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SHOW NOTES FOR EPISODE 245: SERIES LLCs AND SAFEGUARDING YOUR PROPERTIES FROM LAWSUITS
As real estate investors acquire more and more properties, the concern for adequate and effective asset protection grows. In today’s podcast, real estate investor and attorney Scott Smith tries to bring clarity to the massive confusion among investors as to the best ways to protect your real estate assets from lawsuits.
What You Will Learn
- Why your insurance alone cannot protect you from lawsuits
- How you can get rid of all your regular LLCs and have better protection with just one LLC
- 6 tips for safeguarding all your assets
- The 3 main people you need on your success team
- An inexpensive way to have the same top notch asset protection only previously known by the very wealthy
- What is a Texas Series LLC?
- The critical role of an Estate Trust or Living Trust as part of your total asset protection package
- Why most attorneys don’t offer the same service, even though he makes it available to other attorneys
About Our Guest
Scott Smith
Scott Royal Smith is a real estate investor and asset protection attorney in Austin, TX. He graduated from Albany Law School and began his career in high-stakes corporate litigation. Through his defense work, Scott actually targets defeating lawsuits FIRST, before they are even filed.
Scott founded Royal Legal Solutions to offer tax, business, and legal strategies to real estate investors. He has spent the past 8 years of his career diving through case law, reading the ever-changing tax code, and analyzing real estate investment so that his clients don’t have to.
Scott isn’t just a lawyer, he is also a real estate investor. He uses a combination of his legal expertise, experience as an investor, and love of helping others to grow and protect their businesses to build ironclad asset protection plans for his clients. His primary expertise is in stopping lawsuits before they even start.
He is a regular expert contributor to BiggerPockets.com and other real investment communities, and is currently writing an eBook on asset protection strategies to help educate the public.
Currently, Scott lives in East Austin and when he isn’t busy protecting his clients, he loves to practice jiu jujitsu / muy Thai kickboxing, explore the outdoors, and travel. His personal goal this year was to climb Mt. Kilimanjaro, and he already succeeded.
More About Scott
- Read Rich Dad Poor Dad by Robert Kiyosaki
- Bought his first property – a commercial property – in his second year of law school (over eight years ago)
- Ended up flipping the property
- Allowed him to have no debts from his education
- After law school, went into litigation and hated it, although, it taught him how to attack
- Lives in Austin
- Started getting back into real estate
- Found out that real estate investors in Austin he encountered did not know how to protect themselves from the shark attorneys you hear on radio, TV, etc. that are looking for any way possible to sue people
- Started out just helping some of his friends – sharing some strategies on to protect themselves
- As he worked with them, he also learned some great ways (that even he didn’t initially know about) to protect, hide and secure assets – with the whole idea being if people can’t find you, they won’t touch you
- He developed a comprehensive asset protection and business operations system he could present to his clients
Launched Royal Legal Solutions
- With this new system, he founded and positioned his law firm to specialize in helping people to protect their assets
- Helping show people what advantages the law has to protect your self and your assets
- Especially with real estate investing.
- If you are trying to generate enough income to quit your job and become financially independent, you can’t afford to lose that income that you depend upon for your survival
- Unfortunately, most people are totally at risk by having all their properties in their own name
- He knows one guy who lost $3 million in real estate investments because all the properties were in his own name and he thought his insurance policy was all he needed to protect himself
- Has over 1,000 clients in 10 states, in every real estate asset class
- 43 people on staff
- He interfaces daily with investors, CPAs, and other professionals
- Serves as “one stop shop” to address all aspects of their business – legal, tax and business advice
- They don’t just set-up entities – His firm has memberships where people can chose to have ongoing support for their business in many different areas
Your Team
- You need a solid team in place that can help you to grow and maintain your real estate business
- Your Attorney – he or she must also be a real estate investor and understand the challenges you face on a daily basis
- Your CPA – he or she must also be a real estate investor and understand the challenges you face on a daily basis
- Business Specialists – Someone who look at the business and can help you find and analyze deals
Confusion on Asset Protection
- Scott references how there is much confusion about asset protection
- There are a lot of different opinions on how it works
- He tries to make himself available to real estate investors to help clear the confusion on platforms such as BiggerPockets.com
- He has brought people into his firm with the intent of clarifying confusion on the issue and affordably helping investors to take the necessary steps to establish solid protection and have peace of mind
- His firm is using strategies that used to only be used by the very wealthy and he is providing the same things but more affordable
Series LLC and Anonymity Trusts
- His strategy combines the Texas Series LLC with what he calls “anonymity trusts” (new legal technology that has only been around for the last 20 years) and which legally allows the highest levels of protection possible at an affordable cost
- Regarding out of state investors, his firm can handle all your legal needs (structural issues and defenses) but just can’t appear in court for you in all states. In those cases, they would work with your attorneys in those states
- A Texas Series LLC (one company with one EIN number and one bank account that is established with one filing) works just like a Delaware LLC. It can work all over the country. They establish it in Texas but it owns properties all over the country through Land Trusts
- The Series LLC can have as many “children” as it wants. Each “child” is its own company, just like an LLC would be, except that it’s free and there’s no special filing to create it.
- So you file and create one parent company and with that company, you’re able to create an infinite number of “child” companies for free underneath the parent or Series LLC
- A typical scenario:
- You acquire a property anyway you need for financial purposes
- The property is under your personal name for the conforming loans.
