When to use a Series LLC | Main Street Business Podcast |

Foreign. Welcome everyone to the Main Street Business Podcast with Mark Kohler and Matt Sorenson. We are delighted to be with you this lovely holiday season. For those of you on video, you can see Mark right now. He wants to be viewed as an MMA fighter. I didn't see that with his beanie. Is that, is that what the look you're going for? What look are you going for?

Just kind of a cool looking guy. I mean, see, when you're an accountant, you've gotta. You've got to go to extra lengths to look hip. It just because naturally you're kind of a nerd. And so it just comes with the territory and the title. So I have to work outside the box. So for those that are watching this on YouTube, which it is posted on YouTube every week, as well as Spotify, itunes and Stitcher. We would love any of you that want to view our podcast, you may do so on YouTube and you just have to search Main Street Business Podcast and you'll find it immediately. Please subscribe and hit the bell icon. So whenever a new podcast is released, you'll get it. But what Matt was trying to point out is that I look cool today and he doesn't. And that's just. That's the sad.

What it looks like is that I'm at work and Mark's not working. Oh, yeah, Mark just rolled out of bed. Or he's like, oh, I gotta the gym. I'm like, I gotta get in the gym.

I can't believe you said that. That is so rude. I have been working. What happened was I got dressed to work out this morning and I have gone back to back appointments and work. Not even have the time to put on a suit and tie. So, Matt, you must have time to spare. I've just been working all morning, so

yeah, I did have time to get dressed for work.

All right, well, we got a good show today. Tell them the title.

We're Talking about Series LLCs, as you saw in the description there. And this is a really common strategy. It's somewhat new. I mean, I guess the last 10 to 15 years you could be using a lawyer and accountant that's been in the dark ages and doesn't know what a series LLC is. But we've been helping our clients with these for a decade now and it's turned out to be really common, particularly for real estate investors. So we'll break down the series LLCs, what states you can use, it continues to grow and how to properly get it set up and operate.

Great job. And with that Description. I couldn't have said it better. And I want to let our listeners know we are bringing back the tax and legal tip at the beginning of each show. We've had a lot of listeners of our prior episodes of Refresh youh Wealth text and email us and go, hey, when you launched Main Street Business, you got rid of those tips. I really, you know, a lot of people liked those. Sometimes they would tune in just for the two tips, and then the topic wasn't their cup of tea and they drop off. So we've got some good tips here to kick the show off with as well, and I think that will enhance your listening or viewing experience. Was that. That sounded good.

Yeah. Yeah. Do you know what? Like, like, it's kind of like the MSG of the show. You know, msg? My kids had to look that up because we had Chinese food recently, which I don't know why. The holidays. I just love eating Chinese food over the holidays. It's kind of a little tradition for me. Suppose. But MSG is a flavor enhancer. I did not know that. I knew it was bad for you. I just didn't know why they put it in. It enhances flavor. Kind of like the tax and legal tips enhance the podcast.

You know, Matt, you always come up with a new analogy or make this show better than it already is, so thank you for doing that. Okay, well, if you're listening, this voice is Mark Kohler, co host with Matt Sorenson, the smart one. I'm the ham at times, I'm the smart one, and Matt's just boring. But I just wanted to throw out our roles here on the show so everybody knows what's going on. Since you commented on my attire, I had to take another dig at you. Okay, do you want to do the tax tip or the legal tip first? Your call.

I'm gonna do legal tip.

Okay.

All right. Okay, let's hit the legal tip. And this is a big one. Everybody's talking about PPP forgiveness. You know, we've also got a second round of stimulus maybe coming up, so. But PPP forgiveness, we're at year end now. And when do I need to apply? Do I need to get it applied for now? What's going to happen tax wise? So I want to hit two quick tips on ppp. Paycheck Protection Program. Forgiveness.

Yes. For those that have, you know, maybe been living on the other side of the planet. PPP is the paycheck Protection program. A huge part of the CARES act passed earlier this year when a little thing called the COVID Pandemic blindsided business owners around the country. They could go get a PPP loan to cover certain expenses. And then it went on to be changed about nine times and has evolved over nine months about nine different ways. And it's been a crazy roller coaster ride. Now the time has come to apply for forgiveness, which. How do we even get into the tax issues? But all right, that's another way of saying it. So Matt, you've got some tips on how to get it forgiven? What do I need?

Yeah, let's just hit the deadlines. There's a forms for this and you can check our prior articles on our blogs on the PPP forgiveness applications. Those are on my site, Mark's site on Entrepreneur. You know where to find us. Yeah, let me hit the misconceptions. There's two misconceptions out there about PPP forgiveness. The first is that the deadline is October 30, 2020, which has already passed. The reason for that was is the SBA's first round of forgiveness applications said that the form deadline was and it's in the top right hand corner of the form is October 30, 2020. So it threw everyone to think, oh, that's when the application got extended. No, that's when the approval timeline of that form passed. So that's been updated of course now. But so don't get confused, it's not October 30th. It's also not December 31st. Okay. You do not need to submit it by forgiveness by the end of the year. I mean, if you're ready, why not? But you don't have to. Here's what the rule is. It's when your loan is matured, which is either two years or five years. So let me say it again this way. You have two years or five years from your loan origination to apply for forgiveness. Now this is where early people that got PPP loans in like March and April got two years. If you kind of got your PPP loan in July and August, you're on the five year train. So really no one has to apply for forgiveness yet under either one of those rules. Now another point to know is if your covered period is 24 weeks, remember when you got your loan, you had 24 weeks to use those funds. It used to be eight, but it got changed to 24. And but what happens now is after your 24 week period runs, you get to defer payments an additional 10 months after that. So if you're 24 week payments period ended in October of 2020, you're gonna have until August of 2021 where you don't have any payments, deferments made to actually apply for forgiveness. So most people right now, you don't need to stress about it getting it done. Why not get it off your books, though, and get it forgiven? So that's the first tip is you got two years or five years actually from the origination of your loan, but after covered period hits, you got 10 months of deferment where you don't need to be doing anything. You might as well get your forgiveness appended by then.

