Transferring Real Estate into Your LLC

It is not uncommon for me to receive a weekly email from a real estate investor vexed with the problem of transferring encumbered real estate into a LLC.  Many of these troubled souls have sought providence from their local attorney, CPA, or banker only to find their hopes of protection doused like a spark without the tinder to give it life.

The problem for investors is in not knowing that information can be pretty thin stuff unless mixed with experience.  A JD, ESQ., CPA, or other professional designation following a surname does not necessarily translate into omnipotence.  For those wayward investors adrift in their concern for the unknown and know liabilities associated with investing, staying afloat begins with the use of a land trust.

Contrary to the multiple internet gurus or guest REIA speakers that sing the vestibule of virtues offered by this rudimentary of legal tools, the land trust is simply and nothing more than a title holding vehicle.  But, it is from its simplicity of design that real estate investors can successfully transfer title to encumbered real estate without alerting banks or other curious souls to your personal dealings.

To move real estate from your personal name into your LLC for asset protection you begin by creating a land trust.  The land trust should name you or someone you trust as the trustee with the current titleholders of the real estate as the beneficiary.  It is important to note that you should not have unanimity of trustee, grantor, and beneficiary.  Whenever my office drafts a land trust we will ensure that the trustee and beneficiary class differ by at least one person e.g., if John and Jane set up a land trust then I will have John serve as the trustee with John and Jane as the beneficiary.

After the trust is established, John and Jane will deed their investment real estate into their land trust.  This transfer should not trigger the due on sale clause that fosters so much angst and more likely than not will garnet scan notice from a inquisitive lender.  Why?  Thank congress.  U.S. Code Title 12, Chapter 13, Section 1701j-3 limits a lender from accelerating a note when there is a transfer to an inter vivos trust in which the borrower is and remains a beneficiary…  I forgot to mention, a land trust is an inter vivos trust.

Once the transfer is complete, your property will be titled in the name of your trust.  At this stage in your planning you are within sight of safe harbor and a few more strokes will safely see you home.  To reach safety the next step in your planning requires the assignment of your beneficial interest in your land trust to the LLC you created for asset protection.  This is accomplished with pen and paper and a few simple lines reciting your intent (be sure to have this assignment notarized).

The assignment will escape notice by your lender because it will not become a matter of public record.  The assignment remains in your possession and for the curious sole that seeks to divine the owner of said real estate shall only come upon the name of your trust and its trustee.  The trust beneficiary shall remain a private matter.

This last step is the most important in terms of asset protection.  If you skip the LLC and remain the beneficiary of your land trust you have not insulated yourself from the dangers associated with your investment.  The land trust in and of itself offers no protection.  In point of fact the land trust will neatly package and deliver any liability on the doorstep of the trust’s beneficiaries.  Hence, let your LLC be the beneficiary (or your mother-in-law) rather than you individually and protect yourself from your investments and your investments from you.

 

 

220 comments On Transferring Real Estate into Your LLC

  • Clint
    does this technique work for unencumbered property as well? Put the equity in your SFT into a land trust?
    Do you also work with allodial titles?
    THanks

    • Larry

      If the property is unencumbered then you can transfer directly into the LLC. However, if you want to keep your ownership private then you should use a land trust with a nominee trustee. I do not deal with allodial titles for reasons I prefer not to address via my blog.

  • Clint,

    Thanks for a great article about land trusts!

    If we do put our properties in a land trust, and the LLC becomes the beneficiary, will we need to take the property out of the LLC and trust to do a refi or get a LOC on the property?

    Wouldn’t it be a lot of paperwork and shuffling if our gameplan might include a lot of refinancing in the future to take advantage of growing equity in the properties?

    I am thinking of just quit claiming the properties from personal into LLCs, and quit claiming back to personal when the time comes to refinance. Not good idea?

    Mahalo,

    Sarah

  • I want to get involved in Sub2 deals and lease/options to make some money in real estate investing. However, I have a tax lien filed against me that I fear will affect my ability to do anything.

    Will buying property using land trusts/LLCs offer any protection in shielding the property from being encumbered by that IRS lien? I’m trying to earn extra money to pay it off but I would never want to tie up someone’s property in a Sub2 and then incur a big problem when it comes time to sell to assigned buyer.

    Your thoughts?

    • Leslie,

      There is nothing fraudulent about buying property in a separate entity. As you stated, any property you purchase in your personal name will fall under the IRS lien. If you plan to buy property subject to and you do so through a LLC or Trust the lien will most likely not attach unless you are listed as the Trustee.

      • Thanks for your quick reply Clint. I will do more investigation about using trusts. I’m afraid a single member LLC will be too close to being “me” and will be easily visible via my tax return. I have some work to do before I spring ahead.

  • Hi Clint,
    First off GREAT BLOG I’m sure everyone appreciates your professional advice.
    I live in MA and considering purchasing a piece of rental property on Hilton Head South Carolina.
    I was thinking of using an LLC. Is it wise to purchase the property in my own name since I’ll might need financing and it might be difficult for an LLC to get financing, and then transfer the property into a LLC.

    And If I do the former How would I go about transferring the property into a LLC? Should the LLC be registered in MA or SC? Sorry for so many questions. Thanks for all your help.

    Steven

    • Steven,

      You are correct in your assumption that a LLC will make it difficult to obtain financing for residential property. (FYI- the same can no be said for commercial which is easily purchased and financed in a LLC – with personal guarantees) Most investors in your situation will elect to transfer the rental into a LLC after the purchase. The LLC should be registered in SC because that is where the property is located. Consider a land trust to facilitate the transfer. I have written a few posts on land trusts that you might find interesting.

      • Hi Clint,

        Excellent post and explains precisely how things work. I have a follow up question to Steve’s question.

        We live in WA state but we have a rental property in CA. We are thinking of putting both of these into two land trusts and getting them into an LLC. Does that mean we would need to create one LLC in CA and another one in WA state or can we create an LLC in an LLC-friendly state say Nevada, Delaware or Wyoming and have that LLC hold both the lands trusts? Is that possible or not really?

        Thanks in advance

  • On my opinion the simpliest solution is to buy property in a separate entity. As you stated, any property you purchase in your personal name will fall under the IRS lien. However forming trust is a good option!

  • What are the tax filing implications? Does the land trust have to file an annual tax return? Does all income and expenses pass through to beneficary witht he beneficiary fling a K-1? What happens upon death of the beneficiary? Does the land trust terminate and the rights fall to the original beficiaries heirs?

    • The trust does not file a tax return. Everything is passed through to the beneficiaries. Upon the death of a beneficiary his interest will pass to his heirs or to whomever he has specified in his estate plan.

  • If the property is purchased take title in revocable trust and then deeded over to a land trust (so lender is not involved), will the details of the purchase still be accessible to the public domain or kept private?

    Thanks for your help.

    SS

    • Susan,

      Which details are you concerned about? Price or parties? Price can be kept private unless there is a recorded mortgage or deed of trust. If you are writing of parties then the trust beneficiaries are private. Only the trustee’s information is divulged.

      • I’m concerned with both. I would like to keep price and trustee private and there will be a recorded mortgage on the property so what do you recommend?

        Thanks,

        Susan

  • Hello Clint,

    I am a bit puzzled. If you can simply assign your beneficial interest in the land trust to the LLC, why can’t you simply assign the interest in the real estate to the LLC without having to form the land trust, to get the limited liability protection? I was under impression that any transfer of real estate interest must be recorded to be valid. Meaning, that an assignment would not validly transfer the interest in the real property to the LLC.

    I would appreciate if you could clarify.

    Thanks,

    Ara

    • When you transfer your real estate into a LLC you are converting your real property interest into personal property. That aside, recording is not a required element to transfer property. Recording statues are in place to protect subsequent good faith purchasers, “GFP”, for value e.g., to prevent a property owner from selling the same land to multiple parties. Recording statues give the first person who records the deed (GFP) protection from others claiming under right of purchase. An assignment transfers your personal property interest in the trust to your LLC. Personal property transfers are not recorded (however they can be if you so desire).

  • Thank you for your reply Clint! It is very helpful.

    At the end of your blog, if I read it correctly, you say that one can also have the LLC as the beneficiary listed in the land trust (living trust). Is this another way of obtaining liability protection, instead of assigning the beneficial interest in the land trust to an LLC?

    Or, is it better to do both to obtain absolute protection against any personal liability from the investment. Meaning, to name the LLC as the beneficiary of the living trust, holding the real estate, and also assign any interest, personal or otherwise, in the real estate and the living trust to the LCC.

    Thank you for your input!

    • Ara,

      The land trust should own the real estate and you the LLC will own the land trust. You set up a land trust then deed your property into the name of the trust. After the deed is recorded you can assign your beneficial interest in the land trust to your LLC thereby making the LLC the beneficiary of the land trust.

  • Can you use this method if you have a VA (Veterans Affairs) loan? Do you offer services, if so please provide me with a contact.

    • Ric,

      Yes you can. I am investing in VA loans myself and have used this technique to protect my investments. My firm specializes in entity creation for real estate investors. We set up land trusts, llcs, self directed pension plans for real estate investing, corporations, and other business entities. If you would like to set up a consultation with me here is a link to my calendar https://tungle.me/clintcoons

      You need merely select three options that work with your schedule and I will confirm one of them. Please include a preferred contact number when you are setting the consultation time. If you have any questions do not hesitate to contact me.

  • How do you advise single individuals to title a land trust and LLC for a rental property?
    thanks,
    Cathy

    • Cathy,

      I suggest you use someone you trust to serve as the initial trustee of your land trust. After the land trust is assigned to your LLC the initial trustee can resign and you can assume control as the successor trustee. Alt #2. Your LLC is the trust beneficiary and you are the trustee.

      If you would like to discuss further, here is a link to my calendar: https://tungle.me/clintcoons

      You need merely select three options that work with your schedule and I will confirm one of them. Please include a preferred contact number when you are setting the consultation time.

      Warm regards,
      Clint

  • Hi Clint, I’m relatively new to this whole land trust and LLC. My parents want to sell me their house at the price at what they still owe on the house. I don’t want it to be personally under me so I was thinking an LLC would be the right fit. Does the land trust and LLC still works?

