of return paid to investors before the general partners.
  2. Equity splits refer to how profits divide between the general and limited partners.
  3. Waterfall provisions specify the order in which profits distribute to different classes of investors.
  4. Capital accounts track investors' contributions to the investment.

It is essential to understand the different types of distributions included in a real estate syndicate PPM, as they can significantly impact the overall return of the investment.

Deal Structuring: Risk Factors

This section aims to disclose any material risks to potential investors so they can make informed investment decisions.

The section should divide into three categories:

Industry risks pertain to risks that affect the real estate industry.

Company risks relate to risks specific to the company offering the securities, such as management and financial risks.

Risks related to securities are inherent in investing in the securities themselves, such as lack of market liquidity or regulatory changes.

Importance And Relevant Contents Of Investor Suitability And Qualification

This section helps protect the interests of both the issuer and investor by ensuring that only suitable investors who can bear the investment risks should participate.

To determine investor suitability, the PPM includes critical concepts such as:

Deal Structuring: Significance Of The Subscription Agreement

The subscription agreement section of the PPM outlines the specific investment opportunity offered to the subscriber. This section typically includes information on the following:

The subscription agreement also outlines the rights and responsibilities of each party involved and may include the following:

Importance Of The Operating Agreement: Syndication Private Placement Memorandum

The operating agreement is a crucial component of the PPM as it sets out the rules and regulations governing the operation of the syndication.

Other Significant Provisions

In addition to the above, the operating agreement should also address other significant provisions, such as the following:

Deal Structuring: Key Takeaways

A private placement memorandum (PPM) is a legal document companies use to raise funds from private investors or venture capitalists. It is an offering memorandum that outlines the following:

Knowing how to navigate a PPM ensures you syndicate deals benefit you. Do you want to learn more about real estate syndication investing? Sign up for our weekly FREE Group Mentoring.

Best Practices Structuring Entities With Partners

The first thing you need to consider for your business is choosing a structure. Jason Marino, Esq., staff attorney with Royal Legal Solutions, offers his expertise on best practices when structuring entities with partners.

This decision should be made among you and your partner(s) and will impact your business in the future.

You’re looking for low-cost and efficient structures as a real estate investor. According to Marino, the structures that meet those criteria include:

You can use other structures, but these are ideal for real property. In this article, we’ll discuss the ins and outs of each of the structures and how they affect you as a real estate investor. 

Structuring Entity: Joint Venture

What is a joint venture? When you structure your business entity with partners using a joint venture, you enter into a formal contractual agreement.

Benefits Of Structuring Your Partnership As A Joint Venture

A joint venture is less formal, and the contract is usually brief. Here are some of the benefits:

Your joint venture provides asset protection if done correctly with proper infrastructure (LLC, DST). 

Disadvantages Of A Joint Venture Structure

Like any entity structure with partners, a joint venture has some disadvantages, which we will cover here: 

Structuring Entity: Limited Liability Company (LLC)

An LLC can have complex partnership clauses in its operating agreements. Ideally, they’ll have partnership clauses built into them. 

Benefits Of Structuring Your Partnership As An LLC

An LLC provides more control and durability than a joint venture. Here are some additional benefits of an LLC:

Disadvantages Of An LLC Structure

An LLC is more complex and requires you to register with the secretary of state and requires additional actions for proper upkeep. For instance, you have: 

Although there is added cost and maintenance with an LLC, it provides much more protection than a joint venture agreement. 

Structuring Entity: Land Trusts With Series LLCs

A Land Trust with a Series LLC is related to the traditional LLC we discussed above, but it has some additional benefits for real estate investors. 

The primary benefit is the flexibility in adding partners at various levels:

Advantages Of Structuring As A Land Trust With Series LLC

Similar to a traditional LLC, a Land Trust With Series LLC gives you more control. Some additional benefits include the following: 

Disadvantages Of A Land Trust And Series LLC Structure

A Land Trust and Series LLC are formal agreements. That means there will be additional regulatory requirements and costs for maintenance. 

I’ve Chosen A Structuring Entity With My Partner; Now What?

You’ll need to choose clauses. There are some universal clauses, but many will be unique to your situation, goals, and plans. 

Choosing Clauses For Your Structuring Entity

There are three broad categories of clauses you need to be familiar with regardless of the structure your choose: 

Timing Clauses

Timing clauses avoid confusion and avoid disputes between partners. The clauses determine the following: 

Ownership And Responsibilities 

The ownership and responsibility clause defines the expectation of each partner. The clauses determine:

Dispute Clauses

Dispute clauses provide the mechanism or agreement for resolving disputes. The clause control: 

Key Takeaways

The best practice for structuring entities with partners depends on your specific situation, future goals, and open communication. 

In general, as a real estate investor, you can structure your business using the following: 

After determining your entity structure, you must hammer out the clauses. Your specific circumstances dictate which clauses you will need. 

Do you have questions about structuring your entity with a partner? We have answers! Join Royal Investing Group Mentoring to link up with our subject matter experts. They will happily teach you more best practices for structuring your business and answer other burning questions. 

Series LLC Updates 2023

The Texas Legislature passed new laws regarding Texas series LLCs. The law went into effect on June 1, 2022. 

Ostensibly, the law provides additional protection for individuals, businesses, and other entities conducting business under the protection of a series LLC. In addition, the statute (Tex. Bus. Org. Code § 101.601 Subchapter M) characterizes a series LLC as being "protected" or "registered." 

In this article, we'll go over how the law defines the different characterizations of LLCs and the ramifications that this law may have on you as a real estate investor.

What Is An Ordinary LLC?

A series LLC created before the law took effect (June 1, 2022) will be called an ordinary series LLC.

This type of LLC is virtually indistinguishable from a "protected" series LLC. In other words, the law will treat an "ordinary" LLC the same way it would treat a "protected LLC."

What Is A Protected LLC? 

A protected LLC is a series LLC created after June 1, 2022. The term "protected" did not exist in any laws before June 1, 2022, so any LLC created before that date is called "ordinary." 

Both "ordinary" and "protected" series LLCs enjoy equal rights and legal protections. The only difference is in what they are named. 

What Do I Need To Do For My Series LLC? 

As long as you want to keep your "ordinary" (or "protected" if created after June 1, 2022) LLC, you don't need to do anything. If you want to create another "protected" LLC, the process has not changed. 

What Is A Registered LLC?

A "registered" LLC is a new series LLC introduced by the statute that took effect on June 1, 2022. Delaware's registered series LLC provides the model for Texas' registered LLC. 

78-a defines a "registered" series LLC as a "series of domestic limited liability company that is formed as a registered series in accordance with Section 101.602."

The critical difference between an "ordinary" or "protected" series LLC and a "registered" series LLC is that the "registered" LLC must be publicly filed and registered with the Texas Secretary of State. 

A registered series is an option, not a legal requirement. 

How Do I Create A Registered LLC?

To create a "registered" series LLC, you must file a certification of registered series with the Texas Secretary of State. 

The state has the following fees: 

For the certification of registered series, each costs $300 to file. The fee is in addition to the original $300 fee you must pay to create a general series LLC. 

For example, suppose you create a series LLC and want to have one of the entities in the series registered. That would cost $600.

Any subsequent registered LLCs would cost an additional $300. 

Naming Requirements For a Registered LLC

The registered LLC must contain the following: 

Are There Advantages To Having A Registered LLC?

You must publicly file a registered series. The public filing requirement may give banks, lenders, and title companies peace of mind regarding your LLC's proper and legal formation. 

It may become the case that entities involved in real estate transactions prefer a registered series LLC because they can be sure that a registered series LLC is legal.

What Options Do I Have For My Series LLC?

If you have an existing "ordinary" or "protected" LLC, you have the following options: 

Currently, the statute's effect is in flux because of the newness of the situation in Texas. What may occur in the future is that entities such as banks, lenders, and title companies will only conduct business with a registered LLC. 

The forms for converting or merging an ordinary, protected, or registered LLC are available online with the Texas Secretary of State.

Key Takeaways

Since June 1, 2022, Texas law has included a provision that differentiates between "ordinary," "protected," and "registered" series LLCs:

It is not apparent exactly how the new law will play out, and you have the following options: 

The attorneys at Royal Legal Solutions are here to help you understand the power Texas Series LLCs can bring to your business. If you would like to achieve bullet-proof asset protection, take our quiz. Then, you’ll have to opportunity to schedule a meeting with an advisor to discover if this is a strategy you would benefit from.

Key Person Insurance To Protect Your Profits

We'll review how to mitigate the financial loss when a key person dies through a key person insurance policy.  

Preparing for someone's death seems macabre. No one likes to think about the eventual demise that we all face.

As the adage goes, failing to plan is planning to fail. And in the arena of real estate, that saying is incredibly prescient. 

What Is Key Person Insurance? 

Key Person Insurance is something that can be provided for any person inside of your company who holds critical pieces for the company's continued operations. The company is the beneficiary and pays the premiums. 

In a small business, a key person is usually an owner, the founder, or perhaps a critical employee. The main qualifying point is whether the person's absence would cause significant financial harm to the company. If this is the case, key person insurance is worth considering.

How Does It Work?

Under a key person life insurance policy, the business owns the policy, pays the premiums, and is the beneficiary. If a key person dies, the company then collects a death benefit. You or your partners can use that money to help a business replace lost revenue as they search for a replacement.

This type of insurance can be crucial for a business that relies heavily on the health and well-being of a key individual. 

What Are The Benefits?

One of the significant benefits is that should the "key person" become disabled; your insurance coverage can step in and pay up to 100% of the death benefit if needed.

The money can be used as a financial cushion to buy time for the company, sometimes just a small family business, to find a new person to step in, to sell, to shut down, or implement other strategies that can save the company. 

Key person insurance gives your company options other than fire selling or bankruptcy, which happens when you lose the key person.

The coverage for key person insurance can be as low as $100,000 or up into the multi-millions of dollars.

Another aspect of this insurance would be employee retention. 

