Should I Put My Investment Property in a Trust or LLC?

Have you purchased real estate (homes and rental properties) that you intend to use as an investment property? If so, should you place the real estate in a living trust, LLC, or in your personal name?

Advantages of a Living Trust

In many instances, placing your investment property in a living trust is more beneficial than using your personal name.

  • It can help avoid probate and minimize estate taxes.
  • It can separate your personal assets from your business assets.
  • If there is a claim by a tenant, they are unable to go after your personal assets, income, and wages to pay off debts.
  • If the rental property is under your personal name, the claimant can go after your personal assets and income.

Advantages of an LLC

Rental Properties Come with Higher Liability Risks

As an owner, you should talk to your insurance advisor on how to get adequate coverage to mitigate the liability risks of renting out your property.

Another option for landlords is to place your rental property under a Limited Liability Company (LLC). It is certainly advisable to speak with an experienced Estate Planning attorney and a Certified Public Accountant to discuss the tax implications of putting a real estate property under a Trust or LLC.

What kinds of questions would the insurance carrier ask when insuring your rental property under a Trust or LLC?

Here are some examples of questions that may be asked:

  • Who are the parties to the trust or LLC?
  • Does the entity own any other property?
  • Does the entity conduct any business activities or generate income?
  • Who will occupy the property and how will it be used?
  • Was the entity formed solely for the ownership of the property?

What insurance coverage should you consider for your rental property under a Trust or LLC?

Insurance coverage you should consider as a landlord for your rental property under a Trust or LLC include:

  • Dwelling Limits – the cost to replace the building structure after a total loss. Dwelling limits include replacement of walls, flooring, windows, built-in appliances, tiling, HVAC, countertops, lighting fixtures and more.
  • Loss or Rental or Business Income after a covered loss
  • Liability Limits for lawsuits against the Trust/LLC – it is recommended to have a minimum of $1,000,000.
  • Umbrella Liability/Excess Liability – securing higher liability limits for lawsuits against the Trust/LLC is greatly advised.
  • If a property owner has several properties under a Trust/LLC, they can place several properties covered under one policy.
  • Leases with tenants should require the tenant to secure their own personal Renters insurance and to also name the Trust/LLC as an Additional Insured or Additional Interest on their policies as an extra layer of protection.

Working with an independent agent who can compare Commercial Package quotes for rental properties under a Trust or LLC from multiple insurance carriers is one of the best ways to understand the coverage and be properly protected from risks.