[0:01] Welcome to Protecting Your Legacy with the State Planning.
[0:06] Hello everyone and welcome back to Protecting Your Legacy with the State Planning with Adam Grant.
[0:12] Adam's the founding attorney of Stonewood Law Group PC in Encino, California.
[0:17] He helps families across Los Angeles, Orange, Riverside, Ventura and San Bernardino counties
[0:23] build clear comprehensive estate plans that protect what matters most and help avoid probate.
[0:30] I'm Sean O'Connor and today we're talking about how LLCs can be used within an estate plan,
[0:36] what stacking means and how to think about structuring assets the right way.
[0:41] Adam, good to see you.
[0:42] Good to see you as well.
[0:43] Thank you.
[0:44] That LLCs are something that are fairly common at a high level.
[0:49] Adam, where do LLCs fit into a state planning and how do they work alongside something like a trust
[0:57] which we've talked about quite a bit?
[0:59] So LLCs are a vital tool, depending on your business and configuration here in California,
[1:04] and something that work really well with a trust.
[1:06] So you can assign your LLC interest to the trust, have it own that interest,
[1:10] and prescribe who it goes to through the trust.
[1:13] That's where you have some luxury with defining who your beneficiaries are,
[1:18] how things are going to go.
[1:19] This is really your state plan and your legacy.
[1:21] How it goes to the people you want to go into is extremely important.
[1:24] And we want to make sure it gets there avoiding probate while having some protection.
[1:29] So in California, this isn't the best state for asset protection.
[1:33] But there are certain things you can do to offset some of the liability operating different companies here in California.
[1:39] For instance, I have clients often come in mother and father or mother and son and children doing a rental business
[1:46] or owning property in California.
[1:49] I always tell them if they don't have an LLC, that's one of the first things we should talk about.
[1:54] And why? Because of the liability.
[1:56] California generally doesn't favor the landlord.
[1:59] They want to protect the tenant.
[2:00] The difference is with the landlord, they have more control.
[2:03] They have the ability to oversee how the businesses run.
[2:08] And unfortunately in California, if one tenant makes an issue for something like a habitability claim,
[2:14] the tenant next door can make that claim.
[2:16] And without LLC coverage or without a corporation or some type of shell,
[2:21] you are operating as a sole proprietor and your assets are fully reachable.
[2:26] They can come after your family and your personal assets for any wrongdoing or negligence without that coverage.
[2:33] So when LLC essentially puts the business or puts those assets under an umbrella,
[2:39] protecting coverage from those assets further beyond to your state,
[2:44] providing you don't do anything that's grossly negligent or wrongful misconduct,
[2:49] you won't normally have issues with the LLC or corporation giving you some type of protection.
[2:56] With that LLC and that protection, you can add the additional layer of putting it into your trust.
[3:01] Now, there are issues with that.
[3:04] Of course, you don't want your trust assets reached.
[3:06] So we would talk and construct certain pathways for you to best put together this different configuration of your LLCs,
[3:14] your corporation interests in your trust assets.
[3:17] I see.
[3:19] You mentioned one example in terms of the family business and the rental property.
[3:25] But when you're working with clients, are there types of assets that you typically would place in an LLC
[3:35] and by doing so, what are they trying to accomplish?
[3:39] So really, LLCs can not only cover businesses that can own assets, so an LLC can own property.
[3:47] But generally, these corporations are there to manage the business, to give it a structure,
[3:53] and to also cap what's attainable or what's reachable if something goes wrong.
[3:58] The corporation, the LLC, provides a level of protection, of asset protection.
[4:04] Still, creditors can come after you and make claims, but they're not going to do that after your personal assets.
[4:10] And that's the big one.
[4:11] So we want to keep your estate free from personally owning property.
[4:16] And the reason is we want to avoid probate, but we also want to keep any business interest or any risk captured within a vertical LLC or multiple LLCs and have those LLCs in a trust.
[4:27] Those add layers of protection. And I think that's getting to your next question, which is kind of what we do with stacking or what we call stacking.
[4:34] Yeah, I was going to ask you, I have heard the term, but I'm not that familiar with it in this term of stacking LLCs.
[4:40] What does it mean? How does it work in practice?
[4:43] Yeah, so stacking, depending on the need or goals of the client, you can put different LLCs under other LLCs or corporations.
[4:51] And you essentially configure your business in separate verticals so that you isolate the exposure and liability that might otherwise be present.
[5:01] Now, those can operate together in unison with one owning several. There's a lot of configurations.
