For Mexican or Latin American investors doing business in the United States, trusts are often used to reduce taxes and protect personal privacy by avoiding the problematic reporting provisions of FATCA and CRS. In many cases, having an LLC owned by the trust offers additional benefits.
LLCs Offer Flexibility
An LLC provides greater flexibility when tied to a trust structure. It allows you to make investments work for you in an easier form, instead of requiring the trustee to directly and constantly review and sign all documents when time is of the essence. When an LLC is owned by a trust, the general manager of the LLC can handle tasks such as buying and managing real estate, making investments, or overseeing the business in general.
For example, imagine you want to buy a home for your family. The best way for a foreigner to own a house in the U.S. is through an irrevocable trust that owns an LLC that owns the house. It is easier for the bank to let you keep the house in an LLC than it is to keep it in a trust. Internal policies at different banks can vary, but it's generally agreed that you can keep a house inside an LLC even if you have a mortgage on the property. Opening a U.S. bank account or applying for a loan will also be easier when an LLC is involved. Banks often have policies preventing foreign corporations from completing these transactions.
An LLC Can Serve as a General Partner in a Limited Partnership
For investments, having an LLC offers another layer of liability protection without the burdensome management requirements of a corporation. This is often done by naming the LLC owned by your trust as the general partner of a limited partnership. When you have a limited partnership, you must have at least a general partner and a limited partner. The general partner has unlimited liability, while the limited partner's liability is restricted to the amount of their investment, which is subject to being lost if he gets involved in the management of the partnership.
When the LLC is the general partner, only the assets in the LLC are subject to liability. This protects the owners of the company from putting all of their assets at risk. All they need to do is restrict the assets placed in the LLC.
A Series LLC Can Be Used to Separate Different Projects
In some states, a series LLC can be used to have a single operating agreement for various subsidiary LLCs. Those with multiple investments and business ventures protected by a trust can use a series LLC to handle different projects for individual investments. These "tentacles" beneath the main LLC help diversify liability.
A series LLC owned by a trust can be useful for a real estate investor. If you're constantly buying or building property, creating a subsidiary LLC for each individual investment limits the liability for each project to the subsidiary LLC that is attached to it. For example, if you were to be sued because someone was hurt in an accident on one of the properties you purchased, only the assets within the subsidiary LLC could be used to satisfy the judgment. The assets you used to fund your other projects would be protected.
A series LLC can also be used in cases where you have two or three different asset managers for investments. Each asset manager, whether it's a single bank, broker, or financial advisor, can only handle the assets within a specific subsidiary LLC. Segregating assets in this way will protect them against the risks taken by other asset managers.
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Are you unsure if creating an LLC is the right approach to manage and protect your assets? At MEG International Counsel, PC, our dually licensed international business planning attorneys take the time to understand your goals and recommend strategies personalized to fit your unique needs. Contact us to learn more.