My wife and raise and sell cattle and started an LLC partnership in GA a couple of years ago with Operating agreement and annual meeting minutes, and all that is required. We also had an attorney draw up a Quit Claim Deed and put our property where we live and also raise cattle in the LLC's name for pre-emptive (no foreseeable debts) outside asset protection from personal creditors (ex. medical bills). We gave up our homestead exemption, and I know if we ever sell house we would need to quit claim deed back to us for two years prior in order to get the $500k capital gains exemption. This is the only asset in the LLC other than farm equipment and cattle we depreciate on 4562, there are c couple of barrns on property we depreciate as well but do not depreciate our house. We use a seperate checking and credit card account for the LLC and file 1065 Schedule K's from business.
The only recourse in GA for personal creditors in regards to an LLC, is a charging order against debtors share of distributions from LLC.
If one of us were to get sued personally, do you think our LLC "corporate veil" would be pierced and creditors could attach lien to house and property?
Updated 3 months ago
On another related topic: If we were to buy a different house for personal residence and put in LLC name, and rent back from LLC, reporting everything on taxes, would this "corporate veil" likely be pierced?
Go and talk to an asset protection attorney and CPA to properly structure your goals, needs and protections. the corporate veil will be pierced if you commit fraud, undercapitalized you business, or don't follow corporate formalities. Small closely held companies are more susceptible to this since you're name is on everything you sign and are more likely personally liable to creditors and contractors, and its easier for small LLC's to commingle assets. A good asset protection attorney and CPA will help solve this and teach you how to manage all your interests as separate entities.
@Arn S. undefined,
- If you really wanted to protection in your situation, I personally feel that trusts are better asset protection vehicles than LLCs. Also, if you had SMLLC rather than your MMLLC that files 1065, you do not have to transfer the residence back to you if you want to utilize 500k exclusion. Courts have ignored disregarded entities and allowed the section 121 exclusion.
- So you are putting personal asset to protect your house from the personal creditors, but exposing it to business creditors but putting in the business's LLC does not seem right to me. People create LLCs and other entities to limit their liability on the personal asset. But here looks like you have actually put the personal residence in the LLC, thus exposing the asset to the business creditors.
I am getting a feeling that you are more worried about getting sued personally than form the business. But the reverse is more prevalent.
And if you have done everything right and separate (which rarely happens with the small personal businesses), LLC is considered separate entity and the asset in it would be protected.
You can rent your property to your business, but you cannot rent out a house from your own LLC. These kinds of the transaction go against Economic Substance Doctrine.
A transaction has economic substance if: (1) the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer’s economic position; and (2) the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into such transaction.
There is no change in your economic position by transferring your primary residence into a LLC, You do not have a substantial purpose for entering into such transaction other than to simply avoid paying federal income taxes.
Hope that helps.
Thanks to both replies. I do plan on discussing with local attorney but welcome any advise..... I don't have any children to leave property to so not sure how a trust will help me, as I want to have control in case I decide to sell in the future...... I am not worried about business creditors as I have none and this would be the only asset, although a big one, in this particular LLC. I don't do anything negligent to jeopardize it. Also, I don't know what federal taxes you are referring to that I am avoiding by doing this? Again, any advise is welcome and appreciated.
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