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The 4 P’s of Protecting Your Family’s Legacy Home

Posted on April 22, 2015 by Jason C. Morris, Esq. | Leave a comment

The lakefront home, the mountain cabin or the ocean-side estate all require special planning to protect and enhance these legacy homes. From Lake Tahoe to Donner Lake, from downtown city condos to Pacific Ocean properties, we advise our clients to give special attention to these legacy homes. These special properties need the “four P’s:” protection, privacy, probate avoidance and planning.

Protection:

These types of properties need comprehensive insurance coverage for potential damage to the structure, adequate liability coverage and an ownership structure that provides protection from outside creditors. Under Nevada law, limited liability companies (LLCs) offer tremendous protection, particularly if you or your family rent or lease the legacy home. A Nevada LLC may not prevent a lawsuit, but it will certainly deter potential creditors.

Privacy:

You and your family may not want to divulge the ownership of the real property. Nevada counties have very transparent real property records. Anyone with basic internet search skills can locate the owner of real property, past and present, and the price paid for the real estate. To provide a privacy shield, ownership of the legacy home can be held by a legal entity such as a trust or LLC, with a name unconnected to the family. You should consult with a lawyer to determine which device, trust or LLC, will best meet your objectives as simply titling your legacy home into an existing business entity is not a great solution. Doing so could subject your legacy home to the claims of existing or future business creditors.

Probate Avoidance:

Many people understand the primary benefit of a revocable living trust is probate avoidance. What many do not understand is that a revocable living trust can hold title to real property, like legacy homes, in other states. Families with real property in more than one state must have a trust to avoid probate. An existing revocable trust could be a ready-made device to hold title to your legacy home.

Planning:

Plan now if you want to keep the legacy home in your family. If you do not provide directions or instructions to your family, anxious beneficiaries can force the sale of the legacy home. You must establish a clear succession plan establishing how the property will be managed, maintained and eventually distributed to the next generation or beyond. Please contact a qualified estate planning attorney to discuss how to preserve and protect your legacy home.

Advantages of Nevada Limited Liability Companies (LLC’s)

Posted on March 29, 2011 by Jason C. Morris, Esq. | 5 comments

Many know that Nevada has a tax favorable climate for business and legal entities. Nevada does not collect individual, corporate, inventory, franchise, gift, business occupation or stock transfer taxes. One of the preferred forms of operating a business is through a limited liability company (“LLC”).

An LLC is a hybrid entity offering the legal protection of a corporation combined with the “pass through” taxation advantages of a partnership. The owners of an LLC are called “members” (rather than partners or shareholders). A Nevada LLC does not pay taxes and the tax consequences pass through to the LLC members. Yet, like a corporation (and unlike a limited partnership) all of the members enjoy limited liability. In other words, there is no one similar to the general partner in a limited partnership that must be fully liable for the debts and obligations of the LLC. Thus, if administered properly the LLC enjoys the benefits of partnership taxation without exposing anyone to unlimited liability.

Nevada is one of the most difficult states in which to “pierce the corporate veil” or enforce personal liability for the debts and actions of the LLC on its members. Just like a corporation, if the LLC’s owners treat it as a separate entity (e.g., they observe certain formalities, do not commingle assets, do not make personal use of company assets, etc.), then the courts will generally treat the entity as separate from the members and will not hold them responsible for liabilities of the LLC.

Under Nevada law, a charging order is the sole legal method for creditors suing you personally to attack your assets held in an LLC. For example, if you are a member of a Nevada LLC and have a day trading account, a boat and a duplex held in an LLC and are sued personally, a creditor would not be able to seize your assets. They would instead have to obtain a charging order over your membership interests in the LLC, entitling them to receive a portion of income earned by that LLC. If the LLC did not earn any income, then there would be no profits to be distributed. The judgment creditor cannot compel any such distribution that is not required by the company’s operating agreement and cannot force a dissolution of the company.

Members (owners) and manager of the LLC need not be residents of Nevada (or even U.S. citizens) and do not need to come to Nevada to form the LLC. Member meetings may be held anywhere in the world.

A Nevada LLC can own property in any state without having to be incorporated in that state. Nevertheless, the Nevada LLC may need to qualify to do business in the foreign jurisdiction. Such qualification could lead to paying foreign taxes.

The Managing Member of an LLC can deduct 100% of the health insurance premiums he or she pays, up to the extent of their pro-rata share of the LLC’s net profit, because the profit is considered earned income. If a member has earned income, he or she will also qualify.

When considering whether to form an LLC, you consult with a trusted attorney. Beyond the filing documents required by the Secretary of State, you must prepare appropriate governing instruments.

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Posted in Asset Protection, Tax

Tagged Corporation, Income Tax, Limited Liability Company, LLC, Members, Partnership