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:
www.landtrustsmadesimple.com for
more information. Or, if you would
like to attend one of my FREE Land
Trust Webinars, go to:
www.landtrustwebinar.com/411
Also, feel free to call me with any
questions. I actually answer my
phone! 1­866­696­7347.
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