Okay, now, were those the two misconceptions or points you wanted to make? You called one a misconception, and then the other one's kind of a point.

I have another tip still within PPP forgiveness.

Okay, can I. Can I piggyback and throw one thing in the middle of this?

Yeah.

A lot of people have asked me and all of our attorneys and accountants on a regular basis, if I get the forgiveness this year, does that mean I have forgiveness of income this year? At no time is it going to be counted as income. The IRS has been very clear on that. A normal loan that's forgiven with a bank or a foreclosure or something. Weird. The day you get it forgiven in writing is the day you have to claim that as forgiveness of debt. Income with the ppp, that's not going to matter. So whether you get it forgiven now or in 2021 or 2022 or whatever, it's not going to be counted income as income. The big question is, are you going to be able to deduct the expenses associated with the loan and what you use the money for? That's a topic for another show. But, Matt, let me ask you, if people had the 24 weeks to spend the money, when wasn't it 24 weeks or December 31, whichever became whichever, whatever came first. Is that correct?

Correct. So if you got a loan in November, you know, or late October, you know, I don't remember when funds ran out or they stopped you, you could have it December 31, end date to that. Yes. Yeah.

All right.

So, but on the forgiveness thing, just keep in mind right now, unless this, you know, depending on laws and how it changes, you might have, these expenses may not be deductible. So.

All right, what was your other misconception?

Well, that was it. You already hit it. So it was forgiven. Yeah. Is the forgiven amount taxable or not? So.

Oh, I'm sorry. I didn't mean to steal your Thunder.

That's good. That's a good one, two punch. I thought it was like, you know, just like Wrestlemania. Like tag team. Yeah, you know, I was Little Ultimate Warrior. You were. Who would you be? Oh, the Rock.

I'd be the Rock.

The Rock. Okay, that's. That's too current. You gotta go back. You know, I'm thinking like Hulk Hogan Rock, you know, the Macho Man.

What's the name of the guy in Peanut Butter In. What's the name of that show, Allison?

Peanut Butter Falcon or something?

Yeah, Peanut Butter Falcon. What's the name of the wrestler in that show? Oh, Steve Something Cold.

Oh, Stone Cold Steve Austin. Okay.

Yeah, Stone Cold Steve Austin. Okay, now let's move on to my tax tip. This is also time sensitive and a very good one. One of our regular listeners, he's a plastic attorney. Plastic attorney.

Oh, my gosh.

Oh, my. Plastic surgeon. Is there a plastic attorney anywhere? I guess we could get bobbleheads made of ourselves. Oh, my gosh. This is so funny. Plastic surgeon.

Rudy Giuliani maybe, lately.

Oh, my gosh. I've never even said that before. Yeah, I'm a plastic attorney. What you make. You make their lawsuits better with a little lift and a tuck or what? Okay, so we have a good plastic surgeon that's a client and follower of our show. And he was one that expressed the fact we are not doing enough tax tips. And I said I would dedicate this one to him. And I don't want to say his name here on the show for privacy reasons. So here's the tip. What is a valid medical expense? Now, this is an important topic because some of you might be turning in receipts to your employer for the flexible spending account. Use it or lose it. You got to turn those in by the end of the year. Some of you small business owners might be using the hra, or health Reimbursement arrangement. We've done prior podcasts on that strategy, and you need to do the reimbursement by December 31st. Some of you may be shopping for health insurance and making sure that you have a high deductible plan for 2021 so that you can have an HSA and pull out money tax free for medical expenses. So a common question is, what are valid medical expenses? Where's this list? Well, it's very easy to access, and it's one of the publications I probably have looked at the most in my career. Literally, it is IRS Publication 502. That is the list of valid medical expenses that can be used in the flexible Spending account, HSA or HRA Arena. Now, interestingly enough, under the CARES act, when all hell broke loose earlier this year with the COVID pandemic, they actually threw in a couple other expenses that could be deductible, including some over the counter drugs, which is typically not allowed. So I need to write an article and update you on those details, but I'd start with Publication 502. Now, being a plastic surgeon, you know, you can get into some assiduous or risque topics, for lack of a better word. And so I told him I would make sure everybody knew that cosmetic surgery, even if you pay for it in your business for your secretary, is not tax deductible. I'm serious. I've had a business owner call and ask me that.

Oh yeah, I've had that too.

Yeah, she's an employee. It's a perk. Not the right word to use there, sorry. And I go, no, you'd have to put it in her W2 as a compensation if you were going to do that. That's the only way you could write it off. So anyway.

And by the way, you've got a lawsuit right behind you, you idiot.

