Risk & Business Magazine General Insurance Service Fall 2021 | Page 30

INVESTMENT PROPERTIES

Minimize Liability On Investment Properties With A Series LLC

Owning investment properties is one of the best ways to earn a passive income . However , should someone be injured on one of your properties , your personal assets may be at risk if you own those properties in your individual name rather than in a limited liability company ( an “ LLC ”) or a corporation . While the first layer of protection is to have adequate insurance coverage on a property , having the property held by an LLC or a corporation is an additional protection , particularly if a claim is made that exceeds your policy limits .

One of the most common ownership structures we see with investment property ownership is to have the property owned by a single LLC . The advantage to this is that it separates the liability risks of the investment property from an owner ’ s personal assets . If done correctly , owners of an LLC ( known as “ members ”) are not personally liable for issues or claims made against the LLC . This means that a creditor can only recover against the LLC ’ s assets rather than the member ’ s assets .
While this structure protects your personal assets by separating liability , placing multiple properties within the same LLC does not separate the liability risks of one property from another . So for example , if an incident occurs at one property , then all of your properties are potentially at risk .
To solve this problem , property owners would create separate LLCs for each property that they owned . However , as you accumulate more properties , this method becomes tedious and expensive to maintain separate bank accounts , record keeping , and tax filing for each one . Enter the series LLC .
A series LLC is a special type of limited liability corporation that allows for sub-series LLCs to be registered under the same entity while protecting each entity in its own capacity . This way , if a lawsuit arises from an incident occurring at ABC LLC ’ s property , then only ABC property is exposed and any other sub-series LLCs under the master series umbrella cannot be targeted . A series LLC is far more affordable to get off the ground and provides far greater ease of administration than registering multiple LLCs .
Unlike having a separate LLC registered for each property , only a single return needs to be filed ( every two years ) for the master series LLC and all of its constituents . Furthermore , the rental transactions for all properties can be run through a single bank account ( as long as accounting records show which property each transaction originated from ) whereas separate LLCs would require a separate bank account for each property . For taxation purposes , if you are the sole owner of the series LLC , then you can set the corporation up as a pass-through entity , meaning that all of your rental income can be reported with a single Schedule C attachment on your personal income tax and no additional corporate returns need to be filed .
If you own more than two investment properties and would like to strategically protect your assets in the event of a lawsuit , I am a top-rated transactional attorney serving all of Northern Indiana and would be happy to assist you . You can schedule an appointment with me to set up a series LLC for your investment properties by reaching out directly by phone at 219-402-1447 or by email at agnovak @ nlkj . com . +
BY : ANTHONY NOVAK PARTNER , NEWBY , LEWIS , KAMINSKI & JONES
Anthony Novak joined the firm in 2014 and represents a wide range of clients . He is the Chair of the Lakefront Career Network in Michigan City , a mentor for Hours for Ours , and he volunteers as a judge for the La Porte County Teen Court Program . In 2017 , he was selected as one of NWI Time ’ s Top 20 Under 40 .
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