GI76: Asset Protection for Real Estate Investors and Entrepreneurs with Scott Smith

GI76: Asset Protection for Real Estate Investors and Entrepreneurs with Scott Smith

Scott Smith, Founder and CEO of Royal Legal Solutions, one of the top asset protection companies for real estate investors in the country. To be specific, he provides niche advice for 29,000 real-estate investors, representing most U.S. states, with holdings over $4.5 billion.

Watch The Episode Here:

Listen To The Podcast Here:

Transcript:

Announcer:
Welcome to the Global Investors Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host, Charles Carillo, combined decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now here’s your host, Charles Carillo.

Charles:
Welcome to another episode of the Global Investors Podcast,. I’m your host Charles Carillo. Today we have Scott Smith. Scott is an attorney and he’s the founder and CEO of Royal Legal Solutions, one of the top asset protection companies for real estate investors in the country. He provides advice for 29,000 real estate investors representing most US States holdings over four and a half billion dollar. So thank you so much, Scott, for being on the show today.

Scott:
Hey, thanks Charles. It’s my pleasure to be here. I can’t wait to drop some knowledge for everybody. I’m like what I’ve learned about asset protection and estate planning tax and all the good stuff we do here at Royal legal.

Charles:
Awesome. Yeah, we’re looking forward to learning about it. So I gave you a little bit of background there. Can you can you expand on your professional experience prior to starting your current firm?

Scott:
Yeah, So I was actually a real estate investor during law school and then after law school until I realized I could make more money than real estate investing that I could be an, an attorney. So I quit my attorney job. It was just sort of being a real estate investor and in doing that work. And then I ran into a lot of problems that people have as entrepreneurs and real estate investors, what to do about tax structures, what to do about, you know, risks about being sued, you know, do I need insurance or LLCs? You know, what do I need to be doing here? What am I estate planning to make sure that my family is taken care of? And it happens to me. These are questions I ran into myself and then, you know, I had to solve those questions for myself. So, you know, I put together the systems that to be able to do that and people ask me for help, if I could help them do what I did. And then pretty soon I accidentally started a law firm, right. I mean, with, by just helping the people around me and now we’re up to about 20 people and Royal legal the number of attorneys and paralegals, and we help, you know real estate investors and entrepreneurs all over the country to protect their assets. Now, hide it using anonymity, trust, streamline everything for taxes.

Charles:
So give us a little background on your firm. You, you went over kind of, you have 20 people and but what are those, what are the special services that we’d be getting from a firm like yours versus a traditional attorney that most real estate investors are using for transactions?

Scott:
Yeah. So the difference is and when you look into professional services, it’s about who actually works and makes money the same way you make money. So if you can ever hire a professional that makes money the same way that you make money, then they don’t know just like the high level pieces, right. They actually know the ins and outs of what does it actually take to actually get you there. Right. And that’s really the big difference between looking for like mediocre kind of ends of advice or mediocre types of people to invite in your world versus like a really A-players A-players. But I think everybody needs on their team are people that have done the things or are the people that they seek out to be, or to do the things they seek out to do. And that’s really, what’s different about Royal legals because I had to solve those problems for myself first. Right. And I do actively invest in real estate. I mean, 10 different States in any given time, just about every asset class. So what that means as though when it comes into, you know, what type of solution, you know, do me or my staff recommend for somebody? Well, that’s based upon my own experience and as well as the experience of thousands of other investors that we can say, Hey, this is actually the best practice is actually how your contracts work is actually how the text is actually how banking and the accounting are actually going to happen. And this is, you know, so you it’s that next level of detail.

Charles:
Yeah. No that’s funny. Cause I had a, my first real estate attorney, I had years back when I bought maybe 10, 12 years ago, I bought a commercial piece of property and he was like, why do you want to, why do you want to put an LLC where you gonna put in your LLC, why you’re gonna do this? And I was like, and he was just trying to save money. Right. And it was like you know, am I telling you this? Are you my attorney or not is it’s funny because you have to go, you know, attorneys are like doctors, you know what I mean? You have to go to the right one for what your, what you’re trying to do. Right. What you’re trying to get solved and going to a general you know, a general practitioner is not going to help you if you have a specific need. So that’s very interesting.