Yeah, if you did that as well. Have you heard of a little something called the me Too moment? I. I don't know if you would want to join that bandwagon is a great example of paying for plastic surgery for your employees. But sorry, I did not mean to use. It's a topic people do talk about and it's a tricky one because I don't want to use puns throughout the conversation, but it just happens. It's kind of like an arrested development when Michael's like, did you know what you just said?

Yeah, it's puzzling.

So cosmetic surgery is not tax deductible as a medical expense, but reconstructive surgery due to some sort of accident or malady you were born with and that needs to be repaired would be deductible. And the list is quite broad. I mean, it's dental, it's eyes, eye care, even acupuncture, massages for a bad back or whatever you've been prescribed by a doctor to take care of to do physical therapy. It includes even drug rehab.

Rehab.

Yeah. Which is crazy. We've had, and I had a client just this month that was a new one, is they couldn't have a baby and so they went through the artificial insemination, the whole process, and it was. They spent almost 50 grand on

all

the stuff and they didn't get a write off for it because their accountant had not brought up the HRA strategy, and they were so frustrated. So if you're paying for anything medical, you. Fertility. I was trying to search for the word fertility. So all those fertility procedures are a write off. So at this time of year, this is a good time to look back at 2020, especially with this Covid thing and all of the money you may have spent in some medical ways, possibly also bankruptcy. The number one reason for bankruptcy in America is medical bills. So go through publication 502. It's got a nice little index. It's not hard to read. And if you never imagined yourself reading an IRS, publication, 502 is probably the one you want to print out, literally, and have in the drawer along with your medical insurance and bills so that you can find out what's a write off. So that's my tip. Anything want to add to that, Matt?

No, I like that. I'm just gonna let that lie. You know, just let it lie. Let it lie.

You're not gonna. You're not gonna touch that one.

I'm not gonna touch it. It was great. I liked it.

All right.

Okay.

So our topic du jour.

Yeah, yeah. The. The. The main course of today's show, the series. Yeah.

I've already got two movie quotes in, and you've got nothing today.

Oh.

For those who didn't know that was Dumb and Dumber, an AMC movie classic. What's the soup du jour? I'll have that.

What's the soup of the day? No, what's. What's the soup du jour? That's the soup of the day. Isn't that what it is? Yeah, I love that.

All right, so why don't you start off with what you think is the most important point about when to use a series llc, and then I'll follow your lead.

Geez, that's a tricky question. When to use a series llc. When you have multiple assets that you want to protect from each other

and not pay for a new LLC every time you acquire a new asset.

Yeah. So, for example, let me give the classic example. I got 10 rental properties owned in one LLC. Something goes wrong on property number one. There's a lawsuit in the LLC. The tenant sues the LLC. All the equity in all 10 properties is at risk because of what happened to property number one of 10. So in that sense, you're kind of putting all your eggs into one basket in that llc. Now, many states, we're going to go through the list, have what's called a Series LLC which allows you to have one LLC you file with the state, but create series, sometimes called a sub series, where each sub series owns a separate property. So Now I'd have 10 series, each one owning one of those 10 properties. Now if something goes wrong on property number one, that tenant can sue only that series and only get at that sub series assets, which is that property itself. My other nine properties and all the equity in them is now protected. That is in essence when you would want to use a series llc.

Okay. And I'm already taking notes of points we want to make because this is a really good topic. It is also discussed in my book the tax and legal Playbook for those on YouTube. I'm holding it up waving.

This is fully endorsed, that book.

This is called a shameless commercial plug for a book right here.

Yeah.

Something you could buy for someone for Christmas and they would love you. Give them the gift that keeps giving saving taxes. What I think the serious LLC boils down to is it's a cost saver. It really is just a cost saving technique because 20 years ago what you would do is just go open for those nine properties or 10 properties. Matt Stocking, did you use 10 or nine as your example?

10.

Okay. So what people would do is not think it, it was over the top to set up 10 LLCs. But what a lot of people would do is set up maybe four LLCs or three LLCs and then bundle, kind of put your eggs in different baskets. Well, legislatures around, legislators serving in legislatures around the country said we gotta make this, we gotta make this more affordable for these small business owners. And a lot of legislators had rental property themselves. So they said, why don't we allow one parent and baby subs to give the protection as if you were setting up multiple LLCs, but not have to go through the cost and headache of it. And so that's it. That's where this. Another way of saying it, and just to add to Matt's initial comments, is that I wanted a series LLC to just save money and split up the protection I needed with eggs in different baskets. Yeah, that's the easy description. Now we get into all sorts of fun stuff. Matt, what would you say would be the first nuance or misconception of that?

Well, I think the first nuance is not everyone can do it.

Good comment.

It depends on what you list. I got the list here. I'm gonna rattle them off. This is alphabetical order. There are about there over 20 states now they've adopted a series LLC every year. There's one or two more that get added to the list. Virginia being one that came in just recently this year.

Okay, now hold up. Before Matt reads the list, here's the nuance that goes right with it. If I may interject. It's not where you live. It's where the property, the rental property or asset is located. So you could live in Arizona, which does not have series LLCs, but have rentals in Oklahoma that does have a series LLC law. Does it? So which state do I look at? Where the rentals are, not where you live. So when Matt reads this list, you're thinking, where are the assets? Not where you live. Okay.

Okay, got it. All right, here's the list, everyone. I was gonna. You know, I. Thinking back to my elementary school days and the songs I used to learn, the states, but since this skips too many, I can't do it, you know, There we go. Alabama, Arkansas, Delaware, District of Columbia. That one's a shocker. Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nebraska, Nevada, North Dakota. Oklahoma. Oklahoma. Got one. I got a movie quote in there. Do you know what one that's from? Oklahoma. Oklahoma. Oklahoma.

