land trust and llc question

[jc06]

i'm new to land trusts and liability protection but very interested in it.

seems like setting up a land trust with the beneficary as a LLC  and a nonprofit or attorney as the trustee is how some are recommending it.

My question is that if I'm from California and buying property out of state, if I create a Nevada LLC to be the beneficary, am I doing business in California and need to pay the min $800 franchise tax? Although the LLC is not actually doing business in California.

I could then create another LLC as the property management company to manage all the properties?

That can get expensive if you plan to go the route of 1 property per LLC.

thanks for any help.
James

[mtnwizard]

JC,

As to the LLC issue, Professor Wagner will answer you, I'm sure.  He is an experienced and knowledgeable CPA.  

As to the Trustee, don't assume picking an attorney is a good idea.  Here's why:

1)  Using one’s own attorney would perhaps not pose a  problem as long as no other unrelated beneficiaries were involved who would have separate and independent interests and financial objectives within the arrangement.

2)  An individual trustee’s failure to charge a fee would not support the land trust’s validity in court.  The attempt to charge a fee would not be seen as adequate unless the party were a bonded entity.

3)  An attorney or law firm would most likely not be bonded as a trustee for land trusts; though his/her malpractice insurance may suffice as protection against malfeasance and/or errors and omissions.

4)  An attorney or law firm would likely not be recognized as a bona fide trust holding institution by any court that would be challenging the integrity and purpose of a co-beneficiary land trust title transfer.

5)  One’s own attorney would not create a mutually trusted, unbiased third-party “escrow” entity.  A biased attorney (acting in primary favor of a client) could wreak havoc in a contest involving dissention between/among beneficiaries.

Sometimes an attorney can be more trouble than they are worth.  This is such a case.  Best of luck to you.

Da Wiz

[mcwagner]

Hmmmm...I've only "done business" in CA one time and vowed to never do it again.  

If memory serves, CA is pretty onerous with regard to what is considered "doing business" there.

we had an employee who lived in NV, we had no office in CA, but he crossed the state line and inked a contract with a co with an office in CA, but the property was in some other state.  CA declared that we were "doing business" in CA and tapped us for some ungodly prorated amount of our ENTIRE revenue stream - even revenue unrelated to this deal.

SHOOT me if I ever even talk about doing business there again.  

But I digress.

I would say that if you live in CA, the state will probably claim you are doing business.  However, by forming the entity in NV  AND having a NV registered agent AND doing deals in another state , you MIGHT avoid them finding out.  

The key will be in having a registered agent in NV.  That runs about $200 a year if memory serves.  you can't have ANYTHING with your CA address that can tie back to you.

You will probably have to bank in another state as well, which is usually where they trip you up.  Banks like for you to be registered in the state where they are.  Mortgage cos, too.  Banking in another state is...um...."inconvenient".

I don't know if the trust will break it or not.

If it's a good deal, personally, I'd skip the hassle and suck up the 8 bills a year.  But your hassle vs cost threshold may be different.

RE: multiple LLCs.  Just don't do it in your personal name.  Get this one in an LLC.   Then do another one.   If you ever reach the point were you have an empire, the extra cost for more LLC's and other asset proections schemes will have become irrelevant to you anyway.

[jc06]

thanks a lot you two.  As always, your posts are helpful.


Sounds like it is better for me to just register in California.

I own a few properties and was getting ready to buy rehabs and was concern about liability issues.  

thanks so much,
James

[jc06]

mtnwizard,
Since you seem to suggest that a non-profit entity should be a trustee, where would I go about finding one or would I need to set up my own non-profit entity?

thanks,
james

[mtnwizard]

James

There are professional non-profit corporations set up expressly as trustees.  Go to Google and type in "equity holding trustee".  You'll find plenty of listings and information.  Just scroll down.  Good luck.

Da Wiz

[marcus335]

I'm in the same boat (CA resident, Nevada Corp, going to be investing in a 3rd state).  I went to WaMu and they setup a Nevada corporation account for me while I was in California.  You need to make sure they understand it's a Nevada account.  Since you are a WaMu customer you can use any WaMu branch.  My mailing address for WaMu and the IRS are the registered agent.  

Now I did a C-corp and not a LLC.  So the income doesn't flow through to me personally.  It'll be in the form of a dividend.  Now I imagine once I pay myself a salary I'll have to "move" out of California and just vacation here a lot or something.  I haven't figured that out yet.

[mcwagner]

thanks for the update on the banking set up.  that's good info to know.

how does CA handle wages earned in another state while you live in CA?  wait.  let me guess.  taxable in CA.

[marcus335]

I'm not sure how the taxable wages thing would work if I live in CA and earn money in another state.  My guess is that I'd pay CA state income tax.  It'd probably only be the difference between the CA tax and state where I earn the money.  I don't think I'd be paying full tax to both states.

CA has the most absurd income tax laws.  Pro athletes that play games in CA have to pay CA income tax on that pro-rated portion of their salary.  No wonder Arnold wants two NFL teams in LA.  

[AMGILP]

Calif CPA here.  If you are a CA resident, you are taxed on your worldwide income.  If the taxable wages are also taxed in another state, then CA gives you a credit  for taxes paid in the other state.  You have to compute the amount of the credit.  Some states have a reciprocal agreement with CA.  
 If you are not a resident of CA, then you would be taxed on CA wages as a nonresident.
Regarding the NV corp or LLC,  Bank of America has banks in NV and CA.  I would suggest actually opening the account in NV.  Many resident agents can do this for you.

[mcwagner]

"Worldwide income"

I like that!

maybe "intergalactic income" even

[mtnwizard]

Beam me up, Scotty.

Da Wiz

[mramer]

are there any recommended names for naming land trusts?

[mtnwizard]

That, my friend, is a great question.  The thing that distinguishes the land trust from all other inter vivos trust forms is that very fact: the fact that the trustee owns the property: not the beneficiaries; not the settlor; and not the trust per se.

If you were to name the trust, say, "The Jones Trust with Xxxx as Trustee," you will have vested the property in the trust, and not the trustee likely creating a dry and/or failed trust...that's precisely why in a bona fide land trust the trustee's name MUST ALWAYS COME FIRST ON THE DEED, because that is who the property is being deeded to.

Da Wiz

[jc06]

So I take it on http://www.reiclub.com/articles/questions-land-trusts, it is not a good idea to follow the naming convention suggested?

The (Land Trust Name) With (Trustee’s Name) As Trustee With Full Power of Sale”

Can you give an example of a trust name you would use?