I listened to Ron LeGrand’s CD on Bomb Proofing Assets. This is what I got out of it:
You should never deed a property into your own name but deed it into a (land) trust.
You should use a separate land trust for each property.
The benficiary should be an LLC. Probably a different LLC for each property.
The Trustee should be a nevada C corp so you can name an unknown trustee. :o
But I don’t really understand it. Could someone please explain how this works, when to use it and when not too, how to use it and how to do it? (I live in Tucson, AZ, if that makes a difference. If the best thing is to consult someone, should I just go to the firm Le Grand recommends or is there someone here in tucson who knows both asset protection and tax planning in the legal aspects?)
That would be a LOT of work and expense - putting each property in its own trust and with its own LLC for the beneficial interest. If you are only planning on having one or two properties – maybe, but it would be prohibitively cumbersome if you own a lot of properties.
State laws govern who (or what) can be the trustee. In Ohio, the trustee MUST be a living human being - it CAN NOT be a C corp. Also, if the company is owned by an out of state company, you may be required to file as a foreign corporation or foreign LLC in your state - EVEN MORE NEEDLESS EXPENSE AND HASSLE.
Obviously, you need to consult someone who knows the law in your state. Personally, I would NOT use the LeGrand model.
Disclaimer: I am not a lawyer and don’t want to be one (and wouldn’t be too upset if they all suddenly disappeared from the face of the earth)! If you need professional advice, consult an appropriate professional.
In MA an LLC costs $500 a year to the state. PLUS its almost like you are a king because, only Lawyers and CPAs can do work on your behalf.
EXAMPLE: I was buying a 48 unit rehab that was in court for multiple reasons. When I showed up to represent myself and speak with the city, judge, lawyers etc. I was told go home we CAN NOT talk to you, you are an LLC. Since my lawyer was unavailable they postponed the hearings.
My bank requires a certified (by CPA) financial statement every year on my LLC since the properties are in an LLC.
SO basically I have all my properties in one LLC. Some people may disagree but all my lawyers say its ok. I just can’t image spending the time and money to start a new LLC on every property.
Before this year in Texas, there was a law that limited having one LLC own multiple properties (it didn’t outlaw it, and didn’t make it difficult, it just added a franchise tax on some dollar amount an LLC had - revenue? profit? assets? - I can’t remember which). Anyway, I was talking with my CPA a few weeks ago, and she said some new laws changed this. I was there to talk to her about other stuff, so we didn’t go into detail about it. I have a meeting with her this month to go over my taxes, and I’ll talk to her more about it.
Bottom line is make sure you know ALL about the ramifications of holding properties in one or more entities (or even which entity) for your specific state.
Hey mike, how many properties do you have in each trust? I seem to remember you saying you just put your apartments into them. I’d love to hear your theorys or logic behind using trusts and LLC’s.
Sure would love to find a 500 dollar course on land trust use under my pillow. But until then it’s what I can find on this wonderful site.
Sure would love to find a 500 dollar course on land trust use under my pillow. But until then it's what I can find on this wonderful site.
What I try to do when I buy any course is decide if the course will either save me money or provide something that will make me money (that I can’t find elsewhere cheaper). I think I mentioned earlier that I paid about $500 for Pat Tarr’s course “Armour and Camouflage”. I did that because it had all the information that I needed (including all the forms) to be able to set-up the entities myself. With the information, I would be able to set up as many land trusts and LLC’s as I need. The alternative is to pay an attorney or an entity company to do these for me and needless to say, that would cost MANY TIMES the $500. I have absolutely no interest in or relationship with Pat Tarr, in case you were wondering. She wouldn’t know me from the man-in-the-moon.
To answer your question, I only have 1 apartment building in each land trust, but I have 2 land trusts with the same beneficiary (my LLC).
I only have my apartment buildings in land trusts. I do this because they are the highest risk rentals. I don’t have everything in land trusts, because I don’t want all of my properties owned by a trustee (not me). My SFHs are divided into different LLCs, I started out with 5 SFHs per LLC, but am increasing this to 10 per LLC. I don’t want to have too many LLC’s because they each have a check book, separate account for bookkeeping and tax purposes, etc. It is too cumbersome to have too many LLCs.
I just went down to the Arizona Corporation commission office and it is only $50 to register an LLC plus publication fees once I receive it in a month. ($85 for 1 week, think its worth it?) Once I establish the LLC, I can then get credit in the name of the LLC (though I will have to personally guaranteee the money in the beginning.
