FAQs Archive - Lake Norman Law Firm

Q: What is the best asset protection strategy if I own multiple real properties?

The LLC is an excellent tool to hold real estate. Ideally, you would hold each parcel of real estate in a separate LLC. This is usually quite doable until you acquire four or five properties and beyond. In those circumstances – we love utilizing the Series LLC for asset protection. Only fourteen states currently permit Series LLCs. We routinely use Nevada and Delaware, but stay up to date on new possibilities. The beauty of the SLLC is that you only need one entity to segregate the real estate holdings (or other property). Therefore – one legal fee, one annual filing fee, and one registered agent fee instead of several recurring fees when utilizing separate LLCs. We usually recommend having at least one North Carolina LLC to use in conjunction with a SLLC.

Q: My practice is properly set up; I have malpractice insurance; so why do I need an asset protection plan?

You’re off to a good start. Of course, a malpractice claim can exceed the amount of insurance coverage in certain situations. But, more often, a dentist would face liability from a claimant who is not a patient at all – perhaps a creditor, an employee, a business partner, etc. Dentists are active outside of the practice. So, while it’s imperative to protect the practice, the building, and segregate valuable work-related assets. It’s also important to examine personal vulnerability, and protect real estate investments, personal property, and liquid accounts.

Q: For tax purposes, is it better to be organized as an S Corporation than an LLC?

In reality, there is probably no difference. It may be true that a S-Corp provides more tax advantages (namely pass through taxation) than LLC that has multiple members and is defaulted to a partnership. However, single member LLCs, or other entities that are members of an LLC – can easily “disregard the entity” and elect S-Corp (pass through) status for tax purposes. This is the best of both worlds. Because each dentist will set up his or her own professional corporation, and will be the only shareholder / member – S-Corp tax status is the optimum election under the current tax code.

Q: Is it true that the creditor cannot take the interest in the LLC?

A creditor of a member of the LLC cannot take interest from the LLC or assets from the LLC. In North Carolina, a creditor is merely entitled to obtain a charging order against the LLC. Thus, if any distributions are made by the LLC to a member (whose creditor holds a charging order), the creditor would be entitled to those distributions until the judgment is paid in full. The same holds true for creditors who hold charging orders against the LLC itself. The charging order does not entitled creditors to become a member of the LLC. Therefore, the important component in this situation is that the LLC’s members or managers have authority and discretion regarding the issuance of distributions to its members.