Most real estate investors think placing their rental property into a single LLC is the ultimate shield against lawsuits. Unfortunately, that is not the case.

Nowadays, trial lawyers are able to slice through these structures with ease. In fact, if a tenant sues you, a single poorly-managed LLC could easily be pierced, exposing your personal savings, your primary home, and your other investments.

The ultra wealthy don’t rely on just one LLC. They build a fortress. In this article, I’m going to show you the exact three-tier structure that wealthy families use to make themselves virtually invisible to trial lawyers, and how you can set it up for your own personal portfolio.

 

Layer #1: The Rental Property LLC

The first layer in the three-tier structure is the rental property LLC. If you are a real estate investor, this is the foundation of your fortress.

This entity is formed in the exact state where your property is located. If someone slips and falls on the icy driveway of your duplex, they sue this specific LLC.

The benefit of having this LLC is that the liability is trapped inside this box. This rental LLC acts as your frontline shield, legally separating the risky asset (the house) from everything else you own.

Layer #2: The Wyoming Holding Company

Layer number two is the Wyoming holding company. It is worth asking, who owns this rental LLC? Not you.
If you own the LLC in your own name, depending on the state of formation, a personal lawsuit, like you causing a bad car accident, could force you to hand over your LLC to pay the judgment.

To avoid this catastrophic result, your rental LLC is instead owned by a Wyoming holding company LLC. Wyoming has some of the strongest charging order protection laws in the country.

This means that if you are personally sued (like being involved in the bad car accident described above) creditors cannot force you to liquidate the assets inside your Wyoming holding company or any assets beneath it. Instead, the creditor only gets a charging order, or a lien on distributions. With the charging order, the creditor only gets paid if you make distributions out of the LLC.

Creditors, and their attorneys, don’t like to wait to be paid. This is why the Wyoming LLC provides an additional shield between your personal liability and your investments.

Layer #3: The Revocable Living Trust

The last layer in this three-tier structure is the revocable living trust. So, which entity owns the Wyoming Holding Company? This is your revocable living trust, which sits at the top of this fortress.

A living trust allows you to maintain total control of your assets while you’re alive. But most importantly, it keeps your estate out of probate court when you pass away. Probate court is problematic, because it is costly, time-consuming, and an entirely public process. Because of these issues, it will be a nightmare for your heirs after your death.
However, when you place your Wyoming LLC inside the trust, your wealth transfers exactly how you want it to, completely out of the public eye.

With this three-tier structure, you have a rental LLC for local protection, a Wyoming LLC holding company for personal protection, and lastly, a living trust for estate planning.

This is the three tier fortress that people use to shield their assets. And if you’re serious about building generational wealth, having this structure in place might be a great starting point.

At Corporate Direct and Sutton Law Center, we specialize in setting up LLCs for real estate investors, and creating revocable living trusts for Nevada residents.

For more information on our services, call (775) 824-0300