Hello to all !!

[Enigma]

Probably not.

No there isn't.  But if you have co-owners or employees it is vital to have the protection.  If you have a general partnership, you are personally liable for all the partnership debts.  At least with a LLC/corporation you are not liable for your co-owner's negligence and not liable for trade debt.  If one of my co-owners in our professional corporation committed serious malpractice that went beyond our insurance limits, we may lose the business but at least I won't be liable for his negligence.

Martha, I do own one building as 50/50 with a business partner. We had originally agreed to hold this as tennants in common. Would this be a good place to use a LLC?

Also did I understand you correctly that each asset should have its own LLC? As an example. 10 investment properties in portfolio, 10 LLC's.

I guess one of my concerns would be making a mistake, getting sued and loosing everything. Or even a person without a valid complaint file suit, tie me up in court piling up fees for representation only to pay them off to get them to go away.

Unethical worms, looking for handouts. Filing suits with no merit just looking for the buy off. You hate to cave to them but sometimes it makes sence from a business standpoint to just make them go away.

 

[Martha]

Martha, I do own one building as 50/50 with a business partner. We had originally agreed to hold this as tennants in common. Would this be a good place to use a LLC?

That is one possibilty.  Also, in some states you can easily convert this probable partnership to a limited liability partnership. 

Also did I understand you correctly that each asset should have its own LLC? As an example. 10 investment properties in portfolio, 10 LLC's.

  Yup.  Easy and inexpensive if you are the only owner.  Single member LLCs are ignored for tax purposes.

I guess one of my concerns would be making a mistake, getting sued and loosing everything. Or even a person without a valid complaint file suit, tie me up in court piling up fees for representation only to pay them off to get them to go away.

Unethical worms, looking for handouts. Filing suits with no merit just looking for the buy off. You hate to cave to them but sometimes it makes sence from a business standpoint to just make them go away.

At least good insurance helps. 

Here is a thread from a while back that talked quite a bit about efforts to protect assets from creditors and some possible strategies: http://early-retirement.org/forums/index.php?topic=2016.0

 

[virginia]

zaniew
Your kids are lucky - how many parents pay for that much of their kids education?
But the TSP - won't that come out as a loan? Or will you be retired by then?

 

[Green Jeans]

I'd only use TSP $ when I could do it as a withdrawal without tax penalty. I'm 50 1/2 now, and the youngest is 3, so I have plenty of time.

Re funding college in general, I too am all for the "they need to learn responsibility, appreciate it, and by god work and contribute money they make by their own grubby little selves" school of thought. Trouble is, the college financing paradign has shifted since I got my degree in the 70s. Then your summer job, and the job you had as part of your financial aid package (if you had one), and the job you might have had beyond that, actually added up to a respectable percentage of the total tab. I think generally a kid could make it out with an undergrad degree without the family mortgaging the house (if they chose to, or could, help pay for education); and without the kid having a staggering amount of personal debt.

Now it is much more the norm for an undergrad to emerge with about $35K in educational loans (with a gov't backed interest rate of about 6.5 rather than the 3% I had access to. )

I wish it were different, but I think most summer jobs for teenagers aren't going to substantially finance a college education. Therefore, that's an expense I see in my future that's factors into my "just when do I pull the plug" retirement thinking.

 

[haha]

Re funding college in general, I too am all for the "they need to learn responsibility, appreciate it, and by god work and contribute money they make by their own grubby little selves" school of thought.  Trouble is, the college financing paradign has shifted since I got my degree in the 70s.  Then your summer job, and the job you had as part of your financial aid package (if you had one), and the job you might have had beyond that, actually added up to a respectable percentage of the total tab.   I think generally a kid could make it out with an undergrad degree without the family mortgaging the house (if they chose to, or could, help pay for education); and without the kid having a staggering amount of personal debt.   

Now it is much more the norm for an undergrad to emerge with about $35K in educational loans (with a gov't backed interest rate of about 6.5 rather than the 3% I had access to. )

I don't see that as a big problem myself. If young people realize that their degree has to be self-amortizing at least, there would be fewer “Women's Studies” and Anthropology majors, and more civil engineers etc.

I know quite a few families that have stressed themselves to put a child through college, when he/she would have likely been better off starting to work for the railroad, or learning to type and joining civil service.

IMO, if you get them to age 18 in good health, without a serious drug habit and not currently incarcerated, you have done all you can reasonably be expected to do.

Sometimes parents want to control the purse so they can at least think they can control other things.

Ha

 

[Brat]

I don't see that as a big problem myself. If young people realize that their degree has to be self-amortizing at least, there would be fewer “Women's Studies” and Anthropology majors, and more civil engineers etc.

I know quite a few families that have stressed themselves to put a child through college, when he/she would have likely been better off starting to work for the railroad, or learning to type and joining civil service.

IMO, if you get them to age 18 in good health, without a serious drug habit and not currently incarcerated, you have done all you can reasonably be expected to do.

Sometimes parents want to control the purse so they can at least think they can control other things.

