What is a SERIES LLC, and why are self-directed investors so excited about this new legal structure?  I’m Bryan Ellis.  I’ll tell you the good AND the bad about Series LLC’s right now in Episode #134.

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Hello, SDI Nation!  Welcome to the PODCAST of RECORD for savvy self-directed investors like you!

So have you heard of it?  This thing called a “series LLC”?  It’s a relatively new type of legal structure that offers the flexibility of multiple legal entities in one, in a manner of speaking.

So, for example, let’s say you create a new LLC called SDI LLC and you register it as a “Series” LLC.  What this means is that by creating that one entity, you have actually created a virtually unlimited number of entities because you can then, without paying additional registration fees, create additional entities such as SDI Series 1 LLC, SDI Series 2 LLC, SDI Series 3 LLC, etc…

Now here’s what’s cool about that… the governing law for this type of structure explicitly states that, in the eyes of the law, that each of those series are SEPARATE business entities.  This means that, each separate series you establish of that LLC has separate TAX liability, separate LEGAL liability, an entirely distinct LEGAL identity… even though you don’t have to pay additional fees to register the additional series after the first one.

That has some real relevance for me and you as Self Directed Investors.  Here’s why:  Let’s think about this in the context of real estate.

Let’s imagine you have 15 different pieces of property.  Some are residential, some are raw land, some are commercial.  But you have 15 different pieces, and they’re all owned by your IRA.

And one day, somebody slips and falls on one of your properties – let’s just say it’s property #7, a nice little house on Main Street – and they’re seriously injured.  They’re going to sue everyone with any connection to that property, which will quite surely include your IRA as owner of the property.

What happens if they win?  What happens if they get $5,000,000 judgment against your IRA?  Well, what will happen is that they’ll be able to, in one way or another, take away not just the property on Main Street where the accident happened, but all of the others as well, until their $5M judgement is satisfied.  That’s because, in the eyes of the law, those assets have the same owner, and it’s THAT owner – your IRA – that must satisfy the judgment.  In one fell swoop, your IRA is now worthless.

Just as an aside, I know that some of you are thinking that your IRA provides protection against lawsuits, so you need not be concerned.  That’s not really true, folks.  If you PERSONALLY were sued and lost, then there IS some protection for your IRA in that kind of situation.  But that’s not what we’re talking about.  We’re talking about YOUR IRA being sued because IT is the owner of this property, and not you personally.  In that case, the assets of the IRA are up for grabs if it loses the lawsuit.

And that’s where a Series LLC might come into play.  The way some people are using these things is that they’re setting up a Series LLC that’s owned by their IRA, and then they’re creating a separate series of that LLC – essentially a separate business – to own each piece of their property.

The theory there works like this:  Instead of your IRA owning 15 separate properties, it owns a series LLC with 15 separate series, each of which contains one piece of property, including that infamous property #7, the nice little house on Main Street.  And when there’s an injury on that property that results in a lawsuit with a $5M judgement, things work out a little differently this time because Property #7 is not actually owned by your IRA directly.  Instead, it’s owned by SDI Series 7 LLC.  And since that house is the only thing owned by SDI Series 7 LLC – because every other property is in a different Series of SDI LLC – then you still take a hit… but it’s only against Property #7.  All of the other properties are safe, being legally separate from the one asset where there’s a big judgment.

Sounds pretty good, doesn’t it?  I’ll admit, the theory is extremely attractive.

But don’t do it, folks.  At least, not right now.  Here’s why:

The fact is that Series LLC’s are just too new from a legal perspective.  There’s not enough case law to predict what’s going to happen when you’re actually on the other end of a lawsuit or a bankruptcy or a tax audit.  The uncertainty factor is stratospherically high.

In fact, as of this time, only 13 states plus the District of Columbia and Puerto Rico even offer Series LLC’s.  And those states don’t use the same law.  For example, in some states, like Nevada, you can add as many series to your LLC as you want at no additional cost.  But in other states, you actually have to pay additional fees for each series.

But the real question is in the states where there are no Series LLC laws.  What you really can’t predict is whether each Series will be considered as a legally separate entity in those states.  And even if you only do business in a state where there IS series LLC legislation, the reality is that it’s still entirely possible you could face legal action out of state from a vendor or from a person living in another state who just passes through your area.

And it’s more than that.  Try opening a bank account for a Series LLC in a state where these entities are not yet common.  You’ll find it’s not a simple task.

Now folks, I’m not a lawyer.  And I don’t play one on TV.  But even to my simple mind, this Series LLC thing just doesn’t add up.  From where I sit, the only real advantage to it… sometimes, not all the time, but sometimes… is that you might get to form multiple entities without paying additional registration fees.  Again, that’s not true in every state, so even that advantage is questionable.

Other than that, I see no clear advantage.  And one huge disadvantage:  No legal history.

30 years ago, nobody wanted to use traditional LLC’s because there was no case law for them at that time, either.  But that’s certainly changed, and traditional LLC’s are now a very common and reliable business structure, with plenty of case law to support them.  So maybe case law will catch up, and the Series LLC will become a viable and solid structure like the normal LLC.

Unil then, may I make a suggestion?  Leave the Series LLC to the trailblazers.  Let them get the arrows in the back.  But you, you have two options:

One is to just use as many different traditional LLC’s as is necessary to own your various properties.  That’s one option that can certainly work, though it’s a huge pain in the rear in terms of organization and compliance.  A real pain in the rear to be sure.

So what’s a better option?  Well, my friends, there’s a strategy for protecting your properties that I absolutely LOVE… and it’s simple!  It requires only 2 LLC’s or other legal structures of your choice, no matter how many properties you own now or in the future.  So it’s very simple, and it’s also very, very simple to maintain.

Want to know more about it?  I’m happy to share that info with you.  Later THIS WEEK, I’m releasing a brand new e-Book called “The Portfolio Fortress:  How To Keep Your Wealth Out Of The Hands Of Legal Predators”.  And it will tell you all about this great strategy that’s SIMPLE, SAFE and STRONG.

Now, my friends, this is really only intended for those of you at least 3-5 properties or more.  And if that describes you, I really want you to have it.

And I’ll not charge you a single dollar for it.  I want you to have it.  I want your assets to be kept safe!  So if you’d like the e-Book and you own at least 3 properties, you can get it at no cost by texting the word FORTRESS to 33444 right now.  Again, just text the word FORTRESS to 33444 right now.  If text doesn’t work for you for some reason, you can email me at [email protected].  Again, it’ll be released later this week, and until then, I’m offering it as a free gift to listeners of this show.

Thanks for listening, and remember:  Invest wisely today, and live well forever!

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