This is a common planning technique for clients who own rental property. A limited liability company, or an LLC, is a legal entity similar to a corporation. Each state has its own LLC statues, so it’s always good to check with your estate planning attorney on the rules for placing rental property into an LLC. Then once you place your rental property into an LLC there are steps that need to be taken to ensure that the LLC continues to protect you and your family.
The first ‘why’ is financial protection. When you place an asset into an LLC, the LLC forms a bubble around that asset. Therefore, if there is a lawsuit having to do with that piece of property, the lawsuit can only go after the assets in the LLC. For example, if you place your rental property into an LLC, and the tenant sues you because you didn’t properly fix the walkway and they hurt themselves, they could only sue the LLC and go after the assets in the LLC. They cannot go after your primary residence, investments, or other pieces of real estate. The LLC shields any lawsuits with the rental property from your other assets.
Another benefit of placing rental property into an LLC is the enhanced privacy and anonymity it can offer. When you own property personally, the information is often easily accessible to the public. However, by utilizing an LLC, you can keep your personal details confidential and maintain a layer of privacy. This can be particularly advantageous if you wish to keep your real estate investments separate from your personal identity or if you have multiple properties and want to keep them discreetly organized. This is less important to the average landlord, but it can give peace of mind.
Lastly, placing your rental property into an LLC can simplify the transfer of ownership and facilitates estate planning. With an LLC, you can easily transfer ownership interests to family members or your trust. This flexibility ensures a smoother transition of your rental property assets, allowing you to pass on your investments to your spouse and kids without hiccups in the management of the property.
In Massachusetts, the downside to an LLC is the annual filing fee of $520 per LLC. However, if you have lots of rental properties, this fee can be negligible compared to the asset that it is protecting. Choosing to place your rental property into an LLC comes with lots of variables to weigh when determining if it is the right choice for you. Please seek guidance from your trusted estate planner when considering an LLC!
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