Ha

I agree with telling the kids that they need to assume a substantial part of the financial cost of their education both to promote focus and to understand that the education is preparation for the world of work.  When mine finished their schooling we picked up a substantial part of their school loans - but that was a gift and not communicated in advance.

I also agree that parents need to focus on getting their kids to the age of 18 educated and healthy.  Without that college is wasted.  With that everything is possible.

Now about that part of working for a rail road.. I hope you weren't serious.  With few exceptions rail roads have the worst employment conditions in the US, and their vaunted retirement program isn't all that great.  Yes, they and the civil service were among the early retirement systems but in today's world they aren't even close to being suitable choices.  [I have three close relatives who worked for RRs, a fromer RR manager neighbor, and met a RR executive recently whose employment was causing major health risks.  If you know of a good RR to work I know a bright, seasoned, hard working, RR executive ready for a change.]

 

[spideyrdpd]

Hi
I have a couple of llc's.Based on what I have been told by several parties
You wouldnt want to have too much equity tied into any one llc. You might decide that 250k or 500k is the most you want to tie into one llc. One good reason to not have paid off rentals.

The advice I was given differs from what Martha said though. I was told you always want to have a partner for your llc. The llc protects the innocent partners> so if you had a llc with me I wouldnt be hurt if you had a different llc that got sued.
Also if you crash your car and kill someone.. Again I woud have protection.
Most people also seem to confuse the llc idea with taxation and debt. Most people use their own credit. It costs more to do it with the llc and its not likely to be non recourse anyway.

 

[Enigma]

Spidey,

I dont understand "One good reason to not have paid off rentals" Please explain. Next year I have more 1031 money coming on line. Your comment has me interested.

 

[Martha]

Hi
   
                 The advice I was given differs from what Martha said though. I was told you always want to have a partner for your llc. The llc protects the innocent partners> so if you had a llc with me I wouldn't be hurt if you had a different llc that got sued.
Also if you crash your car and kill someone.. Again I would have protection.
Most people also seem to confuse the llc idea with taxation and debt. Most people use their own credit. It costs more to do it with the llc and its not likely to be non recourse anyway.

I am not quite sure I know what you are saying and how it differs from what I said.  If you own a property with no other owners, in most states you can own that property in a single member LLC.  I wouldn't go searching for another owner for that LLC unless you have a good business reason to want another owner. 

However, if you own a property with one or more other people,  a corporation, limited liability partnership, limited partnership, or LLC are all good ways to hold that property.  As you said, if a claim is made against one of your co-owners for what that co-owner did, you will not be personally liable unless you did something wrong yourself.  For example, say one of your co-owners, without your knowledge, sexually harassed a tenant in a rental property owned by the LLC.  The tenant could sue the co-owner and the LLC.  You should not have personal liability. However, if you owned the property in a general partnership, all partners are liable for all claims against the partnership.  Therefore you could in those circumstances have personal liability for your partner's sexual harassment of the tenant.   

 

[Martha]

Spidey,

I dont understand "One good reason to not have paid off rentals" Please explain. Next year I have more 1031 money coming on line. Your comment has me interested.

He might be saying that there is more to lose if a claim is made against the LLC.

Personally, I want as much equity as possible. Leverage is good in building up real estate investments but leverage has its own risks. I say build equity and buy good insurance. And don't be a bad boy.

 

[Enigma]

Martha,

I tend to agree with you view on equity position. I initially went in with 20% down. Now that I am better funded its usually 50% or greater down.

Another question: I am definitely going to consult my business attorney on the LLC for the 50/50 joint tennancy building. Thats sage advise on your part.

I presently have 2M in personal umbrella insurance.
Is this the correct type of insurance to have to get the correct protection for my real estate / investment assets? All of my assets are held with the same insurance company so I thought they all "fell" under the umbrella.

Thanks for chiming in. Do appreciate the thoughtful input !

 

[brewer12345]

All of my assets are held with the same insurance company

What do you mean by this?

If you have a personal umbrella policy, it will prevent people who sue you personally from getting to your assets in the LLC (assuming the limit is high enough). If you are running a business of some sort, any liability arising from it wouldn't be covered by yor personal umbrella. You would need a commercial umbrella or "BOP" (Business Owner Policy).

 

[Enigma]

Brewer,

Sounds like I may need to look into a BOP. I do not operate a business out of any of my properties. I just lease / rent buildings for positive cash flow.

 

[spideyrdpd]

Hi
I am not trying to step on anyones toes.

One of the guys went as far as saying to make a charity a 1% partner. I am guessing Dory wouldnt mind you listing this forum.

The point he made was if your driving a car and get into an accident and the llc is in your name they can go after the assets of the llc. If the llc is in a partnership the person suing would get a charging order. This gives you the ability to negotiate the settlement. Since you dont have to pay on a charging order. You can delay payment.
Everyone said it was better for the 1-800 slip and fall lawyers. Since they get paid on contiguency they are less apt to want these cases.
There is a thing called equity stripping. You can create a lien against the property. If you have multiple properties you can just focus on paying down one. Which I personally think is better . Its like the snowball debt idea. You pay off a property and then it cashflows better. Again if a property has liitle equity it will not be as attractive a target for a slip and fall type lawyer.

