Anonymous Purchases of Real Estate, and Thoughts on Series LLC's.

Sometimes, you don't want to be found, or want people to know what you own. I'll leave the reasons up to you, but often it makes good business sense to put a layer or two between you and everyone else.

Example 1: Someone knocks on your door. It's your neighbor. He says, "I want to lease your property for oil and gas." Ok, you say. He offers you a check for $1000 and a decent royalty interest. You think, "fair enough, I've lived her for 40 years and this place is never going to produce any oil."

Example 2: Someone knocks on your door. It's someone you have never met before, but they have an EXXON logo embroidered on their shirt. They say "I want to lease your property for oil and gas." You say, "ok, how much?" They say, "I'll pay you a $1000 bonus and give you a good royalty (same terms as before)." You say, "No way, you are EXXON, you can afford to pay me 100x that."

Perception matters. In the real estate business, where margins are everything, a little perception can mean all of your potential profit. So, instead of walking up to the bargaining table as a multi-billion dollar company, we can be EM LLC, and no one would be the wiser.

When you buy real property, there is usually (hopefully) a deed. This deed says who owned it before you, and that you are now the owner. You usually record this deed in the county office where the property is located, so all the world knows who owns what. Unless you do not want someone to know who owns what, at least your piece of what.

Enter "anonymous" purchases of real estate.

In theory, you could own real estate anonymously by never recording the deed of  whatever property you purchase, as this is not technically required by law. This makes property difficult to sell however, so that is probably not the route you commonly want to take.

Next comes the LLC or Trust ownership route.  If you currently own property in your name and want that to become anonymous, it becomes obvious if you simply transfer the property to an LLC or Trust owned/managed by you.  A better process would include having several intermediaries in between yourself and the final entity, but this will not stand up to a truly trained eye, either. All you have to do is go to the deed office and follow the chain of title.

If you are purchasing from a third party, consider a so called“blind trust.” Trusts are not recorded, and if you correctly set up the trust with a competent trustee that is more than a degree of separation away from you and your entity, you are doing pretty well. However, if you only employ the trust, you can run into liability issues if you retain management and control as the beneficiary of the trust. I would suggest coupling the trust with a limited liability entity, such as an LLC. I don’t love blind trusts, (unless you’re a politician trying to shield personal assets away from potential conflicts of interest you are legislating on), but in a limited use they could serve a function here.

In the LLC realm, as of 2009 Texas has approved the use of the Series LLC, which I do like for real estate or other asset based businesses as it provides the ability to separate the liability on a property by property or asset by asset basis. Again, LLC’s require disclosure statements, so it really depends how many layers of the onion you are willing to place between yourself and the potentially prying 3^rd party.  Coupling the series LLC with a “blind trust” as manager of the LLC is about as anonymous as you can get under the current law.

Another recommended route can be to place one of the onion layers in a different state or even a different country. For example, you could have an in-state LLC hold assets, which was owned by another out of state LLC, which was owned by an offshore, say, Cayman Islands entity. This would no doubt offer you the protection you require, but is expensive, tricky to set up, and requires some maintenance to make sure things don't go south.

Conclusion:  Sometimes you want to be anonymous, and it makes business sense to do so. I always recommend running your business under a limited liability entity (an LLC or Limited Partnership), because the chance that something could go wrong and you could personally be on the hook is always there. In the real property world, it is often imperative you do business like this. For the sellers out there, make sure you know who you are really dealing with. For the buyers, make sure you have taken every step to prevent getting the "Exxon" treatment.

Its all about Trust

Who can you trust?  What can you trust? Can you trust your assets to a Trust?

People hear the word "trust" and think lots of things. Trust me. Trust fund. Trust fund baby. Bank and trust. Trust account.

I have previously written on the perils of the probate avoidance "living trust" and how people get scammed into making one.

So I will not belabor that. What I will focus on is a growing problem of choosing your trustee.

Scenario 1.
You are your own Trustee.

Ok, you out smarted the system. Who needs to trust anyone except themselves? Well, the government has figured that one out. They look at someone who created a trust, for their own benefit, who named themself as a trustee...as a nothing. You just put your wallet from your back pocket to the front, as you still have control. Your trust is pointless, and you probably were convinced you needed one by someone who didn't know what they were talking about.

Also, as an individual taxpayer, you have to earn $400k in 2013 dollars to hit the top, 39.6% tax rate. Got your business in a trust? You get there at $11,950.  That is a huge, huge tax hit, and that applies to all of these scenarios.

Scenario 2.
You pick a close family member as Trustee.

Ok, a little better. Don't pick a beneficiary, or their share loses any creditor protection like in scenario 1. Further, if you picked your wife/brother/son, what happens if they get mad at you? What if they get too busy? What if, they decide to invest all your assets in a great stock tip they heard, only to have it turn out to be a bust? Do you have any recourse? Are you going to sue your wife/son/brother? I didn't think so. Choose wisely here, and make sure they are not a beneficiary of the trust.