    • Madison,

      Do you plan to use the house as a personal residence or investment property? Is the property being sold subject to the existing mortgage or will you be obtaining your own financing and retiring the current mortgage? My answer will depend on your answers to these questions.

  • Hi Clint, I have three homes that I own free and clear. I have one that currently has a mortgage on it that’s unside down in value. I have asked my CPA twice about asset protection and she has downed played my concerns as if it’s not important. I’m concerned about this because I’ve noticed how people are making a living from suing people. I have a LLC that I created for the homes that I purchased for single parents,but I don’t know where to go to get the title changed into the LLC. or how to go about transferring the homes into the LLC. Also, can I put all of the homes under one LLC? or do I have to create a LLC for each property?

    Please advise. Thanks for all of your help:)

    Denise

    • Denise,

      You should definitely consider the use of LLCs to hold your real estate. You can place all 3 properties into one LLC but this subjects each property to the claims brought against any of the properties. A preferred strategy would be to place each property in a separate LLC to minimize your overall risk exposure. Keep in mind this is tempered against the annual LLC filing fee e.g., CA charges $800 per LLC. If you would like a free consultation use the following link to set up a time for use to speak: https://tungle.me/clintcoons

  • HI Clint, You mentioned a land trust as a vehicle to convey an encumbered property that does not trigger the due on sale clause, however, I already have a living trust, would granting the deed to a Living Trust be equivalent to a land trust for the purposes of tile holding. Then I can assign my interest in the trust to the LLC. Is an Living Trust considered as personal property, similar to a Land Trust? I want to mention that current title is under me and my wife and trust beneficiaries are the same. I and the property in question are n California, if that matters any in your consideration.

    • Alex,

      A land trust is a very specific trust that allows for the assignment of a beneficial interest. Although the living trust provides due on sale protection it typically does not allow for the assignment of beneficial interest.

      • So how about this, I am trying not to have to employ a 3rd party as the Trustee. Can I execute a new Title Holdning Trust/Land Trust agreement with the Living Trust as Trustee, and since I am also the Trustee for the LivingTrust, I can sign for it, I can then also be the beneficiary Land Trust, assign the beneficiary to my LLC? This I assume would entail that I deed the rental property to the Living Trust. Would the LivingTrust supercede the Land Trust?

        I apologize if this gets convoluted, I am not very confortable yet with having someone else take title to the deed.

        • Alex,

          You shouldn’t use your living trust as the trustee because it is not a licensed trust company. This could be used against you in a lawsuit. Ask the county if you must list the trustee on the deed. You need to view some of my videos: http://www.youtube.com/channel/UC5GX-U6VbvMkhSM1ONBiW8w

          Hope this helps.

          • I viewed your vids…

            so this is what I came away with… it is not a good idea to make the current-owner-on-title (me) as the trustee. So can I make my LLC as the Trustee, with current-owner-on-title as the beneficiary and then eventually assign beneficial interest of the Trust to the LLC, is that legit. Would that raise issues as to ownership and trigger due-on-sale clause, I understand that the assignment of beneficial interest is not recorded so that should not trigger due-on-sale, however, the way I am interpreting this move, is that the LLC ultimately ends up as the merged entity owning title and Directorship via the beneficiary assignment. I also was told that a Preliminary Change of Ownership Report is not required to Deed property to Trust, but is needed for the assignment of beneficial interest as that assignment is equivalent to a sale.

            So has anyone done what I described above, Trustee and Beneficiary being the same entity (the LLC) and I control the LLC as the Manager? Or is this an issue that would necessitate bringing in a 3rd party Trustee?

          • Alex,

            you should not make your LLC the trustee because state law is very specific on what type of entity may serve as a trustee of a trust. Stick with an individual as your trustee. After you assign your interest to the LLC the trustee can resign and you can assume the position as the successor trustee.

          • So it is ok for me to be the Trustee of the Land Trust, LLC as beneficiary and Me as the Manager of the LLC. If this does not violate any regulation, This is what I would like to do.

          • No. If you are the sole beneficiary then you need someone else to serve as the trustee else you risk your interest becoming merged. (see my videos on land trusts at http://www.youtube.com/channel/UC5GX-U6VbvMkhSM1ONBiW8w)

          • LLC members are me+spouse+2offsprings. Current LT Trustee is 3rd part. So target setup will be LT with me as Trustee, LLC as Bene, LLC members me+spouse+2offsprings, with me as Manager. I think this should avoid merged entity issue, will it not?

          • Alex,

            A set up where the beneficiary is different from the trustee should avoid the merger issue.

  • Thank you for this rather informative and useful blog. I have a question. My wife (through her late husband) owns two pieces of derelict, abandoned property with a dilapidated, vacant house on each. The seller holds the mortgage on both properties, but is not interested in foreclosing (she doesn’t want them either!). They were purchased in the 1990’s. We may or may not be able to get the seller to sign a quitclaim deed, but if we don’t, what is our best option? The taxes haven’t been paid in several years, but no one wants to buy them for the tax liens either. What is the best way for us to divest these two properties so that we can get out from under them?

    • James,

      If you do nothing someone may buy them at auction for the tax debt. You might consider gifting the property to a charity (see if the mortgage holder is amenable and willing to release the mortgage). Otherwise have you listed them on craigslist? See if you cant sell them subject to the existing debt for $1. Best of success.

      Clint Coons

  • I don’t believe anyone has purchased them, since we’ve never received any notices other than the quarterly tax bills from the city. One property has some amount of fire damage and is boarded up, the other is just abandoned. My concern is that some crackhead will fall off the porch or something and decide to sue my wife, and our residential property will be in danger. We have not tried craigslist, but I highly doubt anyone would want them – they really need to be torn down. Thanks for the response.

  • Clint,

    Very informative blog. I have a situation that I was hoping you would be able to help with. I own a property free and clear, solely owned in my name, and want to transfer it into an LLC owned by my fiance and myself. What I was told by a friend, who is a settlement agent, is that when transferring into the LLC, since I am not the sole owner, this will this trigger transfer taxes. She is saying that since my ownership interest is technically changing from 100% to 50% it will trigger the transfer tax. Is this correct? If so, can I avoid this through the use of a land trust with the LLC as beneficiary?

    Another scenario that I thought might avoid the issue would be to create a second LLC, in my name only. Transfer property into that LLC and have the original LLC buy the second and hence own the property. Would this avoid the additional transfer tax?

    Additional information that may be pertinent to your analysis:
    1) property and LLC are in Maryland
    2) the property is going to be rehabbed and sold

    Thanks for any help,
    Ryan

    • Ryan,

      To avoid the tax you must set up a land trust wherein you are the sole beneficiary (have your fiancée serve as the trustee). After the transfer is complete you can assign your interest to a LLC. The second scenario you mention will reult in a transfer tax unless the home is to be used a a primary residence (probably wont pass because you are buying in a LLC).

  • Clint,
    Can I have myself as the beneficiary and have my wife as trustee ?? When I buy the property do i close in my name or the land trust ?

  • Clint, in light of the advice that it isn’t good to set up a land trust where the grantor, the trustee, and the beneficiary are all the same person, i plan to make an LLC the beneficiary of the land trust. do you advise against me being the only vested owner in the LLC if I’m also the grantor and the trustee of the Land Trust?

    can a beneficiary of a land trust easily take out a mortgage on a property in a Land Trust, assuming that the beneficiary and property qualify for the loan?

    the investment property is Illinois.

    also, is there an added layer of liability protection to a husband and wife if 50% of properties are in an LLC where only 1 of them is listed as the vested owner, and the other 50% are in an LLC where the other is the only vested owner.

    • David,

      You can set up your trust with the LLC as the beneficiary and you as the trustee. The beneficiary is the responsible party and the only trust party eligible to take out a loan. I don’t see the benefit in creating 2 LLCS. I suggest creating single member IL LLCs each owned by a NV LLC that is held equally by you and your wife.

      • Clint,
        I have a quick question about the LLC formations you’ve suggested here in this thread. If a NV LLC is formed, it has to also be formed as a foreign LLC in IL in order for it to own the IL LLCs (properties), correct?

        • No. The NV LLC does not have to foreign file in IL if it is only owning IL LLCS. If the NV LLC was planning to hold IL real estate then it would have to foreign file in IL. Another option is for the NV LLC to hold IL land trust interests.

      • Clint,
        I appreciate your timely response. Would the NV LLC be a member or manager of the IL LLC? What would be the pros and cons of either choice?

        I reviewed your videos on your YouTube channel–very informative by the way–and I’m a little confused as to why a foreign LLC would not be created regardless. You mentioned in the Problems with Land Trusts video that bank accounts would need to be established for the trust as the out-of-state LLC poses a problem if it’s not registered to do business in that state (i.e. collecting rents) where the property is located. Let’s say the NV LLC is an investment firm. Now if the NV LLC owns the IL LLCs, then a bank account could be established in the name of the IL LLCs without a problem under the condition that payment is made out to that LLC, right? But what about if the owner wanted payment to be made to the investment firm? Would having the NV LLC registered as a foreign IL LLC resolve this issue whether the owner opts to own IL LLCs, hold IL properties or IL land trust interests?

        Another scenario of concern is if a separate entity (outside of the NV LLC owning the IL LLCs) is established solely for property management services. Let’s say that the owner opts to put the property into a land trust, assign the beneficial interest to an IL LLC that is owned by the NV LLC. Would the property mgmt company, regardless of where it is formed domestically (outside of IL), have to be registered as a foreign IL entity and be a manager of the IL LLC with the owner (NV LLC) as a member or manager?

      • I meant to add towards the end of that last thread: Would the property mgmt company, regardless of where it is formed domestically (outside of IL), have to be registered as a foreign IL entity and be a manager of the IL LLC with the owner (NV LLC) as a member or manager or can it just be hired by the NV LLC to provide the service for a fee/percentage?