The other defect of using an Arizona corporation is that I as a member is listed on the website. I have an authorized agent who is also listed. I have considered using a Nevada LLC because then the members cannot be disclosed, but Arizona requires all corps to register, and if I am a Nevada LLC I have to register under Foreign Entity. Not sure what all this mean so I would love advise.
a foreign entity means a company domciled in another state. basically it means you get to register and pay twice.
starting an LLC for every property is the talk of gurus who do not really operate properties. I own more than a dozen and having an LLC for each one would be an accounting nightmare; not to mention the added expense ($800 in Calif). Land trust are good to use as they get your name out of the public record and basically free to use if you know how to set them up. There are several different shades of how to do a land trust, but you probably need to get trained prior to using one. Yes, you can buy books, but some of the details can be trikcy depending on your state, situation, etc.
IMHO, don’t get too wrapped around the axle about how to hold properties, etc…the point of REI is to learn how to do great deal. Figuring out how to do complex corp. structures does not yield a monthly rental income check. It’s important but should not be primary focus.
I agree with everything AAK said, In addition, you should consider that the Trustee is the legal owner of the property. The trustee can legally sell your property or do anything else he’she pleases with it. The trustee is on the deed!!! Therefore, the trustee MUST be someone you know and trust.
I would bet that Legrand is recommending this company becasue he’s probably making money from it (or maybe even owns it). There is an entire industry of these entity companies who make their money charging newbies for things they don’t really need.
If there is someone (with a different last name) that you trust enough to be your trustee, then you might want to consider putting each property into a land trust. I certainly would NOT have a separate LLC as the beneficial interest of each property (unless your properties are all larger apartment buildings). I have several dozen rentals. Could you imagine what a nightmare it would be to try to balance dozens of check books; pay the accountant to do dozens of tax returns; etc? Pay the Nevada company a small fortune each year to be the anonymous trustee? Ridiculous!
Theoretically, if someone sues your LLC that holds ‘x’ number of properties, they can go after ALL the assets in that LLC, too.
A coworker of mine went to the traveling Trump seminar recently and said they basically recommend creating a Limited Partnership for each peice of real estate. Although my coworker didn’t exactly say why they chose an LP and not an LLC (or any other entity). They then create an LLC, which becomes the managing entity. And then all of this is put under a Living Trust to avoid much (all?) of the probate issues. He said they also talked briefly about CRT’s (Charitable Remainder Trusts) to park money in that drops your capital gains to -$0-. The “catch” was buying their system with all the forms specific to your state to set it all up for something like $2,995.
That sounds great in theory, however how much is it going to cost to establish and maintain a trust, a LLC, and a Limited Partnership for each property. If each of your properties is a 10 unit apartment building, then that might make sense. However, if you have single family houses that have a positive cash flow of $100 per month, then the cost of these entities alone could wipe out every penny of that cashflow! That doesn’t make sense to me. You don’t have to worry about being sued if your entities drive you out of business.
My 2 cents…I definitely see where Mike is coming from I also see a bigger issue…Many of the investors here already have assets in need of protection other than the dumpy rentals we are trying to cashflow for coffee money per month…I know myself speaking I’m not concerned about the clapboard piece of crap I’m buying upstate,I’m concerned about my businesses,homes,personal accounts that may be at risk from tenant lawsuits…As it is right now I have something like 10 corporations,1 LLC and a happy accountant and a few very happy attorneys…What I have learned is you have to make it into a maze for anyone to get any one item easily…My home is in my wife’s name,my business corps are spread out amongst everyone in my family,the LLC etc is in this ones name…Lawsuits are everywhere and people sue over nothing…It’s a shame but it has to be this way…I never totally agree with anyones methods fully but the bottomline is you have to do something…To think for years I had tons of stuff in my real name,how incredibly foolish/risky…
I agree with everything you said. There is no right or wrong solution to asset protection. In my case, I currently have many entities but certainly have more than one rental for each LLC. In my view, the entities should be divided according to risk. Several nice single family houses in one entity. A couple of apartment buildings in another. That way, I can limit the exposure of any one lawsuit to a small number of properties and a few hundred thousand dollars. I can also make money with my properties and am not sacrificing my profit by operating too many entities.
Could someone please explain how this works, when to use it and when not too, how to use it and how to do it? (I live in Tucson, AZ, if that makes a difference. If the best thing is to consult someone, should I just go to the firm Le Grand recommends or is there someone here in tucson who knows both asset protection and tax planning in the legal aspects?)