Holding property in my name for family
Philadelphia, PA · Member since 2015 · 177 posts · 64 votes
Hi everyone,
Question to hopefully a simple problem. My wife's father owns 2 commercial properties that he has sold the "business" (Tire shop) to someone else but continues to receive the rent for the 2 adjacent properties. He does not live in the US and the properties are currently under his sisters name but she needs them off her name and he has asked us to step in.
Aside from basic family issues that can arise, what are some of the liabilities that we should worry about and how can we structure this to limit them? Would putting the properties in an LLC cover us? We are also afraid of getting hit with taxes related to the rental income since we aren't receiving the proceeds for ourselves.
He lives out of the country for reference.
You should check with attorney, I would think once the property is listed under the LLC then your somewhat insulated, but someone will be paying taxes on rental profits and paying for repairs and if owned by daddy sounds messy, if his sister signs over the property to your new LLC how would the property be recorded as a sale, capitol gains involved. How did the dad and sister work it out before.
Could the dad transfer the property into a trust, naming you as a trustee, and a beneficiary. the income generated is property of the trust, the expenses are reported from the trust, you'd basically be the manager and he'd be the owner, as trustee you can make decisions,(you'd have a power of attorney) but he'd still be the primary grantor/ owner of the trust, your compensation for management is paid to you from the trust. A revocable trust would mean he could make changes, a Irrevocable trust would mean once trust is set up he can't make changes so depending on how much power he wants to retain I would start with a revocable trust,, if he were to die it would transfer and become a irrevocable trust.
Our family did a similar set up.
You should check with attorney, I would think once the property is listed under the LLC then your somewhat insulated, but someone will be paying taxes on rental profits and paying for repairs and if owned by daddy sounds messy, if his sister signs over the property to your new LLC how would the property be recorded as a sale, capitol gains involved. How did the dad and sister work it out before.
Could the dad transfer the property into a trust, naming you as a trustee, and a beneficiary. the income generated is property of the trust, the expenses are reported from the trust, you'd basically be the manager and he'd be the owner, as trustee you can make decisions,(you'd have a power of attorney) but he'd still be the primary grantor/ owner of the trust, your compensation for management is paid to you from the trust. A revocable trust would mean he could make changes, a Irrevocable trust would mean once trust is set up he can't make changes so depending on how much power he wants to retain I would start with a revocable trust,, if he were to die it would transfer and become a irrevocable trust.
Our family did a similar set up.
Depends on how you structure it. An LLC won't insulate you from everything, but your father in law can sign an indemnity agreement, for whatever that is worth. But why would you even be members if you have no liability and no income? Why wouldn't your father-in-law be the member? As far as taxation, if he is overseas and he is the one actually deriving income from the US and not paying taxes in connection with the foreign income, BIG problem. The penalties and fees will tank him fast if he is caught and they'll bring you and his sister down with him. Talk to an accountant and a lawyer asap. If that's not what's going on, then why are the properties in his sister's name to begin with? Depending on the reason and the end goal, I can probably give you some better direction.
Thank you for the response. You are right that I think that we need to talk to an attorney to be certain. My main concerns are involving the taxes. Him being out of country, I don't think he is currently paying taxes on his rental income (should be) so if this is the expectation we might just need to find a way to create an LLC or trust and have him own it if possible.
Depends on how you structure it. An LLC won't insulate you from everything, but your father in law can sign an indemnity agreement, for whatever that is worth. But why would you even be members if you have no liability and no income? Why wouldn't your father-in-law be the member? As far as taxation, if he is overseas and he is the one actually deriving income from the US and not paying taxes in connection with the foreign income, BIG problem. The penalties and fees will tank him fast if he is caught and they'll bring you and his sister down with him. Talk to an accountant and a lawyer asap. If that's not what's going on, then why are the properties in his sister's name to begin with? Depending on the reason and the end goal, I can probably give you some better direction.
You hit the nail on the head in terms of not paying income tax from the properties. Currently the property is under his sisters name for ease as she comes to the US several times per year and he does not. I don't think they have ever explorer the possibilities of the property being in his name through an LLC and simply having his sister or us with a power of attorney to solve any issues on his behalf.
Sounds like the most straightforward way to handle, but taxes will be an issue, and if I were you, I wouldn't want to be anywhere near that or facilitating it in any way.
If it gets set up properly the earned income rental tax issue shouldn't be a problem going forward, and if for some reason they have to go back and pay adjustments on past income earned that's what get's done.
It just you need a clean slate going forward if the property generates income as a rental. If the people paying rent were giving cash and they didn't care about how the sister handled the rent they paid, well then I guess the money wasn't disclosed and maybe it was a cash good deal for them both. Its when a property owner runs a business properly that the money reporting part is the way it should be handled