Should I put the property in my name or form an LLC

[timtoomey]

Hi folks,

I would appreciate your input and advice on whether or not I should put a property in my name. I would appreciate any input or comments on books to consult and personal experiences. Also, any advice on how to select an estate planning attorney would be great!

[UCGal]

I know early-retirement did this. I believe the issue he had to work was homeowners insurance… which he was able to solve. I’m not sure how financing works… I believe he paid all cash – so that wasn’t an issue for him.

[Mark Holmes]

Just be aware, if forming an LLC, the State of California requires a minimum tax of $800 a year…

[DataAgent]

Most people put their personal residence in their legal name(s) or some sort of trust. What benefit do you hope to gain with an LLC?

[gzz]

This is true about state corp taxes. Other states are cheaper, but CA may still decide you owe later and demand back taxes with big penalties.

I don’t think trusts need to be incorporated but I could be wrong.

I don’t think you even want to consider this unless there is no mortage, no chance of getting one later or HELOC. It seems to be the thing to do for very rich people who want to hide assets and maximize privacy.

[timtoomey]

It would be great to establish an LLC for the sake of privacy and to shelter assets. I appreciate the comments and questions raised especially how an LLC can affect insurance and future loans. I am interested in estate planning and would appreciate any sources I should consult. NOLO is where I am planning to start. Thanks!

[DataAgent]

[quote=timtoomey]It would be great to establish an LLC for the sake of privacy and to shelter assets.[/quote]

You can get asset privacy and shelter with a trust. Talk with a trusts and estates attorney. If you need help finding an attorney, look here:
http://www.lawreferral.org/

[sdsurfer]

I’ve never done one myself, but I’ve noticed a lot of people doing holding property in the name of a trust that bears the address. For instance…”123 Neptune trust” and I think believe they do one for each property. I believe it is a land trust of some sort, but I’ve never really talked with an attorney or anyone to learn more on it.

[sdduuuude]

Another reason to put the house in a corp is to shelter from property tax increases.

If you sell the company, which owns the house, it does not trigger a sale event on the house, so the property tax basis stays the same.

[earlyretirement]

[quote=timtoomey]It would be great to establish an LLC for the sake of privacy and to shelter assets. I appreciate the comments and questions raised especially how an LLC can affect insurance and future loans. I am interested in estate planning and would appreciate any sources I should consult. NOLO is where I am planning to start. Thanks![/quote]

Yes, as UCGal mentioned, I went this route. I researched a while before doing it. You can start out and read a few articles on this website which I found helpful.

http://www.limitliability.com/llcslivingtrustsarticles.html

There are many reasons why you might want to structure this under an LLC. Several reasons were already mentioned. There are many out there and each person has a different reason for doing it. It can be good old fashion privacy, to asset protection, to tax reasons if you have residency in multiple countries. (Some countries have a worldwide asset tax on PERSONAL assets but none for corporate assets.

What might make sense for one person won’t for another. And there is a LOT of misinformation or varying information out there about LLC and home ownership. So odds are you will find different information from State to State.

I posted a lot of information about this process in another post on Piggington if you want to do a search you can probably find it.

In a nutshell, I found the best way to structure it IF you are going to go ahead and buy under an LLC is to set up the company ahead of time so the house can go into the name of the LLC directly upon the initial purchase. This way you don’t have to transfer the name later which to me kind of defeats the purpose of privacy.

And the best State I found to set it up in was a Delaware LLC which offers the most privacy. They never disclose anywhere the officers/owners of the LLC like other states. Plus the fee to maintain it is very affordable. I pay $250/year to Delaware for the LLC and $100 a year to a law firm in Delaware to be my Registered Agent on record and they pay this tax for me each year and I turn around and pay them this $350/year.

The most difficult part was finding an insurance company that had a clue how to legally structure the insurance. I found most had no clue. Especially the major insurance companies. And even with the SAME insurance company and different offices in San Diego I would get conflicting information or quotes that were FAR apart.

The way I had to structure it was getting the main policy under the name of the LLC and then I had to get a separate rental policy under my wife and I’s name. I went ahead and also got an Umbrella coverage policy with the same company under my personal name.

In the end, everything worked perfectly. The only thing I’d mention is that the City of San Diego will automatically assume you are renting it and not living in it when they see an LLC and they will send you a bill for taxes resulting from renting it out. But all you have to do is send in a letter along with utility bills and they also want to see the Articles of Incorporation and then they just get you out of the system to pay rental taxes.

