Thoughts on Asset Protection with Irrevocable Trust

Member since 2024 · 7 posts · 1 vote

Hi All -

Without knowing all I probably should about an irrevocable trust, I'm getting the feeling I might be gambling a bit here. I currently own two SFR and one duplex rental properties with no debt in Cleveland under my Florida LLC, approximately $730k with an average NOI of about 7.3%. I'd greatly appreciate some feedback from seasoned investors, especially with multiple rental properties, your thoughts on putting it all in a trust. And, perhaps some recommendations.

Much Obliged -Steve W

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Stuart UdisPro Member

Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes

There are certain benefits but don't believe your objectives are the correct reasoning for an irrevocable trust. Sadly, many attorneys who are willing to form an irrevocable trust for the real estate investor who owns 3 properties valued at $730K in Cleveland are not necessarily going to be the best advocates. Ask those same attorneys how the irrevocable trust will stop the landlord dispute, prevent a lawsuit in the event of a premises liability claim, payment or performance related dispute with a vendor such as a contractor or property manager. That's what you should be focused on.

There are better strategies beginning with how you operate your rental portfolio and who you associate with as vendors. Then there's equity stripping, and having appropriate insurance (assuming you avoid negligent conduct). Something as simple as a single member LLC as the deed holder combined with these more practical strategies will reduce the likelihood your name will find itself into the docket.

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Clayton Silva
Lender · CA · Member since 2018 · 637 posts · 393 votes
1y
Definitely start by talking to a trust attorney and CPA to ensure you have a full comprehension of the types of trusts and what protections/advantages/disadvantages they provide. From a banking perspective, it is nearly impossible to get financing for an irrevocable trust. Most trusts are revocable, and those are easier to get financing for.
Make sure you are speaking to an attorney and a CPA that are both very real estate savvy. Some investors we work with have properties that are held in LLCs and the LLCs are owned by trusts or other such structures.
Personally, I have properties held in an LLC and my trust owns all the LLCs. LLCs are not super cost effective and provide minimal protection depending on the state. The only real value is in potential anonymity until you have 10-20+ properties and you need to start segregating for tax purposes. Everything depends on your overall goals and financial situation which is why the answer is not the same for each person.
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Diana KhanPro Member
Attorney · 10451 Mill Run Cir #755 Owings Mills, MD 21117 · Member since 2024 · 403 posts · 156 votes
1y
Steve you are right to pause and ask questions before moving everything into an irrevocable trust Once assets are placed there you generally give up control which can limit flexibility later A lot of real estate investors in Maryland and beyond instead start with a revocable living trust for estate planning and probate avoidance then look at more advanced options like irrevocable trusts for asset protection or tax planning when it makes sense Since you already hold everything in an LLC you have a layer of liability protection so the trust decision is more about estate planning and taxes I'd recommend sitting down with an experienced estate planning attorney who understands real estate investing so you can weigh whether a revocable or irrevocable trust fits your goals
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Steve Williams
OP
Member since 2024 · 7 posts · 1 vote
1y
What great feedback from you both. One thing I didn't mention is I'm 67 and mostly living off my income producing assets, i.e., rental properties, RE secured promissory note, high-yeild savings, etc. So, protection is most prominent on my mind. Yes, I'd like to be able to possibly make portfolio improvements/adjustments, additions, etc.., if possible.
Yes, I'm going to reach out to an estate/asset protection attorney for an initial meeting.
Thanks so much...!!!
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Fulton Abraham Sanchez
CPA| New Clients Welcome| 50 States · Member since 2016 · 435 posts · 93 votes
1y
@Steve Williams, hi. I have a contact who may be able to help with your trust formation. Feel free to DM me or send me an email if you’d like an introduction.
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
1y
from my understanding, the trust is great for bypassing probate. The intended beneficiaries will seemlessly get the properties.

It does provide 'indirect' asset protection because those looking to sue might find it hard to know who the owner is.

However, if you do some research, an attorney kind likely piece that John doe transferred the property to a trust. The owner of the trust is likely the prior owner.

Best of luck!
[email protected]917-280-8544
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Stuart UdisPro Member
Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
1y
There are certain benefits but don't believe your objectives are the correct reasoning for an irrevocable trust. Sadly, many attorneys who are willing to form an irrevocable trust for the real estate investor who owns 3 properties valued at $730K in Cleveland are not necessarily going to be the best advocates. Ask those same attorneys how the irrevocable trust will stop the landlord dispute, prevent a lawsuit in the event of a premises liability claim, payment or performance related dispute with a vendor such as a contractor or property manager. That's what you should be focused on.
There are better strategies beginning with how you operate your rental portfolio and who you associate with as vendors. Then there's equity stripping, and having appropriate insurance (assuming you avoid negligent conduct). Something as simple as a single member LLC as the deed holder combined with these more practical strategies will reduce the likelihood your name will find itself into the docket.
[email protected]
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Steve Williams
OP
Member since 2024 · 7 posts · 1 vote
1y
Great feedback/insight Stuart.
Yes, the total I'm proposing to protect is $730k in rentals and $515k in PN/Mortg. But, your mention of possible internal issues and how they're not protected is a great point (eye opener). I've about succumb to the idea of just keeping it all under my single-member LLC and letting it ride (hope for the best). Thanks for your input.
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