Wow! First time user and my head is spinning from reading all of the notes.
I am new to RE investing and have recently formed an LLC consisting of myself and two “silent” partners. My attorney tells me that I do not need insurance coverage because my assets are protected through the LLC. Both my attorney and CPA are unfamiliar with Land Trusts.
From what Ive read I gather and question:
-I should transfer the property’s title to the LLC.
-Can I do this if it’s financed in my individual name?
-I should put the property in a land trust.
-How do I set-up a Land Trust or what professional does this for me (CPA/AATY)?
-Also, I read that the beneficiary needs to be unrelated - can it be one of the LLC members?
-I have an umbrella policy on my personal residence - If someone is injured on my investment property, will my umbrella policy cover any judgement or do I need small business insurance? ???
Your assets are protected, but the assets of the LLC are not. Get insurance. You can usually add liability to your P&C dirt cheap.
You can transfer the property to the LLC directly with a warranty deed. While this technically violates the DOSC, I’ve never heard of a case where they call a performing loan. The loan stays in your name unless you do a refi into the LLC. This is best, but costly.
Or you can place the property in trust with the LLC as beneficiary. As beneficial owner, the LLC gains all income and deductions of the property. The LLC takes over payments, etc. It’s just a form and once you have one you can fill in the blanks yourself and file it at the courthouse. Best to have an atty draw up the first one, though, so that it conforms to state laws, etc.
You might consider doing this with your personal residence as well. Your million dollar umbrella isn’t going to touch what Mama gets when little Jimmy falls off of your old, rusty fence and breaks his neck. Then your real assets (house) have a judgement lien against them. Can’t touch it in a trust.
I have a similar question. I heard it’s possible to xfer a personal residence into a land trust, and then it becomes an asset in the trust. The trust’s asset can then be used to apply for a secured loan at a lower rate from a lender up to 50% of the value of the asset?
The second part also states that one could use an LLC as a beneficiary which implies that the LLC has the asset and thus use the LLC to borrow.
Any insight into this? Thanks
Yes, it is possible to transer your primary residence into a trust. For estate planning purposes this is something you may want to consider because assets held in your revocable trust avoid probate (a trust is personal property, and personal property is not subject to probate). If you title your residence in your own name, it does not avoid probate. A land trust is just a form of revocable trust.
You can always ask the trustee of the trust to apply for a secured mortgage using the assets of the trust as collateral for the loan. I doubt that a lender will make the loan (one or two might, but I don’t know who they are). The reason is that lenders like to make consumer loans with recourse. This means that the borrower is personally liable for the loan in the event of default. Contrast this to a non-recourse loan where the lender can only look to the property itself for full repayment of the loan.
When faced with property held in trust, lenders will want you to dissolve the trust, and take title to the property before they will give you a loan. You are personally liable for the loan secured by the property you own. After the loan closes, you reestablish the revocable trust then transfer title into the trust.
Whether you can get a lower rate for a refinance depends upon the rate of the existing mortgage. If the lender will only lend up to 50% of the value of the property, then you need to have more than 50% equity in the property to begin with to get any cash out of a refinance. If you have less than 50% equity, then you will have to bring cash to the settlement table to pay off your existing mortgage loan. I don’t see how a 50% LTV loan helps very much if the property is not already owned free and clear.
If the trust has the asset, then the trustee has legal title to the property. If an LLC is the beneficiary of the trust, then the LLC only has a beneficial interest in the property but does not “have” or own the property. I would say that the LLC can not get a loan and pledge the property held by the trust as collateral for the loan if the LLC is not the titled owner of the property.