Umbrella insurance enough or LLC(s) necessary? See our scenario...

Member since 2023 · 4 posts · 4 votes

Background: Our primary residence is in California. We have several long term rental properties in Utah. We recently purchase an STR in Florida. The 2 primary concerns, 1) asset protection, 2) transferring properties into our living trust.

Questions:

1) Is umbrella insurance enough or with multiple properties across states, LLC(s) is advised?

2) If yes, LLC is needed, how to structure? My initial thought was to have separate LLCs, one for Utah properties and another for the FL property. Or, is it enough to have a single LLC for ALL properties?

Thanks in advance,

Ray

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Jason Zundel

Member since 2025 · 111 posts · 123 votes

Certainly a bit biased here, but we would strongly recommend setting up LLCs for the properties, and ideally pairing them with a holding company in WY, DE, or NV to fully separate the risks and liabilities of each of the properties from your own personal liability, and vice versa. Your best protection will come by having each property in it's own LLC as well, though at minimum one per state. The goal of insurance is to accept your money and not make any payments out, whereas a structure of LLCs is designed and owned 100% by you and for your protection. FL and CA are each a bit of a unique scenario as well, so if you want to reach out directly, I'm happy to talk one-on-one about the details.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

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Jason Zundel
Member since 2025 · 111 posts · 123 votes
1y
Certainly a bit biased here, but we would strongly recommend setting up LLCs for the properties, and ideally pairing them with a holding company in WY, DE, or NV to fully separate the risks and liabilities of each of the properties from your own personal liability, and vice versa. Your best protection will come by having each property in it's own LLC as well, though at minimum one per state. The goal of insurance is to accept your money and not make any payments out, whereas a structure of LLCs is designed and owned 100% by you and for your protection. FL and CA are each a bit of a unique scenario as well, so if you want to reach out directly, I'm happy to talk one-on-one about the details.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

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Katie Balatbat
CPA and Attorney · San Diego, attorney · Member since 2022 · 302 posts · 219 votes
1y
@Ray Heraldo
There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc. Same goes for number of LLCs and what to fund them with, since bear in mind that CA tends to be more cumbersome and expensive to have LLCs than other states.

California is generally more involved than other states when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you may be deemed to be "doing business" in California and therefore maybe subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you may need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you may need to pay registration and filing fees in at least 2 states if you don't buy CA property as a CA resident.

Any lawsuits should in theory be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced, some debate as to SMLLC). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. Or, a charging order may be granted. If you have a loan, you may wish to look into due-on-transfer clauses.

If you're going the umbrella insurance route, perhaps see if it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.

Creating an LLC in California could cost you a minimum tax of $800 every year. You would have ongoing filing requirements with the State and would need to keep business records and documentation. California does not recognize series LLCs. You'll also want to coordinate with your estate plan, and consider getting an estate plan if you do not yet have one in place.

These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.

*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
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- Shawn Sturgeon
  Member since 2025 · 2 posts · 2 votes
  1y
  @Katie Balatbat I'm in San Diego, looking to invest out of state. I'd love to get your references for who I should work with to assess my LLC need and help execute that.
  1 Reply
- Katie Balatbat
  CPA and Attorney · San Diego, attorney · Member since 2022 · 302 posts · 219 votes
  1y
  Quote from @Shawn Sturgeon:
  
  @Katie Balatbat I'm in San Diego, looking to invest out of state. I'd love to get your references for who I should work with to assess my LLC need and help execute that.
  
  I'll send you a private message.
  0 Reply
William Hochstedler
Broker · Logan, UT · Member since 2013 · 1k+ posts · 1k+ votes
1y
The great debate!

I'd love to hear more from investors who just use insurance as their liability protection and have had that tested. I agree with @Jason Zundel that not paying is part of the insurance business model. But insurance companies have attorneys they use to "not pay" which may work in your favor. And the whole point of liability insurance is to cover legitimate damages -- the very thing we're trying to insulate ourselves from.

Likewise, LLC's compartmentalize assets to limit exposure to only the assets owned by the entity as @Katie Balatbat explains better than I could. So insurance and limiting liability through entity formation perform different functions.