  • Hello Clint.
    I am married with a 20 years spread and have a few rentals (free and clear) on my name. I would like to pick the best type of corporation to :
    1. Protect my only income from children of my husband if he dies first;
    2. Be able to earn a few social security credits towards my future retirement;
    3. Let my parents to earn their s.s. credits,
    Thank you.

    • Irina,

      Your rentals should be placed in one or more LLCs for asset protection. Depending on the amount of rental income you generate from these properties you might consider creating a corporation to manage your properties. The corporation could pay you a salary for your efforts. The salary will count toward your SS credits. Keep in mind this plan hinges upon their being enough income from the properties and the amount of services you will provide by way of management.

      • Thank you, Clint, for your fast answer. My net would be around 40000. What kind of corporation “to manage your properties” you are advising: LLC or other?

        • Irina,

          I recommend you create one or two LLCs managed by a Corporation. The LLCs will provide you asset protection and the corporation will give you income.

          Kind regards, Clint Coons

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  • Hello Clint,

    I’m learning a tons reading up your blogs on land trust and LLC for real estate investment. Thanks much! I live in California and am planning on investing in TX rental properties. The LLC will have foreign partners but the properties would be financed under my name, and then transferred to the LLC via a land trust. Is there any benefit that a Nevada LLC could provide in my situation that outweighs having all business entities in TX to keep things simple?

    • James,

      If you are only creating one LLC in Texas then I do not see a need for a NV LLC at this point. If you will be partnering with the same individuals on multiple projects i.e., several LLCs then a NV LLC would make sense at this stage in the process. Keep in mind that partnering with other people brings a new set of challenges for drafting your LLC operating agreement. Have you looked at some of my posts on this topic?

      If you would like to set up a consult, here is a link to my calendar: http://www.vcita.com/meeting_scheduler?v=85134fde

      You need merely select three options that work with your schedule and I will confirm one of them. Please include a preferred contact number when you are setting the consultation time. If you have any questions do not hesitate to contact me.

  • The discussion above is to avoid a loan being called upon transfer to an LLC. But there also is the issue of avoiding transfer taxes. In Hawaii it appears these conveyance taxes are due on a transfer to an LLC. But there is an exemption that could be used which is “conveyance from the grantor to a grantor’s revocable living trust or from a grantor’s revocable living trust to the grantor.”

    But you mentioned above that only a land trust should be used. How can a revocable living trust be used to avoid the conveyance taxes, since that is the only exemption?

    Thanks

    • Cindi,

      Hawaii does not define revocable living trust. Under the common law a revocable living trust is defined as a trust where the settlor as trustee has become a common device for people to manage their own assets during lifetime, avoid having to establish a conservatorship in the event of incapacity, and avoid probate upon death etc. a land trust will meet this definition if properly established. So, depending on how you create your trust you may or may not be subject to transfer tax in Hawaii.

  • Thanks for taking time to write “Transferring Real Estate into Your LLC
    | Clint Coons Blog”. Thank you so much once again -Eddy

  • Clint,
    Great article…

    My CPA and I are trying to figure out the mechanics behind deducting the interest on the loan that is in my name. Can you provide some insight on the mechanics?

  • Hello, I own a few investment properties. Currently they are in my name and i wish to purchase more in the near future.I am very concerned about liabililty as i am a single women. Can i have one land trust but multiple LLC’s to hold different properties or do i need a separate land trust for each property and LLC for each property?

    • Monique,

      You should create one land trust per property but you can have multiple land trusts held in one LLC. Ideally the best situation would be to have one land trust with one property per LLC but cost and complexity will often direct an investor to group 2 to 3 properties per LLC. It all comes down to your risk tolerance level. If a property has 500k in equity then I would place it in its own LLC compared to owning 2 properties with 30k in equity each which could be lumped together in one LLC. If you would like to set up a consult to discuss further, here is a link to my calendar: http://www.vcita.com/meeting_scheduler?v=85134fde

      You need merely select three options that work with your schedule and I will confirm one of them. If you have any questions do not hesitate to contact me.

      • Clint:

        Our family (three adult co-owners residing in California) owns 7 different California ranch properties as tenants in common, with different percentage ownerships for each ranch property. If we decided to form 7 different land trusts for the properties, does it make sense to transfer/assign all of the newly-formed land trust beneficiary interests for each land trust/property to a separate series within one (i.e., master) overall Delaware Series LLC? The goal is obviously asset protection isolation for each property and a degree of anonymity. Also, don’t want it to be too cumbersome and too expensive in terms of franchise taxes.

        thanks,
        Bill

        • Bill,

          Unfortunately California treats each series as a separate LLC for purposes of the the franchise tax. You might consider forming 3 LLCs if you want to keep the annual costs down but provide yourself some protection. I understand the different ownership percentages appear to pose a problem however this can be addressed in a properly constructed LLC operating agreement. If you elect to keep each property in a separate LLC then forming CA LLCs for each property is the less expensive alternative i.e., if you formed a DE series LLC you will have to foreign file it in CA and incur additional state filing fee.

          If you would like to discuss this matter further, you can use the following link to my calendar to set up a consultation:
          http://www.vcita.com/meeting_scheduler?v=85134fde

  • In Massachusetts, I have heard that with land trusts (called nominee trusts in Mass.), trustees can be personally liable in addition to the beneficiary being personally liable. So while your method puts the beneficiary as an LLC and thus provides limited liability to the beneficiary, you as trustee are now still liable. Is this correct?

    So if you make both the beneficiary and the trustee the same LLC, wouldn’t that cause merger of ownership which would essentially make the entire property owned by the LLC and thus the former trustee and beneficiary (the individual person now changed to the member of the LLC) get complete limited liability now via this backdoor method?

    Hope you can understand my question. Thanks for any information!

    • Jim,

      In Mass you do have an intersting statute that reads as follows:
      “Owner”, any person who alone or jointly or severally with others (i) has legal title to any premises; (ii) has charge or control of any premises as an agent who has authority to expend money for compliance with the state sanitary code, executor, administrator, trustee or guardian of the estate or the holder of legal title; (iii) is an estate or trust of which such premises is a part, or the grantor or beneficiary of such an estate or trust; or (iv) is the association of unit owners of a condominium or cooperative, which shall be considered an owner solely with respect to common areas and exterior surfaces and fixtures of such condominium or cooperative; provided, however, that the term “owner” shall not include a secured lender except to the extent provided in section one hundred and ninety-seven D.

      In the case of Bellmare v. Clermont, 69 Mass. App. Ct. 566, 870 N.E.2d 624 (2007), the Mass Appeals court ruled that the trustee of a nominee trust is not an “owner” and even though the statute would indicate that a trustee of a nominee trust could be held liable, the Court held that the definition of “owner” should “not be read out of context and employed to impose liability on one who is effectively an agent for a principal; who possesses “only the barest incidents of ownership,” Morrison v. Lennett, 415 Mass. at 861; and who neither controls the property nor benefits from its ownership.” The Court rejected a literal reading of the statute because it produces an absurd result.

      Given this case I do not see liability as to great a concern for a trustee of a land trust. Merger occurs when the Grantor, Trustee and Beneficiary are the same party. In your situation only the Trustee and the Beneficiary are the same party unless the property was originally held by the LLC before it was moved into the trust.

  • Thank you very much for a very informative blog.
    My wife and I own 5 investment properties plus our residence, all free and clear. My question is: what is the best way to set up a transfer of all properties to our four children at our death? Is a Personal Trust the right choice? Is it to form a LLC with all of us as members? Please advice.
    Oswald

    • Oswald,

      A living trust is the best way to minimize estate costs and management after your passing because the living trust avoids PROBATE. Additionally, if your investment property is owned in multiple states a living trust avoids what is referred to as ancillary probate. Ancillary probate is the legal term for the filing of multiple probate actions in every state where real property is located upon your passing. This is time consuming and expensive. If all of your property (both real and personal) is held in a living trust your family can avoid all of this hassle. This being said, you should consider the use of a LLC(S) to work in tandem with your living trust. The LLC provides asset protection for your real estate investments and further simplifies the division of your estate upon your passing. Have your considered what will happen to the real estate upon your passing? Will all four children become owners of each property? Will each take one property and split the others? Will they sell it and distribute the cash? A living trust can provide guidance on what they should do and the LLC makes the transfer of these assets very simple and straight forward. If you created 2 LLCs for your real estate and you wanted your 4 children to own the 5 properties equally then upon your passing each child would become a member in the LLC i.e., 20% to each child. To make this type of distribution your children need only sign over the LLC ownership and will not have to record any additional deeds.

      If you would like to set up a conference call to discuss further, here is a link to my calendar: http://www.vcita.com/meeting_scheduler?v=85134fde

      You need merely select three options that work with your schedule and I will confirm one of them. Please include a preferred contact number when you are setting the consultation time. If you have any questions do not hesitate to contact me.

  • Thank you very much for your response. If I set up the LLC as you suggest, does it have to file a tax return yearly? Since it would be a multiple member LLC, does it have other requirements?

    • This depends on where you live and how the LLC is set up. You can create a single member LLC that is owned by one spouse (or both spouses can be members if you live in a community property state) and elect to treat the LLC as a disregarded entity for tax purposes. A disregarded LLC does not file a separate tax return. All reporting is handled on your 1040. Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are community property states.

      • Clint: Again my thanks for your help. After almost two years I’m back with questions on the same subject. For several reasons I have not yet acted on your suggestions, but I’m ready to do it now.
        My wife and I own 6 rental properties plus our residence, all fully paid for. We live in Georgia and the properties are in Georgia. Besides the advantage of protection offered by LLCs we are interested in ease of transfer to our four children upon our passing. My questions are:
        1.- Should we set up an LLC for each property?
        2.- should we set up a “parent” LLC to own all individual LLCs?
        3.- Should the parent LLC have my wife and I as general partners and the children as junior partners? What about the individual LLCs?
        4.- What is a Family LLC and should we use it for our case?
        5.- I have an LLC that I used for a business prior to my retirement; should I use this one as the parent LLC?

        I know these are many questions and I will truly appreciate your help in covering them.

  • Clint, a few questions, but first the background: I own 4 properties with mortgages. I am married but wife is not on the mortgages. Properties are in TX but I am out-of-state and may move to a new/different state. I am interested in the land trust/LLC combo.

