Series LLC vs. Trust-Owned LLC – How to Handle Deed Transfers

[Mohit Arora]

I live in Austin, TX, and own few rental properties. Recently, I created a Series LLC with separate DBAs (per advice from my CPA), but I haven't done the deed transfers yet.

My main concern is the due-on-sale clause – if transferring the deed to the LLC triggers an issue with my lender. I asked my CPA if I should check with my mortgage company before transferring the deed, but they advised that I just do the transfer through an attorney and not explicitly inform the bank.
A few attorneys I consulted also had mixed responses, saying it may or may not be an issue, and that many investors do it without problems.

Instead of transferring the properties directly to the LLC, would it make more sense to:
1.  First create a trust (revocable )
2.  Make the LLC the owner of the trust
3. Transfer the properties into the trust, instead of the LLC?

This way, the lender wouldn't be triggered (since most allow transfers to a trust), but I'd still have the benefits of an LLC.

Other options 

a. Should I go ahead with the deed transfer to the Series LLC and deal with lender issues if they arise? one property at a time.
b.  Should I set up a trust first, then move the LLC and properties into it?
c. Should I cancel the LLC entirely and just rely on umbrella insurance?

Curious how other investors are handling this. Would love to hear what’s worked (or not worked) for others. Thanks!

Regards,

Mohit

[T. Alan Ceshker]

We have assisted clients that hold property individually or in an entity and they transfer to another entity and have never had a lender call the note due.  Strictly speaking, they can.  However, they provide a time period to fix this - ie usually 30 days.  You would then simply transfer it back to the named borrower.

If you wanted to decrease the DOS issue, you can transfer to a revocable trust with the entity as beneficiary.  This would appear to 100% comply with the Garn St. Germain Act.  Technically, the fact that the borrower is not the beneficiary, it does not 100% comply.  However, the beneficiary interest is not a disclosed matter re the trust.

You need to check any tax concerns with your tax professional.

Stay safe out there

Alan