In the employee's contract, you can state that a percentage of the life insurance policy would go to the family should death or disability happen while employed by your company. These types of term policies can be very inexpensive and have a massive benefit to your company.

Both of these strategies can be instrumental to ensuring that you, your family, and your businesses grow and maintain the financial freedom we are working towards.

What Can Key Person Insurance Protect Against?

Key person insurance protects the company against risk and protects profits and partners. 

Protect profits

The insurance will counteract the lost income from sales or disrupted operations that the key person is involved with. 

The company may use the death benefit to cover the costs of recruiting, hiring, and training a replacement for the deceased. 

Or suppose the company cannot continue to operate. In that case, the insurance allows the business to pay debts, provide cash for investors, cover severance for former employees, and will enable the company to close down without chaos. 

Protect partners

The insurance enables the surviving partner(s) a cash infusion to buy out the key person's stake in the business. Combined with a buy-sell agreement, these two types of protections ensure an orderly continuation of the company. 

How Much Does Key Person Insurance Cost?

The cost depends on how much insurance a company needs. However, this insurance will cost less than bankruptcy if the worst happens to your key person. 

Some factors that you may need to consider when researching include the following: 

The cost also depends on whether you buy a term or a permanent life policy. Typically, term life is cheaper. 

Like any other insurance, the individual's age and overall health will determine the insurance cost.  

Key Takeaways

Key person insurance is a life insurance policy that protects a company in the event of the death of a key executive or other critical individuals. 

Insurance is necessary if an employee's death is detrimental to the company and disrupts the operation of the business. 

The key person for small businesses is typically the owner or founder. The company pays the insurance premiums, is the policy's beneficiary, and will receive the death benefit if the person dies. 

Investing in proper protection is critical to mitigating your company's risk. Otherwise, you'll be in trouble when a key person dies. That means you need reliable insurance specific to your needs as a real estate investor. 

If you want to learn more, check out our article about the challenges faced by real estate investors. It could be the difference between life and death–for your business.

Buy-Sell Agreement Fundamentals: Proven Protection

We can't predict the future, but we can plan for it. To help your business run smoothly and continuously, you should consider a Buy-Sell Agreement. These agreements help you out if you or a partner decide to leave your real estate investment business, die, or cannot participate in the company. 

A Buy-Sell Agreement is a contract that benefits any business that has partnerships. These agreements answer any question about the company's operation going forward and mitigate the harm of someone unexpectedly leaving the partnership for any reason. 

What Is A Buy-Sell Agreement?

A Buy-Sell Agreement is legally binding and determines what happens to a partner's share of the business if the partner leaves or dies. The agreement is designed to protect all partners in the company equally and is a reliable way to secure the future of your business. 

It might be helpful to think of a Buy-Sell Agreement as a business prenup that stipulates how a partner's share of a business may be reassigned or sold to other partners if a partner: 

Other names for a Buy-Sell Agreement include a buyout agreement or a business will. 

Why Should I Create A Buy-Sell Agreement? 

A funded Buy-Sell Agreement has multiple benefits that protect your business because the agreement:

Handles the sale of shares easily

The agreement provides the business with the following: 

The other partners in your business are motivated buyers and know exactly how much the leaving partner’s shares are worth.  Because that pricing has been agreed upon the sales process goes more smoothly and the family of the partner that has passed on gets a substantial payout that helps the family to maintain, grow and ease the pain of their loss.

Prevents unwanted ownership situations

A Buy-Sell Agreement keeps the shares between partners or within the business. By design, it prevents: 

Can provide extra sources of capital to grow the business

One possible funding source comes from Cash Value Life insurance policies taken out by the business on each partner. When you use a life insurance product to fund the agreement, these agreements can help the business grow by utilizing the cash value of an insurance policy. 

By utilizing life insurance to fund your Buy-Sell agreement, when/if something happens to one of the partners in your business the Life Insurance policy has a death benefit that is going to pay out enough money that the partners that are still working in the business are able to purchase the shares of the partner who is no longer. 

Mitigates tax liability

If you have an agreement in place and a partner dies, the IRS will view the sale as authentic and not a disguised gift. It helps the decedent's estate avoid potential gift tax. 

Who Funds a Buy-Sell Agreement?

Businesses often use buy-sell agreements to make transitions more manageable when a partner dies or leaves the company. 

Usually, a Buy-Sell Agreement stipulates that the business share be sold to the company or remaining partner(s). That begs the question, who pays for the shares?

One option is that the partners buy life insurance for each other. The company can pay for the life insurance policies and claim it as a business expense. 

When a partner dies, the life insurance will pay out a death benefit to the other partner(s). The partners will use the proceeds of the death benefit to buy the dead partner's shares from their estate. Thus, the business continues to operate, and the ownership is consistent.

A particular category of insurance, Key Person Insurance, provides an additional layer of protection to your company. 

What Is Key Person Insurance?

Key Person Insurance is a life insurance policy that protects the business from losing an essential partner or person. It's a meaningful way to protect the daily operations of your business. 

When a key person like a founder or owner dies, the company typically is in dire straits because of the death: 

Key Person Insurance protects the business by: 

Keep in mind that you will need to undergo periodic insurance reviews to determine the amount of coverage necessary for each key employee.  

Protecting Your Business

Old WayOld Result
Trust that a family member can take over for you automatically upon your death Key Person’s death causes a revenue drop by 60% on average
Partnership without a Buy-Sale AgreementLose key employees
Only mandatory insurance policies  Family and partners are left to pick up the pieces of a broken business
New WayNew Result
Legal agreements that plan for a partner's death or disabilitySmooth transition in case of tragedy, 
can be used for death or disability
Includes a life insurance policy to ensure cash is on handCash allows the business to survive
Made with attorney oversightThe business owns Cash Value life insurance
which can be used as collateral to obtain financing

Key Insights and Takeaways

A Buy-Sell Agreement determines when and to whom you can sell your part of the business. It also specifies an agreed-upon price and fair conditions for sale. 

A life insurance policy guarantees there is cash to execute the agreement if there is a death or disability. 

Typically, a disability is more likely than death, and it has virtually the same impact on a business. Funding for disability is an added layer of protection for you and the company. 

You can set up policies to provide a dividend as a deferred compensation plan. That plan supplements retirement income (SORP, SERP) and provides a death benefit. 

Do you have questions about how to protect your real estate investment business? 

Royal Legal Solutions has answers! Read about some common issues real estate investors face and how we can help you secure your financial future. 

Resourceful Investor's Guide To Structuring a Short-Term Lease

You've decided to get into the short-term rental industry. As a result, you need to know how to structure a short-term lease. 

A whole host of situations and challenges come with this type of property. One of the primary challenges is the level to which your state regulates the industry. There are many laws and regulations that may apply to your city. 

As with any real estate agreement, you want to protect yourself with an enforceable contract containing legally binding terms. Your agreement must encompass the landlord's and tenant's rights and outline essential details concerning the local occupancy laws. 

To help you, we will review the 9 essential items you should include on a short-term lease agreement.

What is a short-term rental?

A short-term rental is an investment property that is rented for a short time. These properties, sometimes called vacation rentals, are an alternative to hotels. They have seen their popularity rise since AirBnB emerged in 2008. 

Owning a short-term rental comes with some distinct benefits, including the following: 

Before Creating A Short-Term Lease, Do Your Research 

First, you must ensure you can have a short-term rental in the property's location.

Local laws

As a real estate investor, you must check local laws and regulations. Laws vary between jurisdictions: in some places, there are no regulations, and in others, short-term rentals are outright banned. 

Protect yourself

Short-term rentals have more tenants shuffling through them. An increase in the number of people coming and going on the property increases your potential liability. 

We've long championed the usefulness of an LLC to shield yourself from liability; without an LLC, you may be liable (sued) for incidents that occur on your short-term rental. And a lawsuit can be costly. 

In addition to an LLC, it's a good idea to work with an attorney to create a short-term rental agreement. A legal professional can advise on safeguarding yourself from potentially problematic tenants who steal from or damage your investment property. 

Screen your tenants 

Screening your tenants is incredibly important. You will run into fewer issues and save time and money if you thoroughly vet your tenants. Make things easier on yourself by having a platform that lets you directly communicate with your tenant. 

After you've done due diligence, you should establish a short-term lease agreement. 

Short-Term Lease Agreement: The Essential Ingredients

As a real estate investor, you may ask yourself, "what should I include in my short-term lease agreement?" The answer depends. Local laws and regulations may stipulate precisely what you have to include, and the rules may apply at the granular level. 

In general, every short-term lease should have the following 9 elements included.

#1. Property details

The first item on a short-term lease should be a clear description of the property. Your description should include every item inside your vacation rental. Also, be direct and to the point, and do not leave any room for misinterpretation or ambiguity. 

#2. Tenant information

Your short-term lease agreement must include relevant information about the tenant. At a minimum, you should have the following: 

#3 Tenancy period

The tenancy period is a critical portion of the lease agreement. The length of the stay starts on the day (down to the hour) that the tenant enters your rental property. The period ends the day (and hour) the tenant departs. 

Suppose you fail to list the tenancy period. In that case, you may run into severe legal issues-like a tenant refusing to vacate the property.

#4 Payment

This potion should include everything that has to do with payment. You will want to include the following: 

#5 Tenant duties

You must define the tenant's obligations in the short-term rental lease. The duties might include maintaining the property and paying the agreed-upon amount at the agreed-upon time. 

#6. Cancellation process

This section explains how the tenant should cancel the rental agreement. Typically, you'll want a written cancellation request from your tenant. 

#7. Amenities 

You can use this section to add more details and information about the property and what you have available. You can include information about AC, TV, and a pool. 

#8. Additional clauses

Consider including additional clauses that limit your tenant's acceptable activities. A standard additional clause is the prohibition of pets from entering the premises. 

#9. Signature 

Your contract is legally binding only if both parties sign it. Consequently, you need to leave room for signatures. 

Key Takeaways About Crafting Your Short-Term Lease

A short-term lease agreement is critically important because it protects you. As a result, you should always remember to have one for yourself and your tenants' safety and protection.

