what is a cope entity? some of you may not even know what that stands for yet
but you want to learn more about asset protection
well I commend you and the COPE entity stands for charging order protection
entity and these are an important part of a well-designed asset protection plan
when the time is right so I want to break it down and give you some examples
of when it might be a good fit for you
now a cope entity is typically an LLC but it means much more than that however
they've really been designed in certain states around the country to be
perfectly established as an LLC or limited liability company some states
have this protection some states don't now the easiest way to explain what a
cope entity is is visually so I want to draw a couple pictures here it'll bring
us all together now let's say you have a basic typical LLC and many of you know
an LLC is there to protect you the owner or the manager from your
tenant so if you have a layout if you're a landlord and you have rental property
or maybe a small business and you're running a food truck or a landscaping
business or whatever you have an LLC as long as you protect this corporate veil
and that doesn't mean having one sheet of paper in the drawer because you went
online and did it yourself make sure you watch some of my other videos on
maintaining your LLC or corporation there's some important steps there that
are cheap and affordable but you got to do them so you're doing your thing
you're maintaining your LLC and you're protected from the operations of the
business sounds good right well many people think ooh
well oh my gosh what happens if I'm texting and driving and I blast through
a crosswalk and kill a family of five not even fun to even say let alone think
about right but let's say there's a liability against you personally for
poor driving as a classic example and someone Sue's you for a million dollars
$1,000,000 and you would think oh well I have an LLC they can't get at my rental
property oh no no in most states they can get into the LLC and cause you to
sell the rental property and distribute the money to the creditor or the family
that you blew through and that stop sign or that crosswalk so you may say to
yourself oh I thought the LLC was there to protect my assets no no the LLC is
there to protect your personal assets and your home and you from the
operations of your business let me restate that the LLC protects you from
your business or rental it doesn't protect the rental from you being an
idiot so what do we do so here's how a cope works
a cope is a type of LLC or limited partnership in some states where the LLC
protects your assets from you as well as you from your business or rentals so
it's two-way protection so if I'm up here with the rental property I'm down
here and someone comes after me they cannot get into my LLC it gives me
outside protection as well as inside protection so if the tenant comes after
me but gee they can't get at me or if someone comes after my LLC they can't
get it there I've got this two-way protection in this corporate veil is
more powerful in one of these cope states but where's this charging order
protection word come from well if a creditor comes after you for that one
million dollars they may get a judgment and the judge says all right I'm not
going to allow the creditor to get into your LLC but if you distribute any money
out of this LLC I charge you and I order you to give that money to the creditor
so there's a charging order that the debt or you gives that money to the
creditor that you owe money to it's a charging order well if I'm are
you ever gonna distribute to yourself if there's a charge and we're sitting up
there no and so the creditors gonna sit around
for years and years maybe their whole life and never get it done you're gonna
let that money stay in there maybe even out of spite or protect it till you die
or who knows what but what it does is create an incentive for the creditor to
settle and that's the whole goal here is to find a settlement that's fair a lot
of lawyers are going to ask for pie in the sky and some of these lawyers over
here are you say you don't owe anything when the reality is it's somewhere in
the middle right well the COPE entity helps facilitate a settlement that's
maybe more fair for both parties okay I magically brought this book into the
picture and why did I do this well this is my new book second edition the tax
and legal playbook and in here I talked about the tax cuts and Jobs Act the new
tax legislation that hit us wild and crazy' Lee in 2018 but also I give you
updates on asset protection and I have a table in the back here
that tells you which states are charging order protection entity states which
ones you can do series LLC's in and all this other stuff I use this as a
resource when I'm on consultations with clients around the country as well as
the other attorneys in my office so here if I just look at it I'll go through it
with you with you with you in which states are cope entity states so you've
got Alabama Arizona Delaware Indiana Maine Michigan Mississippi Nevada New
Jersey North Carolina North Dakota Ohio Oklahoma Rhode Island South Dakota
Tennessee Texas Utah Virginia West Virginia and Wyoming now this is really
important because you want to design your structure where these cope States
laws exist now here's the hard thing what happens if you live in a state that
doesn't have coat protection do you set up this Wyoming LLC or a Nevada LLC that
has COPE protection and then you have it registered in other states for you to
actually do own Rennels big topic right well I talked about this in the book
there's a link to a more in-depth article below you can read up on the
detail and when you're doing asset protection the main takeaway I want to
tell all of you is don't think that your first rental property you need a Wyoming
or Nevada or Utah entity to protect your assets most of my clients grow into this
structure we don't set up a cope entity right out of the gate it can be
expensive and or even just at a increased administrative cost watch out
for someone in a call center in Nevada trying to sell you on this entity or
giving you unlimited entities so you can set them up like candy and a candy store
you want to be careful with that there these are new tax ID numbers possibly
new tax returns definitely check books and bookkeeping requirements that come
with every entity so don't set up too many entities and I've got additional
more writing and articles out there on how many LLC should I have them for my
rental property so anyway I love this topic and I encourage you to keep
studying on good asset protection strategies I'm out there just like you
American trying to live down by American Dream I think I have four or five rental
properties now I don't have hundreds or anything but I want to set up the LLC's
properly without overdoing it and that's even me with the law firm I try to not
overdo it so get a consultation or a second opinion if someone's trying to
sell you on this before you even have three or four rentals or half a million
dollars worth of equity in real estate it may be unnecessary so keep working
hard and keep living the American dream and don't give up thanks so much for
watching that video and I want to be your source for tax and legal strategies
it's hard enough to live the American dream without being out on the web on
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