Jim Burroughs emailed: Today I called a CPA and I informed them that I wanted to form an LLC. I told her that I was being sued and I was concerned for my rental property. She said use a landtrust and I should come in for $250 an hour and talk about it. What do you think.
First off, CPA’s should neither be consulted for legal advice nor should they give it. Taxes & accounting are one thing, legal advice very much another.
Second, the time to set up an entity for asset protection is BEFORE the whiff of a lawsuit arises. Any transfers after knowledge of a lawsuit (or even the knowledge of the mere possibility in some states) can be unwound as “fraudulent transfers”. That theory applies to transfers to friends, family or entities, especially if there is no or little consideration paid. It likely will not hurt to form an LLC now, but it may well not help at this point.
I am not a big fan of land trusts. First, they are not an alternative to entities, they are a supplement. They provide a very modest amount of privacy, but no asset protection. In my subjective opinion, the costs of having them are not worth the benefits. If you want your average Joe to not be able to see what you own (I personally do not care), then use them. But do not count on the fact that “no one can find my assets” as a deterrent to lawsuits. I’ve interviewed plaintiff’s lawyers as to how they decide to take a lawsuit. When I ask whether not being able to find assets before the suit deters them, they inevitably laugh…they do not “check to see what you own” before suing, that’s guru nonsense. They look to see if they have a case and (often but not always) check to see if the potential damages are large enough to justify their time - but I’ve never heard one say that they search to see if they can collect. They assume that insurance will cover enough, and it usually does. Filing a lawsuit and puttin the ball in your court is easy & cheap, searching for your assets before a judgment would take effort - something lawyers tend to avoid. Once the lawyers have a judgment, they can discover what you own in court - landtrusts provide NO privacy on post-judgment collection. While landtrusts are useful in specific situations (e.g, avoiding transfer tax in some states), as an asset-protection tool on buy&hold properties, they are near worthless - guru hype to the contrary notwithstanding.
John Hyre