WhatWouldYouDo if you were setting up a Trust & LLC for children?

WhatWouldYouDo if you were setting up a Trust & LLC for children?

Member since 2021 · 2 posts · 0 votes

Hello! What would you do if you were setting up a Trust for your children and LLC? I want to make sure I have my head wrapped around this well, so that I set things up correctly for my children's future. Here's the story, say I inherit $50,000-$80,000 cash from my mother's passing and I want own properties to rent and pass these properties on to my two children. We already have our needs met, so I plan to use the cash flow on quality-of-life experiences of doing fun things with my children on the weekends.
This is the order in which I think I need to set things up.

  1. 1. Create a Living Trust-
    Name myself as Trustee and Beneficiary and my two children as Beneficiaries
    Name Aunt D as Successor Trustee to handle if I die or incapacitated

  2. 2. Create LLC-
    Name the owner of the LLC me or the Living Trust?

  3. 3. Create a Will-
    Make all personal arrangements of children, husband, personal property, homestead etc. but Name Aunt D the Trustee of Living Trust again in the Will

  4. 4. Go to a Bank/Credit Union create business bank account in LLC name
    Which bank or credit Union do you recommend in Texas? Do you recommend a large national bank or a small local one, or credit union? Should I start with one that I might be trying to get a loan from in the future?

  5. 5. Deposit check from inheritance
    Should this check be made out to my personal name, the Living Trust or the LLC?

  6. 6. Buy single-family home in my personal name with a minimum $200 a month cash flow

  7. 7. Run the business through the LLC and pay myself the $200 a month cash flow as an owners draw and file that income on my personal taxes. OR should I have the $200 a month go to the Trust first and then I receive a $200 distribution from the trust? I'm not sure the correct way to do this and will I be taxed more one way or another?
  8. 8. Should I not have any money tied to the Living Trust at all and the Living Trust only owns the property?

  9. 9.After final refinancing after a BRRR transfer property Title to the Living Trust because lenders are forbidden by federal law to invoke a due-on-sale clause when property is transferred to a Living Trust


“Many mortgages contain a clause that allows the bank to call ("accelerate") the loan -- that is, demand that you pay the whole thing off immediately -- if you transfer the mortgaged property. Fortunately, in most instances, lenders are forbidden by federal law to invoke a due-on-sale clause when property is transferred into a living trust. The lender can't call the loan if the borrower is a trust beneficiary and the transfer is "unrelated to occupancy" of the premises. (Garn-St. Germain Depository Institutions Act of 1982 (96 Stat. 1505).)

https://www.nolo.com/technical-support-main/nolo-living-trust-transferring-real-estate-into-your-trust.html

  1. My thinking is if I set it up this way, is that if I die early and a new wife appears in our family that may not have my children's best interest at heart, she won't be able to get the money through my husband because he is not involved in the Living Trust or the LLC. It would go straight to the children with Aunt D as Trustee until they are 25. If we were to get divorced, I don't think he would go after it because it's all set up for the children and it's a part-time job for me, so I don't think a judge would rule that I have to give my husband half of my part-time job income.
    Any holes or mistakes you see in this? Please do tell!! Sorry for the ignorance I am trying to learn. Thank you in advance for any feedback!
0Reply
27 views

Most Popular Reply

Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
5y

I think all this is not a DIY project you get off nolo or BP.   You need to pay a great estate planning attorney.  I think your thoughts are good, but there are lots of nuances....so I would think you want someone who does this every day, involved in the industry and very thoughtful about the future to set all this up for you.  It will take a chunk of the money, but doing it wrong could cost you even more.

See this reply in the discussion

12 Replies

Jump to latestLatest
  • Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    5y

    Lenders are not forbidden to invoke due on sale clause. If you transfer the deed to a LLC they will call the loan. If you transfer to a Living Trust they might not. The difference is: what type of transfer deed you use. Are you in a community property state? Makes a difference about your spouse or children's spouse(s) as to who gets what when you die. Is the dollar amount you expect AFTER inheritance taxes? Why do you need or want to have a LLC (it's expensive to file extra taxes and annual filing fees) ? How old are the children? If Aunt D is trustee she can eat up the profits do you trust her?

  • Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
    5y

    I think all this is not a DIY project you get off nolo or BP.   You need to pay a great estate planning attorney.  I think your thoughts are good, but there are lots of nuances....so I would think you want someone who does this every day, involved in the industry and very thoughtful about the future to set all this up for you.  It will take a chunk of the money, but doing it wrong could cost you even more.

  • Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    5y

    Just echoing what @Bruce Lynn says...this is NOT a job for amateurs. It is a job for very highly paid and trained "trust and estate" lawyers. If you have assets, gone are the days a simple will is sufficient. 

    Many wealth management firms offer this as an extension of their services for high net worth clients (you pay usually but its in-house counsel) who store a lot of money with them, and in some areas you can't kick a rock without finding a trust and estates attorney and wealth management firms. I would advise against using a sole practitioner for continuity purposes.

  • Member since 2021 · 2 posts · 0 votes
    5y

    Thank you all for your feedback. I will talk to a professional. 

