Don't need an LLC??? - Posted by Tyler

Real Estate Investing Real Estate Law
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Posted by Rich-CA on May 16, 2007 at 13:38:20:

Thanks for the detailed and informative response. I had considered a number of these things when setting up an LLC structure and have to admit I waver back and forth about how useful it really is. The one thing that differs between us is that, for all that CA is considered a Socialist state, we are still far less regulated than the Northeast. Additionally, all my business dealings are outside CA, so activities there are subject to the local state’s laws. This is where it gets kind of sticky.

I have an operating LLC in each state that signs contracts, collects rent, pay taxes and so on. These are in turn owned by an LLC in NV. To get at the owners of the NV LLC, they have to file in a NV court, not in the state court where the original suit is filed, because the state does not have jurisdiction outside its borders (despite what Mayor Bloomburg might think in sending his undercover agents to VA).

That at least limits my losses to what is inside the state boundaries. My primary is in CA, where I have no business interests, and another set of courts to go through before they can seize my property. The main thing isn’t the legit lawsuits, its making it hard for a lawyer to spend their time on a contingency case that is not a slam dunk.

On my side, I try to be ethical, fair, and even helpful with my tenants and the people who do work for me. I never try to cut corners on a fee or commission because good relations between people is the best way to prevent lawsuits. But it only takes one…

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Don’t need an LLC??? - Posted by Tyler

Posted by Tyler on May 08, 2007 at 21:13:06:

I went to see a real estate lawyer last week about starting my investment endeavors. He told me that because I don’t have many or really any(to amount to anything) assets that I don’t need to create an LLC at the moment and should puchase the homes under my name. He suggested umbrella insurance for the property. He then said that i could, when i have purchased several properties, quit-claim them into LLC’s. This advice seems to go against what i’ve learned but I need some input. Thank you.

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Lawyer is RIGHT ON - Posted by Jimmy

Posted by Jimmy on May 13, 2007 at 07:35:01:

and I’m a lawyer. you have nothing at risk now, so why complicate your life and your business? and why spend the money? What, precisely, are you afraid of? if there is something specific, please elaborate. understand that crazy and frivolous lawsuits are 1000 times rarer than the asset-protection seminar hucksters would have you believe. In 20+ years of practice, my clients (and I) were involved in hundreds of suits. and not one of them was completely frivolous. some were weak cases, but none were unpredictable. 1. divorce 2. business squabbles or every variety. 3. terminated employees suing for discrimination/wrongful termination. 4. personal injury situations. 5. professional malpractice 6. intra-family squabbles involving trusts, wills and family entities…

here’s the approach you should take for now:

  1. conduct yourself professinally and ethically and responsibly.

  2. fully insure your property, including GL (premises) coverage.

  3. diligently maintain your properties.

when you have 10 or so properties of a half million in equity, set up your entity and mae more money

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Re: Don’t need an LLC??? - Posted by Frank Chin

Posted by Frank Chin on May 10, 2007 at 11:23:31:

Tyler:

From the school of “hard knocks”, I see lawyers suing the “corporate entity”, whether it is a Corp or an LLC, and for good measure, INCLUDE the owners of the company for negligent management. For you at this point, an LLC may be an overkill. As he said, you can quit claim to the LLC later on.

My insurance agent and I was chatting about this, and her biggest claim was a tenant falling thru an old style shower door made of glass, and severely injured. Whether it is an LLC or not, some lawyer is going sue to say “Tyler was made aware of this dangerous situation, and I’m holding him personally responsible …”

It makes good sense to get an umbrella policy to cover yourself for several million dollars. It’s relatively cheap, $3 million cost me about over $300/year.

There’s so many ways to GET AROUND the LLC, that I’ve seen many married business owners put their homes under the wife’s name, and the business under the husbands name.

Frank Chin

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Some Do Some Don’t Some Will Some Wont - Posted by DJ-nyc

Posted by DJ-nyc on May 10, 2007 at 11:16:58:

I interviewed a new CPA last month who advised me in the same manner.

I agree with Natalie-Va, If an attorney advised you that when most of them would have been glad to accept your money and set up LLC’s, then I would take a look at why.

Insurance companies have some of the best lawyers in the country, however there are predators who love to “slip and fall” on your property; and what if your policy does not cover the claim?

Which one comes first? The chicken or the egg?

:slight_smile:

DJ-nyc

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Re: Don’t need an LLC??? - Posted by Max-Va

Posted by Max-Va on May 10, 2007 at 05:39:51:

I see many investors go out and form LLC’s and corps because it is generally recomended. They spend 1000’s of dollars for legal work. Then they are ready to get started and never do.
Some will argue, but I would advise you not considering an enity til you do your second deal

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Re: Don’t need an LLC??? - Posted by Natalie-VA

Posted by Natalie-VA on May 09, 2007 at 16:42:01:

I’m not an attorney, but I see this from another angle. You’ve got an attorney here who could be making some money by setting up your LLC(s). He is telling you that it’s not necessary right now. I think his logic makes sense. I mean, if you have nothing to protect, so why get into all that right now?

