We often receive interesting questions from our students. We received permission to publish this one as a Blog since it might be of interest to many of you visiting our site.

Comment:

Thank you for your help. I hope learning all this is not “too little too late”.

Q. You said an LLC should be the manager of the rental properties. What exactly does that mean? Does it mean I establish an LLC and put my properties into it or do I establish an LLC and put my property manager (my son) into it?

A. Your son can act as an employee of the LLC and help manage.  He can or cannot own part of the LLC.  The tenant will contract with the LLC (Rental Agreement) and the LLC will “do all of the management” of the rental.  The LLC does not need to own the rental.  The owner should have a contract with the LLC, just like you would with one of the management companies you can hire for 7% of the rent to manage the place.  Your LLC is the management Company.

Q. My Living Revocable Trust says to put property into the Living Revocable Trust. Into which do I put my rentals: the trust or the LLC? (more…)

By Lee R. Phillips

I sent out an email a couple weeks ago about the Florida Supreme Court setting aside the “charging order” protection an LLC is supposed to offer.  I now apparently have a lot of students that have “sliced their wrists” and are bleeding to death.  (I faint at the sight of blood – not really – but please don’t do the wrist thing.)

Take a deep breath and step back from the edge.

The “charging order protection” protects the assets of the company from your personal liabilities and creditors.  If you have an accident on the street, the kid breaks his neck on your trampoline, or you get divorced, your personal assets are at risk.  The stock in your corporation and the membership interests in your LLC are personal assets.

If you have a corporation and your creditor gets the judgment against you, he will get the stock in your corporation.  Once he has the stock, he elects new officers and directors and controls the assets of the corporation.  He has your corporation and can sell the assets or do whatever he wants.

If you have an LLC, when your creditor gets the judgment against you, he will get the membership interests of your LLC.  BUT, the LLC is different.  The law says he can’t affect the management of the LLC, take the assets or do anything to disturb the LLC.  All the creditor can do is get a charging order, which is basically a lien against your membership shares.

If and when your LLC makes a distribution (pays a dividend), the creditor with the lien will get the dividend.  He will keep getting the distributions until his lien amount is paid off. (more…)

By Lee R. Phillips

The hot shot speakers and the hot shot lawyers go through elaborate plans where one trust owns the corporation or LLC and then that company owns another trust. One of the favorite structures is for a corporation to be the general partner of a limited partnership, thus making it so you’re not personally liable as the general partner.  I have seen many structures where a corporation is the owner of all of the person’s LLCs.

All of this is done to get multiple layers of asset protection.  If they get through one “corporate shield”, then the other ones will maybe hold.  These schemes add a lot of cost to your asset protection plan.  The lawyer gets his fee for each entity that is established.  There are state fees for many of the entities (basically everything but trusts).  I have seen these types of structures collapse under their own weight.  Remember, a chain is only as strong as its weakest link. (more…)