Asset Protection with Estate Planning

After reading all of the posts in this forum and doing other research, I have a few questions about asset protection with estate planning. Please excuse the length of this post but I wanted to make sure I provided the most info.

My husband and I are new to r.e. investing. We have owned and managed 4 rental properties for 2 years and are ready to proceed further. We are expecting our first child this year so I am anxious to get some things taken care of. My goals are:

  1. Protect our assets in the case of lawsuits.
  2. Provide the best (quickest and easiest) transfer of the properties to our child in the event of the death of myself and my husband.

In regards to asset protection, we currently have a $2m umbrella policy but having seen the increasing amount of jury awards in cases that to me seem to have no merit, I feel I need more than just the umbrella policy. I understand there are many options and opinions on the “best” way to protect the assets. For me, I have gathered that the “best” option is setting up a land trust for each property with the beneficiary being an LLC. I am not overly concerned about hiding my identity in a trust but am concerned about the DOS if I transfer ownership directly to the LLC.

Is that a valid concern?

Once I have the asset protection set up, what is the best way to provide for the direct transfer of the properties to my child (avoiding probate) upon our death?

I have an appointment with a real estate and estate planning attorney in 2 weeks but even attorneys have differing opinions on the subjects. I am interested in hearing from those of you who have experience in investing. All comments and opinions are appreciated.

Once I have the asset protection set up, what is the best way to provide for the direct transfer of the properties to my child (avoiding probate) upon our death?
If each property is titled in its own revocable trust, then make your child the substitute beneficiary should something happen to both you and your husband.

Assets held in the trust avoid probate, but are included in your taxable estate for federal estate tax purposes.

I am not so sure that transfer to a trust does not also trigger the DOS. As I interpret the law on the subject, lenders can’t invoke the DOS clause for owner occupied property that is transferred to a revocable trust, but I don’t see this shield extended to non-owner occupied property. That said, I seriously doubt any lender would invoke the DOS for transfer to a trust where beneficial interest does not change.

Thank you very much for your reply Dave T.

Transfer into an inter-vivios beneficiary directed, revocable title holding trust does NOT invoke an lenders due on sale clause as long as the seller( settlor) retain 10 % beneficiary intererst and 50 % of the voting rights in the subject trust and there is no intention for a transfer of occupany rights… Reference 12 USC 1701 (j)-3.
For Jennifer to direct transfer is no problem since if something happens to her the heir would claim the same beneficiary interest as what jennifer had she would name her as a co-beneficiary or remainder agent …
Jennifer: Regarding your questions if you are looking to protect the collateral asset real estate or R/E related assets I would use a title holding Illinios trust since it offers most definitely the best protection.
The Grantors trust or family trust setup are mainly for avoiding probate and really do not offer any protection for your real estate assset ( equity).

Using an LLC as a beneficiary is prudent estate planning and provides per all the asset protection gurus such as Bill Gatten, Bill Bronchick etc as literally bulletproof protection againest judgments,liens even IRS liens, creditor charging orders and so on.
I DOS is an non issue as long as the land trust is setup properly conforming to the Garn ST Germain act of 1982…Good luck


I agree that USC 1701j-3(d) prescribes certain prohibitions to a lender’s exercise of the DOS clause.

My reservation, however, lies in the next section however, USC 1701j-3(e)(2), which refers to loans taken Subject To:

Notwithstanding the provisions of subsection (d) of this section, the rules and regulations prescribed under this section may permit a lender to exercise its option pursuant to a due-on-sale clause with respect to a real property loan and any related agreement pursuant to which a borrower obtains the right to receive future income.

Do you see room for an interpretation that would also include rental property agreements, and therefore allow lenders to exercise the DOS when investment rental property is involved?

I think so which is why I voiced my reservation earlier.

Thank you for the great responses. I called one of my mortgage companies and took the approach suggested by someone elsewhere in this forum of inquiring about transferring the property to an LLC for “estate planning purposes.” The rep told me that it would not trigger the due on sale clause with them and that “everyone is doing it.” I neglected to ask them to put that in writing, but I am willing to take the chance that they will not call the loan. I think my risk of being sued outweighs the risk of triggering the DOS.