The first rule is to title all real estate that you own or co-own – other than your personal residence – to one or more limited liability companies (LLCs). This includes land, vacation homes, timeshares, rental and commercial properties. Why is the LLC the ideal entity to own your investment real estate? Because it protects the owner(s) personally from liabilities originating from the property (as would a corporation), and, as importantly, it shelters the property and your interest in the LLC against claims by your personal creditors.
There are several other reasons we prefer an LLC over either a corporation or limited partnership as the entity for investment properties. You avoid double taxation with a limited liability company. Since the limited liability company isn't usually taxed as a corporation, you avoid the corporate income tax. Limited liability company income is usually taxed personally to its members. You also avoid personal liability with a limited liability company -- LLC managers and members are personally protected from the LLC's creditors, even when the LLC members manage the company. Conversely, general partners of a limited partnership arepersonally liable for partnership debts.
For maximum protection, your LLC should have at least one member aside from the lawsuit defendant member. Courts are reluctant to expand upon a creditor's charging order remedy when non-debtor members would be affected. Conversely, courts are more likely to liquidate a single-member LLC, or allow foreclosure or surrender of the LLC interest, when the debtor is the sole member. You need a well-drafted LLC operating agreement as opposed to an operating agreement that is 'off-the-shelf' or a template found online. You want an absolutely lawsuit-proof operating agreement for your LLC for optimum protection. Few standard operating agreements include these more protective provisions. The protection afforded an LLC membership interest or limited partnership interest depends on whether the operating or limited partnership agreement contains these protective provisions. Yet they can mean the difference between keeping or losing your ownership interest to the entity. You need a good asset protection attorney to prepare and to periodically review these agreements.
The Presser Law Firm, P.A. can integrate an Asset Protection Plan with your existing Entities and Estate Plan or work with you to create a new one.
Contact us today for a complimentary preliminary consultation regarding your Asset Protection options.
The Presser Law Firm P.A.
6199 N. Federal Highway, Boca Raton FL 33487
(800) 999-9992 or e-mail firstname.lastname@example.org