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Updated about 6 years ago,
Protecting Your Personal Assets in community property state
Dear fellow investors,
My post comes in part 1 and part 2; the efficacy of the LLC protection, the other to address the setting up an irrevocable trust in a community property state.
1. Questioning the level of protection by LLC
My husband and I have lived in greater Los Angeles area for 10 years with modest assets worth protecting from creditors. We have recently established LLC, subsequently purchased an investment property in the state of New York but because of LLC being relatively new my husband had to guarantee the loan to finance the property. My name is not on the legal contract with the property. We are concerned about our liability and being sued beyond coverage of an umbrella policy.
Since the financial aspect has his personal name and his line of credit does that pierce the veil of asset protection by LLC? CA has homestead law that protects up to only $100k!(ridiculously low).
Upon further research, I learned that putting the property in LLC means more tax, more insurance, sometimes as much as 3 times. Why go through the additional expense if it doesn't provide the asset protection. There may be a further due to find out if he can transfer the property title to LLC once the property is paid off (The repayment plan is in 3 years or less) or have it transferred to LLC once the company has had the sufficient time to establish its credit but that would of course mean that we would have to pay for underwriting twice.
If there is a blindside to this I am not aware of please freely share your thoughts.
2. Establishing Trust in community property state( Irrevocable vs. Revocable )
California is a community property state so even if the investment properties are located in common law state, the law of the primary residence still applies. That said, if my husband were to fund the trust with all of his personal assets like our house and make me the beneficiary would that really serve any benefit? On further note, if we are able to have our daughter who is 19 years old, be the settlor, trustee, beneficiary of the trust account? would that protect our assets any differently when I pass away and I were to leave a ton of debt in either of our name? She is a step daughter to my husband.
I am also not completely familiar with the difference in the irrevocable vs. revocable trust and how each one has its pros and cons. It feels like it's time to start calling some estate planning lawyers.
Sharing of any personal experiences or insights would be greatly appreciated. Thanks for reading thus far and more to come soon on this highly debatable topic.
JNS