THE CASTLE KEEP ASSET PROTECTION STRATEGIES GARRETT SUTTON
3 . Spec home sales . Whether building one home for speculative sale purposes or building a subdivision full of identical tract homes , Sammy knew that a unique protection strategy was needed when he started in spec home sales . This was because more and more lawyers across the country were bringing lawsuits alleging damage from mistakes during construction , known as construction defect litigation . Plaintiff ’ s lawyers were filing lawsuits on behalf of homeowners alleging monetary damages due to settling , cracks , improper construction practices , and the like . These suits were especially prevalent in California and Nevada , where a ten year statute of limitations allowed suits to be brought a decade after a house was built .
Each time Sammy builds a spec home he uses a new entity . Again , because of its asset protection benefits and efficient flowthrough taxation of income , Sammy uses a separate LLC for each custom home he builds . In California , because of the extra state taxes on LLCs , he uses an LP with a corporate general partner as his developer entity .
The key to Sammy ’ s strategy is to keep each entity active after the house had been sold . This is to thwart the aggrieved homeowners and their lawyers who have ten years to bring a construction defect claim . Too many builders believe that by having tail insurance they can dissolve the construction entity . But insurance doesn ’ t cover every claim , and dissolving the entity leaves you personally responsible . By keeping the entity alive during the tenyear statute of limitations period , any claim would be brought against the LLC or LP , not personally against the owners .
But isn ’ t it expensive to keep an entity alive for ten years ? What about all the filing fees and tax returns ? As Sammy knows , it isn ’ t a burden if done the right way .
As far as tax returns are concerned , once each house is sold a final tax return for the entity is prepared . The LLC or LP stays alive but has no activity and thus does not have to file an ongoing return . In terms of annual filing fees , some states are more expensive than others . In California it is $ 800 per year per entity . Including a $ 125 annual resident agent fee , the tenyear cost per entity is $ 9,250 .