Piercing the corporate veil?

[mcwagner]

you were comparing an LLC to a trust.

business expenses between an LLC and sole proprietor are substantially the same, although corps and LLC-as-corps have some significant employee benefit provisions.

[veilside]

I mis-wrote that last one.  I'm asking what asset protection benefits an investor can get from operating as an LLC that they could not get by operating as a sole proprietor who holds property in trusts.  

How are LLC's and sole proprietorships the same amount of work?  LLC's have many formalities, unless i'm missing something here.  Sole proprietorships / DBA don't really seem to have any of those requirements.

Based on how I'm reading this thread, it still seems to me that a smaller time REI entrepreneur, who doesn't employ others, doesn't really have any incentives to go get / maintain an LLC, and would be just as well off using dba/sole prop and holding in trusts.  Marc I don't know if it seems like I'm trying to argue, but I'm not, I am seriously not grasping any reason why I'd want an LLC.  

[mcwagner]

LLC's taxed as corporations or S-corps do hold several advantages over sole proprietorships:  ability to provide employee (and owner) benefits, avoidance of self employment taxes, just to name two big ones.  There are lots of smaller benefits.

LLC's are easier than trusts because you don't have to work with an intermediary - the trustee.  The LLC can buy, sell, whatever without having to work with a 3rd party.  Plus, to remove/sell a property in trust, you have to dissolve the entire trust, then place whatever properties you are keeping back into a new trust.  a big hassle for people who buy/sell often.

from a pure asset protection standpoint, they're about the same.  the point is to get the property out of your personal name.

[veilside]

Okay, so it's actually easier to get property out of your name by putting it into an LLC than into a trust.  Your LLC could be run like garbage, but would still effectively hide your relationship to the properties that you are controlling?  Meaning you won't be publicly revealed as controlling ABC llc?

[mcwagner]

yes.  some may disagree.  

well, running it like garbage could have other detrimental effects, including having the entity nullified by a court.

depending on your state, your ownership would still be public.  however, remember, when the property is owned by the LLC, you are not personally liable for things that happen on the property.  having someone know that you own the company is different from owning the property itself.

[veilside]

having someone know that you own the company is different from owning the property itself.

And that makes people LESS likely to sue?

Also, you said it is a big hassle to put properties in / out of trusts.  I was under the impression you just sign a few documents and that's that.  What's the hassle in setting up a trust?

[mcwagner]

And that makes people LESS likely to sue?

well, yes.  it's an LLC.  they cannot obtain ownership of the company itself, so the best they can get is a charging order that's useless to them.  the property is encumbered by a mortgage, so there's no assets there to gain.  your personal assets are protected because the property in question is inside the LLC.  yep, IMO makes it less likely that you're gonna get sued - even if they can see that you own the company.

contrast that with owning the property yourself:  you have a house, rental property, two cars, savings account, 401(k), and a paying job.  can you spell T-A-R-G-E-T?

My trustee is my atty.  having him do anything is a hassle.  he doesn't return phone calls.  he charges to complete documents.  he charges if he, as trustee, has to attend a closing.  charges for faxes.  hell, he charges for everything.

As the manager of the LLC, I can just go sign documents on my own and don't have to involve him.

[veilside]

Okay, let's say hypothetically that I was operating not alone, but with a partner.  If my partner were the trustee, or maybe if I made a close relative a trustee, I could eliminate the hassles created by needing a trustee.  At that point, is a trust a better way to do this?

[mcwagner]

wouldn't recommend it.

USING A FRIEND OR RELATIVE AS TRUSTEE

Risky and quite probable failure to honor privacy and anonymity, especially  under threat of legal action.

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.

An individual trustee’s death would embroil the property in his/her own bankruptcy, Probate and other personal legal actions.

An individual would most likely never be bondable as a trustee and would likely not have the resources to provide a completely separate, free and bonded collection and bill-paying service.

An individual would not be seen by the courts as a standard trustee, charging fees “commensurate with industry standards”:  therefore severely  impairing the integrity and structure of the land trust.  

One’s own personal appointment would not be seen by a 2nd or 3rd co-beneficiary as a mutually trustworthy holding entity.  Such likely bias obviously would not be in the best interests of any of the co-beneficiaries

[veilside]

Please don't steal my thread to ask your question, start your own.  But since you hopped in, let me give it a crack.  You bought property, likely signed for it with your name.  This is you personally guaranteeing the loan.  Now you cannot pay.  How can you make it so that the bank cannot come after you for something you signed that promised them they could?  Nothing.....   You bought a house, you cannot make payments now (and how on earth can you know that it will be specifically three years until it goes back to the purchase price?), so the bank will foreclose.  You want  a way to get a house, not pay payments, and still be able to keep the property?  How would the bank be able to operate if people could keep houses they weren't paying for?  Anyways please go start this in your own thread as this isn't what this one is about.

[veilside]

They deleted their post.   That wasn't directed at you marc, someone posted that their investment property is now worth 100K less than when they bought it and wanted to protect themselves from foreclosure.  Your help has been greatly appreciated!  Someone just posted a barely relevant new topic in the middle of this thread.

[kdhastedt]

For all Members:

While "hijacking threads" is not expressly forbidden in the Foum Rules, it is considered EXTREMELY rude.  The following other behavior reflects badly upon the posters:

(1) TYPING IN ALL CAPITAL LETTERS - this is considered SHOUTING

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Thanx,

Keith
Moderator

[valerie4975]

I deleted my buttinsky post.