How would you suggest I structure this transaction to maximize my protection? My lender will not convey title in the name of my LLC. But, apparently, if my name is on the mortgage even that wouldn’t help.
I realize that the optimal approach would be to purchase the property through my LLC with me as guarantor. Unfortunately, the suddeness of this transaction precludes that. I’m obligated to close in a week…
Buy in land trust directly. If that’s not possible, buy in your own name and then transfer to the land trust after the closing. Such a transfer does not trigger the due on sale clause. Then, you can change the beneficial interest of the trust to the LLC. That triggers the due on sale clause, but it is not public record and the bank will never find out unless they demand to see the trust documents. That won’t happen unless the mortgage isn’t being paid. The only times I have seen the clause triggered, the bank allowed the LLC to assume the loan for a small fee.
My suggestion does nothing to protect assets from your personal liability as the manager. You will need something else to plug that hole.
My understanding was that a transfer to a land trust does not trigger the DOSC but that any subsequent transfer of beneficiary interest does violate the DOSC. However, since the transfer occurs outside of the public record there’s no practical way for the lender to know what’s going on. Except through discovery in an action that hopefully doesn’t occur…
Given the “just quit claim it to the LLC because the lender won’t call the loan” approach seems to be so popular these days, I thought this was a bit more elegant.
And I do understand that actions I personally take as manager of the LLC expose me to liability. Of course, if I fastidiously use third parties to maintain the property with (hopefully) their own liability coverage that should limit my personal exposure.
A nice generous slathering of liability insurance on top makes the cake - at least in practical terms.
But this question was mostly directed towards the tax ramifications of this arrangement - the Schedule E (C?) impacts, etc.
Nevertheless, thanks again for your help. It’s helped focus my approach.
As far as the IRS is concerned, the trust and the LLC are pass through entities. If your LLC is a single member entity, then there is no tax return for the LLC either. In this case, report your rental expenses and rental income on Schedule E (1040) as if the trust and LLC did not exist.