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

[Matthew Bernal]

Mohit,

Your CPA’s advice is common, but your concern about the due-on-sale clause is valid. Here’s a breakdown of your options, along with risks and considerations:

1. Due-on-Sale Clause Risk – How Real Is It?

Most conventional mortgage lenders include a due-on-sale clause, meaning they could call the loan due if you transfer the property into an LLC. However, in practice, banks rarely enforce this unless:

• The loan is in default, giving them a reason to act.
• Interest rates rise significantly, making it profitable for the lender to call the loan and force you to refinance.
• The bank notices the transfer and wants to assert control.

That said, if you’re making payments on time, lenders typically don’t care. Thousands of investors transfer properties into LLCs without triggering an issue. However, it's always a risk.

2. Should You Use a Trust as an Intermediary?

Your idea of using a revocable trust (often called a land trust or grantor trust) to hold title before transferring it to an LLC is a smart workaround because:

• Most lenders allow transfers to a trust (especially if it's revocable and you remain the beneficiary).
• Once the property is in a trust, you can assign beneficial interest to your LLC without triggering lender scrutiny.
• It offers privacy benefits since the property will be in the trust's name, not your personal name or the LLC's.

🚨 Potential Issue:
While this method reduces visibility, some lenders may still flag it. If they ask about beneficial ownership changes, you’d have to explain (or unwind it if necessary).

✅ Best Use Case for the Trust Strategy:
If you want extra protection against due-on-sale enforcement, transfer into a revocable trust first and later shift ownership to the LLC quietly.

3. Your Three Options – Pros & Cons

Option A: Transfer Directly to the Series LLC

✅ Pros:

• Directly achieves liability separation.
• You don’t have to maintain a trust.
• If the lender ignores it (likely), you’re set.

❌ Cons:

• If the lender does enforce the due-on-sale clause, you’ll have to refinance.
• Could impact financing flexibility for future loans.

🔹 Best for: Investors comfortable with some risk and those using commercial or DSCR loans (which don't have due-on-sale clauses).

Option B: Set Up a Trust, Then Move Properties & LLC Under It

✅ Pros:

• More lender-friendly.
• Adds privacy protection.
• Can maintain control while reducing direct LLC visibility.

❌ Cons:

• Slightly more complex structure.
• Could still be flagged if the lender looks deeper.
• Requires keeping up with trust documentation.

🔹 Best for: Risk-averse investors who want maximum protection against due-on-sale enforcement while still moving toward an LLC structure.

Option C: Cancel the LLC & Rely on Umbrella Insurance

✅ Pros:

• No risk of triggering due-on-sale.
• Lower administrative burden.
• Can get $1M–$5M in umbrella coverage inexpensively.

❌ Cons:

• No asset separation—you personally own the properties, meaning a lawsuit against one rental exposes all your assets.
• Insurance does not prevent lawsuits; it only covers certain damages.

🔹 Best for: Small-scale investors who prefer simplicity over asset separation.

My Recommendation (Balanced Approach)

1️⃣ If minimizing risk is your priority:
➡ Use a revocable trust as an intermediary before moving properties into the LLC.

2️⃣ If you’re comfortable with potential lender pushback:
➡ Transfer one property at a time into the Series LLC and see if your lender reacts.

3️⃣ If you only own a few properties and don’t want legal complexity:
➡ Keep the properties in your name with solid umbrella insurance.

Final Thoughts

There’s no one-size-fits-all answer, but option B (trust first, then LLC) is the most conservative while still achieving asset protection. If you’re willing to risk a lender notice, option A (direct transfer to the LLC) could be fine. And if you prioritize simplicity, option C (insurance only) is viable for smaller portfolios.

Would you like recommendations for trust attorneys or lenders that are investor-friendly?