If I own a rental property in California, should I create an LLC to hold title to the property?
Yes. A California LLC can serve to shield your personal assets from lawsuits and claims arising from the property. For example, if there is an injury/accident on the premises, (with or without insurance), the injured party can only sue the LLC and not you personally. In this way, a California LLC is treated much like a corporation.
If I own more than one rental property in California, should I form a separate LLC for each property?
Generally, yes. If the LLCs are set up correctly, only the assets of the particular LLC relating to the claim would be subject to a lawsuit against that LLC.
I own rental property in California and I have children applying to college. Should I transfer my rental property to a California LLC?
Yes. Not only do you receive the benefit of limited liability (discussed above), by setting up an LLC, you may also qualify for college financial aid for which you would not qualify had you left title to the property in your name. For those interested in learning more, please contact us.
Is there a change in ownership if I transfer the rental property to my California LLC?
Yes. Technically any transfer of a present interest, including to your own LLC, constitutes a change in ownership. But there are exclusions which may apply. See below.
What are the exclusions from property tax reassessment?
The State of California has created several exclusions for certain property transfers such that there is no reassessment even though a change in ownership has occurred. Here are some of those exclusions:Transfers of a principal residence between parents and children;Transfers of a principal residence between grandparents and grandchildren;Purchase of a replacement residence by a person who is 55 years old or older where the replacement residence will become the principal residence;Transfers between husband and wife;Transfers in the creation of a joint tenancy where the transferor remains one of the joint tenants;Transfers to a revocable living trust where the transferror retains the power to revoke the trust.
If my spouse and I own a rental property and we transfer it to an LLC, is there an applicable exclusion in California?
So long as the owners prior to transfer remain the owners after transfer with the same proportional percentage of ownership, there is an exclusion. Thus, if the husband and wife own the property 50% each before the transfer, and become equal members/owners of the LLC after the transfer, there should be no property tax reassessment. The deed and preliminary change of ownership statement must be completed correctly highlighting such exclusion to avoid reassessment by the county in which the property is situated. It is best to contact our office to prepare the paperwork.