Corporation VS Trust

Comments(2)

• 
  Mantis28th September, 2005

  Neither, trusts provide no asset protection and corporations are not well suited to (directly) own real estate (corporations require more corporate formalities, double tax burden when/if earnings are distributed, etc.).
  
  An LLC or a limited partnership would be best, gifting portions of the ownership of the LLC or LP to the children each year. The advantage of an LP in this case, or an LLC with the operating agreement structured so the children do not have control, is the IRS allows you to "discount" the value of the gift if control is not present on the theory that the gift is less valuable if the recipient cannot exercise control over the gift.
  
  I suggest an LLC, generally consider one in NV, DE, or WY (best asset protection features) if the state the property is in does not treat property owned by "foreign" (out of state) owners adversely. For example CO retains 6% of the sales price (not profit, but sale price) from "foreign" (out of state) owners/companies. You can apply to get it back by filing a CO return, but this can take quite a while. If the state in which the property is located does something similar it may be better to form an LLC or LP in that state instead, even though the asset protection features are fewer in that state than they are in NV, DE, or WY.
  
  One drawback to a LP is that they must have a general partner (GP). If this general partner should ever be sued control of the property could be lost. The limited partners would still receive what is due them but the property could be sold before intended, or with more negative tax implications than planned for, etc. This is a small risk and probably not a major concern in your case but you need to know about it.
  
  Regardless of which entity you choose drafting a good operating/partnership agreement is critical. This agreement ought to limit distributions without some very high hurdle, and protect the interests of the children to a great degree to ensure that their investment cannot be lost through suit by an outside party against the person or entity that exercises effective control over the LLC or LP.
  
  Your best bet is to talk with an attorney and request a simple NV LLC (or other state) with a basic operating/patnership agreement that contains a few simple asset protection features.

• 
  Konte29th September, 2005

  Mantis I sent you a private message, please read.
  Thanks for your input.
  Konte