The play. Oklahoma.

No, no. Dirty Rotten Scoundrels. Steve Martin, when he's, like, playing the crazy brother.

Oh, yeah, and I love Dirty Rotten Scoundrels. Yeah. Oklahoma. Okay, Oklahoma.

You know it's bad when you gotta explain your jokes. Tennessee, Texas, Utah, Virginia as of this year, and Wyoming. Now, there's a couple of odd states in the mix here. I want to know that have what are called false. What do we call it? I'd call a false series LLC or a fake series LLC statute, and that would be Wisconsin, which basically does not give you this series treatment. They use the word in their statute, but it doesn't give you the separate liability protection of what you want a series for. Also North Dakota. So if you're setting up a series LLC in North Dakota or Wisconsin, take a second look. It's not actually what we're talking about here. And what these 20 other states I rattled off actually have the series LLC.

Okay, now let's add. Let's expand on this a couple practical examples. Let's stick with the fact you might live in Arizona and you have rentals in Oklahoma and New Jersey and Florida. Just hypothetically. Well, could you set up a series LLC in Oklahoma and hold the properties in New Jersey and Florida and get the series protection? Because I set it up in a state where there's series and I have a rental in Oklahoma, so I can just piggyback that Same concept and throw in New Jersey properties and Florida properties, the answer would be no. The typical result that would happen would be if there was a lawsuit in Florida regarding your rental property and someone getting hurt. Lawyer in Florida would go after all the rentals in the LLC and you'd show up in court and go, whoa, whoa, whoa, whoa. I've got these little subs set up in Arizona and New Jersey and Florida. You can't come after all the rentals. I've got a sub series llc. And Florida goes, oh, let me look. Yeah, we don't honor Series LLCs in our state. So all your rentals are at risk in that one bucket. So the practical step would be, and this is very common, we'd have a client that would set up an Oklahoma LLC and maybe use one or two subs depending on the number of properties. And then New Jersey would have its own LLC and Florida would have its own llc. Or I could set up a Florida LLC and register it foreign in New Jersey because I didn't want to have. So I could bundle the two, New Jersey and Miami or New Jersey and Florida, but leave Oklahoma alone because that state allows me that technique. Yep.

Yeah. So sometimes we see some clients are in these states like Texas and Oklahoma and Tennessee, you know all those, Indiana, Illinois, Missouri, those, Nevada, those are states where we set up a lot of Series LLCs. Utah, a lot of rental properties, single family investor clients. Those are the ones that love the series llc. Like if you're buying commercial or multifamily, you're doing your own standalone LLC anyways for that specific property. Those are big enough deals. But it's the single family investor where it's like, man, these properties are, you know, 100 to 200, 300 grand apiece. Is it worth a separate LLC for it? I'm getting a mortgage on it, so there's not a lot of equity. And that's where the series LLC is a great solution. But if you're mixed, like Mark said, we have some series LLC states, some non series LLC states, you're going to use a mixed strategy. You're going to use a series LLC where you can and the standard method where you can't. Now let me make a note though. For those that have properties in non series states, you're just doing the standard old fashioned method which isn't that bad of using one LLC or just multiple LLC per property. Our rule of thumb is when using putting multiple properties into the same LLC is about 250,000 of equity. You could have 100 properties in one LLC. Or you could have one property per LLC. When you're adding, talking about putting multiple properties into one LLC, we want to know not how many properties that it is, but how much equity do you have between those multiple properties. So If I've got three properties, let's say, and each property has 20,000 of equity in it, so I got 60,000 of equity total, I'm going to say put those all in one llc. If something goes wrong on property number one, they still can't sue you and get your personal assets. They can get the 20,000 of equity in property 2 and 3 also, but who cares? That's not a lot. There's no plaintiffs going to go after those properties for that amount of equity. But if you're like, man, I've got three properties, each one has 200,000 of equity. Okay, you've got 600 grand of equity now between the three, I'm going to say let's not put all three of those in one property. Now again, lawsuit on property number one. There's 400,000 of equity in the other two properties now at risk. So we like to separate out multiple properties in just a regular LLC at 250,000 of equity.

I love it. Now for those that do, listen, slash, watch this podcast share show on YouTube. I have the ability now to throw up a whiteboard and I'd like to diagram what Matt just discussed. Also, if you were on YouTube, the list of states that Matt rattled off a moment ago that would have been scrolling through the video at that point during YouTube. So this may again encourage some of you to not only listen to this on your way to work, but try to catch it on YouTube when possible. So what I've done in years past and almost in every one of my seminars is explain what Matt just said with the four quadrant diagram. So option one is one LLC with three properties in it. And those could be properties in three different states or in one state. And I could have just one LLC to take care of those three properties. Option two is I'd have three LLC and maybe a couple properties in one, one property in another and one property in another. The first LLC that has three properties could have or two properties could be my low income housing type properties where Matt said most litigators aren't going to chase down 10 grand because the cost of sale and collection isn't going to make it worth it. But the second LLC could be my Ski in, ski out rental, an Airbnb or VRBO. And the next LLC could be a 4 Plex. That's got quite a bit of equity in it. So I want to create these barriers between the three. And then visually number three actually is the series llc. You might be wondering what number four is. Well, hang tight. So number three is the series llc and what it would look like is a parent. So I put P in that circle and each sub would be an S. Now we'll come to how to set these up and maintain them in just a moment. But each sub could own however many properties you determine is the exposure you want in each bucket or basket. The fourth strategy is what we call the cope, or charging order protection strategy, where I have one parent llc, typically in the state of Wyoming, for privacy, cost, affordability and charging order protection. A topic we've covered another podcast and it's in my book here. But this parent LLC would own your other LLCs around the country and which could include a subseries LLC or just the standard method that Matt just talked about. We usually go to the fourth level with clients that have a million dollars worth of equity or somewhere where they have five to 10 properties and we've got some serious asset protection we want to talk about. That'd be number four. So that just gives you kind of a visual representation of what Matt talked about. Okay, now Matt, let me ask you, and this is where I want to go next is let's just talk about the practicality of sub series because I think a lot of people think, oh, what's a no brainer? I should just do it every time if I'm in one of those states. Well, there still is some extra protocol you've got to follow. What would you say?

