Asset Protection in a real estate business involves the proper structuring of Limited Liability Companies (“LLC”), Texas Series LLC’s, and Trusts. A typical Asset Protection plan will include three LLC’s: (1) LLC which holds assets which are long term buy and holds; (2) LLC which holds assets which are short term buy and holds; (3) LLC as an operating company. The long term and short term LLC’s are necessary for proper tax treatment from the IRS. A Texas Series LLC provides the best solution by dividing your assets into separate entities for liability purposes while allowing you to file a single tax return. Apart from the asset holding companies, the LLC operating company is necessary to insulate the business activities of your dealing from your assets. The operating company insulates the asset holding companies by entering into all the contracts, collecting payments, and performing all of the contact with the outside world. This structure limits a plaintiff’s ability to sue to the operating company itself, and since the operating company has no assets, a plaintiff is unlikely to file suit when they know there is nothing to collect against.
Trusts are used in Asset Protection plans principally to obscure ownership of assets and companies. Ownership of an LLC is found by researching the managing member. A trust can be a managing member and a trust does not have any filing requirements as a matter of public record. Since ownership of assets and companies is usually found by means of researching the public records, someone looking for your ownership in property or companies will be left thinking you own nothing.
Every asset you acquire or sell changes your estate and your end of life plan. The most effective and easiest end of life plan is done by means of a Living Trust and Pour Over will.
The Living Trust does not have all of the burdensome requirements to changes like a will. You can merely change the document yourself on your computer, print it, and sign it. The Living Trust allows you to take advantage of all the same tax avoidance strategies that are available by a will, and you don’t even have to consult your attorney before adding an asset or changing distributions.
A Pour Over will is a standard will form which merely states that whatever has not been put into the trust at the event of your death should be moved into the trust and distributed per the terms of the trust.
Delaware Statutory Trust
Delaware has always been ahead of the curve and they have done it again with the Delaware Statutory Trust (“DST”).
The Delaware Statutory Trust (“DST”) combines the maximum for Asset Protection, Estate Planning, and personal control. The DST and its Series work much like a “parent” and “child” where the DST is the parent and the parent has many separate “children” underneath it. Each Series is treated as if it were its own entity, which provides you the same type of Asset Protection as individual LLC’s holding each entity.
Taxation of the DST is flexible. A properly structured DST has been a haven for California investors who are looking to avoid franchise tax. California investors have been flocking to the DST in order to avoid franchise tax when the DST is properly structured. You may elect that it be taxed as an LLC, trust or as a pass through entity depending upon the manner in which it is formed formation.
Estate planning is simplified in the DST. The DST can act just like a Living Trust. Since all of the assets are underneath one umbrella of control, it becomes exceptionally simple to manage at your passing. The DST can simply distribute assets to the beneficiaries upon your death or divide ownership interest to your liking. The DST is also able to take advantage of all available tax avoidance strategies.
With the DST you never lose control of your assets. The DST allows you to restrict the ability of the Trustee to act. In fact, the DST can be constructed so that the Trustee cannot act at all and instead all of their powers are conferred upon you as a “managing Trustee”. As such, you complain complete control with the safety of knowing that somebody else cannot unexpectedly sell your property.
California Real Estate Investor Plan
The Delaware Statutory Trust (“DST”) combines the maximum for Asset Protection and Estate Planning. I ,always use the DST for any real estate investor in California because it allows them to minimize their franchise taxes ($800+ per year per LLC) while providing them Asset Protection and Estate planning.
Second Citizenship and International Protection
In an increasingly uncertain world, some clients appreciate the protections that come with obtaining a second citizenship and holding assets in foreign bank accounts. Uruguay is the new hot spot for international asset protection and citizenship and with good reason. Few places in the world combine the stability of economic growth, politic, finances, and overall beauty.
After establishing your residency over the course of a weekend, you are then able to come and go from the country as you wish. After 6-12 months, you are then able to obtain a Uruguayan passport. Citizenship can usually be obtained within 18 months. For those uncertain of the US future economic client, Uruguay is the place.
For those worried about litigation and government seizures, Lichtenstein is provides unprecedented protection. After only 1 year of having your assets seasoned in their bank accounts, Lichtenstein will not cooperate with foreign Courts of law or governments.