When it comes to asset protection, I always tell my students and clients that segregating dangerous assets from each other is a sound strategy to limit overall risk exposure. Best practice dictates that each asset should have its own entity. For many people this could translate into to a multitude of business entities. For example, just yesterday I spoke to an individual who owns over 30 properties. If this investor desired complete asset segregation he should create 30 separate Limited Liability Companies. This would surely translate into an annual cost of over $6,000 in state fees. Now depending on your risk tolerance level, $6,000 may be considered cheap insurance given that the cost breaks down to only $200 per property. For many, this is a bargain given today’s hostile business environment and personally, I would agree. However, some investors who live in a state with high annual business fees, such a structure may not be financially practical. Thus, the desired asset protection plan is sacrificed in favor of grouping several properties into to a handful of LLCs.
Is this to say one investor is smarter or savvier than the other? No, it just comes down to each individual’s risk tolerance level and money. Now this brings me to the point of my article. I have been receiving more than usual interest in a relatively new variation of the LLC referred to as the Series LLC. A Series LLC could be viewed as a possible solution to the cash conscious investor’s dilemma and the “I am entity overwhelmed” investor.
Posted by Clint Coons, asset protection attorney, Seattle, WA