Life Estate Trust for Asset Protection

[Will Crocker]

Here’s the background:

My parents inherited a property on Cape Cod when my Grandfather died. It is a great property for short term rental. The property is paid off and worth ~600k. The property is in a Life Estate Trust. My sister is the Trustee of the Trust. She has an attorneys office she works with for all issues regarding the Trust.

My question:

When I asked her to check with the attorney to see if he recommends putting it in an LLC he said it's not necessary. The property is already in a Trust and the property is the only thing in that Trust so if someone tries to sue us the only thing they can attach to the lawsuit is the property, they can't also attach the family members to the lawsuit. I believe I've been told many times a Trust does not provide asset protection. There will be no veil to shield the family from being attached to a lawsuit like there would with an LLC. Is this true or did I make that up? There's also some tax issues here. Since the property is part of an estate, the last time it had a stepped up valuation was 1991 at ~$150k. If we move it to an LLC the attorney said we'd have to pay the capital gains on that difference. He is recommending keeping it in the Trust for both those reasons. Will the Trust also provide the same tax benefits of an LLC if we keep it in there instead and just have a large umbrella policy to cover any potential lawsuit?

TLDR

Will a Life Estate Trust provide asset protection against a lawsuit and does it provide the same tax benefits as an LLC?