DAD AND I AS BUSINESS PARTNERS.

General Real Estate Investing
1

So I’m just getting started in REI(atlanta, ga). My budget for sfh’s was 100k or less. I was trying to get into the hot markets of intown atlanta but, could not find a good deal in my target price range. This is when my dad offered to put up half of the financing through his lender for half the profits of our ventures.

How do I go about this transaction once I find the right flip? I’ve heard stuff about estates… are those ideal for my situation??? Since this may not be a long term business commitment from my dad, should I make an llc corp.?

Any input is greatly appreciated…

Thanks

ATLNEWBIE

2

I always recommend the LLC form for one reason - ASSET PROTECTION.

Corporate stock ownership is considered an “investment” that can be seized to satisfy a judgement against you personally. This puts the adversary in control of your business and its assets.

An LLC is considered “personal property” and as such (in TX) is not available to satisfy judgements to creditors.

Both forms protect you personally from liabilities arising within the business, but only the LLC protects the business from your personal liabilities.

With that, have your Dad loan your LLC the money. Execute promissory notes, the whole deal. Keep it legal.

When you’re done, write your Dad a check for half the profit. Call it “consulting”. He pays taxes on that; it’s a deductible expense for you, so you only pay tax on your half. Everybody’s happy and it’s pretty straightforward.

Mark Wagner, CPA

3

Hi Atlanta Newbie,

In my opinion, the best way to protect you and your dad is to place the property in a land trust. Once you have named your Trustee, he owns the real property, and you own the trust (personal property) that controls the real property through your Trustee, who must by law be loyal to you.

You, as Beneficiary, assign a 50% interest in the Trust to your dad. You’re there.

Regarding ownership in the land trust, one’s beneficiary interest (being intangible personal property versus real property) provides a high degree of protection (though not absolute insurance) against a judgment creditor’s partitioning of one party’s interest from that of another: thereby forcing the sale of part of the property or liquidating it and dividing the proceeds.

To best protect against such occurrence, it is prudent and highly advisable for land trust participants to hold their respective beneficiary interests in a Limited Liability entity such as, say, a Limited Partnership or a Limited Liability Company (LLC). In so doing, each beneficiary can then be free of concern about the accidental or untoward misdeeds of the other (i.e., dealings that could otherwise easily involve the property’s title by either party’s creditor’s claims, tax liens, bankruptcy, legal actions in marital disputes, probate, etc.).

“Since the interest of the beneficiaries under a land trust is personal property, and since the trust agreement expressly precludes the vesting of any legal or equitable right in a beneficiary, partition is not available.”

Henry W. Kenoe, Keno on Land Trust, IICLE, p 3-012 Sec. 3-9 (1989)
Wile, “Judicial Assistance in the Administration of California Trusts,” 1`4 Stan. L.Rev. 231, 245-250 (1962)
CA. Estate Administration, §§33.11 to 33.35 (Cont. Ed. of the Bar, 1959)
Aronson v. Olsen, 348 Ill. 26, 29, 180 N.E. 565, 566 (1932); Breen v. Breen, 411 Ill. 206, 210-12, (1952).
Probate Code §§11600 et. seq. & 2463;

You can also avoid INHERITANCE TAX when the land trust is IRREVOCABLE or a Remainder Agent is named.

• CA. Probate Code §600
• CA. Rev. And Tax Code §13303
• Title 18, CA. Admin. Code Reg. 13303(D)
• See Estate of Tutules, 204 Cal. App. 2d 481 (1962).

PROTECTION FROM LIENS AND JUDGMENTS = ASSET PROTECTION

A creditor may reach the corpus of a land trust, unless the trust is irrevocable, or there would be more than one unrelated beneficiary (as with the model I use). This is based upon the idea that a co-beneficiary in a land trust can be seen as a “partner,” and a claim against a co-beneficiary would be impossible without a dissolution of the entity (the trust) and since an unrelated co-beneficiary is not responsible for the actions of the other: such dissolution would not be allowed.

Henry H. Keno on Land Trusts, IICLE, Springfield, Illinois (1989)
Smith v. B of A; Houghton v. Pacific Southwest Trust and Savings Bank: 111 CA 509, 295 p. 1079,
The CA. Code of Civil Procedures §697.510]

I’m not trying to sell you a land trust and I’m not an attorney, but I know land trusts and HAVE been a counselor for 30 years. Investigate this method of asset protection for you and your dad. It’s what I do myself, and recommend to my own kids.

Best of luck to you.

Da Wiz