I see a similar pattern with syndication investors over and over.
For new investors, it usually hits when they’re filling out their first subscription agreement. They get to the section asking how they want to take title (their own name, an LLC, a trust, a retirement account, etc.) and they suddenly realize, “Oh, I could do that?”
Then down the entity structure rabbit hole they go.
Meanwhile, we regularly talk with investors who have substantial portfolios, the kind of wealth you’d expect would be carefully structured. But when we dive into the details, everything’s just sitting in their personal name.
No LLCs, no trusts…no entity structure at all.
And while this is ultimately a personal decision, I believe that both situations are problems, just at opposite ends of the spectrum.
Getting It Wrong Early
If you’re new to syndications, investing in your own name is completely fine.
As a limited partner in a syndication, you already get a level of protection by the sponsor’s entity structure. That’s the whole point of being a limited partner – your liability is limited to your investment amount.
The typical worst case? An investment goes bad and you lose what you put in. You’re not going to lose more than that (barring some exotic circumstances).
So when you’re just starting out, still in accumulation mode? Don’t overthink it. Entity structure matters far less than you think at this stage.
It’s fine to learn and explore, but don’t get hung up on it. What matters more is getting actual investing experience, learning how deals work, and building real wealth.
The Asset Protection Mirage
This brings me to a misconception that plagues investors at every level: the actual purpose of entities.
A lot of people have been told (often by attorneys who benefit from the setup fees) that they need everything in an LLC for “asset protection.”
So they dutifully create single-member LLCs, thinking they’re now bulletproof.
But that’s not really how asset protection works.
You’re not trying to protect yourself from your passive investments. Your syndications aren’t likely to sue you – you’re a limited partner, remember? (And before someone emails me: I’m not an attorney. This isn’t legal advice. Talk to your own counsel.)
True asset protection is about protecting your passive investments from outside threats.
Think about car accidents. You rear-end someone, and suddenly they and their bus-bench lawyer want to come after everything you own.
In our litigious society where anyone can sue anyone for anything, the real threat vector is someone coming after your portfolio because of something you did in everyday life, not because an apartment building underperformed.
And a standalone single-member LLC? It provides basically no protection in this scenario.
So if you’re setting up entities solely for asset protection without a larger cohesive strategy, you’re probably doing it wrong and not getting the protection you think you’re getting.
So When Should You Use Entities?
The answer depends on three main drivers:
Estate planning. As you build significant wealth, how do you want to pass it on? What’s your legacy plan?
(True) asset protection. Once you have a portfolio worth protecting from outside actors, a proper structure (often starting with an irrevocable trust as the foundation) becomes important.
Tax planning. Depending on your situation, certain entity structures can create advantages.
Every investor’s situation is different, which is why you need solid advisors who understand this space.
But be mindful that timing is important: if you wait too long, you’re suddenly trying to move dozens of investments around. It’s a giant headache. And it can actually limit the asset protection you’re able to get.
On the other hand, if you overcomplicate things too early, you’re spending time and money on structures you legitimately don’t need yet.
What This Actually Means
If you’re thinking you need to invest through an entity, get very clear on why.
“Asset protection” by itself usually isn’t a good enough reason. There needs to be a cohesive strategy…whether that’s estate planning, true asset protection as part of a larger structure, or tax optimization.
Start simple if you’re just starting out. Invest in your own name. Get experience. Build wealth.
Then, as your portfolio grows and becomes substantial, work with good advisors to build out the proper structure before it becomes urgent.
Don’t ask the entity question at the wrong time.