Transfer property with LLC using a quitclaim deed. A property transfer with an LLC is not always the best solution for transferring inherited property. Property transfers with LLCs are better-suited for estate planning and would cause problems for most mortgage lenders.
Q: My wife and I really enjoy your radio show. My mother passed away last year. I have two brothers and I am the executor of her will.
The house was purchased from my brothers in a stock transfer. My mother also had stocks and cash that we all split equally. We did a quitclaim deed from my brothers to me and filed it in the courthouse.
I wanted to give my 25-year old son the house as he’s getting married soon. I established a limited liability company (LLC) with my wife, son and I as owners. I then filed another quitclaim deed from myself to the LLC so we all own the house and are protected under the corporate veil with rights of survivorship should something happen. The idea is to also protect the house in case my son’s marriage doesn’t work out.
Have I thought through all possible scenarios? I want to make sure I’ve done this the right way so there will not be any consequences in the future?
A: We are sorry for your loss. Your situation has become quite complicated – probably more than was necessary and there is no way for us to know if you’ve covered yourself for every possible scenario. But let’s talk about what else could unravel the situation.
After all of these transfers you describe, you might need a title insurance or abstract company to review the title to the home and see where title stands now. It is quite possible that some form might have been improperly filled out or filed and the chain of title has been broken.
Frankly, we’re not sure that holding title in the limited liability company (LLC) is right for all of you. Sure, you might have the protections of the limited liability company if something happens to the home, but usually people have homeowner’s insurance to protect themselves from those uncertainties. If your son decides to move out years from now and you decide to rent the property, then having the LLC might prove useful, especially if you have other rental properties.
An LLC is usually the best estate planning tool for co-owners to jointly own a home and have title pass to the co-owners after their death. In effect, all membership shares in the LLC would have to be jointly owned with rights of survivorship. But financing the home inside an LLC might be a nightmare with most, if not all, conventional mortgage lenders. You also may lose tax benefits individual homeowners obtain by having title in their names and using the home as a primary residence.
You also may find resistance to owning the membership shares jointly for federal or state income tax returns. While you may all be considered equal owners in the LLC, you will also have additional annual costs and fees associated with tax returns and filing fees you wouldn’t have if you all owned the home in your own names.
While you might want to protect your assets from your son’s new wife, you might want to talk to an estate planner and go over your options. Frequently, a trust is another, and in this case perhaps better, option available to you for owning property. A benefit of some of these trusts is that they may not require you to pay annual fees to the state in which you live and the trust may be invisible for income tax purposes.
Start by talking to a title insurance company to determine the status of your title. Then you should talk to an estate planner or estate attorney and go over your situation and see if there is a better way for all of you to hold title. You certainly need to do this if you and your new wife plan to live in the home at some point in time.
If you do plan to live in the home someday, the LLC may wind up being a fine option for you to keep the property out of your son’s future wife’s hands. Double check with local counsel and a tax advisor to be sure.