Can a WY LCC own a % of a CA property if it's a passive investor?

Question

I own 20% of a CA investment property. I'm a T.I.C. partner and passive investor. Meaning, the 80% partner is doing everything from renovations and repairs to property management. I do nothing except receive quarterly distributions.

I want to deed my 20% into an LLC. Can it be a WY LLC? Or must it be a CA LLC?

I'd prefer a WY LLC for two reasons. First, the annual renewal fee is lower. Second, it offers charging order protection.

Katie L. · Answer

@Trevor Levine

California is a sort of beastly state when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will likely be deemed to be "doing business" in California and therefore likely subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you will likely need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will need to pay registration and filing fees in at least 2 states if you don’t buy CA property.

Since the property is in CA, it is likely that most lawsuits would be in CA.

You will want to be careful too if there is a mortgage on the property so as to not trigger any due on sale or due on transfer clauses.

*This post is informational only and is not to be relied upon.  Readers are advised to seek professional advice.  This post does not create an attorney-client or CPA-client relationship.

Aaron K. · Answer

I think CA will hunt you down for their pound of flesh on this one.  probably you'd be better off owning 20% of whatever LLC holds this property or you and your partner each get to pay $800 per year.

Cal Dunagan · Answer

@Trevor Levine

This is a tricky question and you might be better serves speaking with an attorney here. Also, since you're in Cali, have you ever heard of a Delaware Statutory Trust? It's something that I've read can be helpful for investors in California who are worried an LLC won't be honored. Here's a good article about it. Let me know if this helps.

Katie L. · Answer

@Trevor Levine

Unfortunately your question is dependent on the facts; I can't give legal advice to non-clients nor on a public message board.  You would be best served by seeking the opinion of a professional who has the full scope of facts for your situation to give you personalized advice.

*This post does not create attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

Trevor Levine · Answer

Thanks @Katie Lepore:! You said "if you are managing the business from CA". Yes I understand that if I am "doing business in CA", I must have a CA LLC.

But as I said, I'm a passive investor. I do nothing except receive quarterly distributions. So does that still apply? Is that considered "doing business"?

Trevor Levine · Answer

Thanks Katie Lepore! You said "if you are managing the business from CA". Yes I understand that if I am "doing business in CA", I must have a CA LLC. But as I said, I'm a passive investor. I do nothing except receive quarterly distributions. So does that still apply? Is that considered "doing business"?Steve Smith and Aaron K, 80% of the property is owned by my partner's LLC. 20% is currently owned by my living trust, but that offers no asset protection. We had to name each party separately on title (as TIC partners) because I 1031 exchanged into this property. I understand the benefits of a land trust. But if a lawyer figures out I'm the beneficiary, the trust won't protect me (or my other assets) like a WY LLC.

Steve Smith · Answer

Question... how is the deed titled now? Why don't you talk your partner to put in a trust and divide up via beneficial interests and an agreement (all of which is private and can't be disclosed other than court order in most states. And NO reporting, annual reports for a trust. I don't know CA law, so just food for thought.

Can a WY LCC own a % of a CA property if it's a passive investor?

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