Your IRA Isn't As Safe As You Think It Is: Protect Your IRA

People will tell you that your IRA is safe. I mean come on, it's a retirement account. Yet in reality, they're wrong. Your IRA isn't safe.

The only protection you get by default with an IRA is that it's separate from your personal assets. What this means is someone can't sue you and your IRA at the same time. They'd have to choose to sue either you or your IRA.

But that doesn't make your IRA safe from litigation, especially if your IRA is invested in a lawsuit-prone asset class such as real estate. Also, your IRA is exposed in the sense that it can be disqualified if any of its transactions aren't IRS-approved.

The last thing you want is for the IRS to disqualify your IRA. The penalties are extremely costly.

How Do You Protect Your IRA's Assets?

There are two things you can do to protect your IRA.

The first thing you can do is split your IRA into multiple accounts. Doing this would limit your exposure. For example, if someone sues one of your properties, or if the IRS disqualifies one of your IRA's, the damage would be limited to only one IRA.

The second thing you can do is set up a self-directed IRA with an LLC. I personally like to use a series LLC.  What this allows you to do is take each different asset belonging to your IRA and put it into its own "series." Each series functions as its own LLC.

Let's say someone then sues one of your IRA held assets, which happens to be in a series. Worst case scenario, you lose the lawsuit. In that lawsuit only one of your assets would be affected. The majority of your IRA holdings and wealth will be protected.

Protect Your IRA Properly

By default your IRA is largely unprotected. This means that until you implement asset protection your IRA is exposed to attack, either by the IRS or someone else. If you've invested into multiple properties with your IRA I recommend implementing an asset protection right away.

I hope this information was useful to you, if you have any questions feel free to comment and ask me. Check out my other blogs to learn more about asset protection. If you need help setting up a Self-Directed IRA LLC or asset protection plan, schedule your personal consultation today.

What's The Due On Sale Clause and How Do I Avoid It With A Land Trust?

Despite what you might read on the Internet, you shouldn't worry about the due on sale clause.

Banks are in the business of making loans and collecting mortgage payments. It's true that the due on sale clause would allow them to foreclose on a property, but why would they do that? This could only hurt their interest. They can't collect on payments if there isn't a borrower to pay them.

The fact is, since before 1960 we haven't seen any banks foreclose based upon a violation of the due on sale clause while the borrower was making payments on time.

When Do Banks Invoke The Due On Sale Clause?

I've seen a couple instances where a bank did decide to invoke the due on sale clause. But in all of those situations the mortgage wasn't getting paid. The property was going to get foreclosed on anyway.

These days interest rates are at an all time low. This makes banks unlikely to invoke the due on sale clause. However, if interest rates were to go back up to the standard 6%, then they might change their minds. What exactly do I mean by that?

Let's say you're behind in payments on a 30 year mortgage with a 3.5% interest rate in a market where the prime rate is 6%. If the bank invokes the due on sale clause on your property and resells it, they'll be able to make more money. This is because the property will be re-sold with a 6% interest rate instead of a measly 3.5%.

How Do I Avoid the Due On Sale Clause?

It's important to remember that tens of thousands of real estate investors violate their loan covenants everyday. Yet the banks don't invoke the due on sale clause. But if the banks really wanted to, they could.

Instead of gambling with your properties, what you should do is use a land trust. By using a land trust, you'll be able to transfer your property without angering the bank.

For this method you'll need an LLC and a land trust. So first you'll create a anonymous land trust and place the property(s) into the land trust. Then you'll make your LLC a beneficiary of the land trust. Problem solved!

Not only will a land trust help you avoid triggering the due on sale, but it also helps with transfer taxes and keeping your real estate holdings private.

Get Help With Your Land Trust and Asset Protection Needs

If you have any more questions about asset protection or the due on sale clause, I'd be happy to answer them for you in the comments below.

Also, while we're on the subject of transferring property, you may be interested in our free educational resource on  how to transfer your property and keep your old insurance. We offer these to all of our prospective clients and fellow investors to empower you to make the best choice for your real estate business.

