Getting Homeowner’s insurance policy for LLC?

[earlyretirement]

[quote=Fearful]Not sure if these are legitimate issues, but it seems to me:

– If the LLC owns real estate in California and is doing anything with that real estate (e.g. renting it to you) it is conducting business in California.

– If the LLC owns the real estate and lets you live in it rent free, it is not an arms length relationship.

– If the LLC exists for the purpose of protecting personal assets (i.e. has no or little business other than letting its owner live for free in the real estate it owns), then the courts might not provide protection of the company’s assets from the owner’s liabilities. The company is set up for little purpose other than acting as a shield, so the company’s function in that regard can be ignored. See “piercing the corporate veil”.

– Finally, I know well about companies being created to shield the owner’s assets from liability for the company’s actions, but not the other way around. If you own a company, and creditors come after you, the company (and its assets) are part of the pool of assets the creditors come after. The only thing I can think of is you hold a minority interest in the LLC, and so the majority’s interests are protected. So you have, say, 20% ownership of the LLC, which means you have 20% ownership of the house via the LLC … why not just give 80% of the house to someone else in the first place?

The whole thing sounds implausible to me, but I am no authority. Please, if you get an expert opinion on this, I would love to hear it.[/quote]

Hi Fearful,

Thanks for taking the time to comment. I did in fact talk to two lawyers that specialize in this in California and they both told me that you do NOT need to set up or report this or pay the $800 franchise tax fee to California. After I heard it one time I got a second opinion and he said the same thing.

Both did say that in essence the LLC would be “renting” the property to myself and he had the paperwork/contracts for this.

I realize any legal structure obviously isn’t perfect but I figure it’s best to do what is sound and to protect yourself the best that you can. Anyone can tell you that there isn’t a perfect system but it’s best to take the best steps so that is what I’m attempting to do.

I’d love to hear other legal opinions on this topic if any of you on the board are attorneys. Especially attorneys that specialize in Estate planning issues.

I don’t pretend to know the ins and outs on this topic as I certainly do not. When I was doing due diligence on it, even friends that are lawyers told me they don’t know anything at all about estate or asset protection and to talk to an attorney that specialized in asset protection so that is what I did. But of course I’d love to hear other lawyers points of views on it.

Thanks.

[Fearful]

Good … it might be worth asking Franchise Tax Board whether the LLC needs to be licensed in California. Their bias is going to be toward “yes, of course, now pay the $800” but they might give you some insight.

I think a previous poster alluded to this, but it occurred to me that you (the tenant) could get insurance on the contents, and the LLC could get insurance on the building. Two separate policies.

[Fearful]

Good … it might be worth asking Franchise Tax Board whether the LLC needs to be licensed in California. Their bias is going to be toward “yes, of course, now pay the $800” but they might give you some insight.

I think a previous poster alluded to this, but it occurred to me that you (the tenant) could get insurance on the contents, and the LLC could get insurance on the building. Two separate policies.

[Fearful]

Good … it might be worth asking Franchise Tax Board whether the LLC needs to be licensed in California. Their bias is going to be toward “yes, of course, now pay the $800” but they might give you some insight.

I think a previous poster alluded to this, but it occurred to me that you (the tenant) could get insurance on the contents, and the LLC could get insurance on the building. Two separate policies.

[Fearful]

Good … it might be worth asking Franchise Tax Board whether the LLC needs to be licensed in California. Their bias is going to be toward “yes, of course, now pay the $800” but they might give you some insight.

I think a previous poster alluded to this, but it occurred to me that you (the tenant) could get insurance on the contents, and the LLC could get insurance on the building. Two separate policies.

[Fearful]

Good … it might be worth asking Franchise Tax Board whether the LLC needs to be licensed in California. Their bias is going to be toward “yes, of course, now pay the $800” but they might give you some insight.

I think a previous poster alluded to this, but it occurred to me that you (the tenant) could get insurance on the contents, and the LLC could get insurance on the building. Two separate policies.

[Kingside]

As someone who has actually sought to enforce judgments in complicated situations over the years, here is my perspective:

Successful asset protection planning is a process that must be tailored to an individual or family’s specific circumstances and personality. Asset protection planning is best implemented as an adjunct to a larger financial, retirement, and tax plan. Not as a substitute. In and of itself, putting a residence in a LLC without considering the big picture can be a mistake.

