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How to Set up Your LLC With a Living Trust - YouTube
Channel: Clint Coons Esq. | Real Estate Asset Protection
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- Hey guys, in this video,
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we're gonna talk about setting up your LLC
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when you have a living trust.
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All right, let's get started.
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(upbeat music)
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Right now, I work with a lot
of people who come to us,
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and they wanna set up
limited liability companies,
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of course, to own their
rental real estate,
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and they have a living
trust, and they've been told,
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"Hey, everything's supposed
to go into my living trust."
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And that's true.
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So, if you have a living trust,
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that you've set up for your estate plan,
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if you don't know what it is,
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be sure to watch one of my other videos,
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I talk about the benefits
of having a living trust
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and what it can do for
you by avoiding probate.
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So, you've set up your living trust,
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and you're gonna be told,
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"You have to put all of
your assets into this."
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That means your limited
liability companies
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that you've set up would
go inside of there.
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Maybe you have another business over here
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would go inside of there.
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So you got these LLCs, and,
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when I say, you put your
LLCs into your living trust,
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what that means is that
you're making the living trust
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the member of that
limited liability company.
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So, when LLCs get filed,
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if the state asks for who is the member,
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and you have to report it
to the Secretary of State
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on that LLC filing, and
you have a living trust,
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and you wanna make the
living trust the member,
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you may be inclined
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to put down the name of your
living trust on that filing.
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More importantly,
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what I see people do is
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when they draft their Operating Agreement.
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So they've set up an LLC,
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you put together your
LLC Operating Agreement,
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maybe you're listed as the manager,
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and then you list your living trust
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as the member of that LLC.
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So, why do people do this?
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Well, they want to ensure
that their trust owns the LLC,
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so they can avoid probate.
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However, here's something
you should consider.
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When you're setting up an LLC,
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even though you have an
existing living trust,
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if it's your trust, list yourself
as the member of the LLC.
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Do not put your living
trust as the initial member
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on any filings that are
submitted to the state
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or on your Operating Agreement.
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Just have your Operating
Agreement drafted,
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so it looks like this.
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I've set up an LLC here.
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Here's an LLC, Clint is manager.
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Clint is member of this
limited liability company,
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so I'm listed on the Operating
Agreement in both positions.
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Now, why am I telling you to do that?
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Because, you may be thinkin'
well, Clint, if I did that,
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well, then my living trust doesn't own it,
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so, if I pass away, that
won't be included in this,
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and this goes then has
to go through probate,
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attorneys get in there
and make all their money.
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Well, we're gonna put
it in your living trust,
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we're just not gonna do it directly.
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And the reason being, is that,
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let's assume with this limited
liability company you have,
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you're gonna open up a bank
account, right, for it.
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Say, it can be a Wyoming, LLC,
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and you wanna open up a bank account,
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and your bank asks for a copy
of the Operating Agreement.
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Okay, so you send them a copy
of the Operating Agreement.
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Let's say you did it the
way I originally showed you.
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You send 'em over a copy
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of your LLC Operating Agreement here,
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and when they get a copy of
it, what are they gonna see?
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You're the manager, and the
living trust is the member,
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so it's no longer you.
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Now, this can create problems for you,
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because, if you're trying
to open your account online,
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for example,
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Chase allows you to open
up an LLC account online,
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provided these two parties are the same.
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But, if you have this party
here and this party here,
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(makes buzzer sound) that
creates an issue for you
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tryin' to get that account opened online,
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so now you have to actually
go into the branch.
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Then they wanna see a copy, as I stated,
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of that Operating Agreement,
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they see the living trust there.
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Next question they're gonna ask for,
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"Well, we need to evaluate
your living trust,"
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and so now you have to
bring your living trust in
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and give 'em a copy of your
living trust to look at,
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just to open an account.
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So, if you're applying
for a loan, same thing.
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If you had an LLC
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that shows that the living
trust is the member,
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and the lender asks for a copy
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of the LLC Operating Agreement,
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they see that that
living trust is a member,
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they're gonna ask for a
copy of that living trust.
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And they're gonna make
sure there are provisions
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in that living trust
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that allow you to do what you wanna do,
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buy that property and
get a mortgage on there.
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And maybe the attorney who drafted it
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didn't have that type of
specific language in there,
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used a more general purpose
clause about trustees powers,
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now then, you gotta
amend your living trust
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to make the bank happy.
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Don't do this.
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This is a mistake that
I think people make is,
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that they try to,
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inexperienced attorneys that
do not deal with real estate
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try to put it all together in
a nice, neat little package,
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not realizing what the problems
are gonna be down the road.
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So, the way I like to handle my structure,
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is I will set up the LLC,
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and, whatever LLC I'm setting up
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will not contain my
living trust as a member.
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What I will do is, after
I've set up the LLC,
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I will then prepare an assignment.
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I will prepare an assignment,
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where I will transfer my
LLC to the living trust,
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so it's a separate one page document,
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says I, Clint Coons, member in this LLC,
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hereby assign and transfer
100% of my membership interest
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to the living trust.
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Now, when you do it this way,
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that is not on the Operating Agreement.
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Yes, your living trust owns it,
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because you transferred your interest,
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but, if anyone asks to see a copy
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of your LLC Operating Agreement,
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don't send them the assignment,
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just send 'em the LLC Operating Agreement.
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Do exactly what they're asking.
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Now, if they make you sign a form
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that states you're the actual member,
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well, of course, you gotta problem here,
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your living trust is the member,
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and you're gonna have
to figure that one out.
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Do you say, "Yes, I'm the member,
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"because I own it
indirectly through this."
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Or, if you're concerned about that,
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that they may look at
that as being fraudulent,
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you don't wanna sign under
penalties of perjury,
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how do you change it?
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Assign it back to yourself
from your living trust,
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just reverse the transaction,
then you're the member.
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But it's a heck of a lot easier,
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than having to amend that
LLC Operating Agreement
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to get the living trust name
off and put your name on.
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So, a lot of things about
putting together these structures
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aren't necessarily obvious on their face,
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and it comes from years of
experience of doing this
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and working with parties.
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Because, I'll tell you what,
I've made this mistake,
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and I had to deal with
the consequences of it
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in dealing with the bank one
time in opening up an account.
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So, somethin' to consider
when setting up your LLC is,
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if you have an existing living trust,
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try to avoid listing the
living trust as its member.
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Hey guys, if you liked this video,
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hit the like button, and, of course,
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be sure to subscribe to the channel.
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Take care.
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(upbeat music)
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