Realty411 Magazine Featuring Eric Counts, Credit Nerds - Page 82

In a Limited Liability Company owners are called "members" and a single­member LLC has only one owner. The IRS disregards a singlemember LLC as a separate entity and looks to the single­member as the responsible party. The courts also look to single­members as the liable party as did Colorado in the 2003 bankruptcy case of Ashley Albright wherein the court stated, "A charging order protects the autonomy of the original members and their ability to manage their own enterprise. In a single­member entity, there are no non­debtor members to protect. The charging order limitation serves no purpose in a single member limited liability company, because there are no other parties' interests affected." [Ashley Albright, 291 B.R. 538 (Bkr. D Colo.2003)] The state of California agrees and determines each charging order not by state statute, but by court decision. Thus, owners of singlemember LLC's have no assurance of liability protection in most states. NOTE: Nevada and Wyoming, inparticular, afford a single­member LLC the same charging order protection as a multi­member LLC In addition to the standard type LLC that many real estate investors use to hold their Beneficial Interests, many investors use the Series LLC instead. While explaining the use and benefits of a Series LLC in this article is not possible due to space limitations, I encourage you to Google the Series LLC and find out all you can. So, why not use a Corporation as the Beneficiary to your Land Trust? Maybe you should. Many real estate investors that do a lot of “flipping” will make their “flipping corporation” the beneficiary of the Land Trust that holds property they want to fix and flip. The decision to use a Corporation or LLC as the beneficiary of your Land Trust is two­fold. First, there is a tax consideration (you should consult your accountant for advice regarding this issue). Secondly, there is a statutory issue. Limited Liability Companies do NOT have to comply with the statutory requirement to maintain management formalities in order to prevent third parties from “piercing their corporate vails” ­­­­i.e., from holding their members liable for LLC negligence and other misconduct. In stark contrast, Corporations that want to avoid vail piercing must comply with extensive management formalities (annual corporate minutes, board meetings, etc.). To conclude, just because you put your property inside a Land Trust does not mean the beneficiary avoids liability. It is smart to hold the Beneficial Interest in a Land Trust via a Limited Liability Company. However, not all state’s LLC laws are created equal and some states have better laws than others. It can be argued that Nevada and Wyoming have the best single­member LLC protection laws. Randy Hughes, Mr. Land Trust If you want to learn more about the wonderful world of trusts, please go to: for more information. Or, if you would like to attend one of my FREE Land Trust Webinars, go to: Also, feel free to call me with any questions. I actually answer my phone! 1­866­696­7347. 82