Investor · Phoenix, AZ · Member since 2015 · 9 posts · 0 votes
Is there a way to change title to a property out of an LLC to avoid paying the California Franchise Tax. Someone said putting into a trust might work. Any ideas?
If you are trying to avoid the $800 fee in California, you will need to hold property in your individual name, living trust, or some sort of unlimited liability entity. Most people I know hold their property in their living/family trust, which is not subject to the $800 fee. However, there generally is no liability protection in the living trust from creditors, which is the biggest benefit of keeping your property in an LLC. In California, probate is a very expensive process that almost requires a living trust to avoid it if you own real property, so most CA investors need to have a living trust in addition to an LLC if they are going to go the LLC route. If you hold the property in your living trust, you will want to make sure you have adequate insurance. There are more complex trust structures you may be able to use as well that could have better protections from creditors but they will likely subject you to trust income tax rates, which may be more than the $800 LLC fee depending on the situation. If you're looking at different entities, you'll probably want to talk to an attorney, and in the very least have an estate plan drawn up if you don't have one already. I'm not sure if you live in AZ and just have property in CA (looks like you live in AZ), or if you also live in CA, but either way you are possibly subject to CA probate. So you will definitely want to talk to an attorney about your situation. I know a great attorney in Phoenix who is also a licensed CA attorney that I could send you to if you want to talk to her about creating an estate plan.
*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 are advised to seek professional advice.
Attorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
7y
If the property itself is in California, or the investor is based out of California, then you will get hit by the franchise tax. California is very good at taking money. I see many investors out of California using the Delaware Statutory Trust to hold their properties, as it is not required to pay the franchise tax and also benefits from ability to separate entities similar to the Series LLC. I plan on writing an article on this topic soon, but haven't had a chance to, yet.
This isn't legal advice, just my opinion as a real estate investor.
If you are trying to avoid the $800 fee in California, you will need to hold property in your individual name, living trust, or some sort of unlimited liability entity. Most people I know hold their property in their living/family trust, which is not subject to the $800 fee. However, there generally is no liability protection in the living trust from creditors, which is the biggest benefit of keeping your property in an LLC. In California, probate is a very expensive process that almost requires a living trust to avoid it if you own real property, so most CA investors need to have a living trust in addition to an LLC if they are going to go the LLC route. If you hold the property in your living trust, you will want to make sure you have adequate insurance. There are more complex trust structures you may be able to use as well that could have better protections from creditors but they will likely subject you to trust income tax rates, which may be more than the $800 LLC fee depending on the situation. If you're looking at different entities, you'll probably want to talk to an attorney, and in the very least have an estate plan drawn up if you don't have one already. I'm not sure if you live in AZ and just have property in CA (looks like you live in AZ), or if you also live in CA, but either way you are possibly subject to CA probate. So you will definitely want to talk to an attorney about your situation. I know a great attorney in Phoenix who is also a licensed CA attorney that I could send you to if you want to talk to her about creating an estate plan.
*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 are advised to seek professional advice.
Investor · Phoenix, AZ · Member since 2015 · 9 posts · 0 votes
7y
@Katie Lepore
Thank you for the information. Yes i only live in Arizona. We were planning in moving to California, but that's not going to happen. Can I have the homes in the living trust owned by the LLC? Would this work?
If you have a California LLC, you will owe the $800 tax, no matter who is the owner. Typically, the LLC is the owner of the property and the trust is the member of the LLC.
*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 are advised to seek professional advice.
Rental Property Investor · San Francisco, CA · Member since 2018 · 24 posts · 11 votes
5y
I've gotten around this. Essentially I have a Wyoming LLC that owns my rental LLCs (Indiana LLCs), and can avoid the annual franchise tax amount. I searched around for a while before finding a firm that would do this (and specializes in this). They're a little on the pricy end, but saves you $800/year per LLC so well worth it. PM me and I can send an intro.