A BarthCalderon Legal Insights Blog

 

“I have 5 properties in California with 18 rental units, and 4 properties in Arkansas with 4 units. I’m thinking I may need an LLC and a trust.”

 

When this inquiry came into our office last week, every attorney in the room nodded. Why?

 

Because this is exactly the moment—start of a new year—when smart rental property owners stop and ask the right question:

 

“Do I have the right structure protecting everything I’ve built?”

 

For this owner, the answer wasn’t obvious. They weren’t in trouble. No lawsuits. No fires. No partner disputes.

 

But the exposure was massive, and the new year is around the corner. 

This is the case study we all need as the new year approaches.

 

The New Year Risk Snapshot

 

Most rental property owners run their business on autopilot for years. Rent comes in, expenses go out, the property appreciates, and nothing catastrophic happens—until it does.

 

But here’s the truth our attorneys remind clients of daily:

 

Every additional property multiplies your liability, and every new year multiplies the consequences of not addressing it.

 

This client owned nine properties in two states.

 

Different landlord-tenant laws.

Different liability landscapes.

Different tax implications.

Different estate-distribution rules.

 

And yet—everything was held in their personal name.

 

To an attorney, this is the equivalent of walking through a construction zone without boots or a hard hat. You can do it, but eventually something will fall.

 

The new year is when this kind of structure (or lack of structure) matters most because:

 

• You are laser focused looking at your assets to implement strategic LLC formation.
• You are poised to make estate-planning elections that affect tax treatment.
• You can optimize insurance alignment as you look at your renewal cycles.
• You can create trust structures that become powerful family and tax tools into the new year.

 

How Our Attorneys Would Approach This Case

 

Every owner is different, but the framework is consistent. Here’s how our estate and asset-protection attorneys evaluate a multi-state rental portfolio like this one:

 

1. Liability Buckets: Each State, Each Property, Each Risk

 

California is one of the most lawsuit-heavy states in the country.

 

Arkansas is more landlord-friendly but still carries real risks—especially with out-of-state ownership.

 

A mixed-state portfolio means one thing:

 

Separate risk environments require separate liability structures.

 

Our attorneys typically ask:

 

• Should the California assets be separated into multiple LLCs to isolate high-risk units?
• Should Arkansas rentals be grouped differently due to cost-benefit considerations?
• Does the owner need a Series LLC, and is that structure recognized in the states where the properties sit?
• How should cash flow from each property be routed to limit exposure?

 

This is not theoretical—it's math and law.

 

One slip-and-fall, one contractor injury, one tenant dispute, and every property and personal asset is suddenly on the table.

 

2. LLC Structure: A Shield That Must Be Done Right

 

Many owners think “Maybe I need an LLC” like it’s a single yes/no question.

Our attorneys reframe it:

 

“You don’t need an LLC. You need the right LLCs—properly formed, properly maintained, and strategically separated.”

 

For a portfolio like this, new year planning might include:

 

• Forming or restructuring multiple LLCs
• Choosing the correct state of formation (CA vs. AR vs. NV vs. DE vs. WY)
• Reviewing title, deeds, and lender requirements before transferring property
• Setting up bookkeeping and operating agreements that actually hold up in court
• Aligning liability insurance with the new structure so no gaps appear

 

3. The Trust Question: “Do I Need One?”

 

This client also asked about a trust—again a smart instinct.

 

If the properties stay in your personal name and you pass away:

 

• Your heirs face probate in two states
• Your estate takes on delays, court costs, and possible forced sales
• Your rental income stream becomes frozen
• Your family is forced into a legal process that can take 12–24 months

 

Our attorneys typically recommend a revocable living trust as the foundation—but for some owners, especially with large rental portfolios, an asset-protection trust or legacy trust becomes essential.

 

The trust:

 

• Avoids probate
• Keeps properties operating smoothly
• Ensures income continues flowing
• Creates a plan for who manages, sells, or inherits each unit
• Provides long-term lawsuit protection depending on structure
• Allows succession planning for children not equally interested in real estate

The new year is ideal because trust funding, property retitling, and tax documentation get lined up cleanly heading into the new year.

 

4. Tax Optimization

 

For multi-state owners, tax strategy is not optional—it’s mandatory.

Strategic planning allows our attorneys (working with CPAs) to consider:

 

• Should certain properties be moved into a trust for stepped-up basis planning?
• Do the LLCs create tax advantages in Arkansas or California?
• Could restructuring help reduce exposure to California’s franchise tax?
• Should depreciation strategies change when ownership transfers to an entity?
• Are there passive/active loss considerations on the table?

 

5. Estate Protection + Asset Protection: Two Sides of the Same Coin

 

Our attorneys always explain:

 

LLCs protect you while you’re alive.

Trusts protect what happens after.

Together, they protect everything you’ve built.

 

In this client’s case—nine properties, multiple states, multiple liability environments, and family legacy considerations—both were essential.

 

And the earlier they were put in place, the stronger they would be.

 

The New Year Takeaway for Every Rental Property Owner

 

If you own even one rental, the risk is real.

If you own nine rentals across two states—your risk is multiplied.

 

The new year is the perfect moment to:

 

• Review your entity structure
• Evaluate whether your current liability exposure matches your goals
• Get a trust in place so your heirs avoid probate chaos
• Identify tax advantages
• Meet with an attorney who understands both estate planning and asset protection

 

This prospect understood it intuitively:

 

“I think I may need an LLC and a trust.”

 

They were right.

 

And they reached out at the perfect time of year to start the discussion.