Scott:
It’s all good. I was going to go into a doctor in a heart surgeon, right? Like that’s really the kind of difference between, you know, like my colleagues or, you know, our attorneys, right. Versus how niche I am, which is like here’s asset protection and tax. And we just focus just on real estate busters. And just when you get down to that level of specificity, that’s when you start being able to get really deep advice very quickly about, okay, this is actually the painted plan that I need for the next one year, five years. And it’s really important to do this stuff because I mean, I had a friend of mine who, you know, lost over $3 million because he wasn’t protected. He was owning assets in his personal name. He thought that his insurance policies were actually protect them. He didn’t understand that insurance companies or profit-seeking corporations didn’t understand that insurance only protects you against like simple accidents. It doesn’t protect you if it’s really bad accidents and then protects you against any allegations of fraud from email that you sent or breach a contract, you know, it doesn’t cover you from all those things. And so it costs him 3 million bucks when he could’ve just put together some simple LLC structures and, and he would’ve been coming out losing nothing. So I mean, the impacts of this stuff is huge on whether you do them.

Charles:
Yeah. I was reading about that on your website about your friend or that had that a situation where he lost $3 million, which is terrifying. But it was, it was interesting read on your website. Everybody’s interested, we’ll get to the links later on. But so we, we have listeners who are active syndicators, passive investors, active investors, purchasing smaller properties individually. Can you kind of explain explain the optimal structure for these investors? Is it single LLC? Is it a series LLCs, which I think people don’t understand that much.

Scott:
Yeah. The series LLC is really the best piece of like legal technology that you can use. Right? So it’s basic essentially what you’re gonna be able to do. As you get to pay for one LLC that can then spawn and create on its own an infinite number of these child, LLC, right. And a series LLC structure. We refer to that as like the parent that gets filed with the state and it can create an individual, an infinite number of these individual child series of the parents here that we’ll see in each child series doesn’t cost you anything to create. There’s no annual filings for it. And you can just create them there, like on your own desktop and why this is so important is because then you can compartmentalize the liability for every single asset that, you know, you can protect all your cash and stocks, but you only have one entity that you have to maintain one bank account, one EIN, number one set of accounting books, and each track the income expense for each individual property or asset individually. What in your County workers, which is what, you know, all of us are doing anyway, to be able to know true, you know, ROI is, you know, on your portfolio of assets. So if anybody’s looking into asset protection right now where they one thing they need to know as you can use a series LLC in your state, right? You might not be able to form it in your state, but you can reform it in Delaware, Texas, Nevada, or Wyoming, strong charging order protection, and then use it in your state. And you won’t have any issues doing that. Or and I know this is the case because I’ve actually defended these structures, right? So these are the structures that I used for myself, the ones I recommend my clients and that I’m active and participating in any litigation that results from it.

Charles:
Can you explain a little bit more about the, you have a very creditor averse States that you mentioned. Can you explain a little bit more about those States in a nutshell, and then also the charging order, which is so important.

Scott:
Yeah. So I’ll not, I’ll also use are made the same, right? So that’s why people like shop for Delaware, for example, right. Is because they wanted the protections on the Delaware law for the LLCs, regardless where that LLC is to use. Right? So the same thing is true with the series of lawsuit and the matters where you form it, because if it gets sued in another state, they have to look back at the home state to determine what are the protections that I’ll see the reasons why they have to do that. It’s because of the full faith. And prior to the us constitution, which says the laws of one state, as you respect among the several States, same, same type of legal analysis that we’ll see anywhere in the country for the same thing. It allows us to use like a Delaware series, LLC. All you’re looking for is strong charging order protection, which is in those sports States that I mentioned Delaware, Texas, Nevada, Wyoming charging order protection relates to say, if somebody sues you, they can’t get to your LLC. And that’s very, very important that they can’t take your ownership interest in the LLC. So no matter where we’re using offices in the country, we typically always recommend that that you’re forming a and that you have as part of your asset protection strategy and LLC formed in Delaware, Texas, Nevada.

