Many lawyers create LLCs to provide clients "asset protection" in the event they own an asset that has a risk of a lawsuit. A typical asset put in an LLC is rental real estate to ensure the client is protected from liability that could occur at the rental real estate.
The question is; “When is a trust a better vehicle than an LLC?”
When the proper trust is used and the ultimate goals of the client are protection from liability of the asset and protection of the asset from his liabilities, then a trust is usually better. Instead of conveying the rental real estate to an LLC (which only protects the client from risk from assets), a single-purpose irrevocable pure-grantor trust can also protect the high risk asset from loss from the clients liabilities (i.e. nursing home).
In addition, a pure-grantor trust is included in the clients’ taxable estate at death, which assures a full "step up” in basis on the real estate, even after a lifetime of depreciation. Similar to an LLC, it assures the client asset protection from any liabilities that could occur by the high risk asset. The distinct advantage of the trust, however, is that it also protects the rental real estate from the client’s personal liability, like lawsuits not related to the real estate and a client’s long term care costs.
One benefit I never expected was clients’ desire to maintain privacy. Many of my clients who use trusts, relish not having to file with the state for an LLC which often requires an annual fee, and separate income tax returns. Surprisingly, clients highlight the benefit of not being on the “mailing list” of solicitors who target those who file LLC’s with the state.
A final significant benefit is that a single-purpose IPUG integrates into the client's traditional estate plan whether it is a revocable living trust, an income-only irrevocable trust, a control-only irrevocable trust or a third-party irrevocable trust. While lawyers have traditionally used LLC’s, many clients prefer trusts when the distinctions are properly discussed. My clients choose the single-purpose IPUG™ three to one over an LLC.
For more information on what Lawyers With Purpose has to offer, join us in Charlotte, NC, February 3rd – 5th. We'll go over this strategy and many more over the period of 2.5 days! Hotel cut off is January 12th so register today to reserve your spot! For registration information contact Marci Otts at motts@lawyerswithpurpose.com or call 877-299-0326.
David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center
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