Real Estate Trusts vs. Personal Title or LLC

Benefits of Holding Property in a Real Estate Trust

Do you own residential or commercial income property? Or maybe you’re planning an acquisition or sale. If so, there are tremendous benefits for you when using a real estate trust. Most importantly, your ownership is private. It is the safest way of holding “title” ownership. A quick comparison of the benefits illustrate just how effective trusts can be!

Reduced Personal Liability

Real Estate Trust: Yes! This is an enormous benefit. Any property held in a real estate trust is legally isolated from your other assets. Therefore, you are not personally responsible for liabilities attached to the property. You and your other personal assets are shielded, as liability is contained within the real estate trust.

  • Personal Title — No, sorry.
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    You can be held personally liable for any and all risk asso­ciated with the property. All of your other personal assets are exposed.

  • LLC — Sort of.
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    Personal liability is limited by the LLC organization. However, the LLC must remain in compliance with state law, secretary of state filings and fees. Any omissions can invalidate your LLC statutory protections.

Isolates Properties

Real Estate Trust: Yes! With title in different trusts, properties are isolated from you, and from each other.

  • Personal Title — No, sorry.
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    All income and expense plus the property itself is listed on your personal tax return.

  • LLC — No, sorry.
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    Multiple properties owned by the LLC are all connected unless a separate LLC is created and maintained for each property.

Privacy of Ownership

Real Estate Trust: Yes! There is no public record that connects your personal name to the property.

  • Personal Title — No, sorry.
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    Your name and address are part of the public record whether or not you live in that property.

  • LLC — Not really.
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    You are indirectly linked to the property because, if in compliance with the Secretary of State, each members full name and address is on file.

Privacy of Sales Price

Real Estate Trust: Yes! If the purchase is executed through a trust, the purchase price can kept private.

  • Personal Title — No, sorry.
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    When you personally take title to real property, what you paid can be easily be obtained.

  • LLC — Not really.
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    When you take title to real property in an LLC, what the LLC paid can be easily obtained.

Tax Privacy

Real Estate Trust: Yes! Only net rental income appears on your personal return, not the property itself.

  • Personal Title — No, sorry.
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    All income and expense plus the property itself is listed on your personal tax return.

  • LLC — No.
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    Unless LLC files a partnership or corporation tax return.

Retain Tax Base

Real Estate Trust: Yes! The seller’s tax base may be retained by the trust.

  • Personal Title — No, sorry.
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    When you take title in your own name, the tax assesor will re­assess the value of the property.

  • LLC — Not really.
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    Special rules apply to LLC transactions and you may not be able to retain the seller’s tax base.

Exempt from Gross Receipts Tax

Real Estate Trust: Yes! You are exempt from paying gross receipts tax in CA.

  • Personal Title — No, sorry.
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    No, but you are personally exposed.

  • LLC — No, sorry.
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    You must pay gross receipt tax, $11,790 is the maximum cost.

Split Gains & Losses

Real Estate Trust: Yes! You allocate them as determined by ownership percentage.

  • Personal Title — No, sorry.
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    All income and expenses are generally alocated to you personally.

  • LLC — Maybe.
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    If you file as a corporation or partnership.

Exempt from 1099 Reporting

Real Estate Trust: Yes! You are exempt from receiving a 1099

  • Personal Title — No, sorry.
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    No, you will receive a 1099

  • LLC — No, sorry.
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    No, you will receive a 1099

Property Safe from You

Real Estate Trust: Yes! The property is safely isolated from your personal liens and judgments.

  • Personal Title - No, sorry
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    Your property is directly connected and at risk from your personal liens and judgments. They attach and seize your equity.

  • LLC - Yes, but...
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    LLC members are at risk from seizure or levy by tax authorities because the laws are tricky. And the LLC must follow all state requirements to remain valid.