[5:07] But depending on your goals and interests, you would look at various states for various incentives that they offer by way of their requirements for yearly upkeep and maintenance of those LLCs and corporations.
[5:20] Some states like Delaware and Texas, Wyoming, they have favorable laws for either reporting for tax purposes.
[5:28] And so clients will take advantage of those foreign states set up those companies originating under those states so that they have some protection and they don't have to do certain reporting requirements, depending on the state.
[5:40] They register here in California for California property and have an LLC that effectively manages removes exposure and fits into the overall state plan.
[5:50] I see, I see so LLC zoning LLCs, et cetera, they can get complicated for sure.
[5:59] The thing to consider there, of course, is really costs.
[6:04] If you're a big business, perhaps structuring it in a very unique creative way, you can afford those costs.
[6:09] If it's a small rental business that a family owns and you want to set it up in a foreign state for different reasons, there might be additional costs associated with that. So another consideration.
[6:22] Are there, are there times when, or you said you mentioned big corporation, are there, are there times when for sure this kind of a thing makes sense and there's other times when it's like, listen, you advise your, your clients, like, let's just more complicated than you need to go for your, for your needs.
[6:39] Yes, oftentimes clients, what we're seeing more is, you know, with the advent of AI, they're reading things that they think are applicable to them or that perhaps are applicable in other states, they don't understand are applicable here.
[6:53] So I think really having a grasp of how your business operates, what type of liability you're looking at.
[7:00] And if you have a family trust or individual trust, how that's going to work with your trust, how it's going to own that interest, how you're going to protect the business inside and outside the trust, how you're going to assign the assets to the business to the trust.
[7:14] But there are a lot of considerations in stacking that you will discuss with your state planning attorney and perhaps also a CPA to advise on the tax consequences of looking at various states as a foreign register as a foreign LLC first before registering here in California.
[7:29] Yeah, interesting the, you know, not just AI, but just, you know, the web generally, right, there's a lot of information out there, but it doesn't maybe it's hard to buy your specific scenario, which, you know, I'm curious, you know, when, when a client's considering using LLCs in the way that we've been talking about, how do you help them sort of think through what they're actually trying to achieve, you know, like what, you know, what are their goals.
[8:00] With this, by using this structure, you know, which of course, then we'll adjourn more than hey, this may be more horsepower than you need or just the right thing to do.
[8:09] I think largely it's a question about the liability and the exposure from the various asset or the business, but we'll have a very direct conversation about the goals and what they want to do, do they want to not report all the members of their business, perhaps you look to a different state where you don't have to do that annual reporting.
[8:26] That said, you are creating additional burdens and costs to keep that configuration in place.
[8:33] Each state has a yearly obligation here in California, it's around $885 with taxes and filing, but you have to do that on a yearly basis.
[8:42] In California, you also have to file what's called a statement of information on a yearly basis for each LLC.
[8:47] Each state has its own environment, so that's just what you have to do in California.
[8:52] If you have stacked your business or corporation in a way that first it's in Delaware and then it's in California, you'll have to report in both states.
[9:00] And so those are additional costs. And if you look at stacking several vertical LLCs, those are all operating costs at a yearly basis that compound whereby a trust, otherwise doesn't have yearly costs.
[9:13] So it's an effective way to keep everything in a nice package going to the people you want without that annual fee.
[9:20] But if you want that additional protection for your business, which is highly suggested and advised, if you have a business with such liability, then you would want to consider sending up an LLC before putting that LLC into the trust.
[9:32] Just during this conversation and others talking about different states have different laws that are more or less favorable for various reasons.
[9:42] You mentioned Nevada, Delaware, Wyoming.
[9:46] When does choosing one or the other actually make sense? Because like you said, the complexity, the costs that compound in your experience, when does it make sense?
[9:59] I think when there's a lot of exposure, when you own a rental business with many, many buildings and many doors, if you say it like that, there's a lot to consider.
[10:11] And perhaps one of the rental places has a lot of exposure and one has slightly less, but you put them in two separate verticals.
[10:18] The thing is to consider how you're going to pay for those annual costs, if they make sense, if you have quite a sizable company or asset that you want to put into an LLC, the conversation might be, you know, we want privacy.
[10:33] And if privacy is the goal of the client, that's what state you might lead with, provided the client understands that they will have additional management exposure and requirements for each state they register in.
[10:47] And that they have to upkeep the statements of information, provide the state with whatever documentation it needs every year. And this is not just said and forget like a trust can be.