This legally binding contract makes it so that you can enforce the terms of agreements and ensure that your rights are safe. 

To learn more about short-term rental properties, or the real estate investment industry, join our Royal Investing Mentoring sessions. It's FREE and comes with no obligation; we want to help you learn more about real estate investing so you can secure your financial future.   

Entity Structures to Protect Business Partners

As a real estate investor, you know you need asset protection for yourself. It would be best if you also had asset protection for partners. You need that layer of protection to insulate yourself against any potential liability exposure caused by your partner's actions. 

You may trust your partner completely. But when it comes to business, you've got to plan and limit your liability. 

There are several entity structures to protect business partners, but in this article, we'll focus on the Series LLC and Delaware Statutory Trust (DST). 

Can A Series LLC Be Used In Asset Protection For Partners?

A series LLC provides asset protection for partners and you via its novel design. The articles of formation allow a Parent trustee with an unlimited number of series entities. 

Each of the series can have individual:

Each series should have an individual name, bank account, bookkeeping, and records. For each series, you can have different partners and other managers. Also, each series entity's rights, responsibilities, and ownership are unique. 

In other words, each one of the LLC's entities can act independently of others in the series. That segmented design provides asset protection to you and your partners. 

How Does A Series LLC Provide Asset Protection For Partners?

The crucial component of a series LLC is the liability protection it provides for you and your partners. Each series owns the assets in it, and those holdings are shielded from the other entities within the same series. 

You can use your LLC to set up a shell company and trusts. 

If you use a shell company, you will break your company up into an asset holding company which isolates your assets into individual entities. For instance, the asset holding company would split each property into its series if you have multiple properties. 

The second component would be an operations company that handles your company's daily operations. You can shield your asset-holding company from lawsuits; even if you get sued, the operations company holds nothing of value. 

If you use a trust, you hide your assets completely.​ That works because you name an anonymous trust as the owner of the holding company LLC. Anonymous trusts do not need to list their holding publicly, so your assets are virtually invisible to people who would sue you. 

You can do this efficiently because you don't have to pay to set up new entities within a series. 

All in all, a series LLC provides assets protection for partners and yourself by providing the following:

What About An LLC And Taxes?

You can probably save on taxes with a series LLC. 

A series LLC is represented in its home state. If your LLC is in a state with no sales tax, you won't have to pay sales tax. For a real estate investor, rent payments between series aren't taxed by the state.

Usually, no matter the number of entities, you'll only file one tax return. Typically, your operating or parent company is the only company you must put on your tax form. You're still paying taxes on the other entities in the series. For filing purposes, you only report as one single entity. 

What Is The Delaware Statutory Trust (DST)?

The Delaware Statutory Trust (DST) protects partners by compartmentalizing assets, providing anonymity, and defending wealth from lawsuits. 

The DST is similar in structure to a series LLC. Both asset protection vehicles separate assets into individual series. Each major asset can be placed inside its own company. For instance, if you own three properties, you'll have the parent DST with three series beneath it.

How Does A DST Provide Asset Protection For Partners?

With a DST, you have an asset sorted into a separate series. Suppose you and a partner own a property in one of those series and get sued. The damage is limited and contained to that one series. 

The legal action does not affect any other properties in your DST. 

What About A DST And Taxes?

The DST can help real estate investors avoid California's franchise tax. In most cases, other investors outside of California would be better served using a series LLC. 

But California investors are better off using a DST because LLCs and other corporations must pay $800 per entity annual franchise tax. 

A DST does not incur that franchise tax because it is classified as an estate planning tool. 

Key Takeaways  

You'll buy more properties as you grow your real estate investment portfolio. Each property adds another layer of liability, so it's essential to protect yourself against potential lawsuits and other risks. You might partner with others as you get more properties, and you'll want even more asset protection.

Asset protection for partners and yourself is secured using an asset protection vehicle. A series LLC or a Delaware Statutory Trust (DST) are among the best ways to protect you and your partner. 

Both an LLC and DST provide similar protections through anonymity, asset isolation, and asset protection. 

Royal Legal Solutions helps real estate investors like yourself protect their assets. Sign up for FREE Group Mentoring where we collaborate with other successful real estate investors, CPAs, and attorneys. 

Why Ordinary People Set Up Offshore Bank Accounts - Offshore Banking And Asset Protection

We often get questions about offshore bank accounts here at Royal Legal Solutions. Offshore bank accounts are one avenue for real estate investors to protect their assets.  

We thought it was time to give you a straightforward guide to how these accounts work. Also, what you need to do to open one, and how to manage an offshore bank account like a pro. 

Aren't Offshore Bank Accounts for Criminals?

Of course not. You might see criminals talk about their offshore bank accounts bursting with hidden millions. That's for primetime television. It's storytelling stuff, and the truth is less glamorous and much saner. Almost anyone can open an offshore account. Furthermore, almost anyone can enjoy asset protection benefits, privacy, and other perks.

An ordinary real estate investor may use an offshore bank account for a few reasons. Some primary uses include:

You can prevent lawsuits altogether if used with other asset protection tools. But that's making a dent in the surface of the power of these accounts.

These accounts are not "for criminals." But, it would be dishonest to imply criminals don't use offshore accounts to hide their money.

So, have certain types of criminals exploited offshore bank accounts? Sure. But most countries don't like hosting criminals, even in their banking systems. Many have enacted legislation to discourage crimes by using an offshore account. Such crimes include money laundering or establishing offshore accounts. 

Pay attention to how any country you're considering banking responds to these threats. A strict rule of law is desirable in your banking host country. It provides stability. 

Benefits of Using Off-Shore Bank Accounts: The Appeal for the Ordinary Investor

You can expect a lot of variation between countries. Each gets to make its banking laws, and how financial privacy is one thing to consider. Yet even amongst this variation, there are some common threads. It's vital to be clear that your situation will determine which benefits you use.

Here are a few top reasons ordinary people take advantage of offshore banking. It might surprise you how downright innocent or dull they are. 

Stability and Control: Break Free of Banking As Usual

Destabilization of currencies isn't the stuff of dystopian fiction. It can and does happen worldwide, more often than you think. You may feel you have to be ultra-wealthy to worry about global banking stability. That's far from true. This problem impacts a considerable percentage of people. 

Most Americans don't worry about the U.S. Dollar. Look at what happens in countries like Zimbabwe that experience genuine financial crises. It got so bad that the government lopped zeros off their bills to combat hyperinflation. The country set a world record by printing trillion-dollar bills. That trillion-dollar note may seem like a fun novelty to buy on eBay. But, it was serious business for everyone who relied on that currency to live.

Americans suffer from thinking instability happens to "other" places like Zimbabwe. But if you look at actual statistics, you might find our system isn't as secure as you think. Our banks over-leveraged themselves. That caused a crisis many times in recent history. Even if you assume financial crises are flukes, we can still look at worldwide economic data. 

For instance, the World Economic Forum measured the soundness of banks in countries worldwide. Their Global Competitiveness Report measured the perceived safeness of a country’s banks. Then, they ranked the world's nations in order of perceived safety. The results may surprise you! 

Where do you think the U.S. ranked? At the top? 

The American banking system is the 18th safest in the world. 17 countries outranked the USA. They're the ones you want to look at if stability is a significant motivation for your accounts.

Offshore banking can mitigate instability. Even if the world outside is in chaos, you can rest easy if your money's sheltered offshore. You can use an offshore bank account to protect your money from conflict and uncertainty.

Currency Options and Diversification

With offshore accounts, the U.S. Dollar doesn't confine you. You will select which currency or a mix of money you'd like to default to for your bank account. The ability to diversify appeals to many real estate investors. There may be economic advantages to exploring possible alternatives to your primary currency. Insufficient research could cost you. When in doubt, call a pro. 

Asset Protection Benefits of Offshore Banking 

Litigants file 15 million new lawsuits yearly in the U.S. That's one lawsuit for every dozen adults. Real estate lawsuits, in particular, are always a genuine threat. The threat grows as you become more successful. In our litigious society, protecting your money is ideal. 

You can protect your assets with domestic tools. Offshore bank accounts offer you the luxury of moving everything of yours into security. You're moving the assets into a different jurisdiction rather than an entity structure. The principle remains the same. 

Because you choose where to place your funds, you stay in control without being at risk. Generally, it is more difficult to "go after" foreign-held assets than domestic ones. Also, you may receive extra asset protection from your host country. You get to choose which legal rulebook you will play by. That's a tremendous advantage for anyone building wealth with their business.

Taking Anonymity Even Deeper: Banking Privacy 

Your privacy is one reason to consider offshore banking. Switzerland is famous for their protections. If privacy is a significant motive for you, ask yourself: from whom? Because it is possible to have privacy from people and governments alike. It will likely help you plan to know if your primary concern is, say, creditors over the Taxman or vice versa. You can evade interaction with either through the intelligent use of offshore bank accounts.

Greater Selection, Financial Perks 

Interest rates with foreign bank accounts are often higher compared to American banks. Instead of shopping from a few select banks, you now have the entire world of finance from which to pick and choose. If you want a high-interest savings account, you can have that. 

An attorney and financial advisor may be able to offer more insight into your situation. The benefits of offshore banking aren't even specific to real estate investors. Anyone in the West may want to consider the higher interest rates to find better deals overseas.

Off-Shore Banking Can Be For Everyone

No true one-size-fits-all asset protection plan involves only offshore banking. Reaping its benefits is easy and not time-consuming. There's a final one that is huge but more difficult to quantify. There are emotional benefits. Knowing you have an emergency plan that can withstand a financial disaster. It's tough to hang a price tag on genuine security.

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

Navigating Historically High Inflation Combined with Low Interest Rates

Let's discuss what's happening with the cost of goods and how you can navigate historically high inflation with low-interest rates. 

We recently held a Royal Investing Group Mentorship with Ron Galloway, an expert financial researcher with 35 years of experience to answer the inflation question. Galloway has been featured in The New York Times, CNN, CNBC, and The Wall Street Journal. 