In California there are many powerful legal theories available to creditors including piercing the legal protection of undercapitalized LLCs under “alter ego” theories, and use of the Uniform Fraudulent Conveyance act. “One man show” individuals who think LLCs offer them protection from being sued are unpleasantly surprised when they find out that it is no protection for the individual’s negligence. If you personally leave a mess at a property, and a visitor slips and falls and then sues you, the fact that the property is in the name of your LLC will not give you any legal protection. Both the LLC and the individual will be on the hook for the claim.

Properly used and implemented, vehicles such as LLCs can provide important layers of protection for an individual. In connection with trying to use it to protect a personal residence, you also need to consider using debt. If the residence is free and clear within the LLC, it is questionable if you are really protecting anything. Insurance is appropriate of course, but it does not cover everything.

A debtor can make it very difficult for a creditor to collect, even to the point where it is not worth it for the creditor to pursue from a cost benefit perspective. From my experience in chasing down debtors who try to hide and thwart creditors by using undercapitalized entities and/or transferring and hiding assets, they can be generalized (maybe over generalized) into three different types:

1) “The debtor with a conscience.” This is the guy who thought he could hide, but once the legal pressure is put on him, decides to just fold, pay the debt, and move on. Litigation can be a very stressful experience. Sometimes guys like this hired an asset protection guru to advise him who had never seen the inside of a courtroom, and was therefore not prepared for the litigation process when it came. If you are this type of debtor, you should realize this ahead of time, because it should be incorporated into your asset planning.

2) “The debtor who cannot remember or understand his story.” This is the guy who thinks he is smart, but it is not to long before you catch him in lies and inconsistencies, and then you show the judge that he lied. Definitely the most fun for the collection attorney. When you put a microscope on him, he cannot stay consistent in his story. Debt collection litigation can be a microscope into one’s financial affairs.

3) “The pathological liar debtor.” This guy is the toughest to collect from because he remembers and often believes his own lies. Fighting a guy like this is like fighting the mythical seven headed hydra. As a collection attorney, you chop off the head, sear the stump, but then another head pops out that you need to fight. Sometimes the pathological liar wins, but who really wants to live their life like the pathological liar?

This is not intended to be legal advice for anyone to rely on.

[Kingside]

As someone who has actually sought to enforce judgments in complicated situations over the years, here is my perspective:

Successful asset protection planning is a process that must be tailored to an individual or family’s specific circumstances and personality. Asset protection planning is best implemented as an adjunct to a larger financial, retirement, and tax plan. Not as a substitute. In and of itself, putting a residence in a LLC without considering the big picture can be a mistake.

In California there are many powerful legal theories available to creditors including piercing the legal protection of undercapitalized LLCs under “alter ego” theories, and use of the Uniform Fraudulent Conveyance act. “One man show” individuals who think LLCs offer them protection from being sued are unpleasantly surprised when they find out that it is no protection for the individual’s negligence. If you personally leave a mess at a property, and a visitor slips and falls and then sues you, the fact that the property is in the name of your LLC will not give you any legal protection. Both the LLC and the individual will be on the hook for the claim.

Properly used and implemented, vehicles such as LLCs can provide important layers of protection for an individual. In connection with trying to use it to protect a personal residence, you also need to consider using debt. If the residence is free and clear within the LLC, it is questionable if you are really protecting anything. Insurance is appropriate of course, but it does not cover everything.

A debtor can make it very difficult for a creditor to collect, even to the point where it is not worth it for the creditor to pursue from a cost benefit perspective. From my experience in chasing down debtors who try to hide and thwart creditors by using undercapitalized entities and/or transferring and hiding assets, they can be generalized (maybe over generalized) into three different types:

1) “The debtor with a conscience.” This is the guy who thought he could hide, but once the legal pressure is put on him, decides to just fold, pay the debt, and move on. Litigation can be a very stressful experience. Sometimes guys like this hired an asset protection guru to advise him who had never seen the inside of a courtroom, and was therefore not prepared for the litigation process when it came. If you are this type of debtor, you should realize this ahead of time, because it should be incorporated into your asset planning.

