Land Trust ... LLC..Umbrella Policy

[Ed Moran]

Hello BP - I'm about to secure my first REI (MFH) in FLA via conventional financing. I have read about placing properties in an LLC but there is a risk of violating the Due on Sale Clause. Speaking with my lender/broker he mentioned that I should transfer title in a land trust before I purchase in my name. I would appreciate some guidance on what has worked for folks since I'm getting some elaborate and VERY costly asset protection structures - I don't need a Ferrari just a Ford. My main objective in order of importance is 1.) Cost 2.) Tax Shelter 3.) Asset protection (vs renters/liability) 4.) privacy. Not to much to ask for right?

1.) Should I set up an LLC as the beneficiary? Pro and Cons here?

2.) What are the tax benefits and implications of setting up a Trust/LLC structure?

3.) Wouldn't it be easier to just set up a Trust and Umbrella Policy (vs Trust/LLC)?

[Greg Scott]

Ed:  

I am not an attorney or CPA and you should consult ones you trust for your specific situation.

Frankly, I've seen too many grandiose legal structures proposed for people. They might (or maybe not) make you bullet proof, but at what cost?   Would you armor plate your car if it doubled the price and killed your gas mileage?  After all, it is safer to have an armor plated car.  Aren't you afraid when you don't have an armor plated car?  Or would you just do the smart thing and avoid driving in war zones?

#1 line of defense for rental property is good management.  Treat people ethically and follow the law

#2 line of defense should be good insurance.  Personally I get $500K on rent properties and have a $2M umbrella off my personal residence

After that, you have to ask yourself, "what is my exposure?"  If your property is mortgaged and you do not have a lot of assets, your risk is pretty low.  I know a lot of people, myself included, that just use #1 and #2 for our SF rent properties.

#3 line of defense would be entities. Early on, I moved rentals into LLCs. If I wanted to refinance, I had to move them back to my name before I could refi. It was a pain and not worth the trip. (FWIW, I wouldn't be afraid of due on sale clause) That said, on larger deals, particularly where you have partners, an LLC is a good idea.

I've never used a Land Trust. From what I've heard the main benefit is privacy because there is no legal protection. You can get lot of the same benefits by creating an out-of-state LLC and use a registered agent.

Remember that every entity will require a little bit of work every year to maintain and sometimes a small annual fee. You have to decide if it is worth the headache and cost for the added protection.  

Some legal gurus would sell you armor plating for your 1988 Ford Escort even if you only drive in the suburbs.