Business Analyst / Investor · Bountiful, UT · Member since 2016 · 35 posts · 13 votes
Hello BP community,
My parents would like to start buying rentals as a way to transfer wealth. My siblings and I would also like to invest so that we can build the portfolio faster. The long term strategy is to buy and hold 10 or more properties and pass them from my parents to my siblings and one day to our kids.
Would you form a family trust or an LLC for our strategy?
Thanks so much!
Mark Taylor of Bountiful, Davis County, Utah
James Miller hit the nail on the head. If you choose to transfer wealth through real estate, the Revocable Living Trust is a great tool to ensure that the properties do not have to go through probate (a formal or informal legal proceeding) to be transferred on to the next generation. However, as James mentioned, the RLT does not provide asset protection. LLCs on the other hand are great for asset protection, and Utah is one of the few states that allows what is called a "Series" LLC. The Series is designed to reducing your cost and administration head aches in creating a new LLC for each property while still providing isolated asset protection for each property. Finally, because you do not want to limit your asset protection by putting an LLC into a trust (because then it becomes single-member and your asset protection is reduced, you would use a Transfer on Death document that transfers that property into the trust when your parents die, this way while they are alive, they can get maximum asset protection and avoid probate. As a Utah attorney at Breglio Law Office, we create this sort of structure for our clients on a regular basis. We can discuss this with you and determine if it is the best way to accomplish your goals.
Good question. Not as a legal opinion or legal advice, but in my own case, I use a separate LLC for each property I buy and try to isolate any potential liability - such a slip and fall or whatever, even with liability insurance as limits can be exceeded in a bad case - from the others properties. Then, you might consider the family trust holding the beneficial interest in the LLCs. In most states, I notice that there are no annual fees payable to the state for creation or maintenance of a family trust. In all states I have done business in, LLCs are required to pay an annual fee and file an annual statement of managers. So, there is an annual cost of each and every LLC. Good luck. Best, John
Even better, an LLC owns property, and the Family trust owns the LLC. The Family trust, at least in my state, does not create any liability protection. You should talk to a lawyer in your jurisdiction and ask about a "series LLC".
James Miller hit the nail on the head. If you choose to transfer wealth through real estate, the Revocable Living Trust is a great tool to ensure that the properties do not have to go through probate (a formal or informal legal proceeding) to be transferred on to the next generation. However, as James mentioned, the RLT does not provide asset protection. LLCs on the other hand are great for asset protection, and Utah is one of the few states that allows what is called a "Series" LLC. The Series is designed to reducing your cost and administration head aches in creating a new LLC for each property while still providing isolated asset protection for each property. Finally, because you do not want to limit your asset protection by putting an LLC into a trust (because then it becomes single-member and your asset protection is reduced, you would use a Transfer on Death document that transfers that property into the trust when your parents die, this way while they are alive, they can get maximum asset protection and avoid probate. As a Utah attorney at Breglio Law Office, we create this sort of structure for our clients on a regular basis. We can discuss this with you and determine if it is the best way to accomplish your goals.
I personally hold over 40 doors and have an estate set up through Kyle Barrick at UtahEstatePlanning dot com. He set up a series LLC (veils of liability between assets but simpler process overall and or business and real estate entities flow into a Trust with directions as to how that plays out. He was available, affordable and professional. All the best!