Yeah, I get a lot of clients that are new to real estate in particular and they're buying their first rental. But let's say they're in Texas and they've heard about the Series LLC. They're like, well, I'm gonna buy 20 properties, Matt. I'm like, all right, how many you have right now? Well, I'm buying my first. Okay, we can do a series llc. And I'm inclined if you really are serious. You're like, dude, I'm not fooling around. I'm going, I'm going to have this many properties. Okay, all right. I mean, seriously, it's fine. I get it. I mean, who am I to say no? So the series LLC is more though. Okay. Like our office charges 800 bucks for a regular LLC and the series LLC is going to cost you, you know, just on our fees.

Crap.

What's the updated series C, 1200 bucks. So it's going to cost you 400 bucks more. And in many states the fees are a little higher. Okay, so you got more costs now sometimes, let's say you're going to get more cost initially. Initially.

Whenever you add the sub, we give you the document to just set up the subs when you want. If you want us to do it, there's a nominal charge, but you have the documentation and that's what you're paying for that extra 400 bucks at our office to get the tools you need to add subs whenever you want. And let me throw out. It is not uncommon. We see clients come in that spent two or three grand on a Series LLC.

I'm like, oh my gosh, that's 5,000. You know, it's. I mean, so I'm like, man, I don't know what they gave me with that. But so I just want to say it's not. You don't have to have the series llc. If your long term strategy or short term, long term is to have multiple properties in series states. Yes, just do it from the get go. But a lot of clients use buying one property now, it might be five years, they buy another and that might not be in a series state. You can always convert from a regular LLC to a series later. So if we just did a regular llc, let's say in Indiana, you're buying an Indiana property, we can convert that to a series LLC two or three years from now. When you start buying more, it's okay. And it's not a full price of a whole series LLC setup. So you can always convert into it if needed.

I love it. That's where I was going to go next. Now a couple other protocols in the operation realm is the beauty I'm going to give a pro and a con is that the one parent series LLC from an accounting perspective is a consolidated tax return. It's one LLC that going to do possibly a 1065 partnership return or it's going to be all in my schedule e on my 1040 E is an echo, but it's consolidated. In the eyes of the irs, it's still one llc, which is great. But in the eyes of the court system, they're seen as separate LLCs. That's why we do it for asset protection. That's it. There's no tax benefit of a series llc. It's all about asset protection. But everything funnels into that one LLC for tax purposes. So again, it's going to probably reduce your Accounting services cost because you have that one tax return rather than multiple tax returns. Possibly. But the con is when you have a series llc. And it's not a big con, but we want to see different bank accounts for each subseries. And the sub series has a name specific to it. So it's got its own bank account. And think about this, let's call it Blue sky llc. And then you set up a sub series, it has to have a name that designates it as a sub series of the original parent. So the state's going to require Blue Sky LLC series number one. Some states want to see it as Blue Sky Series 1, LLC. Different. Our paralegals know how to phrase it. So it flies right through the Secretary of State. But be prepared to have the name of the parent in the name of the sub and then some sort of indication of which sub series it is. Yeah, that is the name that's going to go on title. That's the name that will be on the lease agreement, that's going to have its own bank account that the tenant pays. So on a practical day to day basis, you want to think of it as a three or four different llc, even though at the end of the year it's one big tax return.

So what I like to do on the naming is, and a lot of states go this direction. Let's say you did Blue sky llc. I like to just be like series one of Blue sky llc, a Indiana series llc, you know, or what I've seen is a lot of clients like to do the property address. So like if the property's at 123 Brown street, you know, it's 123 Brown. A series of Blue Sky LLC, you know, a Texas Series LLC. And so that's. Don't overthink it. These series LLC names, you can come up with a totally unique name. It could be, it could be Red sky series of, you know, Blue Skies llc. A series, you know, it could be whatever. You could have a name for it. But I like to keep it simple so you can identify it, remember what property or asset it goes to. So I kind of like using something that corresponds to the property address.

I like it. Gosh, I'm trying to think of a fun joker pun or something I could say to spice this up right now, but this is just. We just want to give you meat, people. This is meat and potatoes. And I know a lot of you tolerate our dumb jokes.

I thought this is more like the vegetable. This is more like the vegetables. It's good for you. You don't love it, but it's good for you. You know, protect your assets from, you know, attack, just like vegetables do to your body.