Charles:
Interesting. Okay. And that’s obviously where you’re going to be holding your assets. What happens for example, someone has a brand, right. Or their operating company let’s say, does that really matter that much? And they don’t. I mean, maybe their intellectual property is a trademark, let’s say what does that really matter? What state is in since it’s not really holding assets.

Scott:
Yeah. So well you always look for is at least two companies. It doesn’t matter if you’re a syndicator. It doesn’t matter if you’re a syndicator investor and doesn’t matter if you’re just Joe Schmo off the street, you know, that has, you know, a little bit of a company and also some assets you want two companies. One is your asset holding company, which I’m recommending. We use a series of, I’ll see an anonymous aerial LLC form through law firm is the best. That way you can actually hide all the assets. You can hide your ownership. Let me, so it looks like can qualify for food stamps. If anybody ever looks to Sue you, the second company you need totally separate is an operating company, which doesn’t own anything, but it does all of your active business. And then any assets that you might say would be part of the operating company should actually all be owned by your holding company and the East pack to your operating company. The idea there is you want a company, that’s your fall guy, right? It’s the one that people are interacting with and someone that signed the contracts. And then when you get sued, you can just wind that company down, shut it down and start up a new one, but they can never get to your assets. Your assets all stay protected inside of a separate company.

Charles:
Okay. What are some of the best ways to prevent a lawsuit from the beginning? Obviously we went through this about structuring. Are there any other any other things that we can investors can use to prevent it outside of correctly structuring it?

Scott:
So, you know, you could always say like the typical things, right? Like be honest, speak, treat people fairly right. That’s going to do like along the way to help you stay out of lawsuits. But the one thing I’ve found out being litigator is that it doesn’t actually matter how honest you are, because everybody’s going to call you a liar. Then I want to see you anyway. Right. And you’re going to find all these things that lie about you. And it’s honestly, it really is no defense to this. Right. so it, it really is all comes down to like two major pieces of this obstruction. It’s having the operating companies that way. There’s always, you have personal protection that, you know, you’re not entering into deals directly with people. So that way that they can come back and Sue you and damage your credit score. Even if you don’t want anything, you said a credit score, the, to protect, no matter what level of the game you’re at. And then you also have that asset holding company, that’s an anonymous asset holding company. And that it owns all of your assets anonymously. And, and if you can make it where they can attack you personally, because you’re protected by this LLC from doing the deal itself and that you don’t actually own anything because everything is owned by this anonymous asset holding company that can’t find, they can’t find out what these Cynthia assets are. You are like the worst possible targets to go after from a lawsuit because you look like you’re protected and it also looks like you don’t own anything. So what the hell is the point suing?

Charles:
Right. So what are some of the, you, you had top, you have a, like 10 different top asset protection techniques. Can you go through some of the main ones that you suggest your client?

Scott:
Yeah. So the number one thing that I suggest to all clients to do is start owning their assets that anything that has to do with the public record it’s side of trust structures, right? So you have a trust structure that hides your ownership from any of the public record from, from owning that asset, you want to structure that through a law firms that way, any requests for information about that, or any trustees associated with that all point back to an attorney. So it all the information about that trust and that transaction is all protected by the attorney client privilege. And that you want to make sure that that trust is in turn owned by an LLC or a series LLC. So if you’re out there and you’re just like, Hey, I’m just a syndication investor, or I’m just putting money into different deals. You can consider making those making all of those deals and all his investments through a trust. So that way, your name doesn’t appear on all of the operating agreements and other documentation where the membership of the shareholders, right? You might not want people to know where you’re putting your money inside of different deals, because you might be in certain circles where people are, they keeping track of, like, where do you have your money in deals? And you might know when people know that similarly, it’s the same thing as part of the public records. Like if your name is listed in conjection, you own property or purple personal name, and it’s listed like that on the public records, people then can search easily and find out what are your assets? How much are they worth? How much what’s your indebtedness look like on them? Are you a good person to Sue? Are you a good person? You know, to, to otherwise to go after for some, for some other reason. And personally, it just makes me uncomfortable that people could search and find that much information about me by having, you know, if I have stuff in my personal name,

