Confused about my living trust

20 Replies

Hi guys,

I feel like I have been taken, but I am not sure what to do. I went to a big name real estate attorney regarding asset protection and estate planning. I was advised to put all of my properties into LLCs and to form a living trust and move all my assets in there. I decided to wait on the LLCs because there are so many different arguments here about whether or not they are necessary. But, I did the living trust. It cost me $3,500 plus a few $100 in notary fees. Now, I am getting ready to transfer my property in and they said, "oh no you don't put rental property in an LLC, only a personal residence." My personal residence is in Japan! I can't put that in my US living trust.

Is this true? Is there a reason I can't put my rental properties in a trust? I asked them as well but I haven't heard back.

Any advice?

Thanks,

Daniel

@Daniel Mills I'm a little confused. Did they tell you to put your rental properties into LLCs and then name the your living trust a member of the LLC? Or do LLCs for the rentals and a Living Trust for the rest of your assets?

$3k seems high but not crazy if you went to a big firm and/or you have a complex estate. Remember, every phone call and email means billable hours. Spend to long chatting and at $300-400/hour you paid them $100 to talk about the weather.

You would want to put your personal residence in another trust not a LLC. I don't know a lot about Japaneses Real Estate, but I'm pretty sure that only citizens can own RE/business so I have no idea how a US trust would work or if its worth the trouble.

Depending on your other assets you probably need a LCC per state that you own properties, but maybe there is a simpler way to crack that nut.

Hi @Bill F. ,

Thanks for your reply. Sorry, I didn't clarify. All of my rental properties are in the US. I own 8 SFHs in several states. My personal residence is in Japan. I am not a Japanese citizen but I am a permanent resident and there are no restrictions on non-Japanese owning real estate here.

Basically, I just did an estate plan through this firm. I decided not to form the LLCs because I wanted to make sure they wouldn't affect my Japanese tax situation. I was told by the firm, that in the meantime, I should form a living trust and transfer all of my US assets into it to avoid probate if I died. Today, I emailed them asking how I go about transferring my assets into the living trust and they said, "You can't put your rental properties in the living trust." Doesn't that mean, if I die, my properties would have to go through the probate process for my wife to inherit? 

@Daniel Mills I'm not a lawyer so I can't answer the probate question, but as it stands now I'd assume the properties would have to be probated. Did you ask them why you can't transfer the rentals into the living trust?

From my limited knowledge it would make sense have the rentals in an LLC and maybe the trust is named as an alternate member of the LLC. These all seem like good questions for your attorney.

You sure you heard them correctly?

If so, get a second opinion and/or a new legal/financial advisor. Sounds like you’re getting bad advice.

Put primary residence into an LLC? smh

I placed our personal property in a trust so that my wife can avoid probate. My rental property is in an LLC for asset protection with my wife as a member and the LLC operating agreement specificies that if I die, the assets pass to her.

Thanks for the response guys.

The lawyer didn’t suggest to put my personal property (house) in an LLC, she said I should put it in the trust. But, I don’t own a personal residence in the US. My home is in Japan, so this advice was basically nonsense. What the lawyer said was that I can’t put my rental properties, which are located in the US, in the trust.

Unfortunately, I can’t do the LLC option making my wife a member because she is not a US citizen and from what my CPA in Japan and the US told me, there would be negative tax repercussions for doing so.

This is the issue I’m facing. I can’t just follow the normal advice in the US because I have to file taxes in Japan and the US.

I was just trying to find out if anyone knew if there was a reason I can’t put my rental properties in the living trust.

Hey @Daniel Mills - how's it going buddy?  

I'm not aware of any legal limitations on holding title to rental properties in a living trust - there could be variation by state, but no such limitation in California, for example.  

Perhaps there are strategic or administrative reasons not transfer rentals to the trust?  Not sure any of these are relevant, but potential reasons could include: triggering a "due on sale" clause under the financing; tax treatment of income received by the trust; administrative complications if the trust (as owner) would technically need to be party to your PM agreements, insurance policies, etc.  

When are you coming to Tokyo?

