I have rental properties in PA and DE. Each property has a mortgage that contains a ‘due on sale’ or ‘acceleration’ clause. For asset protection, would it make sense to:
(A ) Place each property in its own trust and each trust has an independent LLC as the beneficiary?
(B) Obtain an umbrella policy that spans both states and my four rentals?
I realize that I can place all rentals in an LLC and call the banks bluff of the acceleration clause, but I cannot take that risk. Also, is there a rule of thumb for coverage using an umbrella policy as it relates to home(s) value?
There are different approaches to this situation, but generally it is a good idea to have the properties in independent LLCs for liability protection. It is also a good idea to have a liability insurance on each property and perhaps an additional personal umbrella policy - I've seen umbrella policies with 2,000,000 coerage for less than 800 a year. The main issue with the properties is not so much the mortgage but the transfer tax - if you transfer real estate (at least as far as PA goes) to an LLC you have to pay both sides of the real estate transfer taxes (depending on where the properties are 2%-4% of the fair market value). As far as the mortgages go, most lenders are willing to allow this so long as they still have their security interest intact (mortgage). Thus you have to account for 1.) cost of set up of the entities, 2.) transfer costs (deeds legal etc), 3.) transfer tax, 4.) insurance costs to make your decisions.
Of course, you can also just get huge umbrella policies and/or up your liability coverage. I don't think the coverage is based as much on the value of the property as much as the potential liability - how many tenants? Are they responsible older people or college kids who will get drunk and fall off a balcony, do you shovel the walkways, etc
This is not legal advice nor intended to create an attorney-client relationship. The information provided here is informational in nature only. This attorney may not be licensed in the jurisdiction which you have a question about so the answer could be only general in nature.
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