Okay, now I have another. I'm going to go back to the whiteboard. A lot of people think, oh, if I do a series llc, I cannot do a land trust, or where's the land trust fit in this? So let me diagram an example of a parent series llc. So I'm going to call it P series and then I'm going to have three subs, let's say, for example, and just as an aside, I had some clients in Oklahoma, it's still with us, that have about 30 rental properties. They set up four subs with about five properties in each one. And then they put, gosh, was it six in each one? And then they put six in the parent. But anyway, they came up with some math where they split up these 30 properties in four buckets because they didn't want to have that many bank accounts. So there's still. It doesn't mean we're going to suggest a sub for every rental property. You're still going to do your bundling to keep your administrative headache to a minimum. But in this diagram you can see these three subs. And if you're going to use a land trust, the land trust is here as a box above the sub. And for those driving down the road, I've got a parent bubble with three lines going off up into three little circles that are subs and then above that a little square that I'm calling LT Land Trust. Now, the reason why people would use a land trust, in our opinion, there's only two reasons. One is privacy. You want on title, you don't even want the series name on the title. You don't want any public record tying it to the sub, to the parent or whatever. And so we use a land trust name that's more innocuous or that's a good word, right? Innocuous. Or is it?

I think so, yeah. I just. When I. When you brought the land trust and we were thinking of where to put it, I decided. Did you have a dumpster on the side of your diagram there? That's where I put it. I don't love the land trust. We don't generally use it. Just so you know, it's not a strategy. Mark's going over this. But because some people come to us and really like they went to some seminar and got sold on a land trust and we're like, that's not Asset protection, maybe privacy. But then again, a lot of states make you put the name of the trustee on on the title anyways. You can't just put the trust name so your name's on there as trustee. If you're trustee Line trust. It's a mess. Yeah, land trusts or oak and mirrors. I'm just saying that because I don't want. This is the strategy Mark Kohler said to do. I call up KKOS lawyers and I want the land trust, damn it.

Okay, I like what Matt's clarifying because it is correct. On a phone call, you're never going to hear me suggest this. But when a client really wants it, this is where we put it. And we're not saying don't do a land trust. We're just saying go into it with your eyes wide open. And this is a common conversation. So I only take 30 more seconds on this. But as you see the diagram, the building is the asset of the trust and the property is deeded to the trust name. But the beneficiary of the trust is the sub series and then the sub series of course is owned and controlled by the parent. So you kind of see these little tiers. I did say there's a second reason for a land trust and that's usually in some sort of seller financing disguise sale and that you're trying to prevent the bank calling the note due. And it's a subject to strategy. Again, some states it works, some states it doesn't. Topic for another day. But that's from a diagram standpoint where the land trust would fit into it. Okay, now let me say that Matt, go ahead.

Just in general how we would structure just, you know, like what we would advise specific is you have the parent call it Blue sky llc. The parent doesn't own anything. We typically don't want to put assets directly in the parent, so to speak. So then you have the subs each owning their own property or set of properties if you want to bundle them like Mark said, for your, you know, for administrative reasons. And so the subs are owning the properties. That's generally how we're going to structure it. It's got great asset protection. They can't get into the other subs series that are there. The parent doesn't own anything. They're not going down there. But I don't love assets in the parent either. Just keep that in mind because if you have a property in the parent, something's wrong with the parent. They could come up to the subs. And so we love holding assets in the subs themselves.

Okay, now next. And gosh, this is such a really good podcast. We really are getting deep in here. I know we don't have much more time. I'll just make another point that I think is important. So let's go back to the whiteboard again. This is where people ask. This point I want to bring up is sometimes people say, can I run my business in a series llc? So if we go to the diagram, I want to put my line down the middle of the paper. So for those on a treadmill or driving, I've got a line down the middle of the paper. On the left side is operations. This is where I'm going to worry about ordinary income and self employment tax. On the right side are my assets or investments or passive income. 98% of the time. The series LLC is going to come into play on the asset side. So over on the right side I have my parent llc and as Matt said, we've got two or three subs or whatever it is and then the subs own the property. Nice and cute and pretty. And I'll go with Oklahoma again. For some reason it's in my head. So that's an Oklahoma series LLC with three subs. It's on the right side, it's on the asset side. Well, it's true. Some clients say, well Mark, I've got three restaurant locations and I want to get protection from the three locations from each other. And can't I use an operational series LLC to do it? And can the series LLC make an S election? The answer is yes, this is possible, but it's rare. And here's what it would look like. In fact, it's going to look just like the right side. But it would be a series LLC with an S Corp election at the bottom. And then you'd have these three subsidiaries and the three subsidiaries could be three operational businesses. This is never going to work, in my opinion, when you have partners at the different sub levels because it jacks up the whole series llc. I'm going to presume that you have continuity of ownership at every level. So you own 100% of the parent and the three subs are 100% owned by the parent. So that's when this process could work. But here's it can be very clunky because if you truly want separation from the three operations, you've got to be very dedicated to three different checkbooks. If you're going to have employees at three different levels or three different subs, they're going to need their own payroll procedure, then just make some Q subs. It's very clunky. So technically is it possible? Yes, but I'm not going to recommend it. We've got other ways to have subsidiaries and multiple operations and whenever you bring in a partner, it's almost like you just implode and destroy the series strategy. So try to stay away from the sub series as an operational structure. Matt, you agree, concur?

