Estate Planning or Limited Liability Company


If you own any real estate property, then you should do everything you can to protect these assets. Real estate transcends just your residential home or where you live. It’s a sum total of all your properties including rentals, vacation homes, beach homes, and any other property you own.

It’s not just enough to buy properties and assume that you own them. Sure, you do own them, but have you considered that the type of ownership might influence everything from tax benefits, estate planning to other perks?

This is why you should consider checking out the various ownership structures for your various properties. For example, the best ownership structure for a residential property might be different from one for a commercial or rental property.

In this blog, we’ll be looking at how to protect your real estate assets with either an estate plan or setting up a Limited Liability Company for various properties. This way, you’ll be able to get the most benefits from your properties.

 

Primary Residence

Primary residences can attract a special tax treatment. This is why you should give some serious consideration to how your primary residence is owned. In many states, you can hold property as “tenancy by entirety” which is specifically between married partners. Colorado does not recognize tenants by entirety, so property between married couples is held either as tenants in common or more often, as joint tenants.

Joint tenancy provides a way for married couples to hold an equal interest and survivorship rights in a property. This way, the property is kept out of probate because it’s considered that each surviving partner has 100 percent ownership instead of 50 percent. At the death of one owner, the surviving owner will own the entire property.

Holding property as joint tenants can protect the property and prevent creditors from taking over the property in the event that one partner is in debt at the time of their demise and the other isn’t.

This automatic transfer of ownership without the need for a court’s intervention deters the creditors from laying claim to or seizing the property because the other partner who was in debt cannot pay their debt. In essence, joint tenancy (or tenancy by the entirety in other states) offers protection from creditors to the non-debtor partner, while still offering other tax benefits.

Estate Planning for Real Estate

Another option for a permanent residence is the transfer of ownership to separate or a joint revocable trust. Properties that are held in a revocable trust will solely be determined by instructions that you leave in your estate plan (the will or trust document). This helps eliminate the need for a lengthy probate process and makes it very easy for beneficiaries to assume ownership of the property.

Please note that if you’re particular about protecting your assets while you’re still alive, transferring your ownership rights to certain types of irrevocable living trusts can protect those assets, but you’ll have to lose some control of the property in exchange for protection.

Depending on your state’s bankruptcy laws, your primary residence (or part of your equity in it) may also be protected by something called the homestead exemption in the bankruptcy code. However, if you intend to transfer the primary residence to a trust, make sure that transferring it doesn’t void the homestead exemption. In some states, homeowners may automatically lose that homestead exemption protection if they transfer their primary homes to a trust, as it is deemed that the debtor no longer owns the home. This can open up all sorts of legal issues, but there are options to avoid this result. Colorado limits the homestead exemption, though you can still keep your home in some circumstances.

This is why it’s important to consult with an experienced estate planning attorney before executing the transfer of any primary residence to a trust.

 

Vacation Homes and Properties

People are often emotionally attached to their vacation homes and properties. That, plus the fact that these properties are highly valued, makes them highly cherished properties and often good investments. The type of ownership for these properties can determine what perks you’ll enjoy.

Limited Liability Company

Instead of directly owning these homes under your name, the one approach might be to transfer their ownership to a trust or an LLC (limited liability company). This can make it easier to protect the asset and transfer it to the children or other beneficiaries.

Putting your vacation home in a trust, with specific provisions, can ensure that the properties will be used and maintained in the way you prefer. Plus, when you pass, the estate executor (or personal representative) will execute your wishes regarding who inherits the property or what you want done to it.

A trust can allow for the property to stay in the family for multiple generations and ensure its smooth transition from generation to generation. This way, there won’t be any conflicts among family members because you’ve already left instructions on what needs to be done to the property.

Also, putting your vacation homes in an LLC can help protect the assets from being claimed by an external entity i.e. your creditors. If there’s any judgment against the LLC, the claims can affect the vacation home, but not other private assets that you own. Another perk of an LLC is that if a creditor files an unrelated claim and secures a judgment against you or someone else shielded by the LLC, it will be much harder for the creditor to sell or touch the vacation properties.

However, please note that these conditions are dependent on your state of residence and the type of LLC you have in place. Single entity LLCs (LLCs with just you as a member) may not enjoy as much protection from creditors in certain states.

 

Rental Properties

When it comes to rental properties, the primary concern should be the protection of assets. This is important because there are others using the property that could be hurt or make a claim against you opening you as the owner up to possible lawsuits and court cases. An LLC may protect the asset from being taken over by creditors in the event of a claim.

This is why instead of owning the property in your name, you should consider transferring it to an LLC. This can make the most financial sense and offer great asset protection in the event that a renter sustains injuries on the property and files a claim for damages.

With the property now owned by an LLC, the claimant will only be able to obtain compensation from the LLCs assets, instead of from your own personal assets which can be more valuable. However, make sure that your state offers comprehensive asset protection if you’re setting up a single member LLC. Additionally, you must keep the LLC separate from your personal property which requires separate bank accounts among other requirements to keep the limited liability benefits.

 

Setting up an LLC or Trust

If you intend to set up or transfer your assets to an LLC or a trust, you need the help of experienced estate planning attorneys. At McGann Law Group, we can help you with everything regarding the protection of your personal residence, vacation properties, rental properties, and other assets. Get in touch with us today if you need professional advice and help with these issues.

 

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