Once you obtain the title deeds to your house, you are likely to encounter taxes and other financial and legal issues in New Mexico state. To resolve them, many people consider transferring their houses to LLC companies or trusts. Both options protect assets and offer a number of benefits but have different functions. Let’s take a look at the issue of transferring a house to an LLC or a trust in a little more detail.
Transferring a House to an LLC
Definition and Basics of LLC Formation
An LLC is a separate legal entity formed to conduct a business. It is a formal business entity, so LLC incorporation is done by filing formation documents with the state in which you plan to do business.
The main feature of an LLC company is the protection of limited liability. It allows you to shield the owners from legal liability for the obligations of the company. In other words, owners’ private property, such as their house and savings, will be protected from creditors after LLC formation.
Also, important aspects of LLC incorporation are affordability and flexible taxation, which combine to explain the high popularity of this business structure. Every day, hundreds of entrepreneurs in the South-West of USA turn to professional LLC formation services or think of how to form an LLC in New Mexico on their own.
Pros and Cons of Transferring your House to an LLC in New Mexico
There are several reasons why you may want to transfer your property to an LLC company. Usually, in New Mexico the main ones are the following:
- Earnings: after business incorporation, you can start transactions, but the company needs sufficient assets to operate. In this case, owners usually contribute money, personal property, real estate, receiving a share in the business;
- Liability protection: if a lawsuit involves rental or investment real estate, the LLC will preserve the personal assets of the participants;
- Transferring of business assets to heirs: in many states, LLC formation makes it easy to transfer the business to a new owner. In addition to the corporate assets, participants can include other types of assets in an LLC.
Nevertheless, when deciding to transfer a house to an LLC company in the South-West region, one should also pay attention to the negative consequences of this action. Some of the most common ones include the following:
- Increased taxes: if the state has a property tax exemption, transferring your house to an LLC will cause you to no longer meet the requirements;
- Increased insurance costs: living in a house that is owned by an LLC, you become a renter, which requires additional insurance;
- The need to repay the loan secured by the property immediately: if you took out loans to buy a house, transferring it to an LLC can lead to complications. Including activating a clause in the contract for immediate repayment of the loan’s remainder;
- Financial risks: for protection purposes, after business incorporation, the LLC property is separated from the owner’s assets. However, if you transfer your house to the business incorporation, there is no such barrier between the two. If the business is sued, creditors will be able to claim all of the company’s assets, including the house.
Is it Worth Hiring Incorporation Services?
Time is the most valuable resource these days. Start-up entrepreneurs often face excessive workloads, but there is an effective solution to this problem. You can remove some of the responsibility for the business incorporation process and, at the same time, save on legal services by hiring a professional service such as Mycompanyworks or IncFile – in New Mexico they are taking a reasonable fee starting from $39.
With LLC formation services, you will not have to worry about preparing documents and submitting them to the state. A professional business formation service will take care of all the formalities so that you get a fully operational company.
Transferring a House into a Trust
What Is a Trust?
A trust is a fiduciary relationship created to appoint one party to be the manager of another party’s assets on behalf of a third party. They can hold different types of assets, such as:
- Ownership interests in an LLC company;
- Real estate.
Three parties are needed to open a trust:
- Trustor: the grantor, who transfers the assets to the trust;
- Successor: the person responsible for managing the assets in the trust, obligated to act for the benefit of the beneficiary;
- Beneficiary: the person who will receive the assets of the trust.
Trusts are used to hold and transfer assets. However, unlike LLC incorporation, the creation of a trust does not create a separate legal entity. It does not need to be registered by filing with government agencies.
Depending on their characteristics, trusts can be of 2 types:
- Revocable: the trustor has the right to act independently as a trustee while retaining control of the property. He or she can make any changes regarding assets, beneficiaries, etc. Transferring a house in such a trust will not affect your ability to live in it, make repairs, and other improvements;
- Irrevocable: the trustor transfers control of his assets to the trustee, who distributes them according to the trust documents.
Reasons to Transfer Your House in a Trust in New Mexico
Why do people transfer their houses in a trust instead of managing it themselves? As well as transferring real estate to an LLC company, this decision may have certain financial or legal purposes, such as:
- Avoiding a will creation: transferring property through a trust is easier, cheaper, and faster than in the case of an inheritance. Instead of executing a will and paying inheritance tax, the trustee will simply distribute the property according to the trust documents;
- Incapacity protection: instead of going through the court process and appointing a guardian, you can determine who will manage your affairs and house yourself. It’s a simple solution that will save nerves, time, and money;
- Flexibility: you can fully regulate the distribution of assets:
- Appoint beneficiaries;
- Choose the assets;
- Specify the condition for the distribution of assets, etc.
How Can Professional LLC Services Help?
If you need some help with the creation of a trust, there are some LLC creation services in New Mexico that provide the appropriate service. For example, LegalZoom offers 3 levels of service. It is one of the best LLC services in the industry, serving over 175,000 trusts.
By hiring a professional service, you will easily open a trust under state law and have access to helpful features. You can also consult on any legal questions you may have.
Depending on the circumstances, there may be advantages of transferring your house to an LLC company or trust in New Mexico. Factors such as taxes, liability, availability of credit need to be considered when making a decision. Generally, an LLC is better at protecting business assets from creditors. On the other hand, trusts can manage different types of assets and help avoid creating a will.
Nevertheless, it’s better to transfer your house into a trust than to contribute it to the capital at LLC formation, especially if that’s your primary residence. The benefits of LLC incorporation are not always fully applicable to a house. Instead of the expected savings, you may incur more financial costs and expose yourself to significant risks. That’s why it’s a good idea to consult an accountant or a lawyer before making a decision to better understand all the pros and cons of each option.