Posted by Randy M on January 24, 2001 at 15:17:08:
I’m sure Bud will give you some great information - as he always does - but here are a couple comments from my perspective, as well.
On having more than four properties in one LLC - probably the main reason against holding more than four is that if there is a problem with one, the others in that LLC could be spoiled - at least temporarily and potentially damage their marketability. I’m sure there are other reasons, but this one came to mind first.
In Texas, do you have a franchise tax on all business forms that exempt personal liability?
Typically, we do arrangements a bit different than you describe here to keep the trust from actually being an operating business. Because trusts are great pass-through vehicles, we want to maximize the protection provided. Here is how we would do something like what you’re talking about here:
We would set up the land trust - it would be an irrevocable trust. We would then set up the LLC, LP, corporation or whatever entity to purchase the property and operate as the business entity. The land trust owns all of the interest (shares, units, whatever is applicable) in the business entity. We then would have a person or another entity be an outside beneficiary of the land trust. We are always very careful to add a Spendthrift Clause and other provisions to protect the assets of the irrevocable trust.
Even though there are three entities here, it works really well because (i) the outside beneficiary (typically an LLC) can be beneficiary for literally all of our trusts because the only thing it does is distributes income and therefore has no liabilities or cause for liabilities, (ii) the business entity takes all of those business expenses, including salaries, consulting fees, modeling expenses for my kids’ Roth IRAs, etc. before we even need to distribute the income produced by the property through the trust to the beneficiary, (iii) this form provides an extra layer of privacy and asset protection - the very things we use this system for.
Obviously, there are many ways to do these systems, but this one has worked well for us and for many of our clients.
Best of Success