As an estate planning and probate attorney, I often get asked about the best way to protect rental properties. One common question that comes up is whether it's a good idea to put a rental property in a living trust. In short, the answer is no. While a living trust can be a great tool for passing down assets to your loved ones, it does not provide any liability protection for you or your rental property.
A living trust is simply a legal document that outlines your wishes for how your assets should be distributed after you pass away. It is not designed to shield your assets from creditors or lawsuits. If you are sued and a judgment is entered against you, the creditor can still go after the assets in your living trust, including any rental properties.
Rental properties, in particular, are at a higher risk of being sued. Tenants or their guests could be injured on the property, or there could be disputes over rent or property maintenance. Any lawsuit filed against you or your rental property could potentially put your other assets in the living trust at risk.
So what can you do to protect your rental property? One option is to create a limited liability company (LLC) and title the rental property in the name of the LLC. An LLC is a separate legal entity that can shield your personal assets from any lawsuits or liabilities related to the rental property. This means that if someone sues you or the LLC, they can only go after the assets held by the LLC, not your personal assets or those in the living trust.
If you do choose to create an LLC for your rental property, it's important to note that you should still include the LLC in your estate plan. One way to do this is to have the LLC owned by your living trust. This will ensure that the rental property passes down to your beneficiaries according to your wishes, without exposing your living trust to any potential lawsuits or liabilities related to the rental property.
