I have a rental property that I own free and clear. Based on some of what I’ve read in the forums and heard on podcasts I’m considering putting the property into a trust with an LLC as a beneficiary. This is in addition to an umbrella policy. This is, of course, pending advice from my accountant and attorney. My goal is mainly asset protection. I’m even considering forming the LLC in one state, the trust in another state, with the property not in either of the two states, but that might be overkill.
I have a couple of questions:
1. I’ve read that one strategy is what I mentioned above: out the property in a trust and have the LLC as a beneficiary. I have also read that it’s better for the trust to own the LLC and not have it as the beneficiary. Why would that be?
2. If I end up going with the trust and LLC as beneficiary, is there any reason not to have the trust and the LLC established in a State other than where the property is located? I’m trying to keep fees down. And some states have better fees. My logic is that it’s the trust that owns the property so it doesn’t matter where the LLC is setup. Texas or Delaware seem like they could be good candidates for establishing the LLC.
Thanks in advance for your feedback.
Trusts provide anonymity and the LLC a corporate veil that can isolate assets from other assets so one catastrophe can't take down the empire.
You are in a struggle to see how much protection do I need. Each entity has drawbacks as well- it's hard to get a loan in a trust. Some people feel it is better to have property fully leveraged as an asset protection strategy. Use the cash from the loan for less risky investments. You can have the entities in different states but some states require you file a foreign entity document so you have rights in the state so if you had to you could evict a tenant as an example. I could write a book on the pros and cons of your suggested approach.
I found it best to identify exactly what you want to protect against and then design the plan. It can get crazy. I've seen asset protection plans with a land trust, that the beneficial interest is held by a personal property trust then a single member LLC, dual member LLC, c-Corp and then an offshore trust in the Isle of Man or Nevis. Not to mention a Swiss bank account, revocable and irrevocable etc. A virtual nightmare. Laws also change that can weaken the structure such as anonymity in Swiss accounts has been severely curtailed in the new anti terrorism laws.
Yes you can do what you suggest but make sure you understand the unintended consequences. Start small and see how far you have to go to sleep at night. Insurance is a good place to start. Good luck.
I do use insurance, trusts, leverage, and LLCs when necessary. It is definitely not paperless and can also have negative tax consequences.
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