The Three Company Structure For Real Estate Investors

Many real estate investors buy and sell property without a company or LLC. While this is okay for investors with 1 or 2 properties, someone with multiple properties would be better off knowing how to structure a real estate investment company. He or she would be better off using the 3 company structure for tax and asset protection purposes.

Just think, the more properties you own, the more risk you're facing, and the more taxes you're paying. That's why it makes sense to use the 3 company structure, which is made up of 2 LLCs and your operating company, a corporation. Note: if you haven't already, see our info on how to start an LLC.

Three Ways to Use an LLC

  1. Buy & Hold LLC. This LLC is for your long-term rentals and other properties that you expect to hold for longer than a year. We can structure this LLC to make it friendly for long-term capital gains tax.
  2. Fix & Flip LLC. This LLC is for properties you plan on holding for less than a year. We can also structure this LLC to make it tax-friendly for short-term capital gains tax.
  3. Operating Company. The operating company will generally be a corporation. Having an operating company will shield you from personal liability.

By using the three company structure, your assets will be protected and your business will become more tax efficient. When you combine the Buy & Hold LLC and the Fix & Flip LLC, all your assets will be protected.

Now, all that's left are your personal assets. These will fall under the protection of your operating company, preventing liability and the risk of having to forfeit your assets in a lawsuit.

In essence, the three company structure protects you and your assets from lawsuits and allows you to get the most money out of your properties.

Why Should I Use Three LLCs?

If you're wondering why one LLC isn't enough, you're not the first investor to ask that question.

Remember the expression, "Don't put all your eggs in one basket?" Not to mix our poultry metaphors, but with one LLC, you're a sitting duck because all your assets can be found in one place. By separating them, not only will it make a lawsuit less likely in the first place, but you can also rake in more profits from these tax-efficient legal structures.

The name of the game (asset protection) is separation and anonymity. Your LLCs will hold everything that's valuable, and nobody except you will know they exist. Your operating company will exist only to sign contracts and negotiate with clients.

So if anything ever went wrong between you and a client business-wise, they wouldn't get anything if from suing you.

But let's say you don't flip homes. If that's the case, then you won't need a Fix & Flip LLC. The same applies to the Buy & Hold LLC if all you're doing is flipping homes. You could have two of each instead in these situations.

And sure, filing an LLC costs money, but unlike a lawsuit, you won't have to worry about bankruptcy. Get maximum asset protection and tax efficiency with the 3 company structure.

Protect Your Assets With An LLC & Property Management Company

As a real estate investor, your priority is to get a return on your investment. But if someone, most likely a tenant or other business, files a lawsuit against you, your profits and assets will instantly vanish. You have to protect your real estate assets. If you think you can rely on your insurance to protect them, think again. Check out our previous post on why insurance is not asset protection for details on protecting your assets properly.

Would you believe me if I told you there's a new real estate investment method that not only allows you to protect your investments, but also save money and increase your return on investment?

I'm referring to the traditional, single purpose LLC. My new method is simple. First you form an LLC. Then you put your property in it. For each property you have, you form one LLC.

By doing this you'll be able to limit your personal liability and reap tax benefits depending on what state you form your LLCs in. You can form an LLC in any state you choose. Smart investors "shop around" to find the state that suits their needs best.

Let's say you have two LLCs, each one holding one separate property. Note that you can also use a Series LLC for this purpose.

What Happens To My Real Estate Assets If One of My LLCs Gets Sued?

Only the property held in the LLC which is subject to the lawsuit can be used to settle judgments. And that's only if you lose, which is unlikely with me at your side.

But if you do lose your other property will be untouchable, your credit will be safe and nobody will be able to bring down your mini real estate empire.
Protecting your credit is essential. Without good credit you can't get future financing, which means your days of real estate investing will most likely come to an end. One lawsuit can ruin everything you've worked for.

Then there's your family to consider if you have one. By holding your properties in an LLC, you will protect them from the fallout of lawsuits as well.