[10:56] Right, right. So, yeah, I mean, as I like to say, if, you know, if you're okay rubbing money on it every year, to take care of the, the, the upkeep.
[11:07] Yeah, and accomplish your goals. That makes sense. I know.
[11:11] Adam, this is, you know, this is your, this is your daily bread. So to speak, you're an expert in this area.
[11:18] With the time that we have left, I'm curious if you could share an example or two where, you know, a client using LLC structure and it made a real difference for them.
[11:29] You know, on the other side of that coin, maybe things didn't work out because, you know, maybe they didn't set it up correctly or, you know, you inherited some something that was, you know, less than perfect, so to speak.
[11:42] So a good example here would be one client I have with a rental business. He has a property in Massachusetts. He has a property in New York. He has property in California.
[11:51] But it's the question of what liability, what exposure is out there for you? What do you need to protect against? Where do you set things up? What side is matters? What residency matters?
[12:02] And that's the conversation you'll have with your CPA, along with your estate planning attorney, and you'll configure which LLC, which configuration best works for the estate.
[12:12] In this case, it was a rental. A lot of these oftentimes are rentals. And the business had a sizeable income on one of the properties and a sizeable income on the other property.
[12:22] But the question was whether to create two LLCs, one LLC that has both, which place to set it up, which state for SIDIS. And it really came down to liability.
[12:32] Which one did he think was going to cost him the most trouble? Did he need to put that in its own vertical so that if something happened, they couldn't reach out and then attempt to attain the assets of the second LLC.
[12:43] So that would be a perfect example of where you could look at two LLCs, set them up as verticals so that you have isolation from liability. You have both those LLCs assigned to the trust held by the trust. And that way if follows your prescribed distribution or your wishes upon passing.
[12:59] Well, we're pretty much out of time, Adam, but great to see you and get your expertise as always.
[13:04] Thank you for having me. You bet. Thank you for listening to today's episode of protecting your legacy with estate planning.
[13:12] If you'd like help structuring your assets or understanding how LLCs can fit into your overall estate plan, you can visit the website stonewoodlaw.com.
[13:22] And don't forget, leave a review, subscribe to the podcast, share a link with someone who you think might benefit, and we really appreciate that.
[13:33] I'm Sean O'Connor. Have a great day.
[0:06] Hello everyone and welcome back to Protecting Your Legacy with the State Planning with Adam Grant.
[0:12] Adam's the founding attorney of Stonewood Law Group PC in Encino, California.
[0:17] He helps families across Los Angeles, Orange, Riverside, Ventura and San Bernardino counties
[0:23] build clear comprehensive estate plans that protect what matters most and help avoid probate.
[0:30] I'm Sean O'Connor and today we're talking about how LLCs can be used within an estate plan,
[0:36] what stacking means and how to think about structuring assets the right way.
[0:41] Adam, good to see you.
[0:42] Good to see you as well.
[0:43] Thank you.
[0:44] That LLCs are something that are fairly common at a high level.
[0:49] Adam, where do LLCs fit into a state planning and how do they work alongside something like a trust
[0:57] which we've talked about quite a bit?
[0:59] So LLCs are a vital tool, depending on your business and configuration here in California,
[1:04] and something that work really well with a trust.
[1:06] So you can assign your LLC interest to the trust, have it own that interest,
[1:10] and prescribe who it goes to through the trust.
[1:13] That's where you have some luxury with defining who your beneficiaries are,
[1:18] how things are going to go.
[1:19] This is really your state plan and your legacy.
[1:21] How it goes to the people you want to go into is extremely important.
[1:24] And we want to make sure it gets there avoiding probate while having some protection.
[1:29] So in California, this isn't the best state for asset protection.
[1:33] But there are certain things you can do to offset some of the liability operating different companies here in California.
[1:39] For instance, I have clients often come in mother and father or mother and son and children doing a rental business
[1:46] or owning property in California.
[1:49] I always tell them if they don't have an LLC, that's one of the first things we should talk about.
[1:54] And why? Because of the liability.
[1:56] California generally doesn't favor the landlord.
[1:59] They want to protect the tenant.
[2:00] The difference is with the landlord, they have more control.
[2:03] They have the ability to oversee how the businesses run.
[2:08] And unfortunately in California, if one tenant makes an issue for something like a habitability claim,
[2:14] the tenant next door can make that claim.
[2:16] And without LLC coverage or without a corporation or some type of shell,
[2:21] you are operating as a sole proprietor and your assets are fully reachable.