Scenario 3.
You pick a bank or institutional Trustee.

A pro trustee, banks are a safe bet. They are insured, know what they are doing, and have access to investment leverage and knowledge that most do not. However, they do not know your family (likely) and are not emotionally invested, so you might not be able to call them at midnight or on the weekend for an emergency. Also, they cost.

Conclusion:

Picking a trustee, like picking an executor for your will, is a big decision. If you are in over your head and know a family member or friend would be too, then trust a professional. If it doesn't make financial sense to pay someone, then pick someone whom you trust, who has the time, and will do a good job. Finally, unless you have talked to a professional about the limited instances you should be trustee over your own trust, don't. Just don't.

Gun Trusts

Guns are a hot topic right now. Probably too hot, actually. I think we can all agree, whatever side of the fence you are on, that some sort of reform needs to be done, while respecting the Second Amendment. Either with background checks, closing the private seller loophole,  funding for mental health, or something else. But enough politics.

That said, guns are still legal to own in Texas, and many of my clients have guns. Some of these guns are already required to be specially registered with the Bureau of Alcohol, Tobacco, and Firearms (ATF) as they fall into a special class of items under the terms of the National Firearms Act (NFA).

Background:

The 1934 National Firearms Act was essentially a tax levied by Congress, but the real purpose was to thwart and curtail possession of "gangster" type weapons, some thought to be a specific response to the St. Valentine's Day Massacre allegedly orchestrated by Al Capone. All sound suppression devices, short barreled rifles and shotguns (less than 18 inches in length), machineguns, and a catch-all class of "other weapons" were listed, and a $200 tax stamp was imposed on any transfer.  That was a lot in 1934 dollars, and it worked. Weirdly,  it has not changed since.

The registration also required detailed data that the government then used to prosecute registrants who lived in states where possession was illegal, or that could not possess the items for other reasons. Sound like entrapment? Well it was.  This lasted until the Supreme Court held that using the self-supplied information for prosecution violated the 5th Amendment protection against self-incrimination.

A 1968 amendment fixed the problem, and you now cannot be prosecuted for a violation prior to or concurrent with your application to register an item. However, after a 90 day moratorium, this also took away the mechanism to register a currently unregistered NFA item, interestingly enough. So, if you have, or come upon, an unregistered NFA item, run away. You're breaking the law. And call a lawyer.

Current Status:

The NFA is still in effect. You still have to go through this process if you want any of the above listed items. Recently, Texas, along with a number of other states, has approved the use of sound suppression devices/silencers for hunting use.  This has been met with some controversy, as many people think of "silencers" as something assassins use in movies to kill people. Hence, why they are included in the same category as a machine gun. Others, (such as the Finnish Government, where you can apparently purchase a silencer at any hardware store) think that silencers/sound suppression devices should be mandatory,  due to the noise associated with firearms and the potential for hearing loss of those nearbye, and are very much different than machine guns. With that, and the current rush to try and buy any and all firearm related items before any new legislation, many individuals are purchasing items listed under the NFA.

NFA Application process:

Should you decide to purchase a NFA item, there is a process to go through. A long process. Once your item arrives from a licensed dealer, you must complete an ATF form 4 transfer.  It is not very complicated, but you will need the serial number of the item, a valid description, and some more identifying information.

If you decide to apply for the item in your name, then after your dealer fills in the required info, you have to submit a photo, fingerprints, and have the chief law enforcement officer (sheriff or police chief) sign off on your application. This can be a pain. Further, only you can possess the NFA item. If you let someone borrow it, they are breaking the law. If you pass away, then your heirs might be breaking the law if the proper structure is not in place.

Here is where a "gun trust" comes in. With the trust format, you apply as settlor/trustee of a trust. This way, you do not have to give your photograph, fingerprints, or have the chief law enforcement officer sign off. This saves a little time in the application process. The real benefit, however, is that it allows any of your named trustees to possess the item outside of your presence. This allows your family and hunting buddies to share in your item and not break the law. Further, many trusts set out a beneficiary designation, so you can dictate exactly who the item will go to, instead of just to your estate. All good things.

Regardless of what route you take, the background check process is extensive. A gun trust will not, I repeat, WILL NOT, allow someone who would otherwise be disqualified from possessing an NFA item to acquire it. They still run a background check on you. Either way, several months or more are common wait times to hear back.

Conclusion:

A "gun trust" is what it sounds like, and it is also not what people think. It is not an asset protection device, and it is not a place to put all your guns. I get lots of calls asking for both of these, but that is not the purpose of this specific trust. The best use, until the law changes one way or the other, is for the responsible use and acquisition of NFA items. Nothing more. That said, it is a very useful tool for those who have that specific need.