What is the difference in placing properties in a trust vs a real estate holding
Hi Allison, Just read your article which was very insightful. What is the difference in placing properties in a trust vs. a real estate holding company? Next, my family and I would like to purchase investment property together, I currently have an LLC for real estate can I just modify this or would we have to start a new LLC, or should I reach out to an attorney for advice on this one? Ths
Thank you for your question. A real estate trust places the property under a trustee with designated beneficiaries and requires a trust agreement. It can be revocable or irrevocable. An LLC is a corporation with limited liability. The LLC can be member managed or manager managed. Member manages gives all partners equal decision making and signatory abilities whereas manager managed appoints a manager.
You DO want to talk to a lawyer before deciding on either. It is probably best to put the property in a separate LLC. For best liability protection, holding each property in their own LLC insulates each one from the other if something goes wrong. If someone is injured at one of your properties and sues, they can only go after the assets within the LLC of the property. If you have multiple properties in one LLC, they’re all fair game in a suit.
Both a trust and LLC hedge against some liability, but which one is ideal for your situation would be best decided by speaking to both a lawyer AND an accountant. You need both for this decision since it will tie to your personal tax situation.
Hope this helps!