Charles:
I was reading before that you know, a lot of with these FHA mortgages for people that are first time, home buyers, one to four units, and you have the the due on sale clause, right? With that due on sale clause, if you’re moving it into a land trust, isn’t that correct? That you would not trigger that.

Scott:
Yeah, that’s right. When you, you can’t move the property directly into an LLC or trigger the due on sale clause. My nephew moved the property into my interest for the Saint Germain act that doesn’t trigger to be on sale clause. So what you can do is, is go out there and get those super cheap interest rates. I think I just, I just bought a property as a 2.8% interest rate right now. Wow, that’s it? Right. So, I mean, like, these are insane interest rates right now. Right. But I wanted that cheap financing. So I got that and I bought the property in my personal name. And then I transferred it into the land trust after the fact. Right. And then now the property is all the anonymously and it’s protected because the land trust is in turn owned by an LLC that the bank can’t call my property due because I transfer it to a land trust or an LLC. I transfer it to the land trust. It’s protected by the st. Germain act. And now it’s anonymously and it’s in its protected inside of my entity structure. And for your first 10 properties, that’s how you get your first 10 properties. And you get it with the cheapest rates as that. You just keep buying them and your personal name and then transferring them into the land trust LLC structure.

Charles:
So with that land trust, that’s going to be a state specific land trust. Is that how it works? And then your it’s going to be owned by one of those, one of those four very creditor averse States that you mentioned earlier, is that correct?

Scott:
Yeah. So typically we’re going to use like a Texas or a Wyoming series of LC because those are the cheapest and the best protections and other cheapest to maintain year over year. Right. and then each of the properties that you would buy has their own individual child series and at their own individual land trusts, both of those don’t cost you anything great. And they’re both not filed. Right. and all you have to do then is then deed the property from you and you acquired it into the, into the name of land trust. That’s in turn a non by the child series of your students. And we’ll see. And everything just rolls up through the parent to be able to get reported to you. It’s just you individually, there’s not even a separate tax return. You have to file, but that just gets reported onto the schedule. You have your personal return.

Charles:
Okay. And so, like you just mentioned, you can do this. If you had you and someone else, you and a spouse or something you could transfer into a land trust and not trigger anything.

Scott:
That’s right. Yeah. It’s just all about, because it’s a transfer to a trust. That’s a legal, legal loophole in there, right. That they created about being able to say you could transfer these to a trust and install underneath the protections of the act.

Charles:
So what are some keys to lawsuit defense, if you find yourself in that unfortunate position, what do you suggest to a client?

Scott:
Yeah. So the first thing we need to do is get ahold of a good attorney. That’s going to be familiar with, you know, the litigation part of what we do is grow legal solutions. We offer a membership that we call it, our family office membership. And with that, it’s, you know, we take care of all of the accountability and compliance for all of our clients around, you know having at least twice a year, a meeting to be able to make sure that the appropriate asset protection strategy and tax strategy, retainings things correctly, you’re doing all the things that you should be doing on the tax and legal front of your life and as a host of other benefits to it as well. But the main piece that it also has is that it’s litigation defense. So from day one, any of the members of my company are able to call up, talk to an attorney. It doesn’t cost them anything to be able to find out, Hey, it looks like I might get sued here. I just got this letter, this communication, or I just got this in the mail. What do I need to do next? Right. And so then we take over like helping helping people do that. Cause if you’ve never been through litigation, how do you even know like what to do? But it’s really the, there’s nothing you can do to keep from getting sued because anybody can see you for any reason. All you can really do is two major things. One set up the right protection pieces. Well, ahead of time, they only work if they’re set up proactively. And the second thing to do is have a relationship with somebody that you know, who you’re going to be able to trust and call if that ever happens. So you know what to do next, if it’s just really too complex, you can’t control litigation. It’s other people being . And nobody going to say that I at my life and never off anybody. Like that’s impossible, you know, you’re in business, it’s going to happen.