    My questions: Does it matter what state the trust is set up in — or should I wait till I move? Can LLC be owned jointly with spouse, or is it better to havemyself as 00% of the LLC (consistent with my current 100% ownership of the properties). How much does it cost to set up the trust initially, and are there any annual maintenance costs?

  • Hi Clint,

    Given: I have investment property out-of-state, and may also be shifting my current state of residence. I am sole owner of properties, but all states involved are community property states. I am interested in transferring properties to land trust, with beneficial interest held by LLC.

    Questions:
    – Do I set up the land trust in my state of residence, or the state of the properties? And thus, if I plan to move, I must wait to set up the trust?
    – Do I set up LLC in my state of residence, or the state of the properties? I assume if I wasn’t using the land trust, the LLC would be in the state of the investment properties.
    – What are ball-park costs to set up and annually maintain the land trust?

    Thank you

    • Sean,

      You can set the land trust and the LLC up in the same state or you can opt to have them in different states. The land trust is a grantor trust and unless you are setting up the trust in a state that recognizes land trusts by statute it does not matter which state you chose to govern your trust (it does in some sense but this is beyond a post).

      The cost to set up a land trust and LLC is $2,000 plus filing and recording fees.

      If you would like to discuss further, contact my office to set up a consultation.

      Kind regards,

      Clint Coons

  • Admiring the time and energy you put into your site and detailed information you provide.
    It’s great to come across a blog every once in a while that isn’t the same unwanted rehashed material.

    Fantastic read! I’ve bookmarked your site and I’m adding your
    RSS feeds to my Google account.

  • Hello Clint,

    Your blog posts have been greatly informative.

    Here are some questions on property insurance related to the use of land/nominee trusts and LLCs.

    1) When one moves a property held individually into a trust, should the named insured on the fire/liability policy be changed to the trust name, or is it the individual who is the beneficiary?
    2) Then, if the beneficiary of the trust is changed to an LLC, should the named insured be the LLC?
    3) If the wrong party is the named insured, what would happen in case of a loss?
    4) If the LLC is the named insured, does this not raise a flag to an existing lender, assuming that lender would not agree to LLC ownership?

    Thanks very much for any information you have on this.

    Fred

    • Fred,

      Here are my answers:
      1. Have the trust listed as an additional insured or name the trust as the insured and list yourself as an additional insured.
      2. Not necessary if the trust is listed as the insured but if your insurer will allow you to list the LLC as an additional then it will not hurt.
      3. No coverage. This will not happen because the plaintiff wants the insurance.
      4. Possibly, this is why I suggest you name the trust as the insured. Further the trust is the owner of the property to it should be listed on the policy.

      Best of success.

  • Dear Clint, amazing blog.

    I am currently starting this process and
    a. had the exact question above;

    b. my question;
    When I purchase an investment property as described here, keeping everything within the land trust and an LLC, & having an address for everything unrelated to our personal information;
    Is it still possible that I could be personally sued as well in anything related to the investment property, if someone identities me somehow as the owner of the land trust and LLC?
    Or may they only sue the land trust or the LLC if its related to the investment property?

    Thank you in advance.

    • Luker,

      Provided you set everything up properly then if the property caused the harm your land trust and LLC will be vulnerable to attack but you will not. Now the reality is you will always be named but your attorney will bring a motion to have you dismissed from the case and an improper party. The real question is should you have any personal risk exposure for liabilities associated with your property if your have it structured properly – answer is no.

      Remember, the devil is in the details. Recently a past client of mine was personally sued for a structure she created on her own to protect her real estate. In this particular action the plaintiff is alleging she did not execute her documents properly and the transfer into her land trust and LLC was ineffective to shield her personally. Waiting to hear how this turns out but it exemplifies the importance of details.

      • FYI to anyone considering this and privacy is an issue for you; in my case we followed the above and are pleased with the organization of our property. However the town put our land trust, LLC & personal names on tax and other town bills and docs. It’s listed as so:
        NAME LLC & TRUSTNAME REALTY TRUST C/O
        PERSONAL NAMES
        ADDRESS
        They told me the information comes via the deed/registrar.
        We are still awaiting the deed.
        The concern is that this information is easily found all together at any number of town offices, all the parties named for anyone to consider taking some type of action, -mainly- fraudulent or deceitful action is possible to them, since they can easily piece together ownership of the property.
        We are checking on if this is the proper way owners are listed by our town.
        Thanks and bundle up everyone…

  • Hello Clint
    Thanks for your blog and your professional answers
    I’m Canadian investor, recently me and few friends of mine decided to invest in flip properties in Florida. For that purpose we created company in Canada with shareholder agreement. What will be the best way to handle this business from US tax perspective, based on few scenarios
    1.repatriate funds to Canada and pay dividends to shareholders,
    2. Reinvest all the profit in rental properties in US.
    3. Distribute profits in US to shareholders as personal income.

    Thanks

  • Hi Clint,
    My parents own numerous commercial properties personally. They are considering putting them into LLC’s to protective their other personal assets. I understand from your blog that they would have to transfer the properties into a land trust then transfer the properties into the LLC’s. A few questions I have are: 1. Can they transfer all the properties into one land trust and then break them out into separate LLC’s for each building or do they have to set up more than one land trust? 2. Are there any tax liabilities (capital gains, etc.) once they transfer the properties into the land trust? 3. If they put my Dad as the trustee and my Mom as the beneficiary in the land trust, can my brother or myself (who currently run everything for them) be registered agent and managers of the LLCs? All property is owned in Massachusetts.

    Thanks

    Nancy

    • Nancy,

      You do not need a land trust to avoid the due on sale for commercial properties. Typically you can transfer commercial properties directly into a LLC without any problems from the lender. If you want privacy and the properties are paid off then definitely a land trust could be of use to your parents although you can accomplish the same with LLCS if properly structured. You are correct that you and your brother could serve as the LLC’s managers however I suggest creating an entity to serve as the manager to provide some liability protection for you and your brother. Here is what you might consider – create one MA LLC for each property. The LLCs should be managed by a LLC taxed as an S-Corporation. If your parents want anonymity, additional asset protection, and simplified tax reporting then create a holding LLC in Nevada to own each of the MA LLCs. The return prep savings would more than offset the cost of an additional entity. If you would like to discuss having my firm assist with your structuring do not hesitate to contact me.

      Kind regards,

      Clint Coons

      • You said: “The LLCs should be managed by a LLC taxed as an S-Corporation.” Do you mean the LLC’s should be owned by an LLC…? I don’t understand how an LLC can be the “manager” of another LLC. A manager should be able to make decisons and sign checks, etc. How does an LLC manager write a check?

        • Cindi,

          any entity can serve as the manager of a LLC. If you have a LLC acting as the manager then you would act on behalf of the Manager LLC. This might help. Assume ABC LLC is the manager of Blue Fin LLC. If I needed to enter into an agreement on behalf of Blue fin LLC I would sign as follows: Clint Coons Manager of ABC LLC on behalf of Blue Fin LLC as its Manager. I know this is a bit long but the strategy of using a management entity is based more around tax planning than asset protection.

  • Clint,

    Thank you very much for creating this article. It is hard to find accurate information out there. Situation: I am working with two partners and my spouse in buying rentals. We put the mortgages in 1 to 2 people’s names at a time depending on mortgage requirements such as debt-to-income ratios and reserve requirements. We split profits and expenses equally.
    Would we be able to transfer the rentals (that the various owners have in their name) to a land trust and then to one LLC that each of us have an ownership interest in? -We also have a management LLC if that makes a difference.

    Best Regards,

    Seth

    • Seth,

      This is the perfect situation for a land trust. Your analysis it correct.

      • I have been searching for how to form a Land Trust in Indiana and I have not found anyone who knows how to do this. I checked with my local bank and the only thing they suggested is to do a Living Trust. Is this the same thing as a Land Trust? It seems like it may be as you say “a land trust is an inter vivos trust”. Please let me know if they are one and the same or where to go to form a land trust.

        Thank you very much,

        Seth

        • Seth,

          A living trust is different from a land trust in some respects and in others it is the same. A land trust allows you to assign your beneficial ownership while a living trust does not. My office can form the land trust for you and assist with any property transfers into the trust. If you would like assistance call my office at 800.706.4741 or email me.

  • Hi Clint, thanks for all informative information in your blog. First, should I put all properties in seperate LLC, then put them all in one Land Trust, All properties are in MO pending to purchase. Amy

    • Amy,

      If you are financing the purchase then you will most likely close in your personal name. After you have closed on the property you will establish a land trust for each property. Deed each property to its respective land trust. After title is held in the land trust you will assign the beneficial interest to the LLCs for asset protection. You will be the member of the LLCs and the LLCs will be the owner of the land trusts which in turn will own the property. If you put all the properties in one land trust you will not have protected the properties from each other. Remember, a land trust does not offer asset protection. Asset protection is derived from the LLC. The land trust is merely a title holding vehicle.

      • Clint, should I put different properties in series LLC. or separate LLC. Do I need to set up the LLC where my properties at. what happen if I own 5 different properties in three different states. Should I put them all in different land trust?

        • Amy,

          Each property should be in its own land trust and separate LLC. Whether you use a series LLC or not will depend on the state where the properties are located. If you would like to speak with someone from my firm, call 800.706.4741 for a free consultation.

  • Clint, Thank you for maintaining this site. Great information that can’t be found anywhere else. I have a few questions concerning property I am in the process of acquiring in NC. I live in MA.: 1) A Land Trust is the same as a Realty Trust – correct? 2) In a previous post you stated that the title should be transferred to the trust right after closing. Is it better to just close in the name of the trust, or does it not matter? 3) Where should the LLC be formed? NC, MA, NV, or does it not mattet?

    • Bob,

      A realty trust may be the same as a land trust but I have no way of knowing without reviewing the document. See if you can assign the beneficial interest of the trust. This is usually a good indication if it is a land trust. I would establish the LLC in NC i.e., where the property is located. You will most likely close in your own name unless the lender will allow you to close in the name of the trust. Most lenders are reluctant to permit closing in the name of a trust.