[quote=gzz]
I don’t think you even want to consider this unless there is no mortage, no chance of getting one later or HELOC. It seems to be the thing to do for very rich people who want to hide assets and maximize privacy.[/quote]

There was no easy way to get a mortgage for an LLC. Most people putting properties under an LLC are buying with cash. In all my due diligence I didn’t come across anyone that was able to get a mortgage for their LLC.

And gzz makes a great point that if you plan on HELOC’ing the house in the future this probably isn’t the way to go. I was looking to buy a 2nd property in Carmel Valley and went through the pre-approval process. I easily got pre-approved but the guy kept trying to get me to use the paid off house for a loan. I wasn’t interested but out of curiosity I heard him out on the process involved if you wanted to do that.

It sounded like I would have had to transfer the house from the LLC to my own name and then I could borrow against it. I had no interest in doing that. So gzz is correct that it’s not easy to HELOC out of an LLC property from what it sounds like.

People don’t necessary do this to “hide assets”. It’s just if you have lots of assets, it’s better for you to shelter these assets so they aren’t in your name for a vast number of reasons.

Just go to any airport, marina, etc. You will find that many wealthy people own their Yachts, airplanes, private jets, etc. all under the name of a Delaware LLC for the most part. When you see corporate executives that own their own jets (think Google CEO’s) in almost every case you will see a Delaware LLC was set up as the entity/structure that owns it.

[spdrun]

Once you go 5+ units or commercial, getting mortgage/insurance with corporate ownership becomes a LOT easier.

[earlyretirement]

[quote=spdrun]Once you go 5+ units or commercial, getting mortgage/insurance with corporate ownership becomes a LOT easier.[/quote]

Yes, by all means, my advice and experience above was only on buying a SFH. I’m sure once you own many properties it’s a totally different situation.

spdrun, just out of curiosity, do you structure each of your purchases under a separate LLC, or all under one master LLC, or do you just own all of them under your name?

[SK in CV]

[quote=sdduuuude]Another reason to put the house in a corp is to shelter from property tax increases.

If you sell the company, which owns the house, it does not trigger a sale event on the house, so the property tax basis stays the same.[/quote]

By law, that’s not accurate. If more than 50% of corporate stock or ownership in an LLC is transferred (in a single year or cumulatively since 1975), and the corporation owns real estate in CA, that transfer must be disclosed and the property is re-assessed. As a practical matter, I don’t now how the state enforces this for foreign corporations, but for CA entities, it’s right on the tax return:

J 1. For this taxable year, was there a change in control
or majority ownership for this corporation or any of
its subsidiaries that owned or (under certain
circumstances) leased real property in California? . . . . .   Yes  No
2. For this taxable year, did this corporation or any of its
subsidiaries acquire control or majority ownership of
any other legal entity that owned or (under certain
circumstances) leased real property in California? . . . . .   Yes  No
3. If this corporation or any of its subsidiaries owned or
(under certain circumstances) leased real property in
California, has more than 50% of the voting stock of any
one of them cumulatively transferred in one or more
transactions since March 1, 1975, which was not
reported on a previous year’s tax return? . . . . . .  Yes  No

[spdrun]

spdrun, just out of curiosity, do you structure each of your purchases under a separate LLC, or all under one master LLC, or do you just own all of them under your name?

Well, I only have two and both are under my name, but that’s what several mortgage brokers told me when I put an offer on the resdential+commercial short sale property, so I’m passing the info along 🙂

I would definitely like to hold future properties under an LLC if possible.

[earlyretirement]

[quote=spdrun]

spdrun, just out of curiosity, do you structure each of your purchases under a separate LLC, or all under one master LLC, or do you just own all of them under your name?

Well, I only have two and both are under my name, but that’s what several mortgage brokers told me when I put an offer on the resdential+commercial short sale property, so I’m passing the info along 🙂

I would definitely like to hold future properties under an LLC if possible.[/quote]

Ohhh. I thought you had many more than that from all the posts about property offers. It does sound like LLC is the way to go on rental properties but I guess it’s a catch 22 when you’re trying to start out and build up a property portfolio because it doesn’t seem easy to start out from the beginning to put them all under separate LLC’s without having a lot of cash and assets.

Maybe in the future it will get easier…. Thanks for sharing spdrun.

[Author]

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