[2:26] They can come after your family and your personal assets for any wrongdoing or negligence without that coverage.
[2:33] So when LLC essentially puts the business or puts those assets under an umbrella,
[2:39] protecting coverage from those assets further beyond to your state,
[2:44] providing you don't do anything that's grossly negligent or wrongful misconduct,
[2:49] you won't normally have issues with the LLC or corporation giving you some type of protection.
[2:56] With that LLC and that protection, you can add the additional layer of putting it into your trust.
[3:01] Now, there are issues with that.
[3:04] Of course, you don't want your trust assets reached.
[3:06] So we would talk and construct certain pathways for you to best put together this different configuration of your LLCs,
[3:14] your corporation interests in your trust assets.
[3:17] I see.
[3:19] You mentioned one example in terms of the family business and the rental property.
[3:25] But when you're working with clients, are there types of assets that you typically would place in an LLC
[3:35] and by doing so, what are they trying to accomplish?
[3:39] So really, LLCs can not only cover businesses that can own assets, so an LLC can own property.
[3:47] But generally, these corporations are there to manage the business, to give it a structure,
[3:53] and to also cap what's attainable or what's reachable if something goes wrong.
[3:58] The corporation, the LLC, provides a level of protection, of asset protection.
[4:04] Still, creditors can come after you and make claims, but they're not going to do that after your personal assets.
[4:10] And that's the big one.
[4:11] So we want to keep your estate free from personally owning property.
[4:16] And the reason is we want to avoid probate, but we also want to keep any business interest or any risk captured within a vertical LLC or multiple LLCs and have those LLCs in a trust.
[4:27] Those add layers of protection. And I think that's getting to your next question, which is kind of what we do with stacking or what we call stacking.
[4:34] Yeah, I was going to ask you, I have heard the term, but I'm not that familiar with it in this term of stacking LLCs.
[4:40] What does it mean? How does it work in practice?
[4:43] Yeah, so stacking, depending on the need or goals of the client, you can put different LLCs under other LLCs or corporations.
[4:51] And you essentially configure your business in separate verticals so that you isolate the exposure and liability that might otherwise be present.
[5:01] Now, those can operate together in unison with one owning several. There's a lot of configurations.
[5:07] But depending on your goals and interests, you would look at various states for various incentives that they offer by way of their requirements for yearly upkeep and maintenance of those LLCs and corporations.
[5:20] Some states like Delaware and Texas, Wyoming, they have favorable laws for either reporting for tax purposes.
[5:28] And so clients will take advantage of those foreign states set up those companies originating under those states so that they have some protection and they don't have to do certain reporting requirements, depending on the state.
[5:40] They register here in California for California property and have an LLC that effectively manages removes exposure and fits into the overall state plan.
[5:50] I see, I see so LLC zoning LLCs, et cetera, they can get complicated for sure.
[5:59] The thing to consider there, of course, is really costs.
[6:04] If you're a big business, perhaps structuring it in a very unique creative way, you can afford those costs.
[6:09] If it's a small rental business that a family owns and you want to set it up in a foreign state for different reasons, there might be additional costs associated with that. So another consideration.
[6:22] Are there, are there times when, or you said you mentioned big corporation, are there, are there times when for sure this kind of a thing makes sense and there's other times when it's like, listen, you advise your, your clients, like, let's just more complicated than you need to go for your, for your needs.
[6:39] Yes, oftentimes clients, what we're seeing more is, you know, with the advent of AI, they're reading things that they think are applicable to them or that perhaps are applicable in other states, they don't understand are applicable here.
[6:53] So I think really having a grasp of how your business operates, what type of liability you're looking at.
[7:00] And if you have a family trust or individual trust, how that's going to work with your trust, how it's going to own that interest, how you're going to protect the business inside and outside the trust, how you're going to assign the assets to the business to the trust.
[7:14] But there are a lot of considerations in stacking that you will discuss with your state planning attorney and perhaps also a CPA to advise on the tax consequences of looking at various states as a foreign register as a foreign LLC first before registering here in California.
[7:29] Yeah, interesting the, you know, not just AI, but just, you know, the web generally, right, there's a lot of information out there, but it doesn't maybe it's hard to buy your specific scenario, which, you know, I'm curious, you know, when, when a client's considering using LLCs in the way that we've been talking about, how do you help them sort of think through what they're actually trying to achieve, you know, like what, you know, what are their goals.