Please keep reading to learn more about inflation, how it's measured, and the potential impact on low rates in your real estate investments.

What Is Inflation?

According to expert financial researcher Ron Galloway, inflation is "simply an increase in the money supply." In the past year, nations increased their money supply up to four times, says Galloway, which led to historically high inflation. 

The rate currently reduces your money's value and drives up prices. 

When you shop, do you notice that things cost a little more each time you go back?  

For example, last year your shopping cart cost $300. An identical shopping cart might cost you $320 or more this year. At its most basic, that's inflation.  

Contributing Factors

Galloway explains that the economy is not as strong as it is reported because of:

Each of these factors contributes to the inflation situation we are experiencing. 

How Is Inflation Measured?

We measure inflation by measuring the cost of many items over a specified period. The Bureau of Economic Analysis and the Bureau of Labor Statistics measures goods and services costs, categorizes the expenses, and creates different price indexes. 

Price Indexes

Price indexes are lists of prices. There are different price indexes; one measures households and their consumption of personal goods and services. Another price index measures commercial companies and their raw materials consumption and needs for machinery. 

Measuring Inflation

To measure inflation, we look at the level of a price index. If the price index level is higher than over a year ago, we know that prices are higher on average, and there is inflation. 

Galloway argues that inflation numbers provided by government statistics agencies do not adequately account for essential goods like food and fuel. Necessary commodities like food and energy cannot negate an increase in prices and other goods that aren't essential, like electronics. 

That means that real inflation for essential goods may be even higher than the reported rate of 7.5%.  

What Is the Impact of Low-Interest Rates on Banks?

The impact of low-interest rates is that banks are less willing to loan money. Banks have increasingly heightened their standards and investigated and thoroughly vetted potential borrowers. All in all, interest rates are low, but there hasn't been a corresponding increase in loans. 

Galloway explains that real interest rates are "the rate of interest minus inflation." Accordingly, the combination of low-interest rates and rising inflation disincentivizes banks from loaning money. 

As a result of that unprofitable combination, top institutions would instead use their cash for trading derivatives between each other. Galloway notes if one of those significant banks defaults on their derivative, we'd have a repeat of the 2008 recession. 

Expand your portfolio, diversify your assets, and hedge against inflation. To do that, you might consider investing in Carbon Credits. 

What Is the Impact on People Who Hold Assets?

Inflation eats up your cash, but people in debt and assets benefit from it. If you hold assets, like real estate, during an inflationary period, those assets increase in value. 

Now might be a good time for you to invest in real estate. 

Indeed, prices are up, but so is demand. So far, there are no obvious indicators that the housing market will slow down. In addition, as Galloway mentioned, real estate, a tangible asset that appreciates, is a good investment during inflationary periods. 

If you are ready to take the next step to secure your financial freedom, check out: 

Key Takeaways

Never in history have we had interest rates this low and inflation rate so high. As a result, you need to protect yourself and your assets. Here are the key takeaways from today's discussion: 

During this period, it is an excellent time to be a real estate asset owner. If you want to learn more about market trends or other real estate investment topics, register for FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm EST.

How to Maintain Operational Anonymity

How do I maintain operational anonymity after a structure is in place?

Maintaining operational anonymity isn’t easy, which is why most real estate investors worry about being the target of a lawsuit, regardless of the protection in place.

Does this sound like you? You’ve made it to the right place. In this article, we’ll explain:

We invite you to read on and learn how to maintain anonymity operationally.

Why Is Operational Anonymity Important?

Anonymity is essential because it stops lawsuits before they start, as belligerent parties will be unable to find the actual target of the suit.

How Do We Obtain Anonymity?

We obtain anonymity by using a variety of tools. These tools include using:

We hide assets using Anonymous Trusts, which allows you to keep ownership information hidden. The Anonymous Trusts keep you safe by owning your LLC and serving as the Title Holding Trust, the name disclosed when filing Articles of Incorporation.

In practice, it would look like this:

When someone goes to research the owner of the real property, the Count Clerk’s records will show the anonymous trust as the owner. Neither the trust owner nor you registered with the state, so your identity is safe.

How Do You Maintain Your Operational Anonymity?

There will be times when you need to maintain operational anonymity throughout running your business. As you continue on your real estate journey, you want to make sure that you protect your investment and your livelihood.

What follows are three common scenarios in which you will want to maintain your anonymity:

#1 How To Purchase A Home

What matters is how you plan to purchase the home. If you buy it:

#2 How To Enter Into A Contract With A Third Party

When you contract service providers, you will want to interact through an anonymous operating LLC. These providers include, but are not limited to:

The operating LLC will be the party that contracts with the service provider, and you will sign as the manager of the LLC.

When you contract with a tenant, you will interact through an anonymous operating LLC or a third-party property manager. The operating LLC will be the party that works with the service provider, and you will sign as the manager of the LLC

#3 How To Sell Your Property

When you sell your property, anonymity is not a priority. To sell, you should move the title back to your name and sell. When you sell the property in your name, it simplifies the closing process. Finally–as the seller–you ensure the proceeds check comes directly to you.

What Parties Can You Disclose True Ownership To?

In some cases, you will want to disclose actual ownership. Some of the most common parties to tell include:

How Should I Disclose True Ownership?

Sometimes you may not need to maintain complete operational anonymity and disclose true ownership. When considering whether you should tell your identity to each of the previous parties, ask yourself the following questions:

What Happens If Your Anonymity Has Been Compromised?

Don’t panic if someone compromises your anonymity. You have options available to you to address the situation. The initialism “STACK” details the steps you should follow:

Conclusion

Ideally, it’s clear how to maintain operational anonymity while managing your real estate investment.

Now that you know how to protect your privacy, here are some key takeaways about the protection provided by anonymity:

Do you want to join other savvy investors and learn more about how to protect or grow your investments? Register for FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm EST.

Wyoming Statutory Trust vs. Delaware Statutory Trust

Asset protection isn't easy, especially if you are a California-based real estate investor. The good news for you is that LLCs aren't your only option. A Wyoming Statutory Trust, for example.

Using LLCs is a last resort for the California investor when looking for comprehensive asset protection. The $800 per year franchise taxes probably make a non-starter for you as you seek to compartmentalize every asset you own.

Does this sound like you?

The truth is that you don't need LLCs for protection in California. Also, you can use trusts that function just like traditional LLCs and Series LLCs. That's important as a real estate investor because these trusts provide:

To protect real estate investors like yourself, you might consider reliable and proven options, like the Wyoming Statutory Trust and the Delaware Statutory Trust.

Read on so you can evaluate the Wyoming vs. Delaware Statutory Trust, then decide which one is right for you.

Wyoming Statutory Trust: A Unique Tool for Savvy Investors

The Wyoming Statutory Trust and Missouri Statutory Trust function like LLCs, but they are trusts.

If you use the Wyoming Statutory trust for protection, you can:

Since you create these trusts with anonymity through the use of a nominee trustee, you can anonymously own both:

We recommend using an attorney to create the Wyoming Statutory Trust. Your attorney should also serve as the nominee trustee to ensure your anonymity. Your attorney protects you and your trust with attorney/client privilege as a trustee.

Valuable Evaluation of Pros and Cons

The Wyoming Trust may be the right trust for you if you have fewer properties or have no plans to grow.

The upsides to the Wyoming Statutory Trust include:

Wyoming privacy laws do not require the registration of trust agreements. That means privacy about you, your family, assets, and your estate plan.

You should be aware of the limitations of the Wyoming Statutory Trust. The main issue with the Wyoming trust is the complexity it adds to scalability. It may turn out that this trust proves too complex and expensive to provide the proper protection for you.

The first is management. Management of each trust requires:

You would have a multitude of entities that may each require their tax reporting and filing. The amount of reporting on the entities can be an operational nightmare as you grow.

The second limitation deals with scalability. As you scale, you will be financially responsible for:

What follows is more information to help you decide on the merits of the Wyoming Statutory Trust vs. Delaware Statutory Trust.

Delaware Statutory Trust: Proven Asset Protection

The Delaware Statutory Trust functions like a Series LLC, but it is a trust. That means the Delaware Trust might be for you if you have multiple properties to protect and you have plans to grow your business.

The Delaware Trust allows you to:

An attorney is acting as nominee trustee and masks the actual ownership.

Promising Security from Delaware's Trust

The upside to the Delaware Statutory Trust includes:

The trust allows you to scale freely without additional operational complexity or tax filings.

Everything in your life should stay precisely the same as if you managed everything through a single entity that you wholly owned.

The primary downside is that the Delaware Statutory Trust cannot hold any active businesses such as typical commercial businesses, and you cannot "flip" your investments.

The limit on commercial businesses and the inability to "flip" properties may not fit your specific situation. Still, the Delaware Trust is a solid option in many investing cases.

We know the decision is an important one for you to make. Read our "Step-By-Step Statutory Trust Beginner's Guide" for more information.

The Bottom Line: Wyoming Statutory Trust vs. Delaware Statutory Trust

The Wyoming Statutory Trust is an excellent option if you have a single asset and don't plan on acquiring more.

If you are an investor with intentions to scale, then the additional upfront costs of a Delaware Statutory Trust will pay dividends in the long run.

You want to protect your assets and ensure your financial freedom. Let us help you! Register for FREE Royal Investing Group Mentoring on Wednesdays at 12:30 pm EST to learn more.

Asset Protection for Financial Freedom

Whether you are an experienced real estate investor or building a new real estate business, asset protection & financial freedom have to be on your mind. Scott Smith, Royal Legal’s founder, and lead attorney, recently sat down with real estate investor Whitney Sewell to discuss Asset Protection for Financial Freedom.

This informative discussion covered the importance of protecting your assets and why a real estate investor should not solely rely on insurance policies for protection against lawsuits.

#1 Insurance doesn’t provide asset protection from lawsuits

As a real estate investor, you have to know that you can’t hold assets in your name and rely on insurance to protect you. The amount of coverage insurance is insufficient, and you may find yourself on the wrong end of a lawsuit.