I would add to the mix Einstein's(?) quote: "Everything should be as simple as possible, but not simpler." And LLC's can be complicated. They are state formations so they need to be maintained in the states where the properties are. Nested LLC's, Series LLC's, Foreign Entity registration, bookkeeping, operating agreements and other administrative requirements are all extra cost/work and can be cumbersome when it comes to maintaining utilities, banking, and loans, etc. A multimember LLC will require a separate tax return.

And this is probably why the recommendation is to get an opinion based on your personal situation from both an attorney (to understand your exposure) and an accountant (to understand your bookkeeping/tax requirements) and then make a decision based on how much you're protecting and how much you are willing to spend for that peace of mind.

Good topic!
2 Reply
Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
1y
This is essentially a risk vs benefit analysis.
RISK
Lawsuit award that exceeds the equity in the rental property, allowing plaintiff to go after personal assets.
Analysis: what's the worst-case scenario and statistical probability.
- Also, an LLC can be "pierced" in several ways.
- How much assets are the value of assets at risk?
Personal Note: been doing this for 30+ years and have not seen an award on an individual landlord exceed $60k.
BENEFIT
Insurance or LLC limits personal and other assets' exposure to lawsuit award.
Analysis: what's the cost of the protection vs the value at risk?
LLCs are often best suited for partnerships, where several partners may have high networths they wish to avoid exposing.
Most others can usually mitigate a high percentage of their risks with $x amount of insurance coverage - assuming the correct coverage is put in place
LLCs though, can also offer some anonymity for owners, depending on state of origin and legal structuring.
[email protected]248-209-6824
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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
1y
Quote from @Ray Heraldo:

Background: Our primary residence is in California. We have several long term rental properties in Utah. We recently purchase an STR in Florida. The 2 primary concerns, 1) asset protection, 2) transferring properties into our living trust.
Questions:
1) Is umbrella insurance enough or with multiple properties across states, LLC(s) is advised?
2) If yes, LLC is needed, how to structure? My initial thought was to have separate LLCs, one for Utah properties and another for the FL property. Or, is it enough to have a single LLC for ALL properties?
Thanks in advance,
Ray
We’ve had some really good answers here with explanations - showing why BP is a GREAT resource.

I’ll tell you what I do

1. I obtain the best and highest amount of insurance I can that’s reasonably priced - which is getting more difficult. However, there could be huge differences in rates between different insurers. I check it every renewal.

2. I “own” a “series LLC”, Texas residency. Each property or note I own is in a separate series of the LLC. One formation fee, one annual form to submit, no franchise tax, and each asset is protected from liability arising from any other asset, and no liability arising from any asset flows to me personally.

There are a number of issues to contend with. If a property is owned in an individuals name, and has a mortgage, then a transfer to an LLC, even one controlled by the property owner, is a violation of the mortgage or deed of trust covenants (due on sale clause). If a property buyer wants to purchase a property in an LLC, even if they personally guarantee the note they will be eliminating a number of low cost financing alternatives that will only lend to individuals in their name.

If the property in question is the owners personal residence, then ownership in an LLC may negate homestead law protections and tax reductions, as well as negate bankruptcy state homestead exemptions.

Not all states recognize SERIES LLCs, and in some states series LLC case law is not well established.

While insurance companies strive to “play fair” with consumer/personal residence claims, they consider investment property claims fair game to issue blanket claim denials until the insured hires legal counsel.

Private Mortgage Financing Partners, LLC
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1 Reply
- Rob K.
  Encinitas, CA · Member since 2011 · 192 posts · 252 votes
  1y
  Quote from @Don Konipol:
  
  Quote from @Ray Heraldo:
  
  Background: Our primary residence is in California. We have several long term rental properties in Utah. We recently purchase an STR in Florida. The 2 primary concerns, 1) asset protection, 2) transferring properties into our living trust.
  Questions:
  1) Is umbrella insurance enough or with multiple properties across states, LLC(s) is advised?
  2) If yes, LLC is needed, how to structure? My initial thought was to have separate LLCs, one for Utah properties and another for the FL property. Or, is it enough to have a single LLC for ALL properties?
  Thanks in advance,
  Ray
  We’ve had some really good answers here with explanations - showing why BP is a GREAT resource.
  