Charles:
True. Yeah. No, that makes perfect sense. What is something just, I mean, obviously I bet there’s, there’s all different stages that people can get involved with your company, but give us a quick overview of pricing for something like this.

Scott:
Yeah. So I mean, the basics of asset protection can come down to just having an LLC put in place all the way up to like bigger structures that include like offshore trusts. And no you’re typically gonna find out people that have like three plus million net worth. They’re going to start looking at that category. So typically, I mean, you can find things that for people that are just getting going, that’s like underneath a thousand bucks to be able to have professional advice, to be able to walk you through, okay, here’s what you need to do. This is what we can put in place. Now here’s the next steps of when you’re going to need to revisit this. And as you go through up to some of our clients that spend 30 plus thousand dollars with us too, that want more robust structures, including the state planning and tax strategy and off shore protection, equity, stripping, and all of these more advanced strategies, because they have them at work to say, listen, it’s worth the money to spend on it. But I would recommend for everybody is, is just being able to get clarity on where exactly you’re at doesn’t cost anything. And what we do is we actually say all the information that we have, or you push it all to our website about like here is the exact strategies that we’re recommending for XYZ type of versus single family home investor in California versus single family home investor in Texas. Now, wherever we might be at. So where you can actually see how all the information that we have maps out before you ever even get on the phone with us. And there’s no, there’s, you know, there’s no obligation of course, to put anything together. If you want to see, like, how does this actually work? You know for my particular situation from, you know, what all these strategies look like as best practices, what it looked like for me now, we’re happy to walk through everybody with that as well.

Charles:
So so Scott, I mean you work with a number of real estate investors and you definitely see it from a different angle than most real estate investors. What are the most common mistakes that you see investors make, whether it’s with what we’re talking about on structuring their business, or is there anything else that you see commonly that both new and experienced real estate investors might make?

Scott:
Yes, it’s usually it’s not protecting your downside risk is where I see most people lose it, right. They do really good and they spend most of all their time in about like, how can they make more money? Right. That’s the exciting part of doing business is actually making money and putting together big deals. Right? I mean, I could see a big smile on your face right now because that’s absolutely, what’s exciting for me, right? It’s not very fun to start thinking about, okay, how is my operational pieces are going to work? How’s my insurance work and how’s my entity structure need to work and how do I need to be filing the taxes for it? And you know, those, that’s where the real money gets made though, is because when you can actually clean up your operational clients and set the right foundations for for your business and for your investments, that’s when you’re really going to be able to scale. Otherwise what’s going to happen as you’re going to be able to scale to a very low degree. And then all of a sudden you’re going to cap out and you’re going to be like, I’m so stressed out of my mind. I can’t really get more deals done. And all of this stuff feels like super confusing and overwhelming to me now to it. Well that’s because you didn’t set the foundations, right? So what we do is we help people say like, these are the, these are the foundations that we see putting together time and time and time again for, and how to scale without making the well, making your life simpler as you scale more complex as you scale. So if you’re on the path to financial freedom, it’s all about setting the right foundation saying that’s right, foundations early. And then building off of that with like long-term goals. And if you do that, you’re going to get to the goal. You’re going to get to the end point because thousands of people have done it before you, and they’ve done it that way. If you’re going to try to create your own new way of doing it and task it, but just remember that pioneers are the ones that end up with arrows in their backs.

