LLC & Asset Protection
In order to protect personal assets, many people are transferring the ownership of real estate and other assets to an LLC. A limited liability company cannot be held responsible for personal debt and lawsuits. For this reason, creating an LLC is one of the most popular asset protection methods used today.
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Real Estate
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All personal real estate, including primary and vacation homes, can be included as assets in an LLC. This allows all residences and real estate to be protected from seizure. Also, an LLC can be created with a single member, a single owner, and still be a valid asset shelter. If a real estate loan is required, the LLC may be eligible for special loan terms.
Personal Lawsuits
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If you are sued personally and you lose the lawsuit, your LLC assets cannot be seized to pay personal judgments. You can insulate each asset separately in different LLCs if you have assets that are particularly valuable. Moving your assets to the LLC makes it difficult to collect on judgments. Personal creditors cannot seize LLC property either.
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Privacy, Control, and Inheritance
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In addition, the ownership of any transferred asset is difficult to track and locate. Moving your assets to an LLC does not mean that you will lose control of your assets. In fact, you retain complete control of every asset, especially if you have a single-member LLC. To reduce inheritance tax and problems, simply add your family member(s) as owners of the LLC. This allows the assets to flow directly through to your heirs without paying exorbitant inheritance taxes.
Pitfalls
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If a lawsuit is filed against the LLC, the property or other assets can be seized under any judgment. If the LLC has more than one member, or owner, any lawsuit brought against any owner can affect the entire LLC. A lien could be placed against the LLC, and cash distributions must still be disbursed equally. Finally, personal expenses cannot be paid by the LLC directly or the LLC loses its limited liability status. The court could argue that paying personal expenses makes the LLC invalid and that the member illegally transferred assets to the LLC as a shelter.
Taxation
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Similar to sole proprietorships and partnerships, LLCs are taxed by a pass-through tax system. Unlike a corporation, which encounters double taxation and must file tax returns separate from an individual's income tax, the LLC is only taxed once. The pass-through tax system allows an LLC's income taxes to be included on the personal income taxes of its members. Listing your assets as LLC assets also allows you to take added tax deductions that are not available if you do not have a business.
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References
- The Asset Protection Law Center: Asset Protection Q and A
- The Law Office of Marilyn Sullivan: Asset Protection Limited Liability Company Family Limited Partnership
- Florida Asset Protection: Pitfalls of LLC Asset Protection
- Advanced Financial Services: LLC Asset Protection
- Trustmakers: Asset Protection Trust, Offshore Asset Protection, Strategies, Education, Information
Resources
- Photo Credit house image by Brett Bouwer from Fotolia.com