  • Clint,

    I own a NC land development comprised of 5 residential lots (improved land w/ roads & power). Since the market collapse of 2008 the sale of individual lots has not been a viable option (I might get 10-15 cents on the dollar) so I have tried to market the property as a whole but without success. I have a balloon payment coming up in May (which the lender will happily finance at a much higher interest rate). As required by law the lender has had the property appraised for the new loan. The appraised value is 25% higher than the loan amount so I am considering a short sale because I need to claim the (quarter-million dollar) loss while I have income to declare against (the value-to-price ratio would be greater than 1 so a short sale would not gift me).

    My question is this: is there a way to structure a land trust / LLC possibly in conjunction with the new loan such that for income tax purposes I could restate land inventory value from cost to either the current appraised value or the amount of the new loan? (BTW, the property has been aggressively marketed since 2008. The newly appraised value is the current asking price which is only $10K less than what it was before, so clearly I have been actively engaged in price discovery. Still, there are no buyers. )

    Thank you for any help you can provide.

    • Greg,

      I will be posting a blog on this very same topic within the next 2 weeks (just completing the final edits). You could possibly write off the costs of the lots if you claim Dealer status on your tax return. So much of real estate deductions depend on the experience of your CPA. The LLC scenario would not work because your basis will carry over. I strongly recommend you get with a CPA. You might consider contacting Steve Kalt in our tax department. He can be reached at skalt@dganderson.com.

  • Clint,
    I have two rental properties with no mortgages or loans in Illinois in my name, and one property in my name and my wife’s name where we currently live. This property has a lien on it with a Home Equity line. We are going to move to Texas in the next month and are also planning to rent our house that we currently live in. I want to create a Series LLC and have these properties transferred to each LLC series.

    My questions are:
    1. Should I create the Series LLC in Illinois or Texas ?
    2. Do I need to put all three properties in a land trust or a living trust first or can I directly have the deeds transfered into individual series LLC ?
    3. Do I need an individual EIN for each series or an Umbreall EIN will do ?

    Thank you in advance for taking the time to answer these questions. My goal is not to obtain any loans on these properties, rather I am seeking protection for my personal assets.

    • Isaac,

      I recommend establishing an Illinois series LLC because the properties are located in Illinois. The second issue is title. To take title to each property in a cell, you will need to establish a land trust to hold title then transfer the beneficial interest of the land trust to your designated cell. You do not need an EIN for each cell if you set them up with one owner i.e., the master company.

      If you would like my firm to set this up for you email me of call my office for assistance. The approximate cost for the LLC with the 3 land trusts, cells and deeds is $2,800 plus filing fees.

      • I am curious why you told him to move the properties to a land trust owned by the LLC rather than just transfering ownership to the LLC, since he has no loans on the property. Is it because Illinois has a transfer tax that this can avoid?

        • Cindi,

          The purpose would be mask his ownership in the real estate, avoid transfer taxes, and make future transfers between the LLC and the member private i.e., you can assign the land trust back to yourself without having to record another deed.

  • We live in KS and own a property in MO. The property in MO is owned free and clear and we would live to rent it. We plan to set up an LLC with its own bank account. Can we sell the property to the LLC for a fair market rate and have the LLC pay us monthly financing based on a 15 year 3.5% loan? Otherwise it seems that all rent collected (minus small operating expenses) will be taxable.

    • Pat

      I am not sure what you are hoping to accomplish with this strategy. It would be far simpler to put the property into a land trust and assign your trust to your LLC. The taxes will be the same.

  • Clint,
    I live in an area of ny that is surrounded by the mohawk indian reservation.
    I recently bought a house in our counties tax auction that is now part of land claims. My finance is native american as well as my three sons. She wants to open a tax free shop on the land i have purchased through land claims. To do this her name would have to be on the deed. If we were to start a llc could we have both her name on the deed via the company but still ensure i own the interest in the land?

  • Clint,

    we are planning to buy rental property in parternship between 3 friends . Thought currently we are planning to take mortgage on one name and than want to later move it to under LLC which is owned by 3.

    What would be best way to go about? Any guidance would be helpful. if it matters , we are in NJ and property is also located in NJ

    • Nil,

      In this situation I would use a land trust then assign the interest to a jointly held LLC. The fact you live in different states has no bearing on the creation of the LLC. It should be noted the creation of the LLC is very important when it comes to addressing the responsibility of each member. Do not attempt to set this up on your own. You want an operating agreement that will spell out what each member’s responsibilities will be to the LLC and vice versa.

  • We have land in Texas, (we meaning multiple heirs), in a case where there are a lot of heirs to the real estate. What are the pros & cons of using an LLC vs. a Trust?

    • Kevin,

      I would opt for a LLC over a land trust so you can consolidate control in a few family members and restrict transfers, provide a mechanism for resolving disputes, address payments of taxes, ect.. The land trust is not appropriate for your situation. If you would like to schedule a consult to discuss the creation of such a LLC do not hesitate to contact my office.

      • Hi. I live in Illinois and my question is can my LLC purchase my house through a short sale? Would the bank(fifth third bank) consent to this kind of transaction? Thanks.

        • Zack,

          Depends on whether you are obtaining financing. If so then most likely not. If you are buying for cash you can but you had better write the agreement in the name of the LLC and draft your earnest money from the LLC’s account.

  • do you personally offer one on one phone consul? (or the phone consul is done by someone in your office? do you charge for the phone consul before a plan is offered? so i can see what I’m paying for?

    im a real estate investor in the washington dc area, with rentals and rehabs…looking for a plan with estate and equity stripping in mind (most of my deals are all cash)

    await for reply

    • Leo,

      There is no charge for an initial consult. During the consultation we will suggest a plan and give you a quote. I will have my assistant reach out to you via email to schedule a consultation. She will send you an asset questionnaire we would like you to complete and remit prior to the consultation. The questionnaire is used to make targeted recommendations.

  • Hi Clint,

    Do you find that LLC’s work well to lessen or avoid Estate Taxes for property located in MA? I’m asking for someone who is domiciled in FL, but currently holds MA real estate in a Nominee Realty Trust for the benefit of their planning grantor revocable trust of which they were the beneficiaries. What are the drawbacks to this sort of planning? Thanks!

    • Caroline,

      This type of trust will not avoid estate taxes but it will avoid probate. Generally I use this form of trust to avoid transfer taxes or bank scrutiny of transfers into LLCs for asset protection. If you are looking to lessen estate taxes then a LLC or Limited Partnership should be considered for discount valuations. If you do not already have a living trust I recommend you consider establishing one to minimize estate taxes.

  • We own our home in New Jersey clear and free in our name. We purchased a home in Florida and will become residence this year . However we want to take advantage of the $500K federal provision when selling within the next 5 years our NJ home. New Jersey has a Transfer Tax which is 2 times for out of state residents although we have lived in our NJ home for 30 years……..this is an exit tax for those who have moved out of state before they sold their home.
    Can I put my NJ home into an LLC and still be entitled to the $500k at the Federal level?

    • Van,

      You could consider using a SMLLC to hold the property and this will not jeopardize your 121 exclusion. If you are married then you may need to create a SMLLC for each spouse otherwise if you both hold an interest in 1 LLC it will be treated as a partnership for federal tax purposes. Albeit if you created one LLC and treated it as a SMLLC it may not trigger anything from the Service’s perspective provided you do not get an EIN for the company and instead elect to use your SS#. The more important issue is whether it will provide any relief from NJ transfer tax. If the members of the LLC are out of state residents, the state may still apply the 2x transfer tax. You need to look at the transfer tax form to determine if such a solution will actually help.

  • Hi Clint, Hope alls well. I am in the process of buying a couple of cheap (under 10,000$ each) properties in Utah. unfortunately I didn’t form an LLC first. I am paying cash. can I start a LLC and transfer them into it later? I am a resident of Alaska.

    • Yes you can but I would structure the Utah LLCs to be owned by a Nevada or Alaska LLC for asset protection (depends on if you want anonymity). Utah does not provide charing order protections for their LLCs

  • Thank you for this information. I’m still a little confused about my particular situation. My husband and I own a rental property free and clear (our previous residence) and we own our current residence with a mortgage nearly equivalent to the equity in our rental property. We are looking at forming an LLC, but we are wondering if there is any way to get our equity out of the rental property to use toward our primary residence. And are there tax consequences of transferring the property? We live in OK.

    Thanks in advance!

    • Alisha,

      They are not any tax consequences for pulling equity out of your property. If you plan to pull equity out of your property you should wait to form the LLC. After the property is refinanced you should establish a land trust to hold title to the encumbered property then assign the land trust to your newly formed LLC.

  • Hi Clint, thanks for the information!
    I have a few rental properties in CA and another one in WA. The WA property has much more equity than the CA properties. All properties are under mortgage loans.
    I recently moved temporarily from WA to CA, that may change soon.

    Does it make sense to put all my properties in Nevada real estate privacy trusts, have a Nevada LLC as the trustee, and a Nevada revocable living trust as the beneficiary?
    Me and my wife will be the managers of the LLC, and it will be registered to do business in CA and WA.

    My title company said that they will not want to provide title insurance for my properties if I put them in land trusts since they had so many problems with that in the past. They also tried to warn me that my lender may ask for the note back if I do this without their consent.
    They said I may have difficulties selling the property as it will be difficult to find a title company that agrees to deal with that.

    Another lawyer said it doesn’t make sense to have a Nevada revocable living trust if I don’t live there and do no business there.
    Also, if I am sued in CA then the CA judge may rule based on CA law, and it will be difficult to defend myself since most CA lawyers don’t understand Nevada law, and Nevada lawyers are not in CA to represent me. He said this is an over-kill that will only complicate my life. A CA LLC that holds the CA properties, and a WA LLC that holds the WA property is much simpler structure that everyone understands and will be the right thing to do in this case.

    I am confused. I appreciate your help!

    Thank you!