I also have an umbrella policy on my propeties. Which may actually incourage the slip and fall guys. Since your back to having deep pockets.

I am not a lawyer like Martha is. Most of this stuff was taught to me in seminars and reinforced by stuff on the web. Another seminar person taught the PREMES which is what Lance (Psyops) uses.

Past that I get confused. You can have it be a family member. They can have 1%. If you have multiple llc's I ahve been told it can be the same members if the ratio's are different. So your brother Bob can have 5% in one and 2% in anaother. Or maybe it may be better to have another person ?

For premes information
http://forum.richdad.com/forums/printable.asp?m=300737&mpage=1

Not the person I saw but discusses the single member llc issue.
http://www.hansonbridgett.com/newsletters/EstatePlanning/EstatePlanAug03.html

 

[brewer12345]

Unless you plan on running an unsafe operation or remaining thinly-capitalized enough that going bust is an attractive option at some point, I fail to see how any of this mumbo-jumbo is more effective than simply holding properties in an LLC and having adequate liability isurance. I guarantee any insurer will fight the slip & fall crowd tooth and nail rather than pay out, and they usually have VERY competent counsel.

 

[laurence]

Right, people seem happy to sue for a brazillion dollars for a coffee spill, I took out my $1 million umbrella policy for the good lawyers as much as the insurance money. Even though I may be sued for $5 million, the first million is theirs, so they'll fight to keep it.

 

[Gumby]

..

 

[Martha]

Spidey and Psyop, I think you are spending too much time on the internet or at seminars.

Equity stripping? (Better have real debt and real debt has to be paid). Multi-member LLCs just for the purpose of asset protection? (Complicating your tax situation and not helping much if at all for asset protection). Reliance on a belief that a partnership provides the best protection because of charging orders? (I'll argue that one with any lawyer). Man, you guys are way out there. As I said in another thread and to quote Gumby: "forget the mumbo jumbo, keep your nose clean and get good liability insurance".

Spend your time and money on due diligence and being good boys.

But that advice doesn't sell hits on websites or seats at seminars.

 

[spideyrdpd]

Did you read the article or just dismiss out of hand ? I dont do premes .

None of you really adressed the single member issue
If you can get the silver out of my head wouldnt you be able to get an llc owned only by me ?

 

[Gumby]

..

 

[Martha]

Even if your brother in law had a legitimate 1% interest,  as a bankruptcy trustee I would step into your shoes as an owner and act to either sell your LLC interest or sell the property. I would argue that bankrutpcy law trumps any state law restrictions to a charging order.  At best, your brother in law may be entitled to 1% of the proceeds of the sale.  More likely he would get nothing as a fraudulent transferee as Gumby says.  And he would incur attorney fees because he got sued.  And you would get nothing.

So you are putting your relatives at risk in search of a mechanism to avoid your creditors.

EDIT:  When I used to be a bankrutpcy trustee, I would look far closer at people and their financial lives when they set up odd or overly complicated structures.  You may very well invite closer scrutiny from a collection lawyer or bankruptcy trustee if you get too cute. Some people push way to far and end up having their discharge in bankruptcy denied.

 

[spideyrdpd]

Hi
Thanks for reading. I dont have an issue. My brother in law is the president of the company. He does most of the work while I type on the net
Why do I feel like opposing party ? I am more than willing to admit I dont have all the answers.
I dont think its an issue of going broke and declaring bankruptcy.
The thought is that if you have 5 identical single member llc's that they would have a better chance of saying the same thing your saying. Its just a tool to avoid being sued ?
He has a wife that can be a partner
I also read you can have a faulty or crummy trust be a partner. You would have to explain it to me....
I just dont understand why you goes say its expensive. Of course our lawyer is my Brother in laws buddy. Gee he isnt pepercorn 8)
and while my taxes our expensive the refund checks are very nice. As is the money Enigma gets on his properties !! So he can afford to spend a few more bucks if it adds a layer of protection.

So I am sure you can continue to tell my what cant be done. I wonder what can be done.
I would imagine if you have a llc;s thats a partnership you can do things to insure a partner isnt a "peppercorn" > again yer the lawyers you tell me how :

I would say to pay off the house and put money into ira's/401k maybe a sep ? before paying off rentals. Would be things I would also advise if I was worried about being sued.

 

[Gumby]

..

 

[laurence]

My neighbor's friend talked in almost the same way.  To this day she and my neighbor insist they didn't do anything wrong, legit business, yadda yadda....

...she's doing a year's house arrest right now.  She wears the same ankle bracelet Martha Stewart made popular.  

 

[Martha]

I would say to pay off the house and put money into ira's/401k maybe a sep ? before paying off rentals. Would be things I would also advise if I was worried about being sued.

Yes. Something we can agree on. Depending what state you live in and what is exempt from creditors in that state, it makes sense to build up equity in exempt assets and maximize your retirement plans.