Protect Your Assets Like the Uber-Rich

[GlobalWealth]

I wrote this article a couple of weeks ago. It's about asset protection for real estate investors. Wasn't sure if this would be a good place to put it, or in asset protection, so if the mods want to move it (or delete for that matter), feel free.

I placed the link as it's a pretty long article. If some other experienced real estate investors have other ideas, I would love to hear them.

Asset Protection Planning - Real Estate Investors

 

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[Sharp]

Love your blog. That's why I love this community. Even novices can learn a lot by lurking. Part of the reason the uber-rich sign prenups is also because they don't want to give half of their money to the ex and child support. What bothers me is that the legal system easily can take your hard earned money without consideration.

 

[GlobalWealth]

Part of the reason the uber-rich sign prenups is also because they don't want to give half of their money to the ex and child support.

Not just the uber-rich unfortunately. I've had clients get court ordered alimony payments that was more than they earned. I've even had them with their ex-wives get much higher alimony 1-2 years later because their incomes increased.

This is one of the many reasons why I have american clients getting offshore companies and bank accounts. Just to stay out of the us court jurisdiction.

 

[Michael W.]

This is one of the many reasons why I have american clients getting offshore companies and bank accounts. Just to stay out of the us court jurisdiction.

I can't wait until I have a need for your services.

On another note, I was just discussing with a friend about land trusts and LLCs for his rental properties. He was recently sued (lady burned the house down) and has no protection. He runs 2 other businesses as a Sole Prop. so he is leaving himself wide open. I'm gonna forward this to him.

 

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[Sharp]

Not just the uber-rich unfortunately. I've had clients get court ordered alimony payments that was more than they earned. I've even had them with their ex-wives get much higher alimony 1-2 years later because their incomes increased.

This is one of the many reasons why I have american clients getting offshore companies and bank accounts. Just to stay out of the us court jurisdiction.

Offshore accounts could get complicated but I see what you mean. Unfortunately, a lot of the times after the death the government seizes the assets and the children are left with nothing much.

The easy solution would be not to get married or simply sign a prenup but then again with children, there is child support to be paid which in Canada the government pays for.

 

[G-man422]

Excellent article. I'll be following your blog in the future.

 

[CommonCents]

Are there advantages to going offshore when starting a web based business?

 

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[GlobalWealth]

Offshore accounts could get complicated but I see what you mean. Unfortunately, a lot of the times after the death the government seizes the assets and the children are left with nothing much.

This problem is easily solved with something like a Seychelles foundation or Cook Islands trust.

 

[GlobalWealth]

Are there advantages to going offshore when starting a web based business?

I suppose that depends on your definition of 'benefits'.

I have a very good friend who is now heavily in debt to the I*R*S and state dept of rev for back ta*xes owed. He didn't pay his quarterly estimated ta*xes because of some major medical issues with is wife. He chose to take care of her instead of pay ta*xes.

He now has tax liens against him and will likely have his bank account ravaged. His business is completely virtual and his clients are mostly in the US. He does pretty well earning around $100k/year.

But now he is stuck.

Had he structured his business offshore with offshore bank account and merchant services, he would have more options. He would be in a much better position to negotiate a settlement. As it is, he makes too much money for a settlement.

He would not have had any ta*x advantages over the years as his business was mostly in the US, but he would have had his business and money offshore outside of the reach of the US court system. Most people this type of situation only happens to the 'other guy'.

I guess I know too many of these 'other guys'.

So to answer your question directly, yes there are many advantages. If your business is properly structured and it has minimal ties to the US, then there can be significant t*ax advantages.

 

[MNentre]

Bobby,

This was a great article! I am new to posting on the forums, but have lurked for a while. I am big in RE and mostly read over at BiggerPockets. I have been looking around your site a little more and am really enjoying it.

The question I have for you is: Is there a best strategy for holding RE?

I have met with/listened to a number of accountants tell me different pros/cons to each. For example, up until I read your article, i thought the best way to hold RE is to have two separate limited partnerships per property.

1 for the land
1 for the property

The goal is to have both of these LP's break even, no profit- just enough to cover taxes, etc! The profit goes to a Property management LLC that you also own-- which ultimately cycles through to your taxable income. This serves two purposes, 1) it saves on taxes and 2) if someone were to fall on your sidewalk or have a reason to sue you, there not going to be able to track you down.... all the info they would get would be just a LP with no income (also, i hear, most attorneys only look for one LP and assume it is the whole property, when actually there is another LP that is protecting the physical value of the structure, not just the land)

Anyways, that was a rant that I probably didn't need to go on in your thread. But, since I did, what are your thoughts on this strategy vs land trusts?

Thanks!

 

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[GlobalWealth]

Anyways, that was a rant that I probably didn't need to go on in your thread. But, since I did, what are your thoughts on this strategy vs land trusts?

I don't usually use Limited Partnerships (LP) very often because of the liability with the general partner (GP). Because of this liability risk, you would need to have a corporation or Limited Liability Company (LLC) as the GP to eliminate this risk.

So while this may be a decent structure from an asset protection standpoint, it is costly to set up and manage if done properly. Most people do it wrong btw.

For a real estate investor looking for privacy and asset protection, using a combination of a land trust and LLC's gives a very cost effective, private, and scalable structure that keeps prying eyes away and offers legal protections as well.