    Al

    • Al,

      I would create one land trust for each property then assign the land trust to a LLC formed in the state where the property is located. Thus, a CA land trust and CA LLC. You and your wife will be the owners of the LLC. I you plan to purchase real estate in other states then I recommend you establish a NV LLC to be the sole member of your WA and CA LLCs. I appreciate this can be confusing but much of it depends on your present and future plans. Regarding your title company, never refer to a land trust as a “land trust” refer to it as a “grantor trust”.

  • Thanks for answering everyone’s questions. I learn so much from the other answers.

    My partner and I (unmarried) purchased our Hawaii home 10 years ago through a 1031. It was strictly a rental for years, but now we live there half the year and rent the other half. We would like to get it into an LLC for liability purposes, and since Hawaii has transfer tax which would apply, we would set up a land trust and assign the interest to a LLC.

    1. I believe we hold title as joint tenants. Would we each need a land trust for our individual interests? But then could there be only one LLC? Or would we do some type of joint trust?
    2. Does the fact that we 1031’d in have any impact on what we can/should do? When the time comes we would like to either 1031 out or use the partial home sale exclusion. 1031 is probably better because of all the depreciation recapture.
    3. Who would renters write checks to? The LLC?
    4. If we use the term “grantor trust” with the title company, like you recently suggested, will that work in Hawaii to avoid needing a new title policy? Or should we make this change in conjunction with a re-fi when they issue a new policy anyway? Or is Hawaii fne with the term land trust so there should be no issue?

  • Most helpful blog I’ve found so far. Thanks. My 3 sons and their 3 cousins form a Grandchildren’s Trust (revocable) which owns a triplex. The 3 cousins would like to sell. There will be about $500,000 in capital gains. My husband and I have always wanted to buy out the cousins and carry on managing the rental property for our sons and ourselves. Would there be any possibility of avoiding the stepped up valuation by using land trusts, LLC’s, etc? If the 5 of us buy out the 3 cousins we would need to get a mortgage for some of the purchase. Could we also then add our own residence which is free and clear to the LLC? I know this is probably unlikely but, I can always dream. Thank you.

    • Jane,

      The land trust will not help you with the county assessor’s office (step up in property tax value) because it still counts as a sale even though you did so indirectly through the sale of a land trust interest. I suggest calling the county and inquire as to what type of transaction results in a re-assessment. Their might be an exemption you can fall under. I would not put your residence into the Llc that holds rental real estate. Your residence should always be kept separate from your investments. Further, a Llc could jeopardize your homestead exemption. If your state offers a sizable homestead exemption you will not want to risk losing it by using a LLC for your residence.

  • This is a great article regarding land trust and LLC. I have multiple financed properties in CA and because of the due on sale clause worrisome, I always hesitate to move it to LLC. All the rental properties are owned by me and my wife. Based on your article, first, I will put each rental property in each own land trust under me as trustee, and beneficiary as me and my wife, and the recorded. Then I will setup a single member LLC (me and my wife). Then I will assign the beneficiary interest of the land trust to the LLC (without record, but need to notarize). Is this step correct?
    Here is my question.
    1) In case someone sues one of the rental property, asset protection comes in because the beneficiary interest of the land trust is LLC and they will have to deal with the LLC. Is that correct? If I have 2 or 3 land trust tied to the same LLC, will the rest of the land trust are in trouble as well? But since it is not recorded, will they know I have other land trust on the same LLC?
    2) If the tenants pay rent, should they pay directly to LLC or my personal name or land trust?
    3) To make things simple, I should only use that LLC for the rental properties purpose, not anything else, right?

    Any suggestion or correction will be greatly appreciated.

    Thank you very much and once again it is a great article.

    • Peter,

      Your understanding is correct as to how a land trust works. Keep in mind, if you have 3 land trusts in one LLC each land trust is exposes to the potential liabilities of the other trusts. As to your question regarding would someone know if you had more than one trust in one LLC, the answer is yes if they somehow obtained your banking records showing multiple deposits. As you suggest, the tenants will typically pay the LLC rent each month. IF you plan to hold rental properties in a LLC then I would not use this same LLC for any other purpose e.g., flipping property.

  • I own two properties that a group of Canadians is purchasing. I am doing owner financing for 80% of the purchase price. They have told me that they are going to title the properties in a land trust, and now tell me that they are going to put 3 layers of LPs, LLPs, and/or LLLPs as trust beneficiaries to protect themselves from lawsuits, etc. They are boasting that it will be virtually impossible for anybody to find out who the beneficiaries are. Is this something that would make it more difficult for me to foreclose on the mortgage notes that I am holding if they default on their payments? I need to know quickly, because the sale is scheduled to close in just 3 days from now. Thanks!

  • Clint: Again my thanks for your help. After almost two years I’m back with questions on the same subject. For several reasons I have not yet acted on your suggestions, but I’m ready to do it now.
    My wife and I own 6 rental properties plus our residence, all fully paid for. We live in Georgia and the properties are in Georgia. Besides the advantage of protection offered by LLCs we are interested in ease of transfer to our four children upon our passing. My questions are:
    1.- Should we set up an LLC for each property?
    2.- should we set up a “parent” LLC to own all individual LLCs?
    3.- Should the parent LLC have my wife and I as general partners and the children as junior partners? What about the individual LLCs?
    4.- What is a Family LLC and should we use it for our case?
    5.- I have an LLC that I used for a business prior to my retirement; should I use this one as the parent LLC?

    I know these are many questions and I will truly appreciate your help in covering them.

    • Fantastic questions! I look forward to Clint’s answers.

    • Oswald,

      Set up one LLC for each rental unless the properties have very little equity then you can group them in 2 or 3 GA LLCs. Each of these LLCs should be disregarded for federal tax purposes and owned by a NV holding LLC (you refer to this entity as a parent LLC). The NV LLC will offer you anonymity for your entire structure if properly structured from the outset with the NV LLC as the managing member of each GA LLC. You and your wife will be the managers and sole members of the NV LLC. The NV LLC will be taxed as a partnership for federal tax purposes. You will not want to use an existing business entity you may have used in the past for a different business endeavor as it could have unknown liabilities that might affect your structure.

      I would not recommend bringing your children into your overall structure without knowing more information about your overall estate value and your kids individual situations.

      • Thank you again Clint. My children are grown and with children of their own and two of them even with grandchildren. Our estate consists mostly of the rentals plus a little bit in stocks and cash. Would it simplify matters at our passing if the children are part of the holding LLC?

        • Oswald,

          I suggest you have your assets held in a living trust to avoid probate and provide for an orderly passing to your children. Gifting them an interest in your holding LLC has less to do about simplifying things because a living trust will make things simple but more about state and federal estate taxes. Do you begin gifting now and lose the step up in basis upon death because you believe your estate will be subject to estate tax or do you keep it to take advantage of the step up. I think you should begin with an estate plan then work from there on the other issues you have raised. If you would like to set up a living trust you can contact my office for assistance.

      • Aloha Clint,

        We have been wanting to set up a family dynasty with our few cash flowing properties that are not encumbered. If each property is titled in an LLC and then grouped in a Nevada holding LLC with me as the manager member, is it simply a matter of adding in our children as manager members and the properties basically pass on to whoever is manager members generation after generation?

        Or, what if a C-corp is the member manager of all the LLCs. Would it be a simple matter of adding in family members as shareholders as well as directors with my share passing to them in my estate trust/will?

        If either or both strategies work, what will the estate tax be, or will this even be considered a taxable situation?

        Mahalo in advance,

        Sarah – Aunty

        • Sarah,

          Aloha is right. I am with the family in Muana Lani for the week. Very relaxing enjoying the sun and water. I told my wife I need to come back so I can finish a book I am working on. Its amazing how much you can accomplish without the distractions of mainland life.

          Regarding the trust, you can structure this through your living trust. Your holding LLC will be held by your living trust and will pass to your children via trust for their joint benefit. The children will be in control of each LLC via appointing themselves as managers or via the ownership in a management corporation. I would not give them ownership at this point in time because in so doing you will need to consult with them on any business decisions made within your LLCs. Your living trust will accomplish everything you outlined above.

  • Clint–

    Thank you for taking the time to create and follow up on this blog. This is the best source of information I have found so far to answer my questions.

    My soon to be ex-wife and I have a house that we want to move to an LLC since we are still using it as a rental property but want to protect ourselves after the divorce. We are still on the original mortgage (14 years) and have considered re-financing before doing anything. I imagine we would want to do that first before doing anything involving land trusts and LLCs. From what I’ve read and maybe understand, we will put the rental property in a land trust under me (or her) as trustee, and beneficiary as both of us. We will then set up an LLC (not sure of the types yet). We will assign the beneficiary interest of the land trust to the LLC. I assume both of us would need (want) to do this? Is the land trust or LLC specifically affected by a divorce (asset division or something like that)?

    The house is in South Carolina and we currently rent to my sister-in-law. She has no intentions to move any time soon, but we wanted to protect ourselves and possibly create an opportunity for future business together when looking to buy other properties. I currently live in Texas, if that matters for any reason, while she is still in South Carolina.

    There is a second house (currently considered the primary residence) that we are still trying to figure out what to do with it. We figure to either sell it or rent it. Neither one of us plans to live in it. I imagine we would do the same with it if we plan to rent it.

    • Jeff,

      You are correct on all counts. Wait until the refinance is complete before you move the property into a land trust. I assume the divorce is amicable otherwise all bets are off and the court will decide what is to happen with the property. Remember when deeding the property to use a warranty deed to preserve title insurance.

  • Clint,
    AZ has some unusual things that create concern. I am guessing because of so much fraud here, when a house is bought, the owner of the house is listed. If the owner is an LLC, the beneficiaries of the LLC is listed. I am guessing that if a trust was listed, the beneficiaries of that trust would also be listed. I know if it is a living trust, the first set of beneficiaries are listed. While the LLC gives asset protection, it does not give the anonymity that you speak of. How do you handle this issue in AZ?

    • Judy,

      When selling property you are correct but when holding property the LLC or land trust will provide anonymity if property structured. In Az I will typically have a Nevada LLC as the managing member. This provides anonymity for the LLC and its owners. If using a land trust I suggest the use of a nominee trustee for title holding purposes.