Yeah, definitely. It's better on the asset side of things. And I think as well that was a great point on partners. A lot of people are like, matt, can't I have a partner in a sub series? Actually you can. You can have a partner in a subsidy, but guess what? That's not a partnership. That subseries is filing a partnership tax return now separate from everything else. See, because the way it's nice is if you own the series, the series LLC and it has a bunch of subseries and there's no other partners, everything just flows down onto one tax return. Or even if it's single member, it flows just right down your personal return. But if you throw a partner in the mix on one of the sub series, which you can, that subsidiary is gonna do separate accounting and tax reporting. Separate tax return. So it's clunky even though it is possible generally not what we would like to use when we have partnerships. Like to separate those out from your other entities in their own separate thing.

Yep. Now let's go back to the whiteboard here and I'm going to diagram what Matt just said. So let me do my best to describe this. For those not in front of a computer. We've got our parent at the bottom, big circle and three little circles above it which are the subsidiaries flowing into the parent. You own 100% of the parent. As my diagram indicates, these are all rental properties. So the first two subs on the right, we'll call them 2 and 3. They're owned 100% by the parent. Easy schmeasy. Everything flows into the parent. But on the left side of the left bubble, which we'll call number one sub series is actually got a 50% partner, as I indicate, with a little line going off to another person. 50%. Now I'm going to create a rectangle. This rectangle shows a partnership tax return. So now we've got a partnership tax return for that sub series and the K1 or your 50% share of that little sub, that K1 is going to flow into the parent. Like Matt said, it is more common I wouldn't say it's extremely difficult, but the weird part is I've got to have an operating agreement with this partner. So I've got to have a separate operating agreement for this sub series that usually you wouldn't do. You just kind of adopt the parent operating agreement. So by the time us lawyers are done with this mess, you can freaking set up a separate LLC altogether a little more efficiently and still have the K1 go into your, your sub series if you wanted to parent. So talk to the attorney now. This is why when we set up an LLC for 800 bucks or $1,200 for a Series LLC, you get an hour with one of our tax lawyers on the phone, camera zoom if you want. And we're going to talk to you about your situation and we can vet these issues so you get what's best for you. So when you go on to LegalZoom and just try to set this up and it's your first go around, you will jack it up, there's no doubt about it. So consider that consult for an hour because they can diagram it for you. So no more whiteboard for a moment. I do want to come back to this, but Matt, I'll give you some interject here before I just keep talking.

Yeah, let me just hit the main summary points on this series llc. Just kind of try to bring this back together. It's great for asset protection when you have multiple assets like rental properties. We get separate liability treatment in each of the sub series. It's one entity with the state. So I've only got to file one entity with the state. Some states do make you file the sub series with the state, like Texas, but most states do not. It's just simply adopted internally with an internal document which again, if we set it up, we give you. So you can, you know, it's kind of, you can turn key, you can make do it on your own and adopt these as you go. The third thing is, is these are all disregarded entities. Every time you adopt a sub series, you're not filing a separate tax return. Okay. It's nice. It's all going to flow through down to your company return if you have one. Let's say you're a partnership 1065 or you're just flowing down onto your personal 1040. Yeah, go ahead.

May I interject? Because Matt just said it and I wanted it. This was the next point I wanted to go to. If you go back to the whiteboard here we have in this example, this little 1065 partnership tax return for series one, series two and three, like Matt said, flow back into the parent. From an audit protection standpoint, if you've got enough property that you're going to use this strategy, we're going to generally encourage you to go to a partnership tax return anyway in the long run because the LLC taxed as a partnership is 15 times less audited. That's 1500% less chance of an audit. So I would like, if you're married, you and your spouse are going to probably go 50, 50 on the parent. And we would put another rectangle here, and that would be a 1065 tax return, giving you a lot more comfort to be aggressive with tax deductions in your rental portfolio. If you're single, we may add mom or dad for 1% or some sort of other entity of yours for 1%. And we look at your structure to see how we could create that 1065. And. But the beauty of that is, again, all these other subs flow into that one parent and that that allows for some audit protection strategies is if you jump to that 1065 rather than your 1040.

Matt, last thing I would say. Yeah. Just like any other LLC or even corporation, if something happens at the series level, at the sub level, they can't come down and sue you personally. So you've got that same kind of corporate bail protection personally that you get with the regular llc. It's just kind of got this enhancer, some msg, if you will. I'm glad you guys.

MSG is your serious enhancer, an asset protection enhancer.

Yeah, this is the MSG series LLC where you're getting separate, again, separate liability treatment on the separate series and their assets. So I like it.

Now back to the diagram. There's one last idea that I'd like to throw out, and that is some people say, can I do a Cope Series LLC? So if we look back at this 4x4 matrix that I described at the very beginning and you say, well, Mark, I want the COPE protection here with the parent llc and ooh, ooh, I want to combine it with the COPE strategy to charge it in what states would allow me to get both a serious protection and cope? And I would make the parent, if I'm lucky enough, I could knock out two birds with one stone in this diagram. So let's go off diagram. Matt, look at your list.

Yeah, Wyoming series.

Yeah, that. Yeah, Wyoming gives you the parent series LLC and coat protection all in one. But let's say your property is in Oklahoma. What would you do? You would set up your parent LLC for coat protection in Wyoming and then you would go over. No, I chose Oklahoma. That's a bad example because Oklahoma has coat protection as well. Who's one that wouldn't series with no coat protection?

Illinois.

