Using Series LLCs for Real Estate

 In Uncategorized

If someone slipped and fell at your rental unit and then filed a lawsuit against the property, the accident victim would be a creditor of your real estate investment property.  If you own title to the real estate in your own personal name, you are opening the door for the creditor to access your own personal assets, including your home.  Real estate investors create LLCs to protect their own personal assets from creditors of their real estate investment property.  LLCs also protect the assets of the LLC from creditors of the members of the LLC.

What about investors that have multiple properties?  Often, investors will create a new LLC for each investment property to compartmentalize the risk to each property.  The series LLC is a way to avoid filing multiple LLCs with the state, yet still provides that compartmentalization of the risk for each investment property.

What is a Series LLC?

A series LLC is an LLC that is authorized by its articles of organization to create one or more series, or cells.  Each individual series is like a child of the parent LLC.  It has a “vertical” liability shield that protects that series’s assets from the creditors of another series.  It also has a “horizontal” liability shield that protects the series’s assets from the creditors of the parent LLC itself.  It’s useful to real estate investors with multiple properties because each property can be held in its own series.  This compartmentalizes the real estate liability of each individual property.

What are the advantages of a series LLC?

The obvious advantage of a series LLC is that there is no need to file a new certificate of organization with the state for each series after you create the original series LLC.

Additionally, a series LLC provides multiple liability shields, as illustrated above. As in a typical LLC, the individual assets of the members are shielded from the creditors of the LLC.  Moreover, the assets of each individual series are shielded from creditors of the series LLC and from the creditors of the other LLCs in the series and the members of the other LLCs in the series.

What are the disadvantages of a series LLC?

The biggest disadvantage of a series LLC is that it is a very new type of entity.  The Utah Code allowing for series LLCs was enacted in 2013.  There is very little guidance from courts on how statutes will be interpreted and some experts argue that Federal bankruptcy courts will not respect the series liability shields.

Another disadvantage is that series LLCs are not recognized in all states.  If your LLC will cross state lines, it’s better to go with a regular LLC.

If you have questions about series LLCs, or would like to discuss setting up your own series LLC, I’m here to help.  Don’t hesitate to call me at 801-874-4546.

Recent Posts