I am getting started an want to form an LLC. Any recommendations for a state to file it in. I have heard Delaware is the best but am unsure.
Hello, I have also heard that Nevada has lots of benefits to forming an LLC there.
you’re probably better off forming it in the state you live in.
if you’re like me and you invest out of state, you could either invest inthe state u’re investing in, or choose among nevada, wyoming and delware
Check out this article before you proceed with your LLC
there are tax benefits to forming an llc.
if you do something wrong you will be found liable no matter how you try to hide ownership.
There are ABSOLUTELY NO tax benefits in forming LLC!!!
It’s a pass-through entity and shows up right you the individual’s tax return!
true.
but if you have a partnership with you and another one of your entites, its shows up on a seperate tax return
and not your schedule C.
shedule C’s are highly audited.
partnership returns have the lowest audit rate. thats the advantage.
The discussion of tax benefits of partnering with another partnership is irrelevant here. The original posting is about forming a simple LLC. Just like the partnership LLC is a pass-through entity with no tax benefits whatsoever.
As to forming an LLC or whichever entity needs to be addressed by a competent estate planning attorney and I would most definitely look at deleware or Nevada to form that LLC.
As to that article Mr Faraglioni requested that REI members check on, well I did read that and found it interesting to say the least.
I think this guy or alleged attorney is real critical of any asset protection and I think he obviously has a hidden agendas since he is selling his own seminars and services and I there is nothing wrong with that it is the matter in which one does so as to how ethical they are and if they have integrity. I do agree that if you conduct your business in a just righteous matter you should not have problems but in reality even if you do bad things can still unfortunately happen…
For the small investment of setting up a LLC or whichever entity you so choose as long as you get competent legal advice why not do it… YOu can also establish corporate credit and not have to deal with your personal credit that alone is reason enough.
I personally work with land trusts and I have heard the same thing said about trusts in that they provide no asset protection in using them. The reason for this misinformed view is due to if the trust is not setup propertly thus you have a dry or abusive trust and that is not a legal binding trust anyways and that in my view is the key since as we all know nothing is bulletproof in this business.
When you use corporate structures like LLC and trusts in my opinion this effectively if done right, you drastically decreases the management headaches if you did not have them.
Trusts provide turnkey solutions in managing troublesome and difficult properties as well as some 30 or more benefits and is very effective in asset protection and estate planning.
One needs to see if the benefits outweigh any potential downsides to forming any entity in business.
Just my thoughts and Iam not qualified on LLC and taxation so Iam not going there let the attorneys handle that one.
Just my take on things.
only single member LLC are pass-through entity.
multiple member LLC can elect to taxed as Corporations or partnerships.
its good to correct people but don’t hide the whole explanation!
All partnerships and s-corps are pass-through entities and you never want to put your real estate into a c corp because as soon as you sell it you will be slammed with huge taxes.
He might be a lawyer, but I think that he is way off.
A well planned asset protection program for your properties should protect you.
Land Trusts create privacy plus multiple other benefits of Trusts in General such as easy of tranfer of the Trust Corpus.
LLC/Corps Do provide liability provided it was not an act of commision or omision by yourself.
What if you want to invest 10K in your brothers corp and now you own 10% of shares?
Everything is fine, but there is a lawsuit by the neighbor of the property owned by the Corp (or LLC) because the Tenants Dog bit her.
Are you (a passive investor/owner) liable?
Should your assets be at risk?
If your brother was the property manager, he might be liable, but I don’t think that you will lose more than the value of your shares.
Remember that the Lawyer for the plaintiff will do a search of what you own. In Florida it is a good idea to keep your homestead in your name, but what if you also own 100 properties which are all of them in a separate Land Trust and the beneficiary is an LLC (or series of LLC’s) whose members happen to be Personal Property Trusts?
It is not as expensive as you may think.
If you OWN a 100 properties and they each have an average of 200 dollars additional expense per year because of your entities, is that expensive? Isn’t that actually good insurance against frivolous claims?
Remember that 100 properties @ 100K each (for example) are worth 10 MILLION dollars, and should be producing (depending on the area) about 8K-12K a year gross each (yes that varies greatly).
You are making 800K-1.2M gross.
We could debate this all year long, but I think that this guy is on one of the extremes of the issue.
I like privacy, I hate people knowing if I own a bunch of properties. Before the Internet if you wanted to know that info, you had to go to the court house.
BTW, Florida Land Trust statutes were enacted in 1963, shortly after that several Land Trusts started buying large tracts of land that happened to be contiguous but it was not apparent because there were several separate Land Trusts involved in this purchases.
You might have visited the place, it is called World Disney World!
LLC’s are pass through entities no matter how many members it has, single or multiple. It is ALWAYS a pass through entity unless it has chosen to be taxed as a C corp which for real estate investment would probably be a stupid decision.
