How can we function and transact after we set up the Asset Protection?
- You are in full control of the structure and can refinance, borrow or sell any of your assets by showing the certificate of ownership to the bank, the title co. or any other party with whom you are transacting
- You only pay for ONE LLC to be set up and the few liens to be recorded once
- The WY LLC does not need to register to do business in any state because it is not owning anything it is simply owed money
- You only pay to maintain one LLC per year less than $500 for all of your assets (Less than you pay for insurance)
- You do not need to transfer assets
- No hiding behind complicated entities or anonymous structures
- You never have to deal with attorneys
- No offshore entities whatsoever
What if later, I want to borrow against the property, the bank will want to place a 2nd Trust deed loan or a credit line etc. How could I do that if the lien you placed for the asset protection will be in the 2nd Trust Deed position?
Remember that you are the Lender LLC as well as the Borrower/Obligated party. You can simply tell the title company that you want to move the LLC lien to a junior position.
We provide you with a subordination clause in your lien document that states that the lien could be voluntary pushed to a junior position if the Owner of the property wishes to record a new voluntary lien senior to the existing one.
Your bank giving you a credit line or a 2nd Trust Deed Loan would ask us to first release the lien before they would provide the loan, then after they record in a senior position, the title company will re-record your LLC lien in a junior position.
For instance, if you want to refinance, the title company will handle all that for you and they can release the lien first then refinance the mortgage. After the mortgage lender places a lien on the property, they will re-record the trust deed that eliminates the equity in a more junior position back secured by your property to the favor of your LLC. This is the commonly accepted procedure.
What if I am ready to sell the property?
You simply talk to the title company and as the LLC Managing Member and owner you can provide them with a signature to release the lien (you don’t have to release the debt) and just have them record it secured by another property or business asset that you wish to protect from lawsuits. There is no debt forgiveness and no related tax consequences.
When the promissory note is created between my LLC and myself as an individual/owner of a house, or an investment property or a Business, can you structure the Promissory Note with no payments from me to my LLC?
We do not recommend having no payments. In order to stand up in court as a legitimate lien, you must make periodic payments. We place a section about a periodic payment “requirement” in the promissory note that we draft between you and your LLC to protect you in the rare case the lien is questioned.
You do not want to run the risk of not showing an economic substance for the actual lien, which is the basis of the structure. After all you are making the payment to your own LLC.
Of course, since the payments are made into the LLC bank account and you control the bank account, you can use these funds to pay directly for any business expense.
I want to strip equity on assets but my aggregate equity is close to $70 Million dollars. After telling my new attorney, about your set up, he called me the next day after researching and he was shaking his head in awe at your structure. The question we both have however is: Isn’t it too much money to capitalize a new entity with over $70 Million dollars when it is just a start up?
In some rare cases being “under capitalized” could be a problem. For instance, if a company starts with very little capital (whether cash, property, notes or any other form) and then borrows successfully but cannot make good on its debt obligation, creditors or litigants can sue the entity and the courts may say that the entity did not have sufficient capital and may place liens against any assets it may still have.
This is not your case and it is not what we do. Your concern is about being “over capitalized”, so really you are wondering if there is a point at which the courts would feel someone have over capitalized an entity. (In your case you want to capitalize at over $70 Millions dollars).
Well, according to federal court cases in the US, there has never been an issue for over capitalization in the legal sense. But as a general rule of thumb all the equity contributed at the time a business entity is formed (LLC or C Corporation etc.), whether the equity contributed is in cash, property, promissory notes, business assets or any other acceptable form, such equity should be more than any loan or total loans to the business at the time of formation. And the law is well established that formation is the relevant time to for assessing “adequate capitalization”.
Since we have many clients with very high net worth and same concern, we do offer a credit line (from one of our corporations that hold millions in assets and cash) and we show that the credit line is secured against your LLC in WY with special wording to show that at the time of formation, the credit line was extended and secured against your capitalization amount.
We keep this credit line documents and formality for 24 months, and then we cancel the credit line. I remind you that over capitalization have never been the issue in the legal sense and there has not been a court case challenging over capitalization.
While the credit line will not be used by your entity, it does establish that your WY LLC had enough assets securing the promissory note and justifies such a valuation and large yet appropriate capitalization when forming the entity.