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.
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.
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.
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.
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 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.
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