Charles:
Right. And I imagine you have people when they come to you, they might be in all stages of their real estate investing career, whether they have an LLC or nothing, maybe they have a couple of policies that are all over the place. And so you can work with any type of client that comes to you with any who knows what they’ve already set up and kind of get it sorted out for them.

Scott:
Yeah, that’s right. And really the best clients for us are typically the people that did very little or they really done nothing at all. And most people haven’t done anything at all. And they don’t realize that like, Oh, I didn’t realize I was doing the absolute worst possible thing. I could do owning all the assets in my personal name. I didn’t realize how, like, how exposed I really was and how lucky I really got the guys there’s, there’s over a 90% probability that over the lifetime of being a real estate investor, you’re going to end up in a major lawsuit. Right. And at that point, everything is a gambler. This is an infinite amount of money that people can see you for. And they can see you pretty much for any reason, right? So you can hope that your insurance is gonna cover you, but if it doesn’t, that’s where you need an entity structure to come in. And that’s where I say, Hey, it’s your downside risk. Now you can limit or almost eliminate by being able to by moving, you know, the, the type of direction that we’re helping people. I mean, idea. Yeah. So that’s where I think that, you know, what we do set people up to really hit financial freedom in a predictable way.

Charles:
Last question, Scott we have half of our listeners are based outside the United States and some are already invested some haven’t I imagine with 29,000 real estate investors that you work with currently, you have no problem working with foreign investors as well.

Scott:
Well, yeah, no problem at all. Yeah. So there’s typically what we’ll do with that as well. We have, you know, some CPA relationships with work with cross border CPAs and a lot of our investor clients that are overseas that are say, Hey, I don’t want to invest inside of the United States. They typically will already have their own CPA for that. And then what we do is work on, okay, what are all the best practices we see her on the domestic side and make sure that that’s going to give the best tax implication for wherever they’re, wherever they’re located and the world. So us international, it doesn’t matter. We’re going to be awesome.

Charles:
Okay. That’s awesome. And how can our listeners learn more about you and your business?

Speaker 3:
Yeah, the best thing to do is just go to the Royal legal solutions.com. Just go straight to the website and then go click on that take ticket quiz at the very top of the page. And then I’ll take you to that will take you to a quick quiz page. So on that quiz page, you fill out that quiz, like this is all the basic information that we need about you to have a meaningful conversation, right. I’m sure, you know, you’ve probably talked to people before about that and you’d probably like to be able to get really keen insights about what you need and that’s what that quiz allows us to do. So if you go to Royal legal solutions.com, click that, get a prize, or take a quiz at the top of the page and go fill out that quiz that we’ll be able to start giving you insights from, you know, very early on in the process that are gonna be helpful.

Charles:
Awesome. Yeah. And just for any of the listeners that are going to go, and I’ll put all the link in the show notes it’s very a very in-depth website, so you can sign up for webinars, you can sign for his mailing list and get all the information you want upfront and then go through the inquiry process if you so pleased. So thank you so much, Scott, for being on with us today and hopefully we’ll look forward to connecting with you in the future.

Scott:
Thanks Charles, Really great to be here.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

Announcer:
Thank you for listening to the Global Investors Podcast. If you’d like to show, be sure to subscribe on iTunes or Google play to get new weekly episodes. For more resources and to receive our newsletter, please visit global investor podcast.com and don’t forget to join us next week for another episode.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar incorporated exclusively.

Links and Contact Information Mentioned In The Episode:

About Scott Smith

Scott Smith, Founder and CEO of Royal Legal Solutions, one of the top asset protection companies for real estate investors in the country. To be specific, he provides niche advice for 29,000 real-estate investors, representing most U.S. states, with holdings over $4.5 billion.

Are You a Fan? Subscribe, Rate, Review & Share – Click Here To Learn How

What question do you always wish I would ask but I never do?

Connect with the Global Investors Show, Charles Carillo and Harborside Partners:

Scroll to top