By Lee R. Phillips

Today I will answer additional inquiries from people who are researching better ways to handle asset protection and estate planning matters. I hope everyone can learn from the things others are facing, and see options to explore with your own trusted advisors.

Q. My parents and I just purchased a condo as joint tenants. We are each 1/3 owners in the property and all 3 of our names are on the real estate deed. The property is my permanent residence only. If the property is put into my father’s living trust (I am a secondary trustee, after my parents and the primary beneficiary) can a creditor place a lien or force the sale of this property (while in the trust) if the possible future judgment is only against myself (an individual)?? Thanks!! Brian W.

A. In my book, Guaranteed Millionaire I have a line that reads “Kids are like yogurt, you never know when they are going to go bad.”  The line is intended to make the reader laugh, but it drives home the point that the more names that are on your deed the greater the likelihood that the property will be subject to a creditor.  The answer is “Yes, when any one of you listed on the deed has a creditor, that creditor can force the sale of the property. If you take your name off the deed and make the sole “owner” your parent’s trust, then the property would not be subject to future creditors you may have.  However, at that point it is not your house any more.  It is your parent’s piece of property.  If they let you live there for free, the IRS will impute a reasonable rent to their income.  Additionally, you can’t take advantage of the tax advantages home ownership gives you.  They can’t take advantage of those either, because it is not their personal residence.  The house will still be subject to their creditors, even though it is in the trust.  The trust doesn’t protect property from creditors.  It prevents probate.  The house will be included in your parents’ estate for estate tax calculations.  You have lost total control over the house.  (Actually, you have no control now, because your parents have to approve a sale or whatever.)  If you are taking your name off the deed to avoid current creditors, they can undo the transaction, because it is a fraudulent conveyance.  Why are your parents on your deed as joint tenants in the first place?  If you need them to get a loan, they should simply guarantee the loan and not go on the deed. (more…)

By Lee R. Phillips

There is a lot of confusion as to the taxation of an LLC (limited liability company).  The LLC does not have its own “tax structure” under the IRS code.  Corporations and partnerships have their own tax structures.

In a partnership, partners divide up the profits and losses based on their percentage ownership of the partnership, and they pay their own taxes.  The company gives all of the partners a K-1 telling them what their share of the profit or loss is.

Corporations actually have a two choice system.  If you have a corporation, you can be taxed under subchapter C of the IRS code or you can be taxed under subchapter S of the IRS code.  You get to choose which code section you want to be taxed under. (more…)