Single-member LLC can be taxed as Sole(disregarded entity), or Corp
Multiple-member as Partnership, and Corps.
You do this by filing Form 8832-Entity Classification Election.
If you want to Elect a SubChapter S Corp you also have to file form 2553.
FloridaInvestor
one more thing about abalos, who wrote the “you shouldn’t protect your assets in LLC’s” article is that he has recieved a lot of flak on other message boards. i have spoken to a several investors who feel they were duped by him and think he’s unthical and a con man.
there are several good articles on different msg boards about why one should form an LLC. here are some links
http://www.thecreativeinvestor.com/residential/ViewTopic46981-12-10.html
http://www.thecreativeinvestor.com/residential/ViewTopic32860-12-14.html
http://www.thecreativeinvestor.com/residential/ViewTopic34952-24-33.html
No need to convince me of that, something is wrong with his article…it doesn’t sound right. He accuses others of trying to sell their asset protection plans by scaring people into forming LLC’s etc, but isn’t he also selling something?
Anyway, he is an attorney and I am not. But I am a physician who is somewhat knowledgeable about entities, trusts, asset protection, etc. I think I’ll follow the advise of other lawyers (like Bronchick) that do recomend to divide and isolate your assets. If you do something, you might lose some of them, but most likely not all.
First off Florida investor and niravmd you are right on as to land trusts and asset protection and I was impressed with your knowledge of entities and I need to get more versed on LLC and such myself.
Great post on this topic…
If you research Bill Gatten,Bill Bronchick, Mark Wadra, Jack Shea, and Jack Miller to name a few of the land trust gurus they make have somewhat different methods but im sure agree to the basic premise of how land trusts asset protect you and using corporate entities to furhter asset protect you in your R/E deals.
I do work with title holding land trust entities and there are state case procedents for using them and land trusts do such much more than just shield ownership, there aremany other r recognizable benefits to using the Illinois type title holding land trusts.
As to the subject of Robert Abalos I found out he is a con man and scam artist. Go to this url link off of www.land trust.net on Bill Gatten’s page http://www.landtrust.net/cgi/yabb/YaBB.pl?board=PACTrust;action=display;num=1124396731 and you will se what this guy has been up to it is interesting reading. Bill Gatten advised he received many complaints on this guy.
He is notorious for taking people money at these seminars and not having one and not returning your monies…??
Stay clear of this guy and I am in total agreement that Abalos’s article just does not make sense it is very extreme approach that is not logical at all. The funny thing is when I first read it I did not know it was Robert Abalos until I clicked the contact link.
Don not take my work for it since Florida investor posted other links about this character…
I normally do not relish negative press but from this guy’s reputation it is well founded.
If we can save on REI member from getting conned Id say this effort was well worth it.
Thanks to all…
Hey,
Good discussion guys and thanks for all the information and documentation. Keep up the good work.
Peace,
Richard
There’s three important issues discussed here:
- WHETHER TO FORM AN LLC AT ALL?
Do LLCs really provide protection? Can’t someone poke a hole through them if you do something bad? The answer is yes and no. The presumption is that an LLC protects its owners from liability. A presumption is a legal burden of proof in court, like “innocent until proven guilty”. True, some lawyers have been successful in “piercing” corporate entities. And, the worse your behavior, the more likely the entity will be pierced. *But, since the PRESUMPTION is in your favor, why not use it? Remember, the plaintiff must PROVE facts to overcome the presumption and hold you personally liable. In other words, should you wear a bulletproof vest even though you can get shot in the head?
- ARE THERE TAX BENEFITS TO AN LLC?
For federal income tax purposes, no, the LLC is “tax neutral”, no worse than reporting on your own return. BUT, there’s a whole other set of taxes we’re not discussing here - ESTATE TAX. LLCs and limited partnerships allow you to save tens, even HUNDREDS of "thousands in estate taxes because of “valuation discounts”. Plus, LLCs (and limited partnerships) have a unique asset protection feature, which prevents a creditor from forcing liquation of your LLC interest.
- WHERE TO FORM?
The quick answer is, your own state. Basically, for real estate investors there’s no advantage in forming their primary entities in NV or DE unless you invest there.
Hope this helps.
William Bronchick, Esq.
Legalwiz.com
P.S. - that article cited about LLCs is by Robert Abalos, who was suspended by the Virginia and D.C. bars for not paying his dues and complying with his CLE (continuing legal education) requirements. His opinion and a quarter wouldn’t buy a cup of coffee.
I recently attended a CLE seminar at which the lawyer, a very respected member of the bar, opined that it was MALPRACTICE for a lawyer to tell his clients to hold real estate in their own name.
Thank you Bill