Legal Protection and Partnership

7 Replies

Hi everyone,

We are looking for some legal advise.

My partner and I have a duplex currently fully rented and is collecting income.  The title is under my partner's name and he also assume the entire loan.  I pretty much just threw in some cash behind the scene to help get the ball rolling.  We split the rental income accordingly and have no issues there.

At this point, our next step thinking is:

1. get proper ownership on paper, where I can be legally part owner of the property

2. setup an bank account for this property so that the team can track down the income vs. expenses (whereas mixed together with his personal finances)

We heard DST (Delaware Statutory Trust) is a good choice, or an entity such as Series LLC but we are not 100% certain what fits our situation best.


What is the best way to structure the above? 

(We both plan to continue to own more cashflow duplex together in the coming years, and down the road even consider selling them to our Chinese counterparts/investors so we will try creating some sort of cookie-cutter from this).  We definitely would like to work with experts/lawyer in this field, if you are or someone you know can give us a quick free consultation to understand our needs then we will be more than glad to move forward with the individual.



WHy do you want ownership? Why not just a mortgage on the property as security for your loan?  The loan can be written in a way that gives you a percentage of the cash flow.

I am not familiar with delaware statutory trust but unless the property you own ins in delaware that is probaly not the best idea. Generally an LLC is the best way to own real estate as it is a very fexible entity. The LLC that owns the property should normally be in the state the property is located in.

I have greatly simplified things above,  you should talk to an experienced attorney.

Hey thanks @Ned Carey !

Do you have recommended attorney in this space?

@Jason Wu talk to one in your own state. If you are going to own property outside of your state make sure you tell him or her that.

@Jason Wu you should check out the the discussion with the subject a “Delaware Statutory Trust (DST) And Investors”

Hi @Jason Wu ,

First, there are many variables that play into investments, so this isn't legal advice. It is simply my thoughts on your situation from my experiences as an attorney and investor.

I establish both Series LLCs and DSTs for clients and generally recommend the Series LLC. They offer much of the same coverage, but the Series LLC is less expensive to form and maintain - depending on the state that you form it in. The reason I work with the DST is primarily for California investors, as there is an annual franchise tax that will cost investors in California $800 per LLC, or per "child" series.

Both of these structures offer the "parent" Series/Trust which can hold an infinite number of "child" series/trusts, so it would allow for the future investments when they approach. Each individual "child" series should hold a single property to compartmentalize the liability. Within the individual "child" series you can establish an Operating Agreement that will reflect the ownership appropriately.

I wrote an article some time with more information on how to effectively conduct a joint venture. Hope this helps! Feel free to get into contact if you should have more questions.

@Jason Wu

There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. As you say, a DST is another option. Your decision will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc.

Any lawsuits would be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. If you're going the umbrella insurance route, make sure it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.

Creating an LLC in California would cost you a minimum tax of $800 every year. You would have ongoing filing requirements with the State and would need to keep business records and documentation. If you create an LLC, you will need a business account. California does not recognize series LLCs so each individual LLC would cost you $800 in California.

You also want to look at whether a pass-through entity helps your bottom line and your taxes. There is a new 20% pass through deduction you may qualify for that could help you, but not everyone qualifies. You should still be able to get this even if the properties are not in an LLC if you qualify, but you will want to ensure the DST does qualify you for the deduction.

With regard to getting your name on title, you will want to talk to an estate planning or real estate attorney about this.  If you want your name on the deed then you will need to discuss such things as how to hold title and whether it causes other issues such as property tax reassessment.  There's other questions as well about whether you made a gift to your partner when you gave him the money and then whether it would be a gift back, or whether you documented the loan and your interest in the property and whatnot.  If you're going to hold title jointly and not in an entity, you may want to consider something like a tenants in common agreement that governs your rights as owners and who can transfer or sell or encumber the property and who is liable for the mortgage, etc.

Also, if you do not have an estate plan yet, you will likely want to get your living trust completed and other ancillary documents such as a Will and power of attorney, etc.  In California, probate is a huge hassle and decedents are subject to probate at pretty low dollar values that having a family trust once you own property is almost essential for planning and peace of mind.

These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.

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

@Jason Wu , if the property is located in California, be aware that you may unintentionally cause a re-assessment of the property if you transfer/add yourself to title.

If your partner is trustworthy, one option is to form an LLC with your partner (again probably California LLC if the property is in California), put this property and subsequent properties into the LLC, do proper accounting for each property in the LLC, obtain sufficient insurance, and operate your properties prudently and reasonably. Yes, you will still have to pay the $800 tax plus other franchise fees, but the structuring can be sound and sure.

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