Scott provides a personal anecdote about a friend who got sued for breach of contract and lost. Because his friend relied only on insurance and held his assets in his name, he lost $3 million in real estate.

That’s not to say that you shouldn’t have insurance. It would be best to get insured, but you must realize that insurance does not completely protect your assets. Insurance covers you from things like negligence. However, it does not protect you from things like breach of contract, fraud, and gross negligence claims.

Breach of contract, fraud and gross negligence claims have the potential to derail your real estate investment business. To get 100% bullet-proof protection, you have to think and conduct business like a wealthy person.

#2 Think like a wealthy person

We live in a litigious society, and having assets may make you a target for lawsuits. To protect yourself, adopt the same strategies that wealthy people use. That means:

Think about it like this: Wealthy people don’t own things. Instead, they have companies that own stuff for them. When someone sues a wealthy person, there isn’t anything to get. The asset holding company protects wealth and ensures privacy from litigation. That’s why asset protection for financial freedom is such a critical step in wealth generation.

#3 What is the most cost-effective way to achieve asset protection for financial freedom?

The Series LLC is the most cost-effective way to protect your assets. With a Series LLC, you can isolate your investments from one another.

If the worst happens and you get hit with a lawsuit, the plaintiff cannot get to your other investments, nor can they get to your assets. The Series LLC helps you think and do business like a wealthy person because:

These layers of a Series LLC work together for maximum protection of your assets and investments. Savvy investors use the anonymity of the LLC to prevent people from locking onto them as a target to sue, and it allows them to keep their investing strategy private from competitors.

#4 How does the Series LLC provide asset protection?

The Series LLC efficiently and affordably protects your assets from lawsuits by using a “parent-child” structure. The process goes like this:

Each of the “child” LLCs protects assets and isolates them from the rest. If you did not have a Series LLC, you would have to pay to establish an individual LLC for each of your assets to create separation.

The best protection from lawsuits is anonymity. When people think that you have nothing of value, they have no motivation to sue you. A Series LLC shields your assets from the public and makes it an unprofitable decision to sue you.

If a plaintiff sues you, the Series LLC “parent-child” structure makes it so that only one of your assets is at risk.

Do you have a plan in place already? If not, let us show you how to achieve asset protection for financial freedom and build generational wealth through the use of a Series LLC.

Read this article to decide if it is the right way to get bullet-proof protection for your assets, Series LLC For Real Estate Investors.

Asset Protection for Financial Freedom Wrap-Up

And there you have it! An explanation about how to achieve asset protection for financial freedom.

We started by discussing the shortcomings of focusing solely on insurance for liability protection, noting that insurance provides some, but not all, of the asset protection you need.

We’ve also talked about the tips and tricks that wealthy people use to protect their wealth. Then, we went over what a Series LLC is and how it provides the most cost-effective way to protect your investments.

Ready to take your education to the next level? Get FREE Access to the Asset Protection Vault. This contains access to our top 5 video Masterclasses and ebooks for real estate investors.

The Rental Property Asset Protection Checklist

Keep potential lawsuits at bay by viewing the rental property asset protection checklist we have prepared for you. By doing so, you’ll be able to protect your assets without worry or distraction.

The following checklist recommends some protective measures you can take for your real estate investments, cash, other assets, and financial future:

The bottom line is that the best asset protection strategies stop lawsuits from happening. This list will help you decide how best to protect your assets.

Anonymous Land Trust for Rental Property Asset Protection

Anonymous Land Trusts are highly effective but lesser-known instruments that protect your privacy as a real estate investor.

One vital benefit that anonymous land trusts provide is that unknown ownership makes it harder to file a lawsuit against you.

Here are some frequently asked questions about a Land Trust:

What are the parts of a land trust?
They are vehicles to help savvy investors hold properties anonymously. An anonymous land trust has three components: a grantor, a trustee, and a beneficiary.

How does a land trust work?
When you decide to form a land trust with Royal Legal Solutions, we serve as your trustee and manage the trust. You are the beneficiary which means you (1) are not publicly identified and (2) can enjoy the profits from your property.

Read “Anonymous Land Trust for Real Estate Investors” and get more details to help you decide if this sound legal strategy is the right solution.

Setting Up a Traditional LLC

Limited Liability Companies (LLCs) legally separate you from your business.

Benefits of an LLC:

We want to provide accurate information so you can make a sound decision. To that end, here are the most common drawbacks to using a Limited Liability Company:

Read “Texas LLC for Real Estate Investors” for more information. Ultimately, LLCs are okay for one asset, but a Series LLC is better for multiple assets.

Benefits of Setting Up a Series LLC for Rental Property Asset Protection

Series LLCs, a “parent-child” structure that ensures protection for your assets. Here are the steps of the structure:

Benefits of a Series LLC:

You might be having questions about a Series LLC. Here are the most common questions we encounter about this legal structure.

How does the Series LLC protect my assets?
Each asset is isolated from others.

How can I minimize my losses in a critical case?
The Series LLC structures your business in such a way that only one asset is at risk in any given lawsuit.

Why would I need anonymity?
If people think you own nothing, they have no motivation to sue you. Thus, the anonymity of the Series LLC shields you from lawsuits.

Read “Series LLC for Real Estate investors” to get a detailed account of how a Series LLC might benefit you. Overall, Series LLCs primarily help real estate investors with multiple properties or types of assets.

Avoid These Common Situations to Stay Out of Court

When you sign a lease with a tenant, you begin a legally enforceable contract that covers the terms of their tenancy.

Your tenant pays rent, and you conduct repairs and maintenance in exchange. When your tenant feels like they have no options, they might seek to sue you.

You don’t want to end up in a lawsuit, so make sure to:

Use this checklist as a guide to help you decide what type of asset protection is right for you. No matter what level of real estate investor you are, you need to protect your assets. Make sure to apply the lessons from this checklist today.

Bottom Line: Protect Your Assets

As you continue along your real estate investing journey, ensure that you protect your assets with the right financial strategies and business structures in place. Learn how to get bullet-proof asset protection with our FREE, 5-part educational series for savvy real estate investors.

Request your access to the Royal Academy Asset Protection Vault today!

Starting Your Real Estate Investing Journey

Are you currently considering starting a real estate investing journey?

Real estate investing makes people wealthy. Of the 400 richest Americans, 24 made their money on real estate investments. At one time, they were like you--starting as a novice real estate investing professional. Below we have compiled some of the opportunities and challenges you may encounter so that you can hit the ground running.

Here are the things that you should know as a beginner on your real estate investing journey.

The First Step Is Forming A Series LLC

Real estate investing is not without risk. As a result, before you take this monumental step towards securing your financial freedom, you need to have rock-solid legal and financial structures in place. One way to ensure that you have the proper legal and economic systems is to create a Series LLC.

Take a moment to discover how Royal Legal Solutions can protect you with a Series LLC. This business structure will safeguard your investment and livelihood.

Real Estate Investing Journey Fundamentals

You must be financially prepared to start investing in real estate. Read on for six tips to start on a solid foundation.

1. Reduce Your Debt for Maximum Advantage

As a new real estate investor, carrying debt is not ideal. Adding to your current expenses such as student loans, medical bills, or paying for essentials may put you in a challenging position. Ideally, you will want to have some money in savings to use as a safety net.

2. How to Use a Simple Method For Increased Profit

Depending on your investing goals, you will have to decide whether it would be better to purchase with cash or finance your real estate investment.

One benefit of a cash purchase is that you start accruing positive monthly cash flow. On the other hand, financing may generate a higher return on your investment.

For instance, you use cash to buy a property for $100,000. After collecting rent, deducting taxes, and other operating costs, you might see about a 10% return on your investment. A 10% return equates to a cash flow of $10,000 per year.

Another option is to finance the property with a 20% ($20,000) down payment and an annual 3.5% mortgage rate. After paying taxes, operating costs, and additional interest, your earnings will be about $6500 per year.

The cash flow is lower with financing, but the return on investment is much higher at 32.5%

3. The Bottom Line on Mortgages

Primary residence mortgages and rental property mortgages are similar. However, there are some critical differences.

First, people default much more often on rental property loans. That makes sense because a borrower who runs into financial trouble is more likely to focus on their primary home mortgage first.

In general, the additional risk associated with rental property loans results in lenders charging higher interest rates.

Second, rental property mortgages come with more stringent underwriting standards. The lenders closely inspect your credit score, down payment, debt-to-income ratio, and cash on hand.

4. Beware High-Interest Rates

In 2021, the interest rate is relatively low for a conventional mortgage. You should know that the interest rate on investment properties is higher than a traditional loan.

When you decide to become a professional real estate investor, you need to secure a low monthly mortgage payment so that your monthly payment does not disproportionately eat into your profits.

5. Seek Real Opportunities to Generate Wealth

You should set a goal of a 10% return on your investment. When developing your expectations, you need to consider the following factors:

An easy way to estimate your monthly operating expenses is to follow the 50% rule. Simply put, you need to figure that about 50% of your operating income will go to operating expenses.

For instance, if you charge $1500 rent, you should expect to pay $750 in total expenses.

6. Landlord Insurance: Important and Useful Security

It would be best if you protected yourself with landlord insurance. Landlord insurance covers property damage, lost rental income, and liability protection from a tenant or visitor injury on your property.

Profitable Tips to Give You the Edge

Surging Locations Are Key To Success

You will want to avoid making a real estate investment in a dying area that may become a burden to you.

Instead, find a city or location where the population is growing or where a community revitalization plan is in place. A revitalization plan in a community increases the likelihood of employment, living wage jobs, and tenants.

Here are some things to look out for in profitable rental properties:

Each of these factors will likely contribute to a healthy set of potential renters.

Be Shrewd With Rental Properties

Remember, the more expensive the home means higher operating expenses. An excellent place to start your real estate investing is finding a $150,000 to $200,000 home in a growing neighborhood.

You want to follow the Goldilocks Rule, "You are looking for something just right." Don't buy the best house in the neighborhood for sale, nor should you invest in the worst.