Using An LLC Alone Won't Completely Protect Your Real Estate Assets

Do you want the greatest level of asset protection? Consider putting your asset protection strategy on steroids by forming a corporation to act as your property management company.

This property management company is completely separate from your LLCs. And for a good reason too!

Let's say you have a contractor or tenant that would sue you. Or anybody else that's in business with your real estate company who would sue you. They would only be able to sue your property management company, because it's separate from your LLCs.

They won't have a single claim against any of your real estate investment properties. This is exactly what you want. If they sue you and win, they'd be lucky to get their legal fees paid. Learn more about how I can  make your real estate investment assets untouchable.

The Two Biggest Reasons Why New Real Estate Investors Lose Money

Welcome to the real estate industry! You'll quickly find out how easy it is to lose money when you don't know what you're doing. And even if you do know what you're doing, you can still lose money if you're not careful. But let's assume you're new.

I'm not trying to be a "party pooper" or anything like that. As a real estate investor myself, I just want you to know what you're getting into. So what exactly are the two biggest reasons why new real estate investors lose money?

You Will (Probably) Make Bad Investments

While it's not necessarily a guarantee that you'll make bad investments, the probability is high. However, it's only natural to be "bad" at something when you first start doing it. *wink wink*

But is there really any other way to learn other than from your mistakes? Yes and no. I recommend new investors do joint ventures with more experienced real estate investors before they go out on their own. Just make sure you find someone who knows what their doing if you choose to do that.

So what's the other big reason why new real estate investors lose money?

You Will (Probably) Get Sued

This one might surprise you. The truth is anyone can and will sue you if you're worth enough. It could be a random person off the street or even a business partner. You never know when it'll happen, but you have to be prepared. Otherwise you could lose everything.

Luckily for you, preventing lawsuits is easier than learning how to not make bad investments. The most proven way to prevent lawsuits is through asset protection. Asset protection involves the use of LLCs and other legal structures when doing real estate transactions and signing contracts.

Like I said earlier, anyone can sue you. But that's only if you're worth enough. Asset protection can make it appear as if you're worth nothing. Or, you can use asset protection as leverage to convince someone not to waste their time suing you.

Well that's everything. As always, if you have any questions feel free to ask me in the comments below. For questions about your individual situation, contact us directly.

The 3 Best States to Form a Limited Liability Company

When forming a Limited Liability Company (LLC), not all states will treat you kindly. What it comes down to is the restrictions and benefits they provide under their jurisdiction. Some states offer more legal protection for a limited liability company, while others offer operational benefits.

So what are the best states for LLCs? I have to tell you, there are plenty of advantages for forming an LLC within your home state. But they will likely pale in comparison to places like Nevada, Texas, or Delaware. You may also be interested in our article, Anonymity & The LLC: States Where Business Owners Love The Laws.

Certain states, like those mentioned above, optimize their internal legislation to be extremely business friendly. And why? Because the filing fees for establishing an LLC generate huge revenue for these states. It's almost like a contest since an LLC can be established in any state whether you live there or not.

Now then, let's go over the 3 best states to form a limited liability company, starting with Texas-—where everything really is bigger (especially the asset protection).

best states for llc

Texas: Low Maintenance LLC Bookkeeping

The main benefit of forming a Texas series LLC is the management fees. Or should I say, the lack of management fees.

LLCs are required to produce a significant amount of legal documentation to be fully covered from an operational standpoint, such as taking meeting minutes.

In Texas, companies can bypass this costly annoyance without losing their legal protection. This will make your life a thousand times easier and also improve your chance of beating a potential lawsuit. (Something you definitely want to make sure you do.)

You can read about Texas LLC laws directly on the state's website.

Next up is Nevada. The place nobody would visit if it wasn't for Las Vegas. (Just joking.)

Nevada: Privacy & Lack of Taxes

Unlike Texas, companies formed in Nevada have two major benefits instead of one. These may seem more enticing than the benefit provided by Texas. However, they're merely operational benefits and do little in the way of fully covering you from lawsuits.

