I’m getting married in a little while and need advice on how to protect our assets.
Me- I have a 4 family investment property (in my name alone), a small freelance audio company (Sole Proprietorship) , and an IRA and some savings.
She- No real estate, but has savings, 401K, Roth IRA, etc.
I'm worried about the liability of owning the house (tenants) and the liability of my audio company. Is an LLC something I should look into?
I am also planning on doing more real estate investing and want to be protected from potential future liabilities. Any advice is appreciated.
Check your state’s laws. Some provide protection to IRAs. The 401(k) and any other retirement accounts subject to ERISA are immune from creditor seizure, even if you murder your ex-wife and her friend, and wind up with a 33 million dollar wrongful death judgement from the civil trial. Roll the IRA into a 401(k) if your state provides limited protection.
See if your state will allow you and your wife to own your primary residence as tenants by the entirety rather than joint tenants. File a homestead in any case. Equity stripping can be effective if your state’s homestead protection is weak and you can’t own the property as tenants by the entirety.
Who does the management and repairs on the investment property? If you, forget the LLC and get everything out of your name. Keep your wife out of the business. You can ask her advice and she can help you, but keep it informal and do not let her sign anything regarding the property. Tenancy by the entirety is useless if both of you have the same creditor.
Do some research on fraudulent transfers. Moving assets around to protect from future liabilities is a fraudulent transfer and will offer you no protection if a creditor tries to seize your assets. NEVER say you did something to protect yourself from a judgment or creditor. It creates a straight line for the creditor to seize your assets.
These are just some general comments and you will need to sit with a qualified planner to structure a plan for your unique situation.
Any asset that can expose your other assets to risk should be placed in its own independent business entity. Whether its an LLC or Sub S depends on the type of asset. For all real estate an LLC is appropriate. Real Estate held in an LLC will provide a step-up in basis for tax purposes. For most other assets a Sub S is fine. Sub S is cheaper.
Your rental can expose the rest of your world to serious personal liability in tort, discrimination, personal injury, premises liability etc. Please, hold it in a Sub S or LLC. You’re playing with fire if you think your insurance policy will cover all losses.
Not sure what type of exposure your audio company can bring other than contracts and paying vendors, but if your transaction are lucrative then put it in a Sub S to protect your other personal assets as well as that rental.
Justin had some good information on asset protection and tax strategies and being an attorney from checking his website impressive for a broker to be an attorney as well that is great to know that attorney’s who understands investors problems with asset protection and tax strategies in their investing. Thanks Justin you are gold.
I just would add I believe in using land trusts to hold property that one should use them where you assign your % of beneficial interest to your LLC or C corporation. In this manner the LLC provides the LLC liability shield for its member and the land trust provides the protection for the corpus… the title being protected as well…
Justin: In holding real estate in one’s LLC other than the DOS issue which most likely would not happen in todays financial/lender or bank world how is it a stepped up tax basis would that not depend on the tax bracklet or gross income of the LLC.??
Is there a liability to hold asset real estate in one’s LLC even though you have the liability protection unless you layer out why commingle assets that the LLC has or holds…??
From my understanding if the LLC was a beneficiary the tax responsibility would fall to the beneficiaries so it would fall to the LLC anyway seamlessly.
Although most revocable trusts do NOT provide asset protection the one I know of does provide some or partial protection via the Kenoe on Land Trusts 1989 ruling but of course we know this is NOT ironclad but the main thing is the trust itself can NOT be pierced and the asset taken to satisfy a creditor judgment only that one beneficiary’s interest…
This case law precendent provides the legal basis per state statue for any charging order coming at the trust. Most times this is handled by higher apellate court which in turn adheres to that ILLINOIS ruling. It deals with the non-partitionality of personal propety which is what beneficial interest is so it can not be partitioned to satisify a creditor claim or judgment.
We have seen this happen over the years many times from investors who were subjected to this action. The trust can not be pierced due to this ruling only via a court order that beneficary who has a judgment or claim againest and proves successful that creditor can assume that interest in the trust via a UCC-1 filing, from my understanding so the trust is in place the only thing is the one creditor will get paid on that % of beneficial interest held…They need to get through the trustee first to locate the beneficiary so it is a long process…
I think that investors should use both LLC and Land Trusts in their asset protection strategy (no legal advice intended) just my opinion and get good legal advice as needed…
Another quick thought is if you are only working with other investors on a one time deal on a particular property or on a per property basis why include them in your LLC that is when a trust in my view is desirable.
There is no ironclad shield but it is much better than having it in your personal name that is for sure…