Beginners Should Avoid Distressed Properties

Part of finding a home that is just right is avoiding a fixer-upper. You might think you are getting a bargain and can flip a distressed property into a cash cow. If you are only beginning your real estate investing journey, that's a monumentally bad idea.

The price of building materials and a labor shortage make the house flipping industry an expensive and dangerous endeavor--ask Zillow.

The Hidden Benefits of Property Managers

Should you hire a manager or go at it alone?

Using a property manager is a significant consideration for you as an investor. As a landlord, you would be involved with vetting tenants, coordinating maintenance, collecting rents, and resolving disputes. You may prefer to offload those duties to someone else so you can focus on activities that grow your business.

Hiring a property manager can be a tough decision because it will cost a portion of your operating income. The cost can be a considerable chunk of your profits, typically between 8% and 12%.

That said, an experienced property manager might still be worth it to you. Realistically, a property manager eases the burden of being a landlord and brings lots of experience and expertise to the table.

Most property managers:

Consider the following to determine if a property manager is worth the cost: 

Pros v. Cons of Starting a Real Estate Investing Journey

As with any financial decision, you must decide if the benefits outweigh the costs. Real estate investing is a great way to increase your wealth, but it is not without risk.

See the table below to help you decide whether starting a real estate investing journey is right for you.

Real Estate Investing Journey Recap

First, one way to mitigate some of the risks you will encounter in real estate investing involves forming an LLC. Read more to learn about the benefits of using a Series LLC to protect your assets.

Second, make sure your finances are in order before you embark on your real estate investing journey. You can reduce your debt which will help lower your debt-to-income ratio and improve your credit score. A higher credit score means better rates and terms and more cash in your pocket.

Third, find affordable housing in growing areas. Remember, the key is to get affordable housing without buying a money pit that needs a lot of work.

Fourth, consider hiring a property manager--the hassle and time saved might be worth it to you!

Before you decide to begin real estate investing, ensure that you have the appropriate asset protection and business structures in place. To discover how you can achieve bulletproof asset protection, check out our FREE, 5-part educational series for real estate investors. Request your access to the Royal Academy Asset Protection Vault today!

Offshore Holdings Ethics Debate Sparked Following Leak of Pandora Papers

Beginning on October 3rd, 2021, a document dump dubbed the Pandora Papers was released involving nearly 12 million pieces of evidence by the International Consortium of Investigative Journalists (ICIJ). More than 600 journalists from 150 news outlets contributed to the investigation. Information contained therein exposed a global network of powerful financial interests and raised questions about the legitimacy of shell companies, offshore holdings, and anonymous ownership. 

While this wasn't exactly a bombshell revelation, it verified what many people had already come to realize. Yet, the Pandora Papers scandal has revealed something more significant than the known corruption happening in our world. It has brought to light the toxic attitude towards the general public held by those in the highest positions of power and influence. The publicity that the story has garnered has many investors wondering how they may be impacted by what could very likely be the criminal dealings of others.

As summarized by the ICIJ, "The Pandora Papers reveal the inner workings of a shadow economy that benefits the wealthy and well-connected at the expense of everyone else."

Highlights of Findings in the Pandora Papers

Records reveal covert dealings that implicate: 

Read the full exposé here.

Offshore Holdings and Their Potential Negative Outcomes

Loopholes in law enable people to legally avoid a portion of their taxes by moving their money, assets, or businesses to tax havens. Using a tax haven brings into question several ethical concerns. 

While it is not illegal to hold assets offshore and anonymously, the risk of abuse is an indication that oversight and regulation are necessary. There have been repeated calls for governments to make it harder to avoid tax or hide assets, particularly following previous leaks such as the Panama Papers from years ago.

It's no surprise that existing legislation has had little impact considering that those prominently taking advantage of offshore holdings are often the very people responsible for oversight.

Whose Names Did the Pandora Papers Reveal?

Among the extensive list of those implicated in the Pandora Papers includes the following political leaders and notable influencers:

View the complete list here.

Legitimate Reasons for Creating Offshore Holdings

It would be foolish to think that anyone who has offshore holdings is involved in nefarious activities. There are several legitimate reasons why a person may want to hold money and assets in different countries.

Scenario #1: Asset Protection Benefits

While you can accomplish asset protection goals with domestic tools, offshore banking offers you the luxury of simply moving your cash from a position of vulnerability and to one of security. In this case, you would be moving money overseas into a different jurisdiction rather than into an entity structure.

Scenario #2: Guarding Against Unstable Governments

Here you would be dealing with a sovereign nation with its laws, each with advantages and drawbacks. Those nations with reputations for being tax havens have implemented legislation to prevent blatant abuse of their banking systems. Such laws are generally designed as a prevention to money laundering and should not pose problems for investors.

The above scenarios illustrate valid reasons for having offshore holdings and should not be considered an exhaustive list. 

What Impact Will the Pandora Papers Have on the Future?

It remains uncertain what significant impact the Pandora Papers will have on those involved. History has shown that political fallout is minimal, if existing at all, and slow to occur. For example, the similar Panama Papers from 2016 only resulted in the conviction of a single US taxpayer so far.

Some news outlets speculate that the US will take a long hard look at its offshore banking regulations to ensure transparency. In turn, new reporting requirements are likely to be imposed on attorneys, financial advisors, and CPAs. 

Pandora Papers aside, we can be sure that changes in reporting are on the horizon. Sweeping tax reforms proposed by the Biden Administration would require all financial institutions to monitor deposits and withdrawals in accounts that have balances above $600 at any given time.

Whether the new tax proposal is adopted or not, we can deduce that tax reforms are a high priority for the current administration. That is why it is more critical than ever to ensure that your assets are protected and that your business structures are legally compliant.

How Are the Structures Used by Royal Legal Solutions Different?

Royal Legal Solutions allows investors to use offshore investing and tax havens to minimize liabilities in such a way that:

We encourage readers to take a closer look at other articles we have posted on this topic, such as:

Our current clients benefit from regular consultations with our legal and tax teams. For anyone else with questions or concerns about your holdings, we invite you to reach out.

Using Your C Corporation’s Tax Brackets To Reduce Your Tax Burden

Every real estate investor or business owner knows that taxes take up a big chunk of profit and earnings from investment income and capital gains. Understanding how the tax system and tax brackets work may help you reduce your tax burden and liabilities.

As a real estate investor, you may be able to minimize income taxes either by hiring family members or your C corporation. This article focuses on the possible tax benefits of outsourcing business contracts to a C corporation owned by you.

Interested in learning more? Check out our article, Using Your Family’s Tax Brackets To Reduce Your Tax Burden.

How the progressive tax brackets work

Progressive tax brackets start taxing the lowest amount of income at the lowest rate. The tax rate increases as income rises. Simply put, this means that you would fall in a higher tax rate bracket if you are a high earner; likewise, low-income earners pay at a lower rate.

Here’s a (hypothetical) example of how progressive tax brackets can work:

An annual income of $100,000 puts you in the 20% tax bracket. Note: The tax rates would be applied progressively—the first $15,000 will be taxed at 7.5%, the next $40,000 will be taxed at 15%, and the remaining $45,000 at 20%.

Using Your C Corp’s Tax Brackets

Similar to individual income taxes, C corporations have tax brackets. This is how it generally works:

  1. The first step is to set up two businesses. One would be set up either as a sole proprietorship, a partnership or an S corporation. This business would be your main real estate business, operating as a pass-through entity. The income you get from this business is taxed at your individual tax bracket. The second business you set up will be taxed as a C corporation.
  2. The next step is to hire your C corporation for tasks that can be justifiable and with payments that are reasonably within market rates. This can include things like property management, cleaning and maintenance or even digital marketing services.
  3. When you pay your C corporation for fulfilled and completed contracts, this counts as eligible expenses that can be deducted from your pass-through entity income. The goal is to transfer this income from your higher income tax bracket to a lower business tax rate. So if your individual tax bracket is at 40%, you can potentially transfer income from your pass-through entity real estate business to your C corporation, which can be taxed at a lower rate of say, 25% (for example).

Things to consider when using a C corporation to minimize taxes

Ordinarily, all of these money movements can be complicated, therefore it is important to keep constant records of all expenses, payments and transfer of income. All contracts and agreements should be documented appropriately. You may need an accountant to ensure this is done properly.

How to manage income from your C corporation

You are probably wondering how effective it would be to use a C corporation to manage and reduce your taxes and how to go about receiving your income from this business. Well, this is a valid concern and there are various ways to go about it, some more tax efficient than others.

In conclusion

If you're looking for ways to reduce taxes on your real estate business, you can explore the C corporation option. While this may require effort to execute, it could lead to potential savings for your business.

To learn more about this powerful tax savings strategy and others that you can use to keep more of your earnings, book a tax consultation by taking our tax quiz. The information you provide will enable us to have a productive discussion the first time that we speak.

Dog Bites and Landlord Liability: Know Where You Stand

Making money as a landlord is hard. 

As a real estate investor, you have to deal with zoning, regulations, bookkeeping, advertising, online marketing, showings, no-shows, bounced checks, late payments, and the fun of fixing a broken toilet on Christmas eve. 

Keeping the money is even harder. 

You are constantly spending money on maintenance and repairs, expenses, insurance, mortgage payments, marketing, and more.

But as a real estate investor, you have probably taken all these costs into your investment strategy. There is one risk  too many landlords overlook, however: dog bite liability.

Unfortunately, if you are renting to tenants with dogs, you have a furry minefield of liabilities threatening your growing real estate investments. One dog bite lawsuit can wipe out all your hard-earned rental profits in the blink of an eye.

No matter how much you love dogs or how well you treat your tenants, a dog bite lawsuit against your tenant will almost certainly include you as the landlord. Pet ownership laws tell you your legal responsibility for your pets. These laws are complex and different in every state. 

As usual, we'll start with some education ...

dog bite liabilityLandlord Liability in Tenant Dog Bite Cases

Fortunately, in most cases, you (as the landlord) may not be DIRECTLY liable if your tenant’s dog bites someone. Just because you leased property to tenants with dogs is usually not enough to make you legally responsible for damages. But again, the landlord’s liability is different in each state and hard to predict.