- You notify his firm and they create “Land Trust A” (the reason they use a land trust is because it does not violate the lender’s “due on sale” clause, which means you can change the title of the property legally and the land trust can be anonymous)
- They take “Property A” and deed it into “Land Trust A”
- Then, “Land Trust A” is owned by “Child Series A” and “Child Series A” is owned by the Parent Company (The Series LLC)
- When you acquire another property, “Property B,” you take “Property B” and deed it into “Land Trust B,” “Land Trust B” is owned by “Child Series B” and “Child Series B” is owned by the Parent Company (The Series LLC)
- The benefits are:
- You can get cheaper financing because the loan is in your personal name
- You can be transferred into a protected company structure without violating the due on sale clause
- You create anonymity so that no one can find out who owns that property
6 Tips for Safeguarding Your Assets
- Hiding Ownership – Get Your Assets Out of Your Name
- Use land trusts to hide the ownership of the company and each property
- You stop lawsuits before they start because, on paper, you look poor (you don’t have any assets) so no one will want to sue you
- Compartmentalize Every Asset Within the Series LLC
- They break down into Properties A,B,C, etc.
- If someone does sue, the most they will get is one asset
- Make Sure You’re Adequately Insured – Most of the Time Insurance Will Cover You
- Most accidents are pretty small (this is what insurance is designed to cover)
- It takes care of little nuisances
- It’s not designed to take care of the catastrophic type things
- If it gets real bad, people will get sued
- To protect yourself from the big lawsuits, you need the right company structure
- With the above mentioned legal structure, the worse case scenario is that you would lose one property
- You may be able to ditch the umbrella coverage if your company has the right structure
- Keep Accurate Books
- You can have one bank account with a Series LLC as long as you have accurate records for each series – accurately tagging income and expenses for each series
- With this account it makes it harder for people who want to sue to access an account that includes money from different assets
- Get a Good Estate Plan/Living Trust in Place That Includes a Good Will
- The Living Trust holds the assets of the Asset Holding Company (Series LLC)
- The Asset Holding Company then holds each individual asset
- Once the Estate Plan is in place, it never becomes obsolete, even though you may add and subtract assets
- Partner With Someone Who is Watching Your Back
- If not his firm, then someone like his firm that will:
- Answer all of your questions (one trusted source of information you can go to)
- Prevents conflict of information and confusion that can happen with multiple sources of information
- He offers a review twice a year of your Estate Plan as well as the company structure to make sure that they are running it correctly
- It’s not just a matter of setting up your structure correctly to insure your financial future, retirement and things you can’t afford to lose
- If not his firm, then someone like his firm that will:
Biggest Legal Mistake Investors Make
- Owning assets in your personal name
- For example, if you get into a car accident that exceeds the limits of liability in their insurance policy or an unrelated business dispute, people can sue you for everything in your name all your real estate, everything you own in your name
- The same with everything you own in real estate
- Over a 20 year period of time as a real estate investor, you have a 95% chance of being in a major lawsuit, You don’t know when it will happen but you can be pretty sure it will happen at some point
- The reason people put things in their own name is because when they try to find safer alternatives, there are not clear explanations of what the safer alternatives are, especially as it pertains to real estate investing
Advice for Old Dawg’s Newbie Investors
- Establish a Living Trust
- Makes for a smooth transition of your assets to your heirs
- Avoids the probate process
- The Living Trust holds your LLC. You can pass the company structure on to your heirs so they inherit everything in a protected structure as well
- People looking for someone to sue will go to the public records
- If your property is worth more than $50,000, you need an LLC but if you have multiple properties, you need a Series LLC
- A series LLC also scales so, as you grow bigger, you don’t have to acquire more headaches
- If you just have one asset, a traditional LLC will be fine
- A series LLC scales but it also streamlines all of the operations, so as you grow bigger you don’t acquire more headaches
Where He Sees His Business Going
- He’s had his current business for four and a half years
- At the prices he charges for his services (half the cost), it’s unheard of in the industry
- He wants to continue to be transparent and share with other attorneys what he is doing. Unfortunately, most attorneys don’t want to change the ways they have been doing things. It’s simpler for most attorneys to just open a new LLC for each property
- What he does is not necessarily the easiest route to go but it is effective. It takes about one year to train his new attorneys how to do his system
- He wants to continue to provide one system for everyone, no matter where they live in the U.S., no matter what asset class, and provides the best protections
- Clients don’t have to understand everything about what he does and all the nuances. They just need to know if this what they want
- His firm takes care of all the set-up, maintenance and will provide unlimited ongoing support
- Most clients do their own bookkeeping
Rap-it-Up
- Favorite real estate book: Rich Dad Poor Dad by Robert Kiyosaki
- Favorite business book: 4 Hour Work Week by Tim Ferris and The Lean Startup by Eric Ries
- Most valuable web site for success (other than your own): BiggerPockets.com
- Favorite app: Habit Bull
- Favorite quote: “You win some. You lose some.”
- If you had to start all over, knowing what you know, and you only had $1,000, what would you do to launch your real estate investing business? He would hunker down with a friend, read a lot of books and see how they could help people. To many times people feel that money is an obstacle to accomplishing great things. Finding ways to help people can also lead to helping yourself.
How to Reach Scott
- RoyalLegalSolutions.com
- Phone: 512-757-3994
- His personal email: scott@royallegalsolutions.com
- YouTube Channel: Royal Legal Solutions
Special Offer to Old Dawg Listeners
- Go to https://royallegalsolutions.com/olddawgs
- Get free product giveaways and downloads
- A raffle where you can enter to win $5,000 in legal services for free! www.royallegalsolutions.com/raffle
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