Consequences of Changing Names of Rental Property Ownership?

[joer1212]

I own 4 rental properties (50/50) with my brother in Massachusetts.

We recently sold one of them and are using the proceeds to purchase another rental property in Pennsylvania. We're planning to do this with all our Massachusetts properties. The thing is, he wants this property (and all future ones purchased in Pennsylvania) to go entirely under my name.

Is there an issue with this for either one of us from a tax, legal, or financial perspective?

[Missy B]

Hell, yeah.
I'm Canadian, so I don't know US tax laws. But I assume your brother has a reason for this, and that it has something to do with
a) divorce, and keeping assets out of the hands of his wife
b) debt, and keeping assets out of the hands of his  debtors

The problems that I see are mostly for your brother. You could decide to keep the house, since it isn't in his name. You could also have a divorce that puts his rightful property into his ex-sister-in-laws hands. You could croak without a will, leaving his investment to be taxed first then split between whoever your state deems appropriate. (Even if that's just him, even if you have a will, still... probate.... estate taxes.)

And I assume you will pay more tax, since one individual will be claiming the income instead of splitting it between 2 returns.

[srad]

I'd need to know why he doesn't want to be named on the properties.  If he's not names anywhere, you have all the liability...

Assuming he is involved with the management of them, why not just set up an LLC that owns the properties and you and your brother are 50/50 owners of the LLC?

For buying and funding (ie normal mortgage) you buy it in your names then transfer ownership to the LLC.

[SeattleCPA]

For tax purposes at least you're going to have to figure out what "put properties in name of" means for income taxes and gift taxes.

E.g., maybe this is a gift and bro needs to file gift tax returns.

Er, seems like an idea that falls into the "too clever by half" category.

[Michael in ABQ]

I'd need to know why he doesn't want to be named on the properties.  If he's not named anywhere, you have all the liability... and all the assets (if you wanted to screw him over)

Assuming he is involved with the management of them, why not just set up an LLC that owns the properties and you and your brother are 50/50 owners of the LLC?

For buying and funding (ie normal mortgage) you buy it in your names then transfer ownership to the LLC.

If his name isn't on the deed - or on the documents of the LLC that is on the deed then for all intents and purposes he doesn't own the property. It's a double-edged sword. That's why criminals setup shell companies or put properties in the name of friends/relatives they control. That person could sell the asset in their name and run off with the money since they are the legal owner - not the person behind the scenes who doesn't want their name anywhere.

In most states you can file a Quitclaim Deed to transfer ownership without an actual sale. Basically he is relinquishing his claim to the deed to you, or both of you are to an LLC you've setup. In some states (such as New Mexico) you can have a registered agent create an LLC for a couple hundred dollars and your name as the owner won't appear anywhere in public records.

I will say that just for practical reasons, 50/50 ownership has the potential for a lot of problems. If you're going to setup an LLC you two need to spend the money to meet with an attorney and draft up a good operating agreement. Who can make the decision to sell? Who gets paid for managing the property? How much? If you need to spend $50k on a new foundation are you both going to add additional cash to the LLC to pay for that? If the property sells, how are the proceeds split?