As a real estate investor, you should know the three critical scenarios that affect your liability.

#1 Landlord Knows -  But Does Nothing

If a landlord has actual knowledge that his tenant is keeping a dangerous dog on the premises, some states will find him liable if he does not remove the dog to ensure the safety of others. The tricky part is that it is not the knowledge that makes the landlord liable. It is the fact that he knew and did nothing about it. 

Suppose the landlord has control over the property and knowingly allows a dangerous and vicious animal to be kept on the property. In that case, many states will find him at least partially liable for any damages.

pit bull with kisses#2 Landlord Knows - But Can’t Remove the Dog

But, let’s say the landlord knows the dog is vicious but cannot remove the animal. Seems impossible, but it is not. If you bought an apartment building with existing tenants, you might not have the authority or power to remove the tenant or the animal according to the existing lease. 

If you try to legally remove the dog but are denied by the court, you might not be held liable in some states for future dog bite attacks. But don’t count on it. Even if you could not remove the dog, you still have a duty to protect the other tenants and visitors to your property. Imagine what the judge will think if you do nothing. Now, imagine what the judge will believe if you warn all the tenants, put up warning signs, erect fences, establish safe areas and walkways, and closely monitor the situation. 

If you can remove the dog, then do so. If you can’t, you better have a suitable safety protocol in place.

#3 Landlord Harbors the Vicious Dog

This one is simple. If the vicious dog belongs to the landlord, or the landlord takes care of the dog for someone else - the landlord will most likely be liable  in every  state. 

Dog Bite Lawsuit Payout Numbers

There are about 85 million dogs in the US and millions of dog bites each year, according to the American Veterinary Medical Association. Unfortunately, most of them are children.

The number of dog bite claims in 2020 was 16,991 and dog owners paid out $854 million in damages, according to the Insurance Information Institute.

The top five state with the most dog bite claims are 

  1. California 2,103
  2. Florida 1,235
  3. Texas   969
  4. New York   881
  5. Pennsylvania   787

The average payout claim in the U.S. was $50,245, with New York at the highest with an average of $66,917. California averages almost six dog bite claims per day.

As a real estate investor and landlord, you should be aware that there might also be punitive damages in some cases should you be found liable under certain circumstances.

How Landlords Can Protect Themselves

Be Proactive

Build your dog-bite case defense today. Remove dangerous dogs from your properties if you can. If you can’t, then do the following:

Structure Your Business for Protection From dog bite liability

The American legal system can be stacked against you. A single lawsuit can wipe out your real estate portfolio if you are investing as a sole proprietor. That's why you need to protect your real estate business from dog bite liability. Man's best friend can be a landlord's worst enemy.

Whether you use trusts, LLCs, or other entities, you can establish asset protection and privacy—and usually gain tax advantages as well.

Most lawyers give cookie-cutter advice and use boilerplate forms and agreements. Remember, you are building your real estate portfolio for future income and asset security. Find asset protection experts who understand the risks you face.

 

Self-Directed IRA Bitcoin Investing

Bitcoin is constantly making headlines. We're getting a little sick of hearing about it, to be totally honest.

As Bitcoin becomes mainstream, we hear stories of the crypto-savvy investor buying Bitcoin in its early years and becoming a millionaire. Which leaves more investors asking, “Why not me?”

In 2021, IRA investors are increasingly diversifying with Bitcoin and other cryptocurrencies. Self-Directed Bitcoin IRA investing can deliver high yields along with the tax benefits of non-digital investment.

Here’s a brief primer on Bitcoin and three steps investors can take to start making their own Bitcoin investments using a Self-Directed IRA-owned Business Trust.

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.Bitcoin Basics

With cryptocurrencies, encryption is used to make new currency units and perform transactions. All this is done in a decentralized system and records are kept in a blockchain, which is a type of digital ledger.

Bitcoin, released in 2009 by Satoshi Nakamoto, is one of thousands of cryptocurrencies but is easily the most popular. Bitcoin must be stored using an online digital wallet or in a personal computer. Due to hacking concerns, some owners use a hardware wallet (a USB-like device protected with a PIN code).

Bitcoin Gets Attention From Investors

Bitcoin turned heads in the investment world by going from a price of under $1 in 2011 to $40,111 on January 14, 2021. The highs and lows have attracted headlines, as in December of 2017, when prices doubled in a matter of weeks. As I write this, its current U.S. value is $33,626.60.

Bitcoin’s wider adoption and impressive gains led to the “Bitcoin IRA," bringing the flashy new investment into the stodgy world of traditional retirement accounts.

Bitcoin Meets the IRA

A traditional IRA (individual retirement account) doesn't permit alternative investments such as Bitcoin and other cryptocurrencies. They're not really known for trying new things.

But what about the Self-Directed IRA (SDIRA), with its more flexible structure? The IRS doesn’t list Bitcoin as a forbidden investment (only list life insurance and collectibles are specified as non-permissible IRA investments). Check out our article, Our 3 Most Popular Self-Directed IRA Investments, to see what else is (and is not) permitted.

Using Your IRA to Invest In Crypto (4 Steps)How to Invest in Bitcoin Using a Self-Directed IRA

#1 Do Your Research

The information I’ve provided about Bitcoin is a good primer, but is by no means a substitute for doing your own due diligence. Be prepared for the uncertainty that surrounds Bitcoin as a new investment.

Also, since Bitcoin isn’t under a regulated system don’t expect the same type of publicly available financials you’d find with traditional stocks or mutual funds.

You can educate yourself on how the IRS deals with Bitcoin investments; a good cryptocurrency resource is Investopedia.

#2 Choose the Right IRA Custodian

The "custodian" is the financial services company that manages your retirement account for you. To learn more, check out our article, Why Your Self-Directed IRA Needs A Special Custodian.

Traditional IRA custodians won't even think about it, but if you're in the market for the self-directed version, you'll need to make sure your IRA custodian is IRS-approved and allows Bitcoin investments. Still, you probably won’t enjoy true checkbook control over your account.

Your SDIRA is self-directed (as the name says), but it isn’t “self-managed.” This means you can’t write a check out yourself for a Bitcoin transaction without a custodian approving the transaction. The processing time can hurt you when you're trying to buy or sell quickly. Also, the fees can add up when choosing this route.

This doesn’t mean you should give up on Bitcoin investing with a Self-Directed IRA. Royal Legal Solutions may be able to help you eliminate the custodial overhead. Many of our clients are Bitcoin investors who enjoy direct control over their IRA investments. Start with our investor quiz to see if you can take advantage of our custodial services.

#3 Choose a Good Cryptocurrency Exchange

Once your Self-Directed IRA is setup and you have direct access to your funds, you’re ready to purchase Bitcoin. Choose a reputable exchange and understand its fee structures. More importantly, be aware of any security flaws and hacking issues. Currently, Coinbase and Kraken are some of the most reputable exchanges.

#4 Choose a Good Cryptocurrency Wallet

For those new to cryptocurrency, this step may seem like the hardest to understand. A cryptocurrency wallet isn’t a physical wallet, although it can take physical form as a hardware digital wallet. Wallets are accessed via a private key, which is a hexadecimal code that you should guard just as you would a security box key. Like a bank account, the wallet holds your balance and a reference to all transactions. It’s also where you can send and receive currency. Think about security when choosing a wallet. Online wallets are convenient and usually offer a mobile version. However, they are susceptible to hackers. Hardware wallets are more secure because they hold the private key in an offline, unhackable device.

#5 Keep Your BTC Investments in Compliance

The “self-dealing” rules that apply to other alternative assets also apply to Bitcoin. For instance, an investor can’t sell Bitcoin to his own IRA nor can any of his family members. This can disburse the IRA or lead to a taxable event. Also, be mindful of annual reporting requirements which require market valuations similar to real estate properties.

#6 Enjoy Tax-Deferred Earnings

With a Self-Directed IRA you can apply the tax-deferral benefits enjoyed by other alternative investments towards Bitcoin. Bitcoin investments can grow unhindered as taxes aren’t applied till funds are disbursed, which can mean decades of growth.

#7 Explore Other Cryptocurrency Investments

Bitcoin is the most widely-known cryptocurrency. However, once you’ve gotten your feet wet in Bitcoin investing, you can expand towards others currencies such as Ethereum and Litecoin. Like Bitcoin, Litecoin has enjoyed tremendous growth. It’s second to Bitcoin in market capitalization, followed by Ethereum and Ripple.

When expanding your Self-Directed IRA, consider what advantages rival currencies have as an alternative to Bitcoin. For instance, Litecoin enjoys faster transaction times and a larger coin supply limit of 84 million compared to Bitcoin’s 21 million.

gold mining bitcoin - miner with pickaxeStart Investing Today

Like any other investment, investors should complete their due diligence, choose the right custodian and be aware of custodial fees. Check out our Using Your IRA to Invest In Crypto (4 Steps) article while you're at it.

Lastly, keep Bitcoin investments in compliance with IRS regulations. The unique steps Bitcoin investors need to make may be overwhelming at first. They include choosing a cryptocurrency exchange and digital wallet. However, once investors get their feet wet, they’ll be a step ahead in expanding their Self-Directed IRA towards other cryptocurrencies. For now, investors could start off with Bitcoin and other private investments using a Self-Directed IRA.

Renting To Tenants With Dogs: What Landlords Need To Know About Liability

We’ve all heard of horror stories about the dog owner who had to go to court because his/her dog bit a child at the park or snapped at the pizza delivery guy.

These cases can often elicit strong emotions. Dog lovers can empathize with the dog owner, whose otherwise gentle furry friend is maligned as a dangerous threat.

However, anyone who's seen an obviously untrained dog run wild as the irresponsible owner stands idly by can emphasize with the victim.

As a landlord, you may consider yourself the uninvolved bystander when a biting incident occurs. However, this is not always the case.