The best thing about forming an LLC in Nevada is the lack of taxes. Nevada LLC's don't have to pay any state level taxes, from corporate to personal.

There's also the privacy to consider. If you form your LLC in Nevada you won't have to disclose who the owners are. Needless to say, many shady individuals form an LLC in Nevada just for that reason alone.

So yeah, you might just want to move to Nevada to do business. You'll get over the year-round heat before you know it. And you might even pick up a gambling habit or two with Las Vegas being so close.

Learn more about forming an LLC in Nevada by speaking with Royal Legal. Anyway, enough talk about glorified deserts Nevada.  Next up is Delaware!

Delaware: Favorable Courts, Legal Protection & Operational Benefits

You may have heard about the excellent business terms provided by Delaware. When it comes to legal protection, the key benefit in Delaware is the Chancery Court.

The judges presiding over this court specialize in business law and are known to provide fair rulings. Just remember this won’t help you if you don’t have proper legal coverage or haven’t maintained your records correctly.

Also worth mentioning is that Delaware provides some of the same operational benefits as Nevada. You can learn more about forming an LLC in Delaware on the state's handy website.

So which state do you think is best for forming your LLC? Tell me in the comments below, I'm always interested in hearing your perspective!

Do you need personalized advice on the best state for forming an LLC? Get in touch with us! Or see my article on the Best States To Form LLCs for Real Estate on BiggerPockets.

Which One Protects You More From Lawsuits: An LLC or The Series LLC?

If you've got money, people want it. Lawsuits are one of the easiest, yet still legal, ways to get your money. The more money you have the more likely it is someone will try to take it from you in a lawsuit. The same applies to your LLC if you have one.

The more money or equity you have inside your individual LLC, the more attractive it's going to be for someone to sue you. And when they do, all of your assets will be caught under one legal net.

That's why, compared to an LLC, a series LLC offers far more protection for you and your assets when it comes to lawsuits.

The series LLC allows you to "compartmentalize" assets. Which simply means you can spread your assets out so in case someone does sue you, only one of your assets will be at risk. I've already written a lot about the series LLC, you're welcome to read about them here. You can also read about what the IRS thinks about an LLC here.

Today I'd like to answer a question I've never answered before, at least on this blog. I know you might be wondering...

How Much Money Will Setting Up a Series LLC Cost Me?

Our pricing packages for setting up either an LLC or Series LLC at Royal Legal Solutions range from $850 to $4000.

So why should you bother paying for an LLC when you technically don't need to have one? I hate to answer a question with a question, but I've got no choice this time! Ask yourself this: Would you rather risk losing hundreds of thousands of dollars in a lawsuit or spend a couple thousand protecting your assets?

I don't want to see you caught up in a lawsuit with your pants down. I bet you don't either. And remember, you're not just paying for an LLC when you come to Royal Legal Solutions. You're paying for our expertise, professionalism, and unwavering commitment to making sure your assets are protected from lawsuits.

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

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

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

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

Parts of a Real Estate Land Trust

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

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

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

Selling Real Estate From A Land Trust

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

The best part is, this person can be you.

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

Title Clouding & How To Avoid It

Time and time again, I've told you how using a Series LLC can protect you and your assets. Today, I'm going to tell you another way you can protect your assets. If you're a real estate investor, you definitely want to pay attention. Get ready to learn about title clouding.

Lis Pendens (latin for "suit pending") much like the name of your high school's prom queen, sounds nice. But it can screw you over if you're not ready for it. A Lis Pendens may be filed against your property if it's involved in a lawsuit.  If someone does file a Lis Pendens against your property, you won't be able to sell it. Not until your "legal problems" resolve themselves anyway. In the field of asset protection, we call this  "title clouding".

Why Should I Care About Title Clouding?

Title clouding is just another tactic enemy legal council will use to put pressure on you to cave in to their demands. It's a strategy favored by lawyers with costly, unreasonable demands. Think about how much money you can lose if you're not able to sell a home you bought just to flip in a short amount of time. What if you need cash and want to liquidate an asset? Title clouding can and will screw you over.

