Personal real estate protection with corp?

[aml811]

What is the name of your state? KY

Can a home be transfered to a corp you own to guard against possible future personal financial liens?

I would like to incorporate my newly started business, transfer ownership of my home to the corp and pay the corp "rent". Therefore not "owning" the home but having the full financial benefit of the equity for the corp.

Please advise.

 

[clueless3]

Can a home be transfered to a corp you own to guard against possible future personal financial liens?

Yes, this is done all the time. However:

1) You need to use an LLC, not a Corp, for this purpose.
2) You need to do the transfer LONG BEFORE there's sight of a possible creditor attack, otherwise it's called FRAUD.

I would like to incorporate my newly started business, transfer ownership of my home to the corp and pay the corp "rent". Therefore not "owning" the home but having the full financial benefit of the equity for the corp.

If you have ONLY ONE home, it's not tax-wise to do this because you'd lose the $250,000 per person capital gain deduction. The 2nd home on, you can do it.

 

[tranquility]

I can think of a long list of reasons why this should not be done. You need to define your goals precisely and plan the numbers out to see if the expense/hassle is worth what you get. Remember that your bank will not like the transfer and the loan will probably come due. Your insurance rates will go up (as it is no longer a personal residence) and you may need a business license for the rental property. If you do lose a suit and you have an LLC holding your property (especially if it is wholly-owned), there are proceedures of getting ownership or at least a charging order against distributions. (Depending on the state.) I could go on and on.

Set your goals. Make a financial plan. See an attorney.

 

[clueless3]

This process is VERY commonly done, especially by those who have more than one house and by investors. Banks know why it's done; insuarnce companies know why it's done. But it should be done only if one has more than one house. It'd be silly to rent it to yourself.

Remember that your bank will not like the transfer and the loan will probably come due.

Bank CAN exercise the Due-on-Sale clause, but they ALMOST NEVER do, AS LONG AS the loan performs. Besides, they know why people transfer their assets to their LLCs. They see it all the time. As long as they get the monthly check, they'll be more than happy to keep things as is.

Your insurance rates will go up (as it is no longer a personal residence)

The insurance will not go up IF it's owner-occupied. Yes, non-owner-occupied insurance is more expensive.

If you do lose a suit and you have an LLC holding your property (especially if it is wholly-owned), there are proceedures of getting ownership or at least a charging order against distributions.

This CAN be done, but it's a long shot, a very long shot; that's why people do it. Almost no lawyer will take up the case [of suing the LLC] because they know they won't get paid for a VERY long time. But the transfer MUST be done a long time before the storm gathered, else it's fraud, and the transfer is voided.

 

[moburkes]

The residence will no longer be owner occupied. It will be tenant occupied. The owner of the home will need an insurance policy, which, by its new nature, will be a commercial policy. The tenant will need a renter's policy. I'm not risking my license by not instructing my client to do it correctly.

 

[tranquility]

Yes, it is commonly done with income property where the owner wants to segregate risk. (Where something happens to a property and the owner does not want the liability to extend down to him or to the other properties.) Here, the owner wants to protect the property from liability he has personally. If it is a wholly-owned LLC, it won't do this. At the very least, a charging order could be had. The creditor is not suing the LLC, they are suing the person for his personal liability. The collection of the debt is what goes against the LLC as it is one of the assets of the person.

People do a lot of things with winks and nods. If it works out, great. If not, look out. Making a fraudulent statement on your insurance application could be a problem. Not notifying your lender the property is no longer owner-occupied could be a problem. The capital gain advantage of personal residence ownership is lost.

I don't think someone who places their personal residence in a single-member LLC is going to get the advantage they believe they will. I also think the cost is fairly high with some risks. (Does this really have a business purpose?) On and on.

We have a number of very well off clients with a lot to lose. Since our speciality is real property/income property, these are sophisticated people in the area of real estate. None of them have placed their personal residence in an LLC. NONE. If for no other reason, that should give one pause to carefully consider the benefits/risks of the plan.

 

[clueless3]

Can a home be transfered to a corp you own to guard against possible future personal financial liens?

If you're really keen on protecting your primary residence against creditor attacks, you don't need to transfer it out of your name. There are ways around it:

* Many states have a HOMESTEAD EXEMPTION. Some states even have 100% homestead exemption!
* You can max out on the MORTGAGE so there's nothing left to attack.

Still, aren't you afraid that the creditors will attack your LIQUID assets?? How are you gonna protect those?? You can transfer it OFFSHORE, but it will cost you.