  • Clint,
    We have 3 questions:
    My husband and I live in NV and own a few rental properties in NV, AZ and UT. I understand that NV does not have a land trust statute, but it does not prohibit one either, so I assume that it recognizes it if one is created, correct? We are forming a Series LLC in NV but not sure who should be the members of the NVLLC master (my husband and I, land trust? or living trust?) We are considering doing a living trust because we have a small child and to avoid transfer taxes, but not sure if we can “assign” our beneficiary interest to the NV Master LLC from a living trust and this is a problem. Although the living trust can be the sole member and manager of the NV LLC Master, we will need to deed the property to the NV Master LLC which can bring the due on sale clause issue with the bank and possibility transfer tax issues with AZ and UT. What do you recommend?

    We are planning to use the NV master as the sole managing member of each series so that distributions from the series flow up into the master, like in a typical parent/subsidiary setup. Is there any reason not to do that ?

    Lastly, There are some attorneys who suggest creating a land trust inside each series but they don’t say why is this best. What do you think?
    Thank you again

    • Nathalie,

      I attempted to reach you by phone last week but could not get through. Regarding your question, I would only use the NV Series LLC for Nevada real estate or to hold out of state LLCs. Typically the Series LLC is owned by the living trust. To avoid the due on sale we typically use a land trust to hold the property then assign the beneficial interest to a particular series. The reason a land trust is used has to do with title. A series is not registered with the state or county thus, you need an entity to hold legal title or you use a parenthetical notation on the deed noting the series holding the real estate. Further, issues exist with banks and opening accounts for each series. You solve this by creating a DBA for each series or you have a management LLC and account fore the income generated from each LLC is a separate sub account (see your banker to set this up – more specifically contact Giovanni L. Anacta with Wells Fargo at Rancho Business Center 801 S. Rancho Dr. Ste C-3, Las Vegas, NV 89106
      Direct: 702.382.1578.)

      Typically I set up my series LLC with land trusts as I find this is the cleanest method.

  • Thank you! after re-reading your articles several times it becomes clear.
    In a prior Q& A you recommended that the Master LLC be a partnership and each cell as a disregarded entity. Why? My husband and I were planning to use a disregarded entity set up for Master and cells…now I am wondering what are the advantages of your set up?
    If the cells are own and managed by NVLLC, would it be easier for Plaintiff to pierce the corporate veil?
    Lastly, is there any advantage in creating a land trust in a state that has a specific statute for it rather than NV? Thank you in advance for taking the time to answer all of our questions!

  • As always, Clint, you are still and always will be, da man.
    This is an easy one.
    In MA, the bank told me it is not necessary to endorse rent deposits to the LLC business account with a full LLC signature as you describe in the section – “How to Sign On Behalf of an LLC”. So instead of endorsing rent checks with a full LLC signature, I use my name. They explained that since checks are paid to the order of XYZ LLC, it is not necessary. What is really best?
    Thank you.

  • Would an LLC under a land trust protect me from liens in civil litigation?

    • Kevin,

      This depends on whether the claim is against the land trust, LLC or you personally. If the lien is against you then the answer is yes provided you have not jeopardized your protection, i.e., done something which could allow a creditor to pierce your LLCs veil.

  • Hi Clint,
    I formed an LLC last year for my NC rental. My wife and I are changing insurance for our primary residence in MA, and the new agent has asked for the commercial insurance information for our NC property for umbrella coverage purposes. It seems to me that this might reveal the ‘veil’ – am I correct or would this be an unfounded concern given the purpose of an umbrella?
    As always thanks!
    Robert M.

    • Robert,

      I doubt your Umbrella policy will extend to the LLC. Did you ask your agent if the property in the LLC will be covered under the Umbrella?

      • Can the policy be written with the LLC as an additional insured? Why would the agent need to know about the rental LLC if the policy is for the primary residence?

        • Probably not (I understood the policy to cover a rental in NC). Most Umbrellas do not extend to LLCs or properties held within an entity. It doesn’t hurt to add the property but if a claim was made the insurer would probably decline coverage. The policy must insure the property held in the trust’s name.

  • Thanks for the great article..very informative…I have a question: can I create a land trust and make it the Sole memeber of an LLC? Then transfer the property to the LLC. Will that work? and give protection as well as avoid probate?

    • Gustavo,

      The land trust will own the real estate. You will transfer the land trust to the LLC – the land trust is now owned by the LLC. You will own the LLC. This transaction will not avoid probate. If you wish to avoid probate then you should set up a living trust. The living trust will own your LLC and it will avoid probate on these assets.

  • Hi Clint,
    I recently went through a tough legal battle that cost me my business and as a result I am working through some tough financial challenges. Currently I have tax liens and warrants from the business on my personal residents. If I transfer my property into a Land Trust and make the beneficiary an LLC, will this protect my property from any further liens or judgements? Do the current liens and warrant transfer to the land trust? Thank you,

    • Pete,

      Sorry to hear about the devastating legal battle. Unfortunately transferring your real estate will not provide any protections from the existing liens. The liens have already attached if they are prefected.

  • Hi Clint,

    My wife and I live in GA. We are thinking about purchasing a property under a land trust deal, becoming a beneficiary to a property. Trustee has the Sale contract at a 5% interest for a 30yrs. We are going to close the deal with a real estate attorney. Do you recommend a deal like this for our family. Thank you’

    • Paul I see nothing wrong with this type of deal provided you have an attorney representing your interest to make sure you are protected. Be sure to perform a title search of the property and obtain title insurance.

  • I lived in Illinois for a number of years and became very familiar with the concept of a land trust. I do not see them used in many states, however. Altho I did see some in FL back in the early 80s when interest rates skyrocketed. They were being used to by pass due on sale clauses in low interest rate loans, which made seller’s properties very attractive when rates went from 7 0r 8 % to 13+%. Can land trusts be utilized in properties in any states? If not, in which states can they be used? Specifically can they be used in PA and/or NJ?

    • Martin,

      Land trusts can be utilized in all 50 states. In PA and MD you will run into problems with transfer taxes (I do have a way around it) but otherwise they are recognized country wide by either statute or case law.

  • My husband and I have several pieces of property. We want to change our property into Llc. What steps are involved in changing each set of deeds?

    • Gail,

      I suggest you speak to someone with my firm about this process. If the property is encumbered you will want to use a land trust to avoid triggering the due on sale clause or violating your title insurance. If you contact my assistant Deborah Lewis at dlewis@andersonadvisors.com she can arrange a phone consult to discuss your situation.

  • If you do this and the property has a mortgage, can the LLC be the one who files for bankruptcy protection? Or in the alternative, if you have your equity assigned this way and the LLC is in bankruptcy, would the property be protected?

    • Lowell,

      Either way you or may not be protected in bankruptcy. This depends on the state. If you assign the Land Trust to an LLC and the LLC files for BK then the property is subject to the BK. If you personally file then the property may or may not be attachable.

  • Clint,
    My wife and I are considering the purchase of a rental property in N. Carolina. We live in Md. It appears from the NC department of taxation that a LLC in NC is only able to be established if one lives in that state.
    Would it therefore make sense to form the LLC in Md?

    Thanks,
    Scot

  • My question would be – if the property is in foreclosure (or getting ready to be) with someone and you take possession of the property using an inter vivos trust, would the bank have to refile the foreclosure against you or would they still be able to take the property from the original owner?

  • Clint,
    I am really hoping you can help me. There is not much information our there about land trusts or closing a land trusts. As of right now, I have a land trust holding a deed to farmland with the beneficial interest being held by a general partnership. We are going to convert the general partnership into an LLC. We plan to move the deed to the farmland from the land trust to the LLC. I have had no luck locating if there is a tax implication of transferring the deed. Do you have any thoughts on this matter?

    Thank you for all your help!

    • Jessica,

      You could handle this transaction one of two ways. Deed the property from the trust to the beneficiaries then the beneficiaries transfer their interest to the LLC or assign the land trust into the new LLC then deed the property from the trust to the LLC. This should not be a taxable event provided you have not changed the beneficial ownership of the property.

  • Clint,

    I’m trying to purchase an investment REO property in NJ with a newly opened traditional IRA account funded from former employer’s 401k after failing to obtain other sources of financing, but as per lender’s attorney won’t allowed assignment which is customary in the case of an IRA custodian on behalf of the 401k, could you please shed some light on how to go about this, running out of time, in addition, the initial contract was made under my wife’s name and also after further research find a lots of limitations in managing investment, control the funds, etc.
    Appreciate you input.

    Thank you much,

    • Roberto,

      If the IRA is not a “self-directed” IRA you will not be able to purchase the property. The other problem you have is the contract under your wife’s name. If your IRA takes title to this property the IRS will consider it a prohibited transaction. The preferred method to take this deal down would be as follows:
      Set up a qualified retirement plan see this post: QRP versus IRA.
      Roll your IRA into your new QRP;
      Contact the bank to purchase the property and enter into a purchase agreement;
      Close on the property.

      When you set up a QRP you are the trustee of your plan so you have complete control over the investment. If you would like assistance please call our office at 800.706.4741 and ask to speak with a representative about establishing a qualified retirement plan.

  • Ok thank you much, is this a similar to a checkbook IRA llc?, should we need to draw and addendum having me in contract as oppose to my wife or draw a new contract on my name.

    Thanks again,

    • Roberto,

      Not only is the QRP similar to a self-directed IRA it is superior in every way. If you want to do this deal you need to have your retirement plan / IRA enter into a contract with the bank to purchase the property.

  • Clint,

    You responded to Fred on August 2, 2013 regarding property insurance in the case where you have a property in a trust + LLC combo. You recommended to (1) list the trust as an additional insured or (2) name the trust as the insured and list yourself as an additional insured.

    Below are my questions:
    1. Could you clarify what the differences are between option (1) and (2) (e.g., risks/benefits)
    2. Who is the primary party insured in option (1)
    3. Can you confirm whether insurance companies when insuring a trust they insure everything under the trust (i.e. the property) – or is there a risk that the insurance will not cover the property for whatever reason?
    4. Do you recommend to get a business insurance or just a regular insurance. For an LLC you would have to get a business insurance

    Another question not related to property insurance. I am in MA and my lawyer got us a realty trust. Is that the same as a land trust – might be a basic question but i cannot figure this one out.

