Trust vs. LLC

[Lyle Levine]

Hi All,

I currently own one condo in an apartment building, with the plan to add more properties soon. How do you all protect yourselves from potential lawsuits? Do you put your properties in a trust? LLC? Something else? And if you have multiples, do you keep them together or separate (establish a new LLC for each property)?

Thanks in advance for the feedback!

[Jason Marino]

Hi Lyle,

You are going to get a variety of opinions on BiggerPockets. For asset protection related questions, you should probably speak with an attorney in detail about your current situation and your goals. While I agree that insurance is a great and a necessary defense, it does not have to be your only defense. There are many situations that may not be covered, and insurance companies do not make money by paying out on claims. Placing the ownership of a property in a limited liability vehicle is a good backup option to insurance. With respect to a Trust, it can work as a limited liability entity in a couple of situations. First, you could have an Irrevocable Trust. Many investors do not use this type of entity because there is a fairly high cost to create it, and it usually is administrated by a professional Trustee, which has a cost. You will usually have limited control over the asset when it is transferred into an Irrevocable Trust. Another option would be a Statutory Trust. These are available in multiple States and usually come with the same limited liability of a Corporation. This would be a good option for many investors and you would have control over the entity with low maintenance costs. Alternatively, you could use an LLC. This is a very common way of owning investment property because of the fairly low creation cost and because it usually offers less formalities and maintenance than an S Corporation or a C Corporation.