The attorney is right. You should only put personal residence in the living trust. For rentals, you put them in the living trust which is owned 100% by the trust. Trust would be the member of the LLC and you will be the manager of the LLC. I did this set up last year. You want to make sure that anything you put in the trust is protected from lawsuits.

Updated about 3 years ago

Rentals need to go in the LLC and then trust would be the member of LLC.

@Daniel Mills I re read your posts and think this issue has morphed a bit. 

Correct me if I'm wrong: You got advice and were told 'put rentals in LLC and other assets in a living trust' You didn't want to do the LLC but executed a living trust. When it came time to fund said trust they said 'don't put your rentals in a living trust' which jibes with their previous advice.

Now the issue is what to do with your primary residence. In your first post you said your lawyers told you : "oh no you don't put rental property in an LLC, only a personal residence." Did you mean to say Living Trust vice LLC?

If I was a betting man, your attorney forgot that your primary residence was in Japan, gave her boilerplate advice and moved on to the other 30 emails in her inbox. I know that the time difference can be a pain living in Asia and it sucks waking up for a phone call at 3am, but that's your best bet to solve this issue. Also, connect your CPA and attorney and have them work together to arrive at the best solution for your unique situation.

@Tom Gimer I am not sure how I confused OP. Sorry if you did not understand but this is how my trust is built. I don't know how the property in Japan will work but I was just answering his question @ trust and rental properties.

Originally posted by @Alpesh Parmar :

@Tom Gimer I am not sure how I confused OP. Sorry if you did not understand but this is how my trust is built. I don't know how the property in Japan will work but I was just answering his question @ trust and rental properties.

Re-read your answer word by word. You comfortable with it?

Hi Guys,

So I heard back from my attorney. It seems there was some confusion. They do recommend an LLC for rental properties, but had forgot about my unique situation and the fact that we had agreed to do the estate plan first with a living trust while we checked theJapanese tax repercussions of forming the LLCs. So, they said it is ok to move the properties into the LLC to avoid probate for my wife, but if I choose to do the LLC later, I will have to move the properties out of the trust first. Luckily, I am going to Hawaii next month, so I can check with a tax professional who is knowledgable with both US and Japanese real estate.

Thanks for your input. It has given me some ideas for the future.

Daniel

Updated about 3 years ago

Sorry in the above post I meant that it is ok to move the properties into the trust not LLC.

Please remember that there are many different types of "trusts."  There is the simple revocable living trust and then there are all kinds of exotic type trusts.  All of these trusts can have a role in an estate plan, but it depends on the complexity of the estate.

Also, when talking with a CPA, ensure that the CPA is knowledgeable regarding each state's specific rules on LLC's. There are state by state rules that can have different effects on your estate planning and risk mitigation plans.

All of this to say that there could be specific reasons for the recommendations made by your CPA, but we are not privy to your particular circumstances.

@Daniel Mills , I do not have the time to answer all your questions, but let me do some explanations.  First a living trust is generally for estate planning purposes and to avoid probate.  If your estate is valued at over 5 million you have special tax issues and need to bring a CPA in about taxes if the property is only in your name.  There is an unlimited marital deduction on what you can transfer to a spouse, so that transfer never has an estate tax.  Property held by husband and wife jointly with rights of survivorship does not have to be probated in the united states.  The reason for the trust is so that if both of you die at once or near the same time you can avoid probate if your assets are set up right.  Testamentary trusts do not trigger the due on sale clause due to federal law.  Trusts provide no protection from suits, that is what the LLCs are for.  You can set your rentals up as LLCs and elect pass through taxing.  LLcs can protect somewhat from lawsuits.

Thanks for the answers guys. Unfortunately, @Jerry W. as a permanently resident of japan and a US citizen I have to obey the tax laws of both countries. Here in japan my wife will have to pay estate taxes on anything over $1.5 million, which is around where I am. Also, Japanese law doesn’t not allow me to transfer more than $10,000 to her name in one year without a gift tax. I also believe there is a restriction in the US because she isn’t a US citizen. This, unfortunately, is the issue I face with estate planning. Virtually no US CPAs and attorneys understand the Japanese side and vise versa. I think Hawaiian will be my best bet to find someone who will. This is all good info to think about though. Thanks.

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