In this article, we’ll review your responsibilities as a landlord when it comes to renting to tenants with dogs. Our four legged friends can come with some unexpected liability issues, so read on.

Interested in learning more? Read Pet Ownership Laws & How They Can Bite You In The Assets.

renting to tenants with dogs: dog in teacupPower to Remove a Dangerous Dog

One of the most important things to keep in mind is that landlord liability is rare when it comes to incidents involving a tenant’s dog. You can read more about dog bite liability here. There are only two scenarios in which a landlord can be held accountable.

The first scenario is when a landlord has previous knowledge of a dangerous dog and also has the power to remove that dog. Both conditions should be met in order for the landlord to be held accountable. For instance, David is the new landlord of a building where the old owner, according to a one year lease agreement, allowed one tenant to own a dog. David knows of this dog’s history of biting both guest and other tenants. In this case, David wouldn’t be liable if a biting incident occurred because the dog’s owner had a prior agreement with the previous landlord.

Although David met the condition of knowing about the dangerous dog, he didn’t have the power to remove the dog. In this case, it’s still wise and responsible for David to manage the situation. He can attempt to remove the dog through eviction, request the dog be kept indoors or erect a fence to prevent further incidents.

Previous Knowledge of a Dangerous Dog

Knowledge of a dangerous dog isn’t as cut and dry as it seems. For instance, Ron who is the landlord of a property with a dog who barks and growls at everyone who passes by may have an intuition that the dog could be dangerous. The entire building and neighborhood may be irritated with this dog’s constant barking and mean demeanor. However, this doesn’t mean Ron has actual previous knowledge of the dog being a danger to others. The key word here is “actual knowledge.”

Actual knowledge means Ron knows of a past attack, such as a biting incident or threat made by the dog. Since determining what constitutes a threat can vary greatly depending on how individuals interpret a dog’s actions, it’s important to study past cases. Both Colorado and New York had cases where landlords were found liable for attacks because they ignored overwhelming evidence of potential danger by a dog. In the Colorado case, overwhelming evidence included a previous threat towards the landlord’s own grandchild.

what is a reverse mortgage dog wearing glassesHarboring a Dangerous Dog Can Lead to Liability

The second scenario in which a landlord can be held liable for an incident involving a tenant’s dog is if the landlord also harbored or carried out control over the dog beyond simply just renting out property to the dog’s owner. A good rule of thumb to remember here is that if a landlord in any way manages or cares for a dog, he/she will hold the same accountability as the dog’s owner.

Caring for the dog can include bathing, walking or feeding the dog. In a 2004 Wisconsin case, the courts ruled a landlord not liable for an attack involving his tenant’s dog. The dog was kept in an area adjacent to both the tenant’s and landlord’s dwellings. However, the landlord was not found to “harbor” the dog since he didn’t manage or otherwise care for the dog. He simply allowed the dog in the wooded area adjacent his residence.

Liability for Dog Attacks Off the Rental Property

Landlord liability for incidents that occur outside the landlord’s property can be as equally confusing and require a good asset protection lawyer. Based on past cases, landlords can be held liable for attacks that happen off property. Thus, if you know that a tenant’s dog poses a threat, don’t let it roam around freely and excuse it as the owner’s liability. A court might not agree and instead deem you as the landlord liable. Speak to the tenant about safeguarding his/her pet.

pit bull with kissesRental Property Liability Protection

As you can see, determining liability when it comes to incidents involving a tenant’s dog can be complicated. In general, it’s rare for courts to deem landlords liable. However, this doesn’t mean that landlords should take their chances. Rental property liability protection may not be the most exciting aspect of real estate investing, but it is a requirement.

While we can’t do a background check on every dog on your property, we can help you come up with a liability protection plan that can safeguard you against animal attack lawsuits and other often overlooked liabilities. Contact our experienced legal professionals today.

What Assets Are Protected in Bankruptcy?

If you’ve been hit by financial hardship, filing for bankruptcy can offer you a way out of crippling debt. Bankruptcy is a court proceeding that can allow businesses or individuals freedom from their debts while also providing creditors an opportunity for repayment.

However, before you make this move, it’s essential for you to understand how a bankruptcy will affect your assets. This article will offer information on what assets are protected in a bankruptcy and how bankruptcy exemptions work.

Chapter 7 vs. Chapter 13

The first important decision in filing for personal bankruptcy is whether to file under Chapter 7 or Chapter 13. This choice will play a significant role in what assets you are able to keep.

Chapter 7. Sometimes called a “straight bankruptcy,” Chapter 7 is the most common type of bankruptcy proceeding. Under Chapter 7, qualifying individuals, partnerships, LLCs, or corporations can eliminate most of their unsecured debts (and some secured debts) through liquidation. When you liquidate assets, you make cash available to pay your creditors. 

When you file for Chapter 7 bankruptcy, creditors are no longer able to garnish your wages, harass you with phone calls, or initiate lawsuits against you. However, Chapter 7 exemptions typically apply only to your legal residence, not to any property you own as an investment.

Chapter 13. Under Chapter 13, you can keep all your property, including your investment property, but you must pay your creditors a portion of what you owe according to a reorganized three- to five-year repayment plan.

The amount you must pay certain creditors under Chapter 13 depends on how much property you can exempt. Here’s are some examples of how it works:

assets protected in bankruptcy: your race horse can be taken from you!What Assets Qualify For Bankruptcy Exemptions?

The purpose of bankruptcy is not to strip you of everything you own. The courts understand that if you lose everything, the legal proceeding is at best counter-productive. There are both state and federal laws to protect some of your property from creditors even if you don’t file for bankruptcy.

However, you must claim your exemptions when filing your bankruptcy petition in order for them to be protected. And, as we have explained, the court handles exemptions differently depending on whether you file a Chapter 7 or a Chapter 13 petition.

Some states require you to use their list of state exemptions. Others allow you the option of choosing either its exemptions or the federal system’s set of exemptions. You cannot combine the two sets. The state laws you qualify to use depend on where you have lived over the past two years.

Bankruptcy law views property under the lens of necessity. Property that you can keep (exempt property) generally includes items that are deemed necessary for living and working purposes. Property that you have to give up (non-exempt) includes items that fall outside what the court deems the petitioner requires for living and working.

Under Chapter 7, exemptions typically apply only to your residence, not to any property you own as an investment. Investment real estate, including rental property, is generally not exempt.

Here are some typical examples of exempt property:

Here is a list of property that typically is not exempt:

Filing for bankruptcy is never an easy decision since it comes with long-term credit and financial consequences. If you own real estate investments, the decision is even more challenging. 

However, many investors are facing unique challenges these days. If you think filing for bankruptcy might be the right decision for you, it’s wise to take the time to consider all the ramifications and consult a trusted legal and financial professional.

 

 

 

 

Photo by Marylou Fortier on Unsplash  

 

 

What Are Workout Agreements In Real Estate Investing?

Declining property values and the travel and business shut-downs during the pandemic have played havoc with the balance sheets of many real estate investors.

When faced with red ink, some individuals opt to liquidate their assets, while others prefer to negotiate with their creditors. One way to negotiate a debt obligation is with a workout agreement.

A workout agreement (also called a settlement agreement) is a contract made between you and a creditor that allows you to “work out” or renegotiate the terms of a loan. A real estate workout is not a repayment of a real estate secured loan nor a resolution achieved by way of a foreclosure. Instead, it is a negotiated settlement that establishes a new agreement between the two parties.

This article will explain the benefits of a workout agreement and what you need to know before entering into one.

workout agreements: No, not THAT kind of workout, you goofballWho needs a real estate workout agreement?

The idea behind a workout agreement is that it should be mutually beneficial to both parties. A borrower who is in default avoids foreclosure, and a lender gains a greater chance of recouping the loan principal and interest without having to foreclose. The lender also avoids the expenses of any debt recovery efforts.

Not every lender will agree to a workout agreement, and those who do can vary widely in the terms they accept. Typical workout agreements involve extending the terms of the loan or rescheduling the payments.

The right solution depends on the following factors:

Types of real estate workout agreements

Workout agreements can be used for any type of loan, with the exception of government-backed student loans. Here are some of the different types of real estate workout agreements.

Modification – Changing the terms of an existing mortgage (usually temporarily).

Deed change – Granting the deed to the creditor instead of a foreclosure

“Friendly” foreclosure – Selling the property back to the debtor (or another party) with a clean title after foreclosure.

Short sale –Selling the property to a third party in exchange for debt forgiveness.

Short refinance – Refinancing the property for a loan amount less than the original amount.

Repayment plan – Making a down-payment on the balance and promising to pay the balance over time.

Repurchase after foreclosure – Buying back the property after foreclosure.

Forbearance –Discontinuing legal action in exchange for the borrower’s promise to take action (such as listing the property with a real estate agent).

Conversion – Changing an amortizing loan to an interest-only loan

Preparing for a workout agreement

Both the borrower and the lender should carefully consider the terms of the agreement before signing a new loan document. Here are some factors to consider:

Notification – The borrower should give the lender as much advance notice as possible of an inability to meet debt obligations. Most of the time, lenders are more likely to agree to a workout agreement if they have been notified of a possible default on the loan. Giving advance notice shows that the borrower is someone the lender can trust.

Honesty – A lender is not obligated to amend the terms of a loan, so the borrower helps their case by being as flexible as possible in accepting terms set by the lender. However, it is in the lender’s best interest to help the borrower as much as possible.

Tax implications – Although a workout agreement won’t damage a borrower’s credit score as much as a foreclosure, it will have a negative impact. Also, the IRS views any loan reduction or loan cancellation as taxable income. That means the borrower could end up owing more taxes for the year the workout agreement is signed.

Due diligence – Both parties must perform due diligence on issues surrounding the troubled loan. A pre-workout agreement is an important step for discussing specific problems with the loan, the goals of a workout agreement, and the terms of the contract.

When a loan is in arrears, it’s a bad situation for both the borrower and the lender. Just as both parties have something to lose in a foreclosure, both have something to gain with a workout agreement. Working together on a mutually beneficial solution beats the alternative every time.