LLC setup and Avoiding The Due on Sales Clause w/ land trust?

Question

Hi All,

I am looking for any thoughts or guidance on setting up an LLC.

We have a rental property in North Carolina that has a mortgage.  We would like to move it into an LLC.  We spoke to one asset protection attorney and asked about how to avoid triggering the "due on sales clause" if we moved it.  Here is what was suggested:

1. Setup LLC in North Carolina.

2. Setup Wyoming LLC.  This is the member/manager of the NC LLC.

3. Change ownership of title to be a land trust via warranty deed.  Beneficiary of land trust should be the Wyoming LLC.  Changing title to be the land trust should avoid the due on sales clause.

Does anyone have any thoughts on this structure? Does it sound right? Not right? Overkill?

Thanks!

SG

Mike Buckley · Answer

Not sure if this is too broad of information but BP podcast #109 talks about asset protection in depth including issues with the due on sales clauses.

Marc Winter · Answer

I've dealt with attorneys daily for many years.  Ask yourself a question: if your compensation is based on hours and fees, why take the simpler route?  (I am not bashing all attorneys.)  Is that advice providing more protection for you?

What size is the rental property in NC?  If it's over 50 doors, then perhaps you should consider a corporate/LLC structure.  If it's a single or double, this is overkill.

Creating an intervivos revocable trust is, in my non-attorney position, the way to go.  The steps are:  create the trust, name the trustee, have the settlors sign a 'deed into trust' (yes, with warrantees) and an affidavit of trustee, outlining the trustee's duties and responsibilities) should be attached to the deed when recorded.

You can name whomever you want as beneficiaries, and basically change them at any time, privately.  Beneficiaries do not have to be an LLC or corp, but they can be, if you want to complicate it.

There is no due-on-sale trigger, there is no city/state transfer tax, there is asset protection (at least some privacy), and no liens that may become attached to that property will affect anyone or any other property owned outside of that trust.

Remember the KISS formula:  keep it simple...

Marc Winter · Answer

Mike, I never again would take title to any property in my own name.  I have used trusts for 18+ years and find it's just an ideal way to easily and inexpensively have a very safe asset holding entity.

Good luck.

Adam Schneider · Answer

@Mike Shemp For those who don't want to risk the Due on Sale clause....I know lots of people who insert the land trust into the strategy. Most folks I know prefer to take the risk of the Due on Sale clause and just move the property into the entity and roll the dice....

Mike Shemp · Answer

@Mike Buckley - Thanks for the info on that podcast.  I just downloaded it and will give it a listen!

SG

Jay Hinrichs · Answer

why on earth would you go to all that trouble and have to file tax returns on multiple LLC's to protect what a little bit of equity in one rental home.. this is way over the top..

Josane Cumandala · Answer

How would any of that necessarily cancel out the due on sale clause? You're still transferring the title out of your own name on a mortgage that is not assumable. I'm not saying the attorney is wrong, I just do not understand the rationale as it's been stated.

Mike Shemp · Answer

@Marc Winter - Hi Marc - thanks for all the info above.  Yes, this is just one door only so sounds like this is way overkill.  We are right across the border from PA.  Do  you know or can you recommend any attorneys that are good at creating the intervivos revocable trust you mentioned/

Thank you!

SG

Mike S. · Answer

You missed a step in your setup.

When you create the Land Trust, your beneficiary should be you to get the Garn St Germain protection from the due on sale clause.

Then after the land trust is set up, you can assign the beneficiary to your LLC. This assignment is private. Also if you are still the final beneficial owner of your holding LLC, that should not trigger any other reassessment.

https://www.youtube.com/watch?v=HWzAlfy8J6A

LLC setup and Avoiding The Due on Sales Clause w/ land trust?

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