Nevada Series Limited Liability Companies (LLCs)

  • July 31, 2018

As discussed in my prior post on asset protection, at Incline Law Group we are always looking for ways to protect our clients’ assets by achieving two goals 1) separating business assets from personal ownership and 2) separating business assets from each other by avoiding common ownership. There are many ways to do this and the best way depends on the type of assets, the risk level associated with your assets, financing issues, personal preference, taxes and many other factors.

For real estate investment, such as ownership of a number of income properties, a Nevada Series Limited Liability Companies can be a really great entity structure to maximize asset protection and minimize administrative costs. Series LLCs are not for everyone, so carefully analyzing the benefits to your business assets with your attorney and CPA is extremely important.

A Series LLC looks similar to a parent company/subsidiary sort of structure. A master company is filed with the Nevada Series LLCSecretary of State, like any other LLC, but with an election to be a Series LLC. The creation of any number of series companies is authorized in the Series LLC governing documents.  When a new series company is needed, it can be formed internally and is not registered with the Secretary of State, thus minimizing filing fees. While each series company may have its own tax ID number, a single tax return may be filed which can maximize tax benefits of profit and loss sharing across the series companies.

This type of entity structure can be a great fit for real estate holdings. For example, if I own 5 rental properties, I can put each property into a series company.  I am able to save licensing and filing fees, as well as potentially file a single tax return, but at the same time, each of those series companies is treated as a distinct and separate LLC (so long as I follow all applicable statutory,  financial and governance rules). Therefore, I have achieved a great deal of asset protection while minimizing costs.

Again, Series LLCs are not for everyone. They do require extra TLC when it comes to banking, financials and bookkeeping. They also have limited application if your assets are located in another state, such as California. But if, after careful investigation, it looks like a Series LLC may fit your needs, it is a structure that can be a fantastic tool for asset protection.

 

Asset Protection – Common Misconceptions and the Bucket Theory

  • July 11, 2018

It is quite common for clients to tell me that they thought their standard family revocable grantor trust would serve to protect assets from creditors.  This is a very common misconception.  Your standard revocable family trust does not in fact provide any asset protection.  There are certain types of trusts that can provide assert protection, such as Nevada irrevocable asset protection trusts.  However, it is not always necessary to utilize these very advanced estate planning techniques for the average person to protect assets from creditors.

When seeking to protect assets we seek to achieve two goals:

  • separate your business assets from your personal assets.
  • separate your business assets from other business assets.

For example, if you own a primary residence and two office buildings, your first consideration might be putting the office buildings into an entity (LLC, Series LLC, Corporation or the like) and removing them from being titled under your individual name.  The second consideration would be to separate the assets from each other by putting each office building into separate entities.

Why is this type of structure recommended?  Because if everything is in your individual name and one of the tenants sues for a slip and fall, and obtains a judgment against you, it will be a personal judgment and your personal assets may be subject to that judgment, including your home.  If all of your assets are in your name, you have created one big bucket of aggregated value for a judgment creditor to dip into.

However, if the business assets are held in an entity structure, you are starting to create multiple buckets which hold fewer assets and less value.  The tenant, in this case will be limited to seeking a judgment against the business at which s/he fell and recover only against its assets, which will no longer include your personal home. Further, if we have taken the extra step of separating the business assets from each other, then we are again creating more buckets and minimizing the value that is available for satisfaction of the judgment in each bucket.

Every client’s needs, level of risk and level of risk tolerance are different.  Additionally there may be tax and other considerations when looking at entity structures.  Corporate formalities and relevant laws must be adhered to in any entity structure to maintain the protections they can afford.  It is important to discuss all of these issues with your legal counsel and CPA before forming new entities and transferring assets.

You spent a great deal of time and effort to earn and grow your assets.  A well thought out asset protection plan is important to safekeeping them.

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