Place my Primary Residence in a Trust, and then assign to LLC?

Question

Hello PB...Glad to be back here on this awesome platform.  I've been away because of many things, i.e. looking for propety in Jersey (will live in, then rent out) and starting an ecommerce business...www.flipflopsnshades.com (shameless plug for those of you who wear flip flops and sunglasses).

Anyway, my wife and I went to the infamous Rich Dad/Poor Dad 3-day training seminar in New York this past weekend.  We knew there would be an upsell, but not that strong.  ...$40K strong.  Although, there were some golden nuggets that we did walk away with, BP is the place to be.

So my question:  The "drill" intructor mentioned that I could place my investment property that is in Maryland into a trust under my name, and then assign it to an LLC for asset protection.  Does this make since to anyone?  It is mortgaged under my name, as it was originally my primary residence.

Any insight would be valuable.

Kenny Anderson · Answer

@Jatin Shah.  Thanks for the info.  You definitely gave me insight on the process.

Jatin Shah · Answer

Ken, sorry for the delayed post. Yes, a Will would transfer property. You can achieve your preferred transfer both ways.  The difference is the following.  The Will would need to be probated in court.  That is what is referred to as the probate process.  If you haven't appointed an executor in your Will, the court will appoint someone.  Thereafter all the assets are gathered and distributed per your will.  If you were in Nashville, it wouldn't be a big deal. Probate is economical and there isn't too great a back log at the courts.

But, you're in a situation where you're living in one state with property in another. The executor of your estate would need to open an estate in NJ where you live, and whats called a ancillary estate in MD to handle your MD property.  NJ courts do not have jurisdiction to distribute MD property.  This can get pricey for the estate.

Placing the property into a revocable trust, you can by-pass the entire probate process (if everything was done right).  Upon your death, the property would pass to the beneficiaries of the trust.

One of the other benefits (if this is a concern of yours) of the Revocable trust method, is that unlike the probate process, this is not public information.  If you have your will probated, all that is typically public information (of course, specific jurisdictions may limit what and how much to disclose - only an attorney practicing in that jurisdiction could answer that).

Good luck!!

Kenny Anderson · Answer

@ Jatin and Sherman.  Thank you both for some sound advice.  And it sounds like I need an attorney familiar with both states.

@Jatin...question:  Wouldn't a Will and Testament clear up any rights to property issues when it comes to propate?  Also, I'm assuming that the type of trust in question would be a "revocable" trust?  Is this the only form of trust where I establish a trust and assign the property over to a trustee (my LLC)?  I will do my trust homework.

@Sherman.  The $300 fee did stick out like a soar thumb. What type of structure do you suggest if I began to acquire more assets in MD.  That is the plan.  I will purchase a primary residence here in Jersey and rent it out in a year or two when I leave (I'm military).

Thanks again guys.  Jatin let me know of any real estate lawyers in my area.

Jatin Shah · Answer

Hey Kenny, I'm originally from Northern NJ.  Never been to Delran however.

Re: your question.  Unfortunately there is no one right answer.  Normally, if you live in one state and have property in another, a common thing to do is to transfer the out of state property into a revocable trust. The biggest benefit of this is, should something happen to you, the property passes OUTSIDE of probate and to whomever you have designated in the trust.  It does provide some asset protection but not what you are trying to achieve.

Then if you want to transfer the revocable trust into the LLC...this would provide the asset protection you desire.  However, all states are different and they have all different rules.  Since the property is in MD, ask a local attorney about this scenario and the trust rules as they apply in MD.

Oh and one more thing.  You also want to make sure that you're opening up the LLC in the proper state for tax purposes. Becareful with mortgage due on sale clauses.  Normally I don't see lenders doing anything when the investor transfers to an LLC etc., but keep it in mind.

Good luck!