TX Series LLC for Asset Protection

[MonTexan]

Disclaimer: This is not intended to be tax or legal advice.

I attended a local REI meeting today and listened to a real estate attorney talk about the new "Series LLC's" available in Texas. They seem like a great strategy for asset protection without the usual hassle of creating multiple entities.

Basically, the Series LLC allows you to create a SINGLE llc with multiple "compartments"...series A, B, C etc. Each series is separate and distinct from the next and are they insulated from each other. They can have different members, different managers, and elect for different tax treatment. Judgements against a property in one series does not affect properties in the other series'. Upon buying a new property, you just add a new series.

I still need to review with my own attorney and CPA, but I'll most likely devise a plan for moving over to this business structure. Will probably keep a separate LLC for my construction and property management and employ a Series LLC for holding properties.

The Texas legislature organized the Series LLC in September 2009. From Wikipedia, I see that a handful of other states also allow the Series LLC.

Now get out there and buy some houses!

 

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[GlobalWealth]

For investment propery, a series LLC can be a good thing, but for asset protection purposes, you shouldn't register them in your home state. TX is actually a pretty decent state for business friendly laws, but by having your LLC registered outside of your home state, it makes it more difficult for your creditors to find your assets, and also much more difficult for them to get a judgment and collect. Generally, the best states for asset protection are NV, WY, and DE. Even for my clients that live in NV, I would register their LLC's in WY or DE just for the reasons mentioned above. The only issue I see with a series LLC is that it has very little history. You just never know how it turns out once there is a big enough lawsuit to really test it.

 

[CommonCents]

Global, do you have a primer on setting up US entities vs. IBC's/offshore setups? What are basic advantages and disadvantages?

 

[GlobalWealth]

Global, do you have a primer on setting up US entities vs. IBC's/offshore setups? What are basic advantages and disadvantages?

This is completely situational, but I can provide some basics. Just keep in mind each person's situation is different and requires careful planning.

If you are talking strictly about offshore LLC/IBC's vs domestic LLC/Corps then any asset or business with a physical US presence needs a domestic entity. For example, if you are a RE investor, use domestic LLC's or if your business has a US physical presence use a domestic LLC (or corp).

If your business is virtual like a strictly web based enterprise or in some cases, consulting or services, then you should consider an offshore options. Also if you are an investor with a large portfolio, you should REALLY consider an offshore option. With an offshore option, there are ways to defer taxation, but certain criteria must be met and it can get rather complex, but if your income is high enough and your business suits the model, it is very much worth it.

Offshore options make sense for a lot of people, but most won't take advantage of it. It allows you to diversify your wealth outside of US court jurisdiction and opens up opportunities you don't otherwise have access to with US investments. For example, it is very difficult to open an offshore bank account for US citizens. But you can easily do so through an offshore IBC or LLC.

Many people are fearful of this due to recent news and the current administrations crackdown on offshore. But it is legal and as long as you cross all your t's and dot all your i's, then there is nothing to be concerned about.

Sorry to be so vague, but as I stated, this is situational. Feel free to ask me more specific questions if you want and I will give you a clearer answer.

 

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[work4freedom]

Hi All,

Newbie question: I just bought a house and plan to rent it out in April. My home insurance includes a liability coverage of $300K. Is this coverage sufficient not to set up a LLC for protection purpose?

Thanks in advance.

 

[GlobalWealth]

Hi All,

Newbie question: I just bought a house and plan to rent it out in April. My home insurance includes a liability coverage of $300K. Is this coverage sufficient not to set up a LLC for protection purpose?

Thanks in advance.

Look at it like this, if you get sued for <$300k, you are fine. And most cases, no one is going to go after anything beyond the insurance limits. but what else do you own? do you own a house? expensive cars? a business? other investments? other real estate?

If your next tenant is the dreaded 'basement meth dealer' and he blows up the house and kills someone, every asset you own will be at risk. no self-respecting attorney (just a little joke) will settle for just your insurance limits for a dead family member. they will go after anything you own.

if you own the house in an LLC, your risk is limited to the assets owned by the LLC, which is the house and any insurance associated with it. your personal property would be safe.

but keep in mind, all LLC's are not created equal. there are 2 critical components to the asset protection benefits of an LLC - the state of registration and the operating agreement. this is where most people get in trouble because they think an LLC is a DIY project and just because their rental property is owned by an LLC they are safe. in most cases, this is completely false. without a properly structured LLC your assets will still likely be at signifiant risk.