  I’ll tell you what I do
  
  1. I obtain the best and highest amount of insurance I can that’s reasonably priced - which is getting more difficult. However, there could be huge differences in rates between different insurers. I check it every renewal.
  
  2. I “own” a “series LLC”, Texas residency. Each property or note I own is in a separate series of the LLC. One formation fee, one annual form to submit, no franchise tax, and each asset is protected from liability arising from any other asset, and no liability arising from any asset flows to me personally.
  
  There are a number of issues to contend with. If a property is owned in an individuals name, and has a mortgage, then a transfer to an LLC, even one controlled by the property owner, is a violation of the mortgage or deed of trust covenants (due on sale clause). If a property buyer wants to purchase a property in an LLC, even if they personally guarantee the note they will be eliminating a number of low cost financing alternatives that will only lend to individuals in their name.
  
  If the property in question is the owners personal residence, then ownership in an LLC may negate homestead law protections and tax reductions, as well as negate bankruptcy state homestead exemptions.
  
  Not all states recognize SERIES LLCs, and in some states series LLC case law is not well established.
  
  While insurance companies strive to “play fair” with consumer/personal residence claims, they consider investment property claims fair game to issue blanket claim denials until the insured hires legal counsel.
  
  California is happy to recognize Series LLCs from other states. They just want a minimum $800 annual franchise fee for each series doing business within the state.
  https://www.ftb.ca.gov/file/business/types/limited-liability...
  1 Reply
Allan C.
Rental Property Investor · Member since 2018 · 829 posts · 811 votes
1y
I have both umbrellas and LLCs so I'll give you different perspective. My LLCs are multi-member with non-related parties so we are very diligent about maintaining the integrity of the LLC. I hold my solely-owned properties under personal name with umbrella.

I think there's a high probability that your LLCs will be ineffective. If single-member LLC it's not likely going to protect you, even if you were diligent about maintaining the LLC. Most people dont have the discipline to maintain financial and legal requirements of LLC, so you're just paying extra costs (insurance, lender, accountant, SOC, etc) for no added benefit.

Do any of these properties have loans under personal name? Are you willing to maintain separate bank accounts for all entities? Are you planning on getting insurance under the LLC? Have you performed diligence on how much commercial/business insurance costs these days?
0 Reply
Jason Zundel
Member since 2025 · 111 posts · 123 votes
1y
Ray, lots of really great information on this chain! Love BP for this. Agree and love the input from Katie about CA and the fact that LLCs will stop the liability from attaching to other assets/individuals separate from the LLC, but not against the home or property itself that is subject to the liability. I did want to address one very common misconception - SMLLC (single member LLC) treatment is a state by state issue and most of them actually stand up to scrutiny quite well. WY for example has statutes that specifically address SMLLCs as having the same treatment and protection. FL, on the other hand, has jurisprudence calling into question the strength and validity of a SMLLC, so be careful there. Best of luck making final decisions!

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

1 Reply
Ray Heraldo
OP
Member since 2023 · 4 posts · 4 votes
1y
+1 on BP community and sharing knowledge. Lots of info to consider and will engage an experienced atty. to help me and my wife navigate what's best. Thank you all again!
The 2nd question about adding these to our living trust...I don't think I'll have an immediate answer on LLC and/or umbrella ins. That said, does it make sense to add properties now as-is? It'll probably cost more to make updates/changes to living trust if we decide to go structure LLC(s) but at least we'll have them in the living trust now.

Thoughts?
0 Reply
Ken M.
Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
1y
Quote from @Ray Heraldo:

Background: Our primary residence is in California. We have several long term rental properties in Utah. We recently purchase an STR in Florida. The 2 primary concerns, 1) asset protection, 2) transferring properties into our living trust.
Questions:
1) Is umbrella insurance enough or with multiple properties across states, LLC(s) is advised?
2) If yes, LLC is needed, how to structure? My initial thought was to have separate LLCs, one for