How do I legally transfer my CA rental property into land trust & have the land trust make a single-member LLC the beneficiary?

Asked almost 2 years ago - Los Angeles, CA

It looks like taking title and transferring it into a land trust, then having an LLC I own be the sole beneficiary allows for the asset protection of not having the property in my own name (in case I ever have a judgement), and putting it in a land trust (vs trying to transfer it directly to an LLC) won't flag and/or upset the lender, potentially triggering the "Due On Sale" clause.

Is this correct? And has anyone familiar with asset protection done anything like this before? And does it do what I'm hoping (protect my assets and keep lender comfortable)?

I read this advice online (sorry for the link, but didn't want to have a copyright headache copying/pasting:

Attorney answers (3)

  1. David Christopher Bynum

    Contributor Level 4


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    Answered . I reviewed the article that you linked to and here are my impressions: The assignment of the beneficial interest to the LLC violates the due on sale clause. The article is correct in that you need not record the transfer to make it effective, and that the lender will not be able to find out about it absent discovery tools in a lawsuit, but that doesn't change the fact that you have violated the due on sale clause. Secondly, your ownership interest in the LLC can always be attached in a law suit against you personally, just as if you owned stock and a judgement were outstanding against you the stock could be attached and sold to satisfy the judgment. I do not agree with the article you posted, and would not use it to insulate yourself from creditors.

  2. Douglass S Lodmell


    Contributor Level 13


    Lawyers agree


    Answered . An LLC is an efficient legal tool for estate planning purposes and to separate liabilities generated by risky assets as for example investment real estate. On itself, an LLC is not a good asset protection tool. A plaintiff may try to (and there is abundant case law of judges who accepted to) pierce the corporate veil by holding you directly liable by theories such as negligence or gross negligence.

    Land Trusts, as LLC's, are proper estate planning tools but will not protect you from potential creditors/lawsuits.

    For specific asset protection purposes, you should seek specialist advice with a lawfirm that focuses on this very specific area of the law.

    I recommend you to put the sole proprietorship of the LLC in an entity that is specifically designed for asset protection purposes, such as an asset management limited partnership that is filed in a state with strong charging order rules and a legislative history as AZ or NV. This asset managent limited partnership can also hold directly your liquid assets such as bank and brokerage accounts.

    If the total net worth you seek to protect is over the 400/500k benchmark, my advice is to consider an exit strategy that alllows to you take your assets out of reach of US courts.

    A legitimate, thorough asset protection plan should not cause any issues with your lender.

    Douglass Lodmell is the nations #1 Asset Protection attorney and has clients in all 50 states, protecting over $4... more
  3. Richard Alan Rodgers

    Contributor Level 16


    Lawyers agree


    Answered . A de jure, adequately capitalized (i.e., insurance) LLC in good standing is a separate legal entity, and absent fraud or other intentional tort done by and through the LLC, California courts will not pierce the corporate veil for mere breach of contract. If an LLC member has a judgment against him/her, the creditor can attach income distributions from the LLC, but not the actual assets owned by the LLC.

    BTW, a Trustee of a trust can be the manager of an LLC, and the Trustor who is a member of the LLC can transfer his/her membership interests to the Trust to be held for for the benefit of the Trustor. Unless the trust is an irrevocable spendthrift trust, the Trustor's creditors can still reach the income that the LLC distributes to the Trust.

    Richard A. Rodgers, Esq.
    200 N. Westlake Blvd., Ste 201
    Westlake Village, CA 91362
    (805) 230-2525

    As stated in the AVVO.COM Terms and Conditions of Use, this answer is not intended as legal advice, and no... more

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