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LLC's or Trusts?
Okay...
Finally making the plunge and putting my old primary into a LLC or Trust. Curious about what you all think for pros and cons? I am getting very conflicting information online and am actively seeking a Real Estate Attorney to tell me more accurate information but still would love to hear outside opinions and thoughts.
The property in question is SFR 4bd 2.5ba. My wife and I plan on buying another property at the end of this year and will probably move that property into the LLC or Trust as well.
I wouldn't seek legal advice like this on here. A mentor once told me "pay your attorneys and the IRS." He was right. That being said, if you do plan on financing the property, I would talk to an experience, knowledgable lender. Lenders won't lend on properties owned by some types of trusts. Also, do you own anything on the subject property? You'll want to have you or your attorney broach the subject with that lender. The transfer of title could trigger negative covenants in the loan (eg: Due on Sale Clause). You wouldn't want that to happen. Good luck to you.
Quote from @Doug Smith:
I wouldn't seek legal advice like this on here. A mentor once told me "pay your attorneys and the IRS." He was right. That being said, if you do plan on financing the property, I would talk to an experience, knowledgable lender. Lenders won't lend on properties owned by some types of trusts. Also, do you own anything on the subject property? You'll want to have you or your attorney broach the subject with that lender. The transfer of title could trigger negative covenants in the loan (eg: Due on Sale Clause). You wouldn't want that to happen. Good luck to you.
Thanks for your thoughts Doug!
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- Cincinnati OH 45209, USA
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You want an LLC for ease of administration, trusts are kind of annoying as they can act as their own taxable vehicles as opposed to single-member or pass-through entities that an LLC can provide. A trust is a more expensive route to go administratively (mostly amount of headache), but there's a good chance you don't really need an LLC anyway as you may not get the limited liability aspect depending on how you operate the properties. For many folks in your position, the only real advantage to an LLC is if you want the pass through entity with a partnership/S-corp or the anonymity aspect. This may be more of a question for a lawyer, but from a tax perspective, that's my input.
It's also worth looking at the sec. 121 home sale gain exclusion to see if it might be something you qualify for in order to take advantage of the exclusion amount since you mentioned it was a previous primary residence.
Quote from @Benjamin Weinhart:
You want an LLC for ease of administration, trusts are kind of annoying as they can act as their own taxable vehicles as opposed to single-member or pass-through entities that an LLC can provide. A trust is a more expensive route to go administratively (mostly amount of headache), but there's a good chance you don't really need an LLC anyway as you may not get the limited liability aspect depending on how you operate the properties. For many folks in your position, the only real advantage to an LLC is if you want the pass through entity with a partnership/S-corp or the anonymity aspect. This may be more of a question for a lawyer, but from a tax perspective, that's my input.
It's also worth looking at the sec. 121 home sale gain exclusion to see if it might be something you qualify for in order to take advantage of the exclusion amount since you mentioned it was a previous primary residence.
Thanks for your thoughts Ben!
Quote from @Brandon Elliott:
Okay...
Finally making the plunge and putting my old primary into a LLC or Trust. Curious about what you all think for pros and cons? I am getting very conflicting information online and am actively seeking a Real Estate Attorney to tell me more accurate information but still would love to hear outside opinions and thoughts.
The property in question is SFR 4bd 2.5ba. My wife and I plan on buying another property at the end of this year and will probably move that property into the LLC or Trust as well.
Usually, LLC is the way to go. If you understand LLCs and have additional concerns, then you are probably at the level where a trust makes sense. For most of us, just creating the LLC for the property and moving on is the right move
If the goal is for asset protection then you would want to form a LLC and subsidiaries if you have more properties. As for trust or living trust, it's more towards the protection of your future beneficiary so that the estate tax (depending on each state) won't be taxed heavily upon the trustee's death.