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Asset Protection

March 11, 2014

One of the most effective business models for asset protection is the Three Tier Investment Structure. This consists of , as the name implies, three layers of companies structured so that the parent company owns the the other two companies.
The parent company is called a Holding company and it owns a Consulting company or an Operating Company plus a Real estate company. This structure separates the ownership from the daily management and the assets by having all three companies do different functions.
The Holding Company owns the Management Company and the Real Estate Company while in turn being held by the shareholders. This can be an individual, a partnership, or a family holding shares in the company and making decisions on its finances and direction. It also makes it easy to keep wealth in the family as the shareholders can be replaced with no interruption in business and no estate taxes. It allows for income splitting among the shareholders. It also facilitates cash flow between the Real Estate Co. and the Consulting Co.

The Holding Co. separates cash holdings from ownership and management of properties, but it is taxed at an “inactive tax rate” of 35% to 50%. While it manages wealth by giving protection from lawsuits, income tax, capitol gains and probate taxes, it is financially beneficial to put all transactions through the Consulting Co.

The Consulting or Management Company does not have or hold any assets. It separates management from ownership giving another level of protection. It does all dealings with the public and manages the Real Estate Co while being the flow through for all monies. It is taxed at 16% to 18%.

The Real Estate Co. owns the property. Being a separate company, it allows for joint ownership with third parties, whether individuals or companies. It separates management from ownership and has no cash flow. Within the company, it isolates different properties from each other. Every property should be its’ own corporation, thereby shielding all other properties from any legality. The Real Estate Co. does not file a tax return as it has no income, only flow through.

For anyone who has investment real estate through Sole Proprietor Ownership, I would strongly advocate switching to the Three Tier system of ownership. It can save being wiped out by a lawsuit or other calamities. Setting it up will cost less than $5,000 and can save years of work and strategy.

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From → Investing

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