Mark Kohler explains COPE entities, which provide two-way asset protection: shielding owners from business liabilities and business assets from personal creditors. In states like Nevada, Wyoming, and Delaware, a COPE prevents creditors from forcing distributions, often trapping money in the entity and pushing toward settlement. Kohler cautions against forming one until you have substantial assets to protect.
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What is a COPE entity? Some of you may not even know what that stands for yet, but you want to learn more about asset protection. Well, I commend you. And the COPE entity stands for Charging Order Protection Entity. And these are an important part of a well designed asset protection plan when the time is right. So I want to break it down and give you some examples of when it might be a good fit for you. Now, a COPE entity is typically an llc, but it means much more than that. However, they've really been designed in certain states around the country to be perfectly established as an LLC or limited liability company. Some states have this protection, some states don't. Now, the easiest way to explain what a COPE entity is is visually. So I want to draw a couple pictures here that'll bring this all together. Now, let's say you have a basic, typical llc. And many of you know an LLC is there to protect you, the owner or the manager from your tenants. So if you have a land, if you're a landlord and you have rental property or maybe a small business, and you're running a food truck or a landscaping business or whatever, you have an llc as long as you protect this corporate veil. And that doesn't mean having one sheet of paper in the drawer because you went online and did it yourself. Make sure you watch some of my other videos on maintaining your LLC or corporation. There's some important steps there that are cheap and affordable because. But you got to do them. So you're doing your thing, you're maintaining your llc, and you're protected from the operations of the business. Sounds good, right? Well, many people think, ooh, well, oh, my gosh, what happens if I'm texting and driving and I blast through a crosswalk and kill a family of five? Not even fun to even say, let alone think about, right? But let's say there's a liability against you personally for poor driving, as a classic example, and someone sues you for a million dollars, $1 million, and you would think, oh, well, I have an LLC. They can't get at my rental property. No, no, no. In most states, they can get into the LLC and cause you to sell the rental property and distribute the money to the creditor or the family that you blew through in that stop sign or that crosswalk. So you may say to yourself, hold on, hold up, I thought the LLC was there to protect my assets. No, no, no. The LLC is there to protect your personal assets and your home and you from the operations of your business. Let me restate that. The LLC protects you from your business or rental, it doesn't protect the rental from you being an idiot. So what do we do? So here's how a COPE works. A COPE is a type of LLC or limited partnership in some states where the LLC protects your assets from you as well as you from your business or rentals. So it's two way protection. So if I'm up here with a rental property, I'm down here and someone comes after me, they cannot get into my llc. It gives me outside protection as well as inside protection. So if the tenant comes after me, they can't get at me. Oh, and if someone comes after my llc, they can't get it there. I've got this two way protection and this corporate veil is more powerful. And in one of these COPE states. But where's this charging order protection word come from? Well, if a creditor comes after you for that $1 million, they may get a judgment and the judge says, all right, I'm not going to allow the creditor to get into your llc. But if you distribute any money out of this llc, I charge you and I order you to give that money to the creditor. So there's a charging order that the debtor you gives that money to the creditor that you owe money to. It's a charging order. Well, if I'm. Are you ever going to distribute to yourself if there's a charging order sitting out there? No. And so the creditor is going to sit around for years and years, maybe their whole life, and never get a dime. You're going to let that money stay in there, maybe even out of spite, or protect it till you die or who knows what. But what it does is create an incentive for the creditor to settle. And that's the whole goal here, is to find a settlement that's fair. A lot of lawyers are going to ask for pie in the sky. And some of these lawyers over here are going to say you don't owe anything, when the reality is it's somewhere in the middle. Right. Well, the COPE entity helps facilitate a settlement that's maybe more fair for both parties. Okay, I magically brought this book into the picture. And why did I do this? Well, this is my new book, second edition, the Tax Legal Playbook. And in here I talk about the Tax Cuts and Jobs act, the new tax legislation that hit us wild and crazily in 2018. But also I give you updates on asset protection. And I have a table in the back here that tells you which states are charging order protection. Entity states, which ones you can do series LLCs in and all this other stuff. I use this as a resource when I'm on consultations with clients around the country as well as the other attorneys in my office. So here, if I just look at it, I'll go through it with you. In which states are COPE entity states? So you've got Alabama, Arizona, Delaware, Indiana, Maine, Michigan, Mississippi, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia and Wyoming. Now this is really important because you want to design your structure where these COPE states laws exist. Now here's the hard thing. What happens if you live in a state that doesn't have COPE protection? Do you set up this Wyoming LLC or a Nevada LLC that has COPE protection and then you have it registered in other states where you actually do own rentals? Big topic, right? Well, I talked about this in the book. There's a link to a more in depth article below. You can read up on the detail. And when you're doing asset protection, the main takeaway I want to tell all of you is don't think that your first rental property you need a Wyoming or Nevada or Utah entity to protect your assets. Most of my clients grow into this structure. We don't set up a COPE entity right out of the gate. It could be expensive and or even just an increased administrative cost. Watch out for someone in a call center in Nevada trying to sell you on this entity or giving you unlimited entities so you can set them up like candy in a candy store. You want to be careful with that. These are new tax ID numbers, possibly new tax returns, definitely checkbooks and bookkeeping requirements that come with every entity. So don't set up too many entities. And I've got additional more writing and articles out there on how many LLC should I have for my rental property. So anyway, I love this topic and I encourage you to keep studying on good asset protection strategies. I'm out there just like you, average American, trying to live my American dream. I think I have four or five rental properties now. I don't have hundreds or anything, but I want to set up the LLCs properly without overdoing it. And that's even me with the law firm. I try to not overdo it. So get a consultation or a second opinion if someone's trying to sell you on this before you even have three or four rentals or half a million dollars worth of equity in real estate, it may be unnecessary. So keep working hard and keep living the American dream. And don't give up. Thanks so much for watching that video and I want to be your source for tax and legal strategies. It's hard enough to live the American dream without being out on the web on Google trying to find answers to complex questions and just clicking a mouse hoping you got it right. My team and I want to be a huge resource to you, the law firm, accounting firm, my education resources on my site. Please continue to follow these strategies. I know they'll save you thousands. Now click here if you want to be a part of my newsletter. It's awesome. Weekly updates and deadlines and strategies and tips. Also subscribe to my YouTube channel. You'll love it. And make sure to click the bell icon so you get a little ping whenever there's a new video. And finally check out my site marjoler.com with all sorts of videos, probably 70 plus videos, 30 plus hours of content that'll save you thousands of.