I would be more suspicious of advice from someone who is trying to sell you something, rather than someone who is not.

–Natalie

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Re: Don’t need an LLC??? - Posted by Colin Bochicchio

Posted by Colin Bochicchio on May 08, 2007 at 23:23:39:

This lawyer definitley is not asset protection minded attorney at all, so I suggestion is to go to another attorney preferably one knows estate planning.
No legal advice intended but you should start your LLC and get your operating agreement setup so you are ready to do business. If you can not do anLLC as of yet then I would highly suggest a land trust since that is the legal way following the Garn ST Germain or Federal Depository act of 1892 that legally allows you to vest your property’s title into an inter vivos trust then you can once the LLC or entity you setup is functioning assign your beneficial interest to that corporation in the trust. Do some research and its funny since you at this time are developing your assets this attorney seeing no real payday from you does not give you proper advice.
If i can help further you can email me at coltrust07@gmail.com I have a good overview on trusts and can discuss you investing objectives with you.

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Re: Don’t need an LLC??? - Posted by Rich-CA

Posted by Rich-CA on May 15, 2007 at 17:18:50:

I assume you remarks about getting around an LLC also applies to C-Corps? If not, let me (us) know as this would be a factor in the Corp vs LLC argument.

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Re: Don’t need an LLC??? - Posted by Rich-CA

Posted by Rich-CA on May 15, 2007 at 17:23:28:

I agree. When you can set up an LLC for $25 yourself, spending thousands to do it makes no sense at all.

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Re: Don’t need an LLC??? - Posted by Rich-CA

Posted by Rich-CA on May 15, 2007 at 17:22:22:

Transfer of beneficial interest to an LLC/Corp is not permitted under Garn St Germain. Nor is it permissible for the trustee/beneficiary to be different than the name(s) on the property before the transfer.

I got this from the Trusts department of Wells Fargo (who will also change the Note to match the Trust, but only if you follow a strict interpretation of the DOS clause).

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Re: Don’t need an LLC??? - Posted by Frank Chin

Posted by Frank Chin on May 15, 2007 at 19:11:44:

Rich:

I bought a business, and a short time before the purchase, a customer bought and installed some tires, but they fell off while going down the highway. They were not seriously injured.

The customers attorney sued the Company, a Corp, PLUS the owners. They’re asking for $1,000,000.

Fortunately, they had insurance. All the legal paperwork came through our office, and the staff went out on numerous occasions giving depositions. In the final one, they asked “where the owner’s were”, unaware the business was sold. They were told the sellers moved to Florida, and put all the proceeds from the business into their new home.

Apparently, from what I learned through the years, that’s the best asset protection anyone can get, is the homestead laws down in FL. We NEVER heard “a beep” from that attorney since they were told this.

And being in business, I had my share of worker accidents, and slips and falls. And I learned the best thing is to get insurance, as a scammer tried to shake me down from a slip and fall. I refused to deal with him, referring everything to the insurance. And the best news I heard was he said he had a hard time getting an attorney taking his case, and finally one who did are not returning his calls. Apparently, it’s not that easy to shake down an insurance company.

While I have LLC’s, and Corps (both S and C), I make sure I’m insured.

As to owners shielded by LLC’s and Corps, we had a serious accident at the business, and fortunately had workman’s comp, and I’ve since learned a few things. State law prohibits workers from suing the companies for job related companies. But I’ve since learned there are numerous strategies around this.

I also looked into state law, and it says even if you’re a Corp, the President and Treasuers, i.e. me, is personally responsible for the worker injury if I failed to obtain the proper insurance. I thought I had everyone covered only to be told that the SS# for one injured worker is not valid, and I may not be covered. So far, they haven’t come after me.

I’m telling you all this just to say that all IS NOT SAFE just because you got a Corp or LLC.

I know there is insurance coverage out there for corporate officers, and in the future, this is another thing I’ll be looking into.

Frank Chin

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Nowhere in USA is LLC $25 - Posted by John Merchant

Posted by John Merchant on May 20, 2007 at 14:45:13:

No state known to me is a new LLC $25 to establish.

If you know of one or more, tell us about them.

