LLC and trust, which should I do first??

Question

Hello,I have a rental property that I eventually would like to leave to my two daughters, and I would like to place it in a trust for them. I also would like place it in an LLC in the meantime to protect my other personal assets. My question is, how do I go about putting the rental in an LLC? And then do I place in the LLC in a trust for them? Or do I do the trust first?Thanks so much for your input!Aimee

Ned Carey · Answer

@Aimee Lawrence You have gotten some good and some bad advice. you are talking about some pretty serious stuff here with potentially major consequences. One of the good pieces of advice, is talk to an attorney and CPA or estate planner who can go over your specific situation. Many many issues come in to play that are to numerous to discuss here but i will give some examples. Will you LLC be a single member or multi member? What is your current financial situation? Do you expect your property holdings and or wealth to increase significantly?Perhaps the laws in Canada are different but this ignore one of the biggest tax advantages offered in our system; a stepped up basis on inherited properties. While some of the "Bad advice" may actually be the best answer in some situations, it may not be the best answer for you. Regarding your specific Question, I don't believe it makes a difference. However since you will need a professional to guide you anyway let them advise you on that specific issue.

Steve B. · Answer

Anthony Dooley it's not the equity contained inside the LLC which is relevant to making it worthwhile, it's the value of what is owned outside the LLC.

Lance Lvovsky · Answer

You need to consult with a CPA and Attorney who can advise you accordingly based on your specific set of facts and circumstances.With that being said, many of my clients who hold rentals in a LLC find themselves in a similar position. What I advise them isto hold their membership interest in the LLC via a Revocable Living Trust. When the grantor (donor) of the Living Trust dies, the Trust becomes irrevocable and the distributive provisions of the Trust dictate how assets get distributed. The assets also get a step up in basis. The rental can continue in the LLC, passing income to the Trust, which then passes income to the beneficiaries. Please consult with the proper advisors as the above is just a general example, and may not be well suited for you depending on your facts.

Chris K. · Answer

@Aimee LawrenceThere are way too many variables to discuss this properly on BP. You have to consider your ability to finance these properties, reasons for placing the property in a trust, state inheritance laws, etc. I can say that most folks on BP overestimate the asset protection aspect of "Land Trusts." As a general rule, these land trusts or revocable trusts are more of an asset planning tool. They are not always necessary but can be very helpful in certain situations. From an asset protection purpose, LLCs are good and relatively easy to implements. But insurance is probably the most important factor. Again, all this depends on a host of factors. Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.

Thomas S. · Answer

There is no reason to place it in a LLC for protection, all you need to protect your assets is adequate insurance. Insurance is always your first line of defence. I would advise against making plans to leave the property to anyone at this point. Unless you have a terminal condition it is a mistake to make long term plans that you may regret tomorrow.99% chance if you leave it to them they will sell immediately upon receiving it . Inheritance of this form are more of a headache and more trouble that simply leaving cash. Take care of your own business and let the kids take care of themselves.

Anthony Dooley · Answer

Unless this property is worth a tremendous amount of money that makes you a target for litigation, there isn't really an advantage to forming an LLC. You can protect yourself by maxing out your liability coverage. Beyond that, you can get an umbrella policy for a few hundred per year. The only reason to put it in a trust is to protect it from estate taxes upon your death if your estate is worth over $5 million. Otherwise, you can just put it in your will for your daughters. They could sell it and pay zero capitol gains taxes or keep it. You should verify this information with an estate planner, but it is correct.