No. of Recommendations: 4
Hi Rita,

She says that the single member LLC would not be treated as a separate entity for tax purposes, so that I would reap the same personal tax benefits as otherwise. Of course, the only reason for doing this is to avoid personal liability for anything.

In most jurisdictions anymore, a single member LLC generally provides very little liability limitation (ironically, and despite the title and theory.) Predatory litigators have been succeeding in the argument that despite the 'form' of the structure, the 'substance' is direct control and full liability.

If you really wanted to use entities to protect yourself from liability, your better step is to have at least one other arms'-length member to your LLC. Your internal co-member agreement can give them virtually no (or very little) actual equity, yield, tax benefits, or expense/liabilities... so it can be *functionally* the same as a single-member LLC... but have 2 or more non-related members significantly increases the legal recognition of liability shield.

The more sophisticated plan would be to create a local (same state as property) LLC, which a single member which is an LLC domiciled in a full privacy jurisdiction (i.e Delaware, among a few others.) The local LLC (called a "child entity") can be disregarded for tax purposes, passing through everything to the parent, *OR* it can segregate tax treatment to your local jurisdiction, at your choice.

Does this seem like the best plan for dealing with the expenses and income from the property?
This is a *completely* different question than the former question. Dealing with expenses and income is a different issue than managing liability risks.

Whenever your equity-at-risk and personal liability can be protected by standard commercial insurance (umbrella and otehrwise,) it is generally cheaper to do it that way than to structure and maintain separate business entities. Its only when your portfolio complexity, equity-at-risk and personal liability grow more expensive to cover with insurance that it begins to make sense to build self-protective structures.

The 'best plan for expense and income' is generally the simplest plan that also provides sufficient protection, in my opinion.

Dave Donhoff
Leverage Planner
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