  • Investor · Dallas, TX · Member since 2015 · 446 posts · 197 votes
    5y

    @Brandy Stanford

    Talk to a few lawyers. Consultations should be free and it doesn’t have to be expensive. These are basically forms but there is nuance to it. It won’t cost you much, don’t be afraid.

  • Attorney · Austin, TX · Member since 2014 · 890 posts · 759 votes
    5y

    HIRE A LAWYER licensed in the state where you reside.  Deeds have to be drafted by a lawyer licensed in the state where the property is located.  Discuss the tax consequences.

    @Caroline Gerardo  Supreme Court ruled on a case in 1983 and was subsequently written into law that a due on sale related to estate planning grantee is an intervivos trust is exempt from enforcement of lender's remedy under a due on sale clause.  See https://www.law.cornell.edu/us... for the exact language under (d)(8).

  • Attorney · Austin, TX · Member since 2014 · 890 posts · 759 votes
    5y
    Originally posted by @Marco G.:

    @Brandy Stanford

    Talk to a few lawyers. Consultations should be free and it doesn’t have to be expensive. These are basically forms but there is nuance to it. It won’t cost you much, don’t be afraid.

    Some lawyers do free consultations, but I would spend all day, every day on the phone with tire kickers pumping me for free legal advice.  What you call forms are what end up being litigated in courts for years when done wrong (and non-lawyers screw it up more often than they get right).  With lawyers, most of the time you get what you pay for.  Or, as any contractor will tell you: good, fast, or cheap - pick two.

  • Investor · Dallas, TX · Member since 2015 · 446 posts · 197 votes
    5y

    @Jerel Ehlert

    I’m a lawyer. I suggested she hire a lawyer. Her situation is not complicated. Your contractor analogy is quite apt: just like a contractor pushing to close a high margin deal, you resort to a fear narrative to drum up business.

    No lawyer drafts these documents from scratch each time, especially in a situation like this. You’re modifying a template. Don’t make it more than it is.

    Good luck.

  • Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    5y

    @Jerel Ehlert  He's asking about setting up a trust where his children own the residential real estate AFTER he dies. You cannot use a bypass to avoid property tax increase, income tax, or transfer taxes...  

    I SAID if he transfers to a LLC lenders can call the note, as the transfer is a SALE. While you are alive and own real estate you can change the title to a Living Trust which is not a sale, its a family transfer deed.

  • Attorney · Austin, TX · Member since 2014 · 890 posts · 759 votes
    5y
    Originally posted by @Marco G.:

    @Jerel Ehlert

    I’m a lawyer. I suggested she hire a lawyer. Her situation is not complicated. Your contractor analogy is quite apt: just like a contractor pushing to close a high margin deal, you resort to a fear narrative to drum up business.

    No lawyer drafts these documents from scratch each time, especially in a situation like this. You’re modifying a template. Don’t make it more than it is.

    Good luck.

    A bit sketchy on the profile, Marco, so no way to verify you're a lawyer or what your main practice is in.  I find it funny when family law or PI tries RE thinking it's all kittens and sunshine.  Estate planning is worse - a bit like laying mines then strolling through your mine field decades later.  You won't know if something you drafted (e.g., a trust) can blow up in your face until much later.  Often, it is a non-client who brings the complaint trying to break the instrument your client approved.  It's almost worse when you get hired to clean up a FUBAR'd situation because the dead person downloaded something from the internet.

    Good luck to you too.

  • Investor · Dallas, TX · Member since 2015 · 446 posts · 197 votes
    5y

    @Jerel Ehlert

    To make your point, while not addressing anything I’ve said, you suggest I’m either not a lawyer or if I am, I’m an ambulance chaser.

    No my profile doesn’t advertise that I’m a lawyer; it’s because I’m not here to drum up business. You are.

    And for the third time, I suggested the OP to consult with a lawyer, not download a form from Legal Zoom. I am encouraging her to seek counsel, and not be intimidated into doing so.

    You seem to have taken umbrage to this because I suggested the OP would be able to secure a free consultation. I surmise you must charge for yours. More power to you. I’m sure you engage in the same fear mongering in your paid consultation that you have demonstrated here, turning a legal consultation into a sales pitch. You are why people are afraid to consult with lawyers.

  • Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
    5y

    Your husband or a future wife can not touch it if it is an inheritance that is kept as separate property.  That means very specific rules are followed and this money, assets the money purchases is NEVER mixed with other money.  So the taxes, insurance, mortgage payments, repairs, utilities, everything must be kept separate from other money.

    I am not sure of anything with an LLC, I do not use them. I do know that for a Trust to be completely separate you must move the money, every penny, every time only into and out of Trust accounts. The rent, expenses, distributions, everything must be in and out of Trust accounts. One time if you pay a bill from another account you now have not kept it separate and you mixed funds. You mixed the inheritance, and liability for the Trust is open t your other asets.

    You really need an elder care, estate planning, business attorney to walk you through this.  IT is NOT based solely on how things are set up but on how you manage them!

Join the conversationCreate a free account to reply, vote on answers and follow this thread.