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Re: Don’t need an LLC??? - Posted by Colin Bochicchio

Posted by Colin Bochicchio on May 15, 2007 at 17:57:03:

Rich,
Yes no kidding that is why you create the inter vivos trust and then assign your entity whether that is an LLC, C corp, FLP etc a beneficial interest in the trust and that provides a dual mode of asset protection one for the LLC and its members and the land trust for the title property… The settlor beneficiary needs to retain a minimum beneficial interest our legal team advises us it is 10% to so as not to trigger a DOS.
The name on the deed will reflect the trustee’s name in the title vesting and that order from my understanding is for legal reasons in how the legal and equitable title is being held.
I can not see how it would not be different in the naming fo the trustee/beneficiary. This is all a silent transfer and is private.
No legal advice intended…

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Re: Don’t need an LLC??? - Posted by Rich-CA

Posted by Rich-CA on May 15, 2007 at 21:23:01:

I guess it also says that if you have to opportunity to consider where you want to go into business first, choose a place where you’re more likely to survive because the government is not hostile to businesses as a starting point.

Ages ago my Dad told me to make sure you have enough insurance to ensure the insurance company fights for you and not simply pays off the complaint and drops you. I always try to follow that advice. But I also make sure I do business in states with a track record of refusing to allow lawsuits to touch owners as long as their assets have adequate insurance. Even here in CA its the norm that if you insurance exceeds your net worth, they award will not be allowed to exceed the insurance coverage.

In CO, where I hold most of my LLCs, you cannot find out the names of the owners from a web search, and they have to pierce the company to get to those owners.

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Re: Nowhere in USA is LLC $25 - Posted by Rich-CA

Posted by Rich-CA on May 20, 2007 at 15:42:12:

I did tell everyone about this. Its in one of the other LLC related posts. I’ll repeat it again since you missed that one.

Sate of Colorado, e-filed New LLC is $25. Just go to the Secretary of State website (I do not have the URL handy, but its in my other post) and select e-file. Put in your LLC info, your CC info and then you’re done. My CO attorney does not charge for being the RA, but I do not have permission to post his name.

AZ its only $50 plus the newspaper announcements, but this is a paper process. TX is $200 e-files as is NV. With NV, after the e-filing you get in the mail a paper cert for the LLC.

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Re: Don’t need an LLC??? - Posted by Rich-CA

Posted by Rich-CA on May 15, 2007 at 18:46:52:

Thanks for your response. I merely pass on what the WFB trust dept. told me. I specifically asked them about an LLC due to asset protection issues and the specifically said “no” to any transfer of beneficial interest. Since they would be the opposition in any the event it makes it to court, this could be a problem. However, since as you say the trust is not a public document, they would have no way to find out its any different than what they expect to see.

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These are the issues for me… - Posted by Frank Chin

Posted by Frank Chin on May 16, 2007 at 11:11:16:

Rich:

I bought many of my properites 25 years ago, I did it personally, long before anyone heard of LLC’s. Lately, I looked into this issue, but am in no big rush to change things.

  • The LLC annual fees in NY state is $600.00. When I increased my umbrella coverage from $1 million to $3 million a year, the annual insurance is around $300.00. For $600/year, paying insurance instead of LLC fees, I can get $8 million, and insurance companies will fight hard for $8 million.

  • I see my greater risks is in workers injuring themselves as many local handyman are not insured, and even some contractors aren’t, as compared to tenants or passersby liability. I read somewhere that NY State law requires homeowners GL insurance to include “workman’s comp” coverage to these people, for homes up to four families, which is what I mainly invest in. With a Corp or LLC, commercial GL coverage generally excludes “workman’s comp”, requiring one to go get a separate WC policy, which is not easy to get if you use “off the books” handyman, and have no real employess on the payroll. If I go the route of ONLY using licensed contractors, then there are many small repairs that cannot be done promptly if at all.

  • As I mentioned before, NY State law make “owners” and Corp officers personally liable if workers are not properly insured, and I see myself covered under the homeowners policy if my reading of the state law is correct, but exposed going the commercial route, i.e. owning thru LLC’s.

  • If there is a lawsuit, the claimanat attorney can always force you to reveal the “owners” through an "information subpeona, so I dont’ think it would insulate things that much. And there are annual filings here for Corps and LLC’s where they ask for the names of the CEO’s, so the information is somewhere on file.

  • I see the need for LLC’s if I go into apartment buildings or strips, but for 1-4 families, it appears insurance coverage is probably the more efficient route, rather than going LLC.

Frank Chin

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live & learn - Posted by John Merchant

Posted by John Merchant on May 20, 2007 at 17:43:50:

Rich, I do thank you.

Most interesting and don’t know know how I missed knowing that.

I remember when I knew everything ;)> but no longer the case.

Once more proves value of this board and its most capable followers (leaders really).

Suggestion to pass on to that lawyer of yours…a little ad on this site might bring him a pot full of new business which any lawyer might like to have.

After all, if he were to get known as THE RE to have in CO the resulting business could just be substantial.