[8:00] With this, by using this structure, you know, which of course, then we'll adjourn more than hey, this may be more horsepower than you need or just the right thing to do.
[8:09] I think largely it's a question about the liability and the exposure from the various asset or the business, but we'll have a very direct conversation about the goals and what they want to do, do they want to not report all the members of their business, perhaps you look to a different state where you don't have to do that annual reporting.
[8:26] That said, you are creating additional burdens and costs to keep that configuration in place.
[8:33] Each state has a yearly obligation here in California, it's around $885 with taxes and filing, but you have to do that on a yearly basis.
[8:42] In California, you also have to file what's called a statement of information on a yearly basis for each LLC.
[8:47] Each state has its own environment, so that's just what you have to do in California.
[8:52] If you have stacked your business or corporation in a way that first it's in Delaware and then it's in California, you'll have to report in both states.
[9:00] And so those are additional costs. And if you look at stacking several vertical LLCs, those are all operating costs at a yearly basis that compound whereby a trust, otherwise doesn't have yearly costs.
[9:13] So it's an effective way to keep everything in a nice package going to the people you want without that annual fee.
[9:20] But if you want that additional protection for your business, which is highly suggested and advised, if you have a business with such liability, then you would want to consider sending up an LLC before putting that LLC into the trust.
[9:32] Just during this conversation and others talking about different states have different laws that are more or less favorable for various reasons.
[9:42] You mentioned Nevada, Delaware, Wyoming.
[9:46] When does choosing one or the other actually make sense? Because like you said, the complexity, the costs that compound in your experience, when does it make sense?
[9:59] I think when there's a lot of exposure, when you own a rental business with many, many buildings and many doors, if you say it like that, there's a lot to consider.
[10:11] And perhaps one of the rental places has a lot of exposure and one has slightly less, but you put them in two separate verticals.
[10:18] The thing is to consider how you're going to pay for those annual costs, if they make sense, if you have quite a sizable company or asset that you want to put into an LLC, the conversation might be, you know, we want privacy.
[10:33] And if privacy is the goal of the client, that's what state you might lead with, provided the client understands that they will have additional management exposure and requirements for each state they register in.
[10:47] And that they have to upkeep the statements of information, provide the state with whatever documentation it needs every year. And this is not just said and forget like a trust can be.
[10:56] Right, right. So, yeah, I mean, as I like to say, if, you know, if you're okay rubbing money on it every year, to take care of the, the, the upkeep.
[11:07] Yeah, and accomplish your goals. That makes sense. I know.
[11:11] Adam, this is, you know, this is your, this is your daily bread. So to speak, you're an expert in this area.
[11:18] With the time that we have left, I'm curious if you could share an example or two where, you know, a client using LLC structure and it made a real difference for them.
[11:29] You know, on the other side of that coin, maybe things didn't work out because, you know, maybe they didn't set it up correctly or, you know, you inherited some something that was, you know, less than perfect, so to speak.
[11:42] So a good example here would be one client I have with a rental business. He has a property in Massachusetts. He has a property in New York. He has property in California.
[11:51] But it's the question of what liability, what exposure is out there for you? What do you need to protect against? Where do you set things up? What side is matters? What residency matters?
[12:02] And that's the conversation you'll have with your CPA, along with your estate planning attorney, and you'll configure which LLC, which configuration best works for the estate.
[12:12] In this case, it was a rental. A lot of these oftentimes are rentals. And the business had a sizeable income on one of the properties and a sizeable income on the other property.
[12:22] But the question was whether to create two LLCs, one LLC that has both, which place to set it up, which state for SIDIS. And it really came down to liability.
[12:32] Which one did he think was going to cost him the most trouble? Did he need to put that in its own vertical so that if something happened, they couldn't reach out and then attempt to attain the assets of the second LLC.
[12:43] So that would be a perfect example of where you could look at two LLCs, set them up as verticals so that you have isolation from liability. You have both those LLCs assigned to the trust held by the trust. And that way if follows your prescribed distribution or your wishes upon passing.
[12:59] Well, we're pretty much out of time, Adam, but great to see you and get your expertise as always.
[13:04] Thank you for having me. You bet. Thank you for listening to today's episode of protecting your legacy with estate planning.
[13:12] If you'd like help structuring your assets or understanding how LLCs can fit into your overall estate plan, you can visit the website stonewoodlaw.com.
[13:22] And don't forget, leave a review, subscribe to the podcast, share a link with someone who you think might benefit, and we really appreciate that.
[13:33] I'm Sean O'Connor. Have a great day.