2) “The debtor who cannot remember or understand his story.” This is the guy who thinks he is smart, but it is not to long before you catch him in lies and inconsistencies, and then you show the judge that he lied. Definitely the most fun for the collection attorney. When you put a microscope on him, he cannot stay consistent in his story. Debt collection litigation can be a microscope into one’s financial affairs.

3) “The pathological liar debtor.” This guy is the toughest to collect from because he remembers and often believes his own lies. Fighting a guy like this is like fighting the mythical seven headed hydra. As a collection attorney, you chop off the head, sear the stump, but then another head pops out that you need to fight. Sometimes the pathological liar wins, but who really wants to live their life like the pathological liar?

This is not intended to be legal advice for anyone to rely on.

[Kingside]

As someone who has actually sought to enforce judgments in complicated situations over the years, here is my perspective:

Successful asset protection planning is a process that must be tailored to an individual or family’s specific circumstances and personality. Asset protection planning is best implemented as an adjunct to a larger financial, retirement, and tax plan. Not as a substitute. In and of itself, putting a residence in a LLC without considering the big picture can be a mistake.

In California there are many powerful legal theories available to creditors including piercing the legal protection of undercapitalized LLCs under “alter ego” theories, and use of the Uniform Fraudulent Conveyance act. “One man show” individuals who think LLCs offer them protection from being sued are unpleasantly surprised when they find out that it is no protection for the individual’s negligence. If you personally leave a mess at a property, and a visitor slips and falls and then sues you, the fact that the property is in the name of your LLC will not give you any legal protection. Both the LLC and the individual will be on the hook for the claim.

Properly used and implemented, vehicles such as LLCs can provide important layers of protection for an individual. In connection with trying to use it to protect a personal residence, you also need to consider using debt. If the residence is free and clear within the LLC, it is questionable if you are really protecting anything. Insurance is appropriate of course, but it does not cover everything.

A debtor can make it very difficult for a creditor to collect, even to the point where it is not worth it for the creditor to pursue from a cost benefit perspective. From my experience in chasing down debtors who try to hide and thwart creditors by using undercapitalized entities and/or transferring and hiding assets, they can be generalized (maybe over generalized) into three different types:

1) “The debtor with a conscience.” This is the guy who thought he could hide, but once the legal pressure is put on him, decides to just fold, pay the debt, and move on. Litigation can be a very stressful experience. Sometimes guys like this hired an asset protection guru to advise him who had never seen the inside of a courtroom, and was therefore not prepared for the litigation process when it came. If you are this type of debtor, you should realize this ahead of time, because it should be incorporated into your asset planning.

2) “The debtor who cannot remember or understand his story.” This is the guy who thinks he is smart, but it is not to long before you catch him in lies and inconsistencies, and then you show the judge that he lied. Definitely the most fun for the collection attorney. When you put a microscope on him, he cannot stay consistent in his story. Debt collection litigation can be a microscope into one’s financial affairs.

3) “The pathological liar debtor.” This guy is the toughest to collect from because he remembers and often believes his own lies. Fighting a guy like this is like fighting the mythical seven headed hydra. As a collection attorney, you chop off the head, sear the stump, but then another head pops out that you need to fight. Sometimes the pathological liar wins, but who really wants to live their life like the pathological liar?

This is not intended to be legal advice for anyone to rely on.

[Kingside]

As someone who has actually sought to enforce judgments in complicated situations over the years, here is my perspective:

Successful asset protection planning is a process that must be tailored to an individual or family’s specific circumstances and personality. Asset protection planning is best implemented as an adjunct to a larger financial, retirement, and tax plan. Not as a substitute. In and of itself, putting a residence in a LLC without considering the big picture can be a mistake.

In California there are many powerful legal theories available to creditors including piercing the legal protection of undercapitalized LLCs under “alter ego” theories, and use of the Uniform Fraudulent Conveyance act. “One man show” individuals who think LLCs offer them protection from being sued are unpleasantly surprised when they find out that it is no protection for the individual’s negligence. If you personally leave a mess at a property, and a visitor slips and falls and then sues you, the fact that the property is in the name of your LLC will not give you any legal protection. Both the LLC and the individual will be on the hook for the claim.

Properly used and implemented, vehicles such as LLCs can provide important layers of protection for an individual. In connection with trying to use it to protect a personal residence, you also need to consider using debt. If the residence is free and clear within the LLC, it is questionable if you are really protecting anything. Insurance is appropriate of course, but it does not cover everything.

