Trust Transfer Made Easy

Originally posted 2009-02-12 10:32:22. Republished by Blog Post Promoter

Due to recent changes to Fannie Mae’s financing criteria, an investor may want to consider putting his or her properties in a trust to be able to refinance the properties.  The change affects all investors who have his or her investment properties under a limited liability corporation.  

Today, I found an article at http://blogs.tldlaw.com/estate_planning/2007/02/transferring_re.html that explained a simple and economical way to transfer the properties in to a trust. 

The article goes on to explain what to do if you want to transact any other business with the properties under the trust. 

It is also important to understand the advantages to a trust and consult an attorney before entering in to the trust.

Breaking News for Investors

Originally posted 2009-01-04 13:04:51. Republished by Blog Post Promoter

On August 1, 2008, Freddie Mac changed its guidelines.  Those changes are affecting investors who finance the property in their portfolio and have those properties under the entity, limited liability corporation (LLC). 

 

Freddie Mac backs many of the conforming loans on the secondary market, so any changes in the rules is very important and should be headline news; hence, this news release. 

 

The changes are as follows:

• Freddie Mac will no longer approve refinance for any property that has been under a limited liability corporation entity for the previous six months. 
• Freddie Mac is limiting the number of properties the investor can have financed to four not ten as in years passed.

 

The solutions to these changes are as follows:

• Cash is king.  Allow the equity that you have build in the properties you currently own acquire new properties not using a loan; however, with this option you will have to factor in the cost of repairs.  In other words, the cash has to cover the purchase and the repairs.
• All properties that are acquired must be protected.  The way they are protected will still include the LLC.  It will just be a trust that will act as a go between.  The property will be held under a trust with the beneficial interest being the LLC.

 

Remember, these changes do not preclude you from owning properties.  It just changes how they are held and how many can be financed at any given time.  Lastly, speak with an attorney on how to set up your trust and having the beneficial interest going to the LLC.

Your Limited Liability Corporation Maybe in Jeopardy

If your limited liability corporation is owned by just you, then you may want to ensure that you filed it appropriately.     The limited liability corporation that you formed is still a good options, but as a single owner the way it was filed may cause a challenge if it was not designated at the time you filed.  Let’s examine.   There was a case that challenged the single owner LLC; the case was Littriello vs.  United States.

The primary reason that a business entity is form is to protect the owners, managers, and/or members from personal liability.  However, the business entity must be structured correctly to accomplish that goal.  Mr. Littriello did not classify his company.  For tax purposes, he needed to check a box to declare his company as an association or corporation.   As a results of Mr. Littriello not checking the appropriate box the IRS treated his company as a sole proprietorship for federal tax purposes.  This reclassification resulted in Mr. Littriello being held personal responsible for the employment taxes for the company he formed.

This is not the end of Mr. Littriello’s dilemma.  Mr. Littriello did not operate the company he had a general manager that did the daily operation of the company.  This general manager embezzled money from the company in 2000 and 2001 that created the dilemma that Mr. Littriello faced with the IRS over the employment taxes. 

The actions of Mr. Littriello’s general manager led to the court proceedings true enough, but the fact that Mr. Littriello did not classify his company as a corporation led to him being held personal responsible for the payment of the employment taxes.     Make sure that you check the appropriate box on the LLC documentation, so that you will not be held personal responsible.    The designation of the LLC is very important if you are a single member and/or manager of the LLC.  Consult an attorney or accountant to make sure that your single owned LLC is set up properly.

 

History of Limited Liability Corporation

Wyoming was the first state that created the LLC.  The LLC that Wyoming created had the corporation characteristics, but not the corporation tax structure.  Remember, a corporation’s disadvantage is double taxation.  The creation of the LLC solved that problem.