Asset Protection, 1031 Exchange, LLC Financing and Living Trust..

Pasadena CA · Member since 2019 · 5 posts · 3 votes

HELP!! Who can solve the puzzle please? I am selling my investment property titled in my family trust in S CA and plan to 1031 to multiple out of state properties. I would like to leverage with financing when buying new properties and hold title of the new properties in LLC where the property states are and then owned by a Wyoming parent LLC. I am not sure what's the proper steps or sequences.. Maybe some BP seasoned pros who have gone through this before can shed some light for me?

Thank you in advance!

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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
7y
@Joie Wang, This is a very common scenario where a client has set up asset protection or estate planning measures and lenders either require an LLC to lend to for their protection or conventional financing where lenders prohibit lending to an LLC and want it in your name..
From the 1031 side you're going to have to be very careful with the entities because the taxpayer has to be the same for the old property and the new property in a 1031.
In your case there's many moving parts:
1. The trust - is it disregarded or regarded - does it have it's own EIN and file a tax return of it's own? Or is it a revoccable family trust? That will determine who the true tax payer for those properties are.
2. The parent LLC - It's going to have to be the same taxpayer as the trust is. So it will have to be a single member entity and be taxed as a sole proprietor with it's activity going on the same tax return as the old property.
3. The subordinate LLCs - they will have to also be single member sole proprietorships with the WY LLC as the sole member.
I would always counsel that you match the deeds as much as possible from old to new. The structure might be totally appropriate but a change in deed could be enough to trip up an inexperienced field agent in an audit and then you're on the defense. Depending on the nature of your trust sell as the trust and buy as the trust and then quit claim into an LLC. If the trust is disregarded and financing is an issue then you may have to sell as the trust and buy as yourself and then quit claim into and LLC. Last resort is selling as the trust and buying as the LLCs.
But you see how each step down that road increasingly muddies the water.
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