Yes. So Illinois has series law but crappy protection from a lawsuit. You got to watch the video on COPE and watch our listen to our podcast on copes and charge in order protection. But if in Illinois you would set up the COPE LLC in Wyoming and since you're going to do the series strategy, you would register at foreign doing business in Illinois. That way you get the protection of Illinois, you get the CO protection of Wyoming, and you get the series LLC on to boot. So that'd be like knocking out three birds with one stone. So let me read. So Matt, if you look at your list of series LLCs, I'm going to read off the list of COPE entities and then you tell me where they matched up and I'm going to go alphabetically as well. Charging order protection entities. States are Alabama, Arizona, dc, Washington, dc, 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. So Matt, now tell us which states.

About half of those, we'll throw the list up. About half of those match up.

YouTube, you'll see that scrolling right now.

Yeah, so let me say this too, and I don't, I don't want every confuse everyone. You don't need a COPE and a series. Okay?

Right.

I don't want someone think hey, I've got five properties, Matt. Okay, I'm gonna recommend a series if those are in series states. Well, do I gotta do the COPE thing too? No, the cope's a different thing. Do you need the cope? I don't know. So we want to look at that and say, do you need the cope? And like Mark said, in that list, if you're in Oklahoma or Texas or Utah or Wyoming, states that have a COPE and a series llc, just go straight there, you're good. You already got the, you got the double play, you know, so but if you're in, you know, let's see, was a state that wasn't in there, Arkansas, they didn't have a cope, but they do have a series statute. But you're like, hey, I've got a lot of assets and I've got a lot of personal liability, or I've just got some personal liability. That's when you do a cope, you have personal liability that you're concerned about. People Getting into your business assets, that's when the cope can matter.

And you know what, this brings me to my final point and we'll wrap up the show. And this just this rapid fire of state names and you know, do I need this? Do I not need this? Hopefully one of your biggest takeaways here is don't play lawyer on tv, guys. You could do an asset protection review with one of our tax lawyers once a year for as low as 400 bucks. Bring us your picture, your diagram of what you got, and in one hour the tax attorney is going to take tell you what you're doing right, blow holes in what you're doing wrong. We have a multiple services that are very, very affordable to get things organized. Are you doing your minutes? Are you doing your banking and separate accounting properly? Do you need to upgrade to a coat? Do you need to upgrade to a series that can all be discussed in one call? And if you're setting up an entity at the same time, you've got an hour to talk about whatever the hell you want anyway. So you want to talk about the super bowl or, or you want to talk about your structure or your new llc, it's up to you. You have an hour. So use it wisely. But please, as you're building your wealth and your real estate or your portfolio of all your assets, if you don't like our firm, fine, that's cool. You get some info from us. You follow us on our blog and on our podcast and YouTube channels. Thank you. We really, really appreciate it. Doesn't mean you have to use our firm. There are many, many other attorneys and accountants out there in the country that use our same procedures. They're just sometimes harder to find. And so if you have struggles, give us a call. We'd love to do that consult. But the biggest takeaway is don't diy. Do not do this on yourself. Someone could get hurt.

All right, that was good. That was good. Yeah, someone could get hurt. And it's you. You are someone. So thanks everyone for listening in on the podcast. This was a little technical, I think, but you know, that's what's required. The series LLC is not for beginners. It's kind of a next step strategy. So if you're brand new to investing or business and tax planning, this might have been a little tough for you. But we've got some easier stuff in the podcast. You know, just go check out the regular.

Yeah, yeah, we're not going to pull punches here. We want you to get straight. We're not Underrated content.

Yeah. So we're not hiding the ball. You got to call us and get a consult to know what the heck this is. No, but we're just going to lay it off.

If you join my mastermind group.

Yeah, if I hear the words master.

If I hear the words mastermind group again this week, I'm gonna like, jump in front of it.

I think the mastermind group, like invites were like the prior generations, like Tupperware parties, you know? Yeah. It's like, hey, come to my Tupperware party. Or, you know, now it's like, come to my mastermind group. No, it's cool. I mean, there can be some good mastermind groups. I'm not, you know, you might be in one or run one. That's cool. But you know, some people out there making a bad.

Oh, I love the concept. That's just maybe come up with the new word. It's a little old now, but. Matt, have you committed to come up and go ice fishing this break with me?

I have not. Not. That's, that's. That's a hard sell, Mark.

Okay, here's my final pitch. I took my daughter Molly last week. We had a business meeting in the igloo. It was a tax write off trip. We went up and we talked about her small business and Molly, my 17 year old, the board of directors for my little S Corp. You want to make sure you always have a teenager on your board. They'll tell you when you're wrong and they know everything, so they're very valuable on your board. But I took Molly up to the igloo up in the mountains. It's Henry's Lake up by West Yellowstone, Montana. And she was very apprehensive. I got her up early in the morning, it's dark. We're going to sit in an igloo on a frozen lake. Teenage girls not into this. This is like Christmas vacation. And Audrey out there, not happy. So we get up there. I brought two heaters. I didn't even need to turn on the second heater. Those igloos heat up. I had my jacket off. We're reeling in fish and we're just sitting there in the igloo. So fun. So, Matt, you. It's not what you envision. It is way fun.

Okay, I believe you. I believe that one of these days, one of these days I'll get up there. But thanks everyone, of course. For listening and please tell your friends. Share the podcast, share it on your social media. Give us a five star review or a like or whatever it is you can do on the channel or medium you're listening to us on. And we'll be back next week, of course, and every other week with an amazing episode trying to help you better live the American dream.