    Great blog. Appreciate the help!

    • Seb,

      Did you look at this post: http://wp.me/ptVtj-qf

      When insuring under a trust the insurance company only insures specific assets not everything.

      You should obtain regular insurance but it may be a commercial policy. I use CNA for some of my properties.

      I do not know the answer to you last questions regarding the trust. If you send me a copy via email I will let you know.

  • Hi Clint,

    I have properties in my name that I bought with cash and now want to cash out refinance in my personal name for best terms then transfer to my LLC, but without triggering the due on sale clause.

    If I do it by first creating a land trust, then naming the LLC beneficiary, how do I pay my bills(insurance, tax, and every day expenses)? They should be paid by the LLC for accounting purposes and showing separation from myself …but won’t this be “thumbing my nose” at the mortgage company and inviting trouble?

    Thank you, and I am in ND if you have any additional comment specific to my state.

    • Pat,

      Pay all of the bills directly out of the LLC that owns the land trust. No need to open up an account in the name of the trust although you surely can if you are concerned about the lender. In 17 years I have not run into the concern you describe.

  • Excellent blog with a lot of clear information. You mention in one reply reservation about Utah LLCs because of charging orders. What is your view of LLCs in Massachusetts along the same lines.

    • Kevin,

      The Massachusetts statute is not all that strong. The statute states a creditor can obtain a charging order; however, the statute does not preclude other remedies. This could allow a creditor to foreclose on the interest. I prefer a statute that expressly forbids foreclosure or any other remedy.

  • This article and Q&A is very informative! I am considering the land trust and subsequent transfer into the LLC for 4 rental properties I own subject to mortgage. Can you clarify if there are any legal documents that need to be executed to formally make the mortgage payments an obligation of the trust or LLC? Since the mortgagor is not the LLC, wouldn’t the loan payments simply be a distribution to the owners of the LLC (who are the mortgagor) rather than a bonafide expense of the LLC? Thanks.

    • Eliz,

      The mortgage payment is not a deduction only the interest portion. The loan payments could be made by the LLC but the interest expense will show up on your 1040. An LLC for rentals is set up as a flow-thru entity thus, all income and expenses are taken by the members. All in all, it is a wash. Tio make the mortgage obligation of the LLC or trust, the entity will need to accept the assignment and agree to pay the mortgage; however, you will not formally assign the mortgage itself because the bank will not consent. Think of it like buying a property subject to an existing mortgage.

      • To follow up on the question Eliz asked. So is there a legal document or not? Does there need to be a legal document whereby the “entity accepts the assignment and agrees to pay the mortgage?” Thanks

        • Cindi,

          Yes, you can put a document together but it does not relieve you of any responsibility to the bank. It comes in handy when you are applying for loans in the future and you are asked for a personal financial statement. If your entity has agreed to assume the mortgage then you do not have to list the mortgage as a current obligation but then again, you can not list the real estate as an asset. Interesting stuff.

  • Given the language “…in which the borrower is and remains a beneficiary” in the law, isn’t the bank technically allowed to call the balance due is by any chance they discover the beneficiary has changed? In case of a lawsuit, aren’t the proceedings made public?

    • Amaury,

      You are correct but it won’t happen. Filings are public record but in order to find them you need to have access to the local court electronic filing system and then you need to know the party or case number in order to pull up the pleadings.

  • Clint,

    Two questions (given I do everything as you stated — create a Land Trust, deed title into that Land Trust, and make LLC the beneficiary):

    1. While collecting rents from that property, do tenants put the LLC name on the checks? or Do they put the Trustee’s name on the checks to pay the rents? Or do they put the Land Trust name on the checks?

    2. If they make out the checks to the LLC, does that LLC need to have a Real Estate Incense (the property, Land Trust and LLC are all resided in Texas).

    Thank you!!
    Scott

    • Scott,

      1. I suggest having your tenants pay the LLC directly or create an entity to manage your various rentals and then have the tenants pay your management LLC. The only exception to this scenario would be if your land trust is in Florida. In Florida you should have the tenants pay the trust for added protection afforded under Florida’s land trust statute.

      2. The LLC does not need to have a real estate license assuming the property you are managing is your real estate i.e., you own the LLC.

  • Clint,
    Thank you for your response! I informed my lender that I want to put the title to the house (investment) into a Land Trust. Lender (Quicken Loans) said no can do via voicemail– only allows for SLAB loans (I think it’s Student Loan Asset Backed; well, that’s what I found on Google).

    Question – Can the lenders can really tell us that we can’t put title into a land trust? Land trust is a living trust (right?) and Garn-St. Germain Depository Institutions Act says we can use inter vivid trusts.

  • Clint,

    Fascinating information. Thanks.

    One question — I am in Georgia and looking to purchase a vacation/rental property and maintain privacy of ownership. Loan officer has already confirmed that I can deed property in a Trust at closing. But I eventually want the property in an LLC for tax and liability limitation purposes. Does the following approach sound right?

    1. Create an Express Revocable Trust with LLC as Trustee and Beneficiary (Georgia law has a non-merger provision for Express Trusts that allows trustee and beneficiary to be the same);

    2. Close transaction and record deed in name of Land Trustee/Trust (Georgia requires title to list Trustee).

    3. Deed and record transfer of title from Land Trust to the LLC. I am the sole member/owner of LLC.

    KC

  • Hi Clint,

    My parents have a house in Illinois paid in full with taxes they have frozen from 15 years ago – Senior Freeze. They have the Illinois Senior Tax Freeze and the Illinois Senior Homestead Exemption. If they move their house into a Land Trust with a LLC as beneficiary for liability purposes, will this affect their current real estate taxes, i.e. would this reset the value of the house to a current market value and therefore result in higher taxes? Illinois states that they must be the beneficiaries of a trust in order to have the tax benefits, if the LLC is the beneficiary does this negate them as the beneficiaries and hence their tax benefits? If they place the house in the trust, with the LLC as the beneficiary, what do they have to do to ensure that I am the beneficiary after they both die?

    Thanks!
    AB

    • Alison,

      If the state found out about the LLC being the beneficiary it may create a problem. I suggest you have your parents create a living trust. A living trust is an estate plan that avoids probate and will ensure you are the beneficiary of the property.

  • Can you clarify what benefits a land trust have over a revocable living trust? I am thinking of putting my properties that aren’t in LLC’s (ie primary and second homes) into a revocable living trust. Could I still assign an interest in one to an LLC (ie if I made it a rental?)

  • I AM A FL RESIDENT WITH CT PROPERTY(COMMERICAL PROPERTY CAN I SET UP A LAND TRUST IN CT THEN FORM A DELAWARE CORP NOW CAN I ASSIGN THE BENIFICIAL INTEREST IN THE LAND TRUST TO THE DELAWARE CORP AND NOW SELL THE STOCK IN THE DELAWARE CORP WHICH INCLUDES THE LAND AND AVOID ANY CT CAP GAIN TAX ON THE SALE OF LAND IN CT

    NO TAX WOULD BE DUE IN DELAWARE CORRECT AS WE HAVE NO NEXUS AND THEY DONT TAX INVESTMENT INCOME IS THAT CORRECT

    THANK YOU

    • Trevor,

      The sale of your stock would be taxable as ordinary income (STCG) versus selling the property which would be LTCG at 20%.

      • hi clint

        thank you for the response so if I wait a year or more to get the long term treatment then the sale would be a long term cap gain rate of 20 rather than ordinary income

        is that correct with no ct tax due

  • Hello Clint,

    I’m purchasing a primary residence in Maryland with cash. The house is under contract, we are in the negotiating after the home inspections phase. The closing is scheduled for late next week. I’m curious about the best way to give anonymity AND protection, as a majority of my wealth is going into the house. How does a state like Maryland fit into all this?

    Thanks!

  • Clint,
    Great blog, thanks for taking the time to share your expertise. My question regarding the land trust/transfer are as follows: 1. Does this also work for an S-Corp instead of an LLC? 2. Can the S-Corp or LLC still enjoy the benefit of offsetting rental income with depreciation expense and interest expense from the mortgage? If not then could you take the depreciation and interest expense on the Schedule E and charge all other property income and expenses to the LLC or S-Corp? Thanks again!

    • Rob,

      Either entity will get the benefit of the depreciation expense to offset rental income; however, the pass-through part will not be treated the same when using an S-Corporation versus a disregarded LLC with page one schedule E.

  • Clint,
    I recently purchased a half of a double home to protect my property from bad elements moving into our neighborhood (Neighbor control). The property I purchased was trashed inside so we gutted the home to clean things up. I’ve recently been dropped from the homeowners policy because its not occupied. We do not plan to do anything with this property but maintain the exterior to keep out neighborhood looking nice. The home was purchased in my name but I wanted to see if there is a way to transfer ownership to avoid liability if not insured? I only paid $5k for the property and the price for vacant home insurance is crazy.. Trying to protect myself and business from liability.

  • Hi Clint, thanks for this service–great information. Just for clarity. I can get a personal mortgage for a rental property in my name, place the rental property in a trust even though it is in my personal name, make my established LLC the trustee, and this process will not be considered a violation of the mortgage contract–do I have this correct?

  • Hi Clint. Wow, what a great blog. I just read through all the comments/answers, but still have a question. My friend and I bought a CA house in cash with plans to rent it out. We were going to transfer it to an LLC (we would be the sole members) with a quit claim deed, but I ran into this land trust blog and now I’m reconsidering. The main goal here is to protect my friend who has a multimillion dollar business. Any advice would be appreciated and I’d be more than happy to pay for a phone call if your analysis requires a detailed conversation. Thank you.

    • Ben. do you want anonymity? If you do not want the public to know you and your friend are the owners of the property then I suggest using a land trust with a nominee trustee or a WY LLC with anonymity own in a CA LLC that will hold your property. The second option might be a better option if you and your friend plan to buy more property together. Contact my office if you would like to discuss further with an advisor.

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