Do's and Don'ts of holding home title in LLC
Planning
to transfer your title to an LLC? Please review the following article that may
help you in making your decision.
Question: I own several single-family rental
homes. In talking to advisors, one says I should put the houses into LLCs for
liability protection. Another said, don't bother. If you get sued, your
liability protection on your homeowner’s policy plus your umbrella policy will
cover you. Obviously, the latter provides only attorney and possible judgment
costs, but does the LLC really keep you from being sued, or protect you if you
are sued, so that you would not need to use the umbrella policy? –Bruce
Answer. It is my understanding
that an umbrella policy is not that costly, so I would recommend that you
consider both options: Get the umbrella policy and put all of your rental
properties in separate limited liability companies.
The concept of limited liability companies (LLC) is relatively new -- probably
started in the 1980s. Its primary purpose is to insulate the property owner
from personal liability should there be a court judgment against the property.
For example, if a child was injured because of lead paint in the property and a
judgment was entered against the LLC, if the proper procedures for maintaining
a LLC were kept, it would be difficult -- if not impossible -- for that
judgment to attach personally against the member (or members) of that LLC.
This column does not permit a lengthy explanation of what an LLC is and how it
works. However, if you own several properties, each should be held in a
separate LLC. Otherwise, a judgment against the LLC will impact on all of the
properties that are held by that LLC.
Some basic rules to preserve the independence of an LLC: (1) Do not commingle
your own funds with that of the LLC; (2) If you are the sole member of the LLC
-- or its managing member -- make sure that whenever you sign any papers, you
add the word "member" after your signature. You want to make sure that
the world understands that you are not acting in your own capacity but only as
the representative of the LLC. It would
even be helpful to have at least two members for the LLC. Clever attorneys may
be able to "pierce the corporate veil" of a single-member LLC.
Always seek appropriate legal advice.