California LLC Franchise Taxes

[Ronald Black]

Is there a way to change title to a property out of an LLC to avoid paying the California Franchise Tax. Someone said putting into a trust might work. Any ideas?

[Katie L.]

@Ronald Black

If you are trying to avoid the $800 fee in California, you will need to hold property in your individual name, living trust, or some sort of unlimited liability entity. Most people I know hold their property in their living/family trust, which is not subject to the $800 fee. However, there generally is no liability protection in the living trust from creditors, which is the biggest benefit of keeping your property in an LLC. In California, probate is a very expensive process that almost requires a living trust to avoid it if you own real property, so most CA investors need to have a living trust in addition to an LLC if they are going to go the LLC route. If you hold the property in your living trust, you will want to make sure you have adequate insurance. There are more complex trust structures you may be able to use as well that could have better protections from creditors but they will likely subject you to trust income tax rates, which may be more than the $800 LLC fee depending on the situation. If you're looking at different entities, you'll probably want to talk to an attorney, and in the very least have an estate plan drawn up if you don't have one already. I'm not sure if you live in AZ and just have property in CA (looks like you live in AZ), or if you also live in CA, but either way you are possibly subject to CA probate. So you will definitely want to talk to an attorney about your situation. I know a great attorney in Phoenix who is also a licensed CA attorney that I could send you to if you want to talk to her about creating an estate plan.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.