Louisiana Limited Liability Company

Two Reasons to Transfer Out of State Real Estate to a Limited Liability Company

Some people own real estate in their own state, and they also own real estate in another state. There is often a right way and a wrong way to structure ownership of these properties.

The following are two reasons people transfer their out-of-state real estate to a limited liability company (LLC).

The most often cited reason to transfer real estate to an LLC is to protect yourself from potential lawsuits or other liabilities. Here's the deal: if you own real estate in your name in another state, and someone gets injured on the property, the injured party will sue the owner of the property (you). And if they are successful in their lawsuit against you, you will have to satisfy a judgment from your personal assets. So, your personal assets are at risk if you own real estate in your name.

However, if you transfer your property to your LLC, and someone gets injured, that injured party will sue the owner of the property (the LLC), and your personal assets are protected.

A second reason people transfer their out of state property to an LLC is to avoid the ancillary probate. When you die with assets in your name, your survivors will be required to go through a court proceeding ("Probate" or "Succession" - same thing really) and have the government's court system oversee the administration and disbursement of your things - some people consider this to be tedious, time-consuming, and expensive. And if you own real estate in your name in another state (outside of your home state), your survivors must hire a law firm in that other state to transfer your out of state property to your heirs. The "home-state" probate does not transfer out of state real estate that is titled in your name when you die. So, some people transfer their out of state real estate to an LLC to (1) gain limited liability; and (2) avoid the ancillary probate. The ownership of your LLC that owns out-of-state real estate can be transferred through your home-state probate.

Another alternate is to transfer your out-of-state real estate to an LLC (get limited liability and avoid ancillary probate), and then transfer your LLC to a revocable living trust so that an in-state probate is not even necessary to transfer your ownership interest in the LLC when you pass away. Don't try this at home! This is not a do-it-yourself task. If you live in Louisiana and want to get these benefits, contact my office.

There are many things to consider when taking these actions. Prior to transferring your property to an LLC, check with your lender (if you have a mortgage on the property), and check with your liability insurer (to make sure your insurance won't have to shift to a commercial policy). Make sure you get good legal help to cover all your bases and get the peace of mind you deserve.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

Own Rental Property in an LLC?

Many people own rental property. Some own residential property and some own commercial property. But the risk of a tenant or other third party injuring themselves and suing may be high.

There is a risk in owning rental property in your name. If someone gets injured in rental property owned in your name, they will likely sue you because you are the owner. You are responsible for paying the judgment. To the extent your liability insurance does not cover the judgment, or to the extent someone successfully sues you for something that is excluded from your insurance coverage, then you are personally responsible for that debt. A creditor can take your rental property, other property you may have, your home, your bank accounts and investments, any inheritance you may have received, your business, and other assets you own.

However, you'll likely have more liability protection if you own your rental property inside of a limited liability company (LLC). When you own your rental property inside of an LLC, then, when someone gets injured, they will sue the owner of the property (the LLC). The worst thing that could happen is that you lose the assets of that LLC, but all of your other personal assets would be protected.

Here are five things to consider before forming your LLC and transferring your rental property into it:

(1) Taxes. An LLC can be a pass-through entity. You will continue to report LLC income on your personal return.

(2) Insurance. Check with your liability insurance provider before transferring rental property to your LLC to determine whether you will need a commercial policy.

(3) Gifting. If you want to give interests in your rental property to children, heirs, or donees, it's easier to do it by giving membership interests in your LLC, instead of giving them undivided interests in real estate.

(4) Put LLC in Living Trust. If you want the transfer of your membership interest in your LLC to pass to your heirs outside of probate when you die, you can transfer your LLC membership interest to your Living Trust during your lifetime. When you die, your Successor Trustee can immediately transfer your LLC interest to your trust beneciaries.

(5) One or Multiple LLCs. If you own multiple rental properties, you must decide whether you want all of your rental properties in one LLC, or whether you want the increased liability protection that comes from owning different properties in different LLCs.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.