LLC stands for “Limited Liability Company” and in many situations, it’s a great way to own your rental real estate. Why? To insulate liability.
LLC Asset Protection Example
Rhonda and Mike own three apartment buildings in their joint names. A balcony on one of the buildings collapses and a young engineering student plunged to his death.
A lawsuit is filed; the jury verdict is $15 million. Rhonda and Mike lose all of their investment and personal assets. They are both personally bankrupt; the real estate business is bankrupt.
Penelope and Grace own three apartment buildings in LLCs. Each building is in its own LLC. A balcony on one of the buildings collapses and a young engineering student plunges to his death.
A lawsuit is filed and Penelope and Grace’s personal assets are protected because they didn’t own the building with the faulty balcony; their LLC did.
The other two apartment buildings were not attachable because they were owned by separate LLCs.
The LLC held insurance on the affected building in the amount of $1 million. The building had a net value of $400,000.
The case was settled for $1.2 million.
Which Do You Prefer: Protection or No Protection
If you own rental real estate (or any other type of business), consult with a qualified estate planning attorney to determine whether an LLC is right for your individual situation.
Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.