Lawsuits can take years to resolve. All the while, you have to hold on to your asset. At any time one of your properties can get hit with a Lis Pendens and force you to deal with the title clouding that comes with it. Technically, you can still sell your property while it's dealing with title clouding. But who is going to want to buy it when it's the subject of a lawsuit? Think about that question from the perspective of a real estate investor.

If your property does get hit with a Lis Pendens and you end up winning the lawsuit, you can sue whoever filed it for the monetary losses you took as a result of title clouding. And that's where I come in.

My name is Scott Smith. I'm an asset protection attorney based in Austin, Texas with clients all over North America. I'm here to help protect you and your assets from lawsuits.

Call now or schedule your consultation today. Whether you're dealing with title clouding, trying to avoid it, or just need to cover your assets, I'm here to help.

The Dangers Of Fraudulent Transfers & Lawsuits

The Law Favors The Proactive When It Comes to Lawsuits

Being proactive means instead of reacting, you're directing. Why react to a lawsuit when you can direct your assets and avoid a lawsuit all together?

In the real estate industry lawsuits are filed everyday in the United States. If you're not protected, you can easily be caught up in one of them and lose everything. We're talking home equity, other assets and even your car. So if you're thinking about waiting to set up your LLC structure, don't. The fact of the matter is, once you're sued, it's already too late.

So once someone threatens you with a lawsuit, you might want to transfer your assets to someone else to protect them. The problem there is asset transfers after the fact of when a lawsuit is threatened or before it's even filed, can be considered a fraudulent transfer.

A fraudulent transfer doesn't necessarily mean that you did anything that was shady. All it really means is that you transferred the asset outside of the normal course of business.

Fraudulent Transfers

For example, you can't sell it to your niece for a dollar and think nobody will say anything. But if you sold it for what it was worth, then you'd be okay. Still, the best thing you can do is be ready for a lawsuit.

The best way to avoid a lawsuit is to be ready for one. I've written about a number of ways to do this. One such way is to hide the equity in your real estate from creditors, which you can read about here.

Don't Wait, Be Proactive

A solution won't just fall out of the sky and into your lap. Remember, the law favors the proactive. And one of the best things you can do to that end is to contact a specialist.

How To Make Your Assets Judgment Proof In A Lawsuit

If you’re a real estate investor, you are at risk from lawsuits whether you know it or not. You may already know the real estate industry is a breeding ground for lawsuits. Now add in the fact that you live in a country where people can sue you for nearly anything.

As a real estate investor, you’re at risk of losing everything: equity, assets, and even your reputation. This is especially true if you hold assets in your personal name.

Did you know that a lawsuit is ranked one of the top three things that people find the most distressing events in their life? Lawsuits rival only with divorce and bankruptcy. The good news is, I can make your risk disappear. This means you’ll be untouchable when it comes to lawsuits.

How, you ask? First there’s something I’d like you to know: the truth about how the wealthy protect their assets.

The Truth About Protecting Your Assets From Lawsuits

The truth is the super rich don’t own assets. They only control them. They do this through a network of LLCs and trusts. These networks protect their assets and allow them to hide them from anybody looking to come after them. You can learn more about how LLCs and trusts protect you from my previous article on the subject.

Imagine the disappointment of anybody looking to sue you when they find out you don’t own anything. Well, at least it will look that way on paper. In reality, you could be worth millions and only look like you’re lower middle class. But the person suing you won't know that.

Who would sue somebody who appears to own nothing? That’d be a waste of time. Remember, the average person doesn’t have the money to pay legal fees upfront. What most people do is split the settlement, assuming they win.

Make Your Assets Judgment-Proof Now Before It’s Too Late

No attorney is going to come after you in a lawsuit if they think they have nothing to gain, pure and simple. But you better believe they’ll see dollar signs when your name starts showing up in  paperwork.

My name is Scott Smith. I’m a real estate investor & an asset protection attorney. I know both sides of the game because I’ve played on both. Give me a call today, and together, we’ll make your assets judgment-proof!