A debtor can make it very difficult for a creditor to collect, even to the point where it is not worth it for the creditor to pursue from a cost benefit perspective. From my experience in chasing down debtors who try to hide and thwart creditors by using undercapitalized entities and/or transferring and hiding assets, they can be generalized (maybe over generalized) into three different types:

1) “The debtor with a conscience.” This is the guy who thought he could hide, but once the legal pressure is put on him, decides to just fold, pay the debt, and move on. Litigation can be a very stressful experience. Sometimes guys like this hired an asset protection guru to advise him who had never seen the inside of a courtroom, and was therefore not prepared for the litigation process when it came. If you are this type of debtor, you should realize this ahead of time, because it should be incorporated into your asset planning.

2) “The debtor who cannot remember or understand his story.” This is the guy who thinks he is smart, but it is not to long before you catch him in lies and inconsistencies, and then you show the judge that he lied. Definitely the most fun for the collection attorney. When you put a microscope on him, he cannot stay consistent in his story. Debt collection litigation can be a microscope into one’s financial affairs.

3) “The pathological liar debtor.” This guy is the toughest to collect from because he remembers and often believes his own lies. Fighting a guy like this is like fighting the mythical seven headed hydra. As a collection attorney, you chop off the head, sear the stump, but then another head pops out that you need to fight. Sometimes the pathological liar wins, but who really wants to live their life like the pathological liar?

This is not intended to be legal advice for anyone to rely on.

[Kingside]

As someone who has actually sought to enforce judgments in complicated situations over the years, here is my perspective:

Successful asset protection planning is a process that must be tailored to an individual or family’s specific circumstances and personality. Asset protection planning is best implemented as an adjunct to a larger financial, retirement, and tax plan. Not as a substitute. In and of itself, putting a residence in a LLC without considering the big picture can be a mistake.

In California there are many powerful legal theories available to creditors including piercing the legal protection of undercapitalized LLCs under “alter ego” theories, and use of the Uniform Fraudulent Conveyance act. “One man show” individuals who think LLCs offer them protection from being sued are unpleasantly surprised when they find out that it is no protection for the individual’s negligence. If you personally leave a mess at a property, and a visitor slips and falls and then sues you, the fact that the property is in the name of your LLC will not give you any legal protection. Both the LLC and the individual will be on the hook for the claim.

Properly used and implemented, vehicles such as LLCs can provide important layers of protection for an individual. In connection with trying to use it to protect a personal residence, you also need to consider using debt. If the residence is free and clear within the LLC, it is questionable if you are really protecting anything. Insurance is appropriate of course, but it does not cover everything.

A debtor can make it very difficult for a creditor to collect, even to the point where it is not worth it for the creditor to pursue from a cost benefit perspective. From my experience in chasing down debtors who try to hide and thwart creditors by using undercapitalized entities and/or transferring and hiding assets, they can be generalized (maybe over generalized) into three different types:

1) “The debtor with a conscience.” This is the guy who thought he could hide, but once the legal pressure is put on him, decides to just fold, pay the debt, and move on. Litigation can be a very stressful experience. Sometimes guys like this hired an asset protection guru to advise him who had never seen the inside of a courtroom, and was therefore not prepared for the litigation process when it came. If you are this type of debtor, you should realize this ahead of time, because it should be incorporated into your asset planning.

2) “The debtor who cannot remember or understand his story.” This is the guy who thinks he is smart, but it is not to long before you catch him in lies and inconsistencies, and then you show the judge that he lied. Definitely the most fun for the collection attorney. When you put a microscope on him, he cannot stay consistent in his story. Debt collection litigation can be a microscope into one’s financial affairs.

3) “The pathological liar debtor.” This guy is the toughest to collect from because he remembers and often believes his own lies. Fighting a guy like this is like fighting the mythical seven headed hydra. As a collection attorney, you chop off the head, sear the stump, but then another head pops out that you need to fight. Sometimes the pathological liar wins, but who really wants to live their life like the pathological liar?

This is not intended to be legal advice for anyone to rely on.

[earlyretirement]

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[earlyretirement]

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[earlyretirement]

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[earlyretirement]

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