If he uses a trust to enter into a l/o, he has more protection.
So I agree that if he enters into a l/o personally, his personal asets are more exposed.
The trust I use does not give the beneficiary the right to control the Trustee. The beneficiaries cannot be held liable, only the trust itself can be held liable, and only the trust’s assets exposed to liability.
If your trus exposes the beneficiaries to liability, I’m not sure I would use it, but you could have the beneficiaries be a corporation, and have few if any assets in the corp.
Transferring My Interest Into LLC Later: Will This Work? - Posted by B.L. Renfrow
Posted by B.L. Renfrow on June 06, 1999 at 13:55:39:
Have a deal I just finished negotiating and expect to sign in the next few days involving a sandwich L/O. I have not yet set up a LLC or other corporate entity, as my previous deals have been more along the lines of options to purchase and flips/assignments, so I just signed for them personally. Of course, there’s not time to set up the LLC for this one, and I don’t want to stall or let it go because it’s a good deal, so knowing that there are significantly higher liability concerns with this type of arrangement, the ramifications of personal liability have me a bit worried. Is there a way I can sign personally for the L/O from the seller now, then later transfer my interest into my yet-to-be-created LLC in order to minimize risking my personal assets should there be a problem down the road?
As it pertains to the lease/option, you’ve signed for it personally. If you were to assign this option and/or lease to your LLC, nothing changes in terms of your personal liability under the lease/option. Once assigned, to the extent that this is an asset and that asset has value, you will have the benefit of whatever shield the LLC provides to that asset. But again, you will have an ongoing personal liability under the lease/option.
The one way you could alter that would be if the seller released your liability under the lease/option upon your assignment to the LLC. This release could be a clause in your lease/option which releases liability upon assignment, or it could be a release by separate agreement. I think it goes without saying that this would probably not be in the interest of the seller, and therefore if you have already negotiated this deal he may not agree to it.
Again, no assignment to ANY entity will release your liability if you sign personally. The ONLY entity that can release your liability is the seller.
Tried the Trust Idea First, But… - Posted by B.L.Renfrow
Posted by B.L.Renfrow on June 06, 1999 at 16:18:45:
…seller wouldn’t go for it. Couldn’t get past his discomfort with the underlying loan remaining in his name without title. Never having done a trust deal, perhaps my explanation was a bit convoluted, but in any event, he IS comfortable with, and understands, the L/O, so that’s the route I took.
Re: Tried the Trust Idea First, But… - Posted by Ralph C in VA
Posted by Ralph C in VA on June 07, 1999 at 21:47:16:
Brian,
Dont let other posts confuse you. Your initial post implied you were concerned about personal liability (from owning a house) as aresult of negligence, not contractual liability. Your personal assets will be protected from money judgments if the Trust buys, or enters into the L/O rather than you personally entering into the l/o.
If you personally enter into the agreemnt, and someone gets hurt as a result of your negligence as the owner or landlord, then your personal assets will be vulnerable.
Whether the seller enters into a contract with a Trust or a person, should not matter. If you default, or if the Trust defaults, he still gets the property back.
If you cant get an atty to create an llc quick enough, reconsider the Trust.
If he enters into the l/o personally, and then later assigns the l/o to an LLC, this will then protect his other assets from claims of negligence??if this is his concern. It will not however relieve his personal liability under the contract without a release of liability from the seller.
As for a trust, here’s a quote from Bill Bronchick, J.D., “A land trust is an effective device for taking title, but it will not protect the beneficiaries from personal liability (since the beneficiary of a land trust reserves the right to direct the actions of the trustee, the beneficiaries can be held liable for mishaps on the property).” Something to consider, depending on what type of trust you’re talking about, and what the nature of the relationship is between the beneficiaries and the trustee.