Does this structure with Trust and LLCs look right?

[Monica Crisostomo]

Hello,

I would like to have some feedback about the structure we are putting our rental properties into.  We are thinking:

a) 1 Trust for each rental

b) Trust's Trustee: Disregarded LLC

c) Trust's Beneficiary: Regular LLC that manages the Disregarded LLC (Trustee)

d) We (my husband and I) manage the Regular LLC (Beneficiary)

e) Each new rental will have its own Trust, but all the Trusts will have the same Disregarded LLC as the Trustee, and the same Regular LLC as the Beneficiary.

f) To add more protection, we are thinking about making a loan to the regular LLC (Beneficiary) to purchase the properties so in case there is a lawsuit the LLC does not fully own the properties. Also, the LLC does not owe enough money to make purchases of properties (we are thinking the IRS may question how the LLC is purchase properties if it does not have money of its own).

Thanks much,

Monica

[Kory Reynolds]

This sounds a bit overly complicated for a handful of rental properties depending on the size of the properties - what are you seeking protection from? Also note that CA has a minimum annual LLC fee of $800, an umbrella insurance policy of several million may be cheaper and easier to maintain. Add in maintenance and creation of these trusts, it all seems a bit over the top to me with liability that could be covered by an insurance policy instead of complexity. Look at worse case scenario what could happen from a liability standpoint.

I am not an attorney nor do I advise on asset liability protection strategies, but I have clients that work with an army of very well respected law firms that go with just a good old fashioned LLC held directly or through a revocable trust, maybe an LLC for each property all in a Holding company. If one layer doesn't cut it, having another several won't do much.