Ask me questions on Real Estate Tax Strategy or Investing

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As a specialized real estate CPA, I'm here to provide expert guidance on your most complex tax matters, from navigating 1031 exchanges and cost segregation studies to optimizing your rental property deductions and handling multi-entity structures. Whether you're a seasoned real estate investor or just starting out, fire some questions at me and let me provide you with some insight that I'm hoping will be helpful to you in your investing journey.

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@Ivan Ng 

Transferring investment properties into an LLC and subsequently placing them into a revocable trust for estate planning purposes is a strategy that some individuals choose to pursue. However, you're right that it can potentially trigger the due-on-sale clause in your mortgage agreements.

The due-on-sale clause allows the lender to call the loan due in full when the property is transferred to a new owner. This is typically not an issue with a primary residence, especially if it's being transferred for estate planning purposes, as there are legal protections in place. However, investment properties may not have the same level of protection.

In practice, what I've seen some clients do is:

1. Consult with Their Lender: Before making any transfers, it's advisable to speak with your lender about your intentions. Some lenders may be willing to work with you, especially if the change in ownership doesn't affect the risk to the lender.
2. Check Mortgage Agreement: Review the terms of your mortgage agreements to see if there are any clauses or exceptions that might apply to your specific situation.
3. Consider the Risks: Be aware that some lenders might call the loan due or demand a higher interest rate if the property is transferred into an LLC or trust. This can impact your financial situation, so it's important to weigh the potential consequences.
4. Legal Counsel: Work with a qualified attorney who specializes in real estate and estate planning to ensure your strategy is implemented correctly, taking into account state laws and any potential risks.
5. Potential Refinancing: In some cases, refinancing the property under the LLC's name might be an option, but this would depend on your financial situation and the lender's policies.

Your specific circumstances, the terms of your mortgage, and state laws can all play a significant role in how this strategy is executed. It's essential to seek legal advice and possibly consult with a financial advisor to develop the most suitable plan for your estate planning needs while managing the potential implications of the due-on-sale clause for your investment properties.