I own several SFR’s and I’m trying to figure out how best to insulate myself. I currently own and manage them in my own name and haven’t had any problem.
I was thinking of titling them in a land trust, both existing and future acquisitions, with my friend’s llc as trustee, I will be the sole beneficiary, actually, my estate planning living trust will be the beneficiary. My state charges too much to form an entity for each property.
I also like to lend hard money and am thinking of starting a smllc for that purpose. In considering the pros and cons of this new llc, I had the idea that I could create a heloc for each of my properties so they would all have extremely high ltv’s thus not very juicy to a potential future judgment creditor. This seems to me to be a very good plan.
Unless you are giving up total control of the properties to your friend’s LLC, you protect nothing and put him on the hook for anything that happens regarding the property.
That’s OK as long the loans are real and your interests can’t be merged.
I was told that if something happened unrelated to the property and ultimately a judgment was recorded naming me personally that it would not attach to re not titled in my name. If this is true, then that is something.
“That’s OK as long the loans are real and your interests can’t be merged.”
I would generate all the paper work same as the biggest bank, between the llc and me personally (or the trustee of the land trust for trust titled re), although there would never be a draw on the credit line. As long as the state recognizes a smllc as a separate entity there isn’t any merger that I can see.
Are you saying that the trustee actually makes the decisions regarding the property and you have no say? If so, your personal liability will not affect the trust. If you have a say in the way the trust assets are used, a judge can order you to direct the trustee to distribute them to your creditor to pay your judgment.
I take back my answer. I didn’t see the single member part earlier. I don’t see how this set up can survive a challenge, especially if your actions were the ones that generated the liability in the first place.
I’m talking about a revocable living trust were the trustee takes direction from the beneficiary. I understand your point about the judge directing the trustee to distribute…a revocable trust is not asset protection. I’m thinking the part where the judge orders distribution is a whole new court proceeding that the judgment creditor must undertake after judgment and attempts to settle, thus unlikely, or less likely, to ever come about. And, if the trust does finally come into court focus, could I not add a beneficiary to limit creditor to a charging order?
It’s not hard to see how my proposed setup could be viewed as me lending money to myself, even though an llc is in the middle. But, before it finally comes to a merging of title issue, doesn’t there have to be a second proceeding, again unlikely, or, at least, less likely, only after negotiations and offers to settle? And, if the validity of the smllc does come under court focus, again, could I not add a member to limit creditor to a charging order?
This is not a particularly expensive or complicated setup. The trust is virtually free except for a very reasonable trustee fee and the llc is going to exist anyway.
The judge will award damages after the trial, if applicable, and put you in jail if you don’t pay. It’s as simple as that. It’s even more likely if you start playing games after you incur the liability.
Playing games to prevent a creditor from collecting a valid judgment will only anger the judge. People have been thrown in jail.
Everything I do has a legitimate business purpose, I would never play with the court, especially after liability has been established. I think this subject is too detailed to cover in a forum like this.