SHOW NOTES FOR EPISODE 653: REAL ESTATE LEGAL ISSUES IN TODAY’S ECONOMY

Lawsuits are definitely something real estate investors want to avoid. But did you know that lawsuits increase significantly during inflationary and recessionary cycles?  In today’s podcast, attorney, real estate investor and entrepreneur Scott Royal Smith shares how you can avoid the onslaught of frivolous law suits by doing just two things!

What You Will Learn

• Why, when economies are struggling, is there an increase in lawsuits
• How can you specifically avoid lawsuits as a real estate investor
• Why landlords and property owners prime targets
• Two simple things you can do to dodge lawsuits
• What tricks are available to help make you “invisible” to lawsuit predators
• How not to lose money in a lawsuit
• The power of a Living Trust for your personal asset protection

About Our Guest

Scott Royal Smith

Previous episodes featuring Scott:

• 495: What is a Land Trust and How Can It Protect My Properties?  Feb 22, 2021
• 245: Series LLCs and Safeguarding Your Properties from Lawsuits Oct 1, 2018

Scott Royal Smith is a real estate investor and asset protection attorney.  Scott became an entrepreneur while still in law school, purchasing and running an auto mechanic shop, to pay his way through school.  After graduating, Scott began his law career as a high-stakes corporate litigator. He spent the last 10 years of his career analyzing real estate investment and asset protection. Today, Scott is the Founder and CEO of Royal Legal Solutions. A firm he built to offer tax, business and legal strategies to clients all over the U.S and Canada.    He continues to educate the public on asset protecting strategies to help circumvent debilitating lawsuits for his clients.

More From Scott

• Real estate pricing has been doing a J-curve
• What’s going to be happening with the recession and inflation
• Looking back at 2008, where we had a 20% reduction
• It makes you ask, “What are the unknown variables and how should we be planning?”
  • Should we be divesting from some of our real estate holdings?
  • What happens in down economies
    • People need money and are more prone to frivolous law suits
    • Law suits are most likely with people who are exposed and have assets in their name

Tough Times Spawn an Increase in Lawsuits

• Litigation attorneys make money by suing people
  • People/tenants become more desperate
  • They want to take advantage of landlords,  too
  • Whenever there are tough times economically, law suits spike
  • And attorneys become more desperate
• If you have assets under your personal name, people can target you
  • People can go online to databases like DataTree.com and find the names and holdings of property owners and landlords
  • Landlords/property owners are already at risk in tough economic times
  • A person can take all your assets

How Can You Protect Your Assets?

• If you have any assets in your personal name, you are a target
• Scott has a friend who lost $3 million of his assets in a single lawsuit
  • He was well-insured
  • He relied 100% on his insurance
  • But it didn’t protect him
  • What he didn’t realize is that…
    • People will always lie
    • Insurance companies only protect you from accidents
      • They won’t protect you from allegations from fraud or breach of contract, for example
  • If he had just put together a single LLC, he would be $3 million richer
• Rich people don’t own things
  • Rich people have entities that own things
  • Why?  Because rich people are concerned about maintaining their wealth

It’s Always Harder to Earn Back the Money You Lose

• Say, you had $100 and you lost 50%
• You would have to go back in your “deal making” and find a way to invest $50 to make 100% return with the money you have left
  • If you can find a good investment where you can make 10% a year, it could take you 4 to 5 years to make your money back
  • It’s always harder to recover from a loss
• It’s really important to NOT lose money
• Warren Buffet’s number one rule is to NOT LOSE MONEY
  • His number 2 rule is to SEE RULE NUMBER ONE
• Whether you lose money from a bad real estate deal or from a lawsuit, it’s always going to take more time to regain what you lost

How Not to Lose Money in a Lawsuit

• Success leaves clues we can learn from and follow to prevent a loss
• The two main things you can do are:
  • Have an operating company that has no assets that sends all your emails and signs all your contracts
    • Because people can sue you for fraud (emails or written things) or breach of contract
      • All that’s left are accidents, where your insurance company can cover you
    • The reason you put things through an operating company that has no assets is that you want people to sue the company because you can just shut down the company, start-up a new one and it costs only $1,000 to do that
      • It’s a cheap way to get out of a lawsuit
  • You have another company/LLC that holds all your assets
  • The structures can be as complicated as you want
  • For example, one LLC that holds other LLCs, etc.
  • What you want, however, at the highest level is at least two LLCs:
    • One LLC that handles all of your active business and operations (emails, contracts, property management, etc.)
    • Another separate LLC that owns all of your assets
      • Brokerage account
      • Extra cash you have
      • There are a number of structures for this type of asset holding companies (single LLC, Series LLC, DST – Delaware Statutory Trust, etc.)
  • You also need to have a personal family estate plan to protect you personally
    • That will help keep the government out of your personal finances
  • All of these companies should be anonymous as well so your personal balance statement looks like you qualify for food stamps
    • Because all of the assets and your properties are compartmentalized
    • People won’t likely sue you because it looks like there’s not enough money there to go after
    • The business decision to go after you doesn’t make sense because the castle of protection that they have to fight through looks so time-consuming and so expensive and it looks like there’s not much money there, even if they do win, that it doesn’t make sense to proceed with the lawsuit
• That’s the secret to how to stop lawsuits before they ever start
• He roughly defends one lawsuit a month for his clients (2,000 clients) with this structure and every time it seems like a clock
  • He has all the tools and weapons he needs, already set up ahead of time, because he knew what would happen (from his litigation experience)

Be Prepared for Predators in Today’s Economy

• It’s important that you fly under the radar of those looking for easy money through frivolous lawsuits
• Take the target off of your back by setting up the right legal entity structure
• Good anonymous legal entities include:
  • Wyoming LLCs
  • An LLC owned by a trust (a revocable grantor trust or land trust)
    • These are free to create, no filing for them, no cost to maintain, no bookkeeping required or tax returns
    • They just mask the name of the ownership
• And, if you set up your structure through a law firm, everything will go through them
  • And they can’t even ask the information because it violates attorney-client privilege
  • You get an extra legal shield by using an attorney
  • The attorney is not controlling anything with your assets but just acts as contact point

The Importance of a Living Trust

• In addition to your business entities, you’ll need to cover your personal assets as well
• When you pass away, you need to have an estate plan to protect your assets from being ceased by the government
• If you want your assets to go to family or other people in your life when you pass away you’ll need an estate plan, like a Living Trust, in place
• If you don’t do anything, it all goes through probate courts, it all becomes public and the government decides what happens to your assets
• A Living Trust avoids all of the court processes, you avoid attorney fees and it gives control to the people you designate in your trust
• You can also allocate how and when your funds are dispersed
• It can be fully set-up in 90 minutes, then you can modify it or review it annually if you want
• The important thing is that you get it set up
• This is the perfect time to get it set-up

Multiple Legs to the Stool

• Scott’s company has, besides attorneys, CPAs and insurance professionals on staff to look at all vital aspects of your business needs
• Entities can be established
• A tax strategy can be established
  • They can open S-Corp or C-Corps if your income and earnings require it
• Finally, they can migrate all of your insurance needs to support the rest of your business needs and to reduce further risks

His Company

• They work with about 2,000 real estate investors nationwide
• His staff are also real estate investors
• He has about 30 people on his staff

Free Educational Materials on His Website

• Website: RoyalLegalSolutions.com
  • Click the Get a Price button, fill out the quiz and someone will connect with you to provide free educational materials

How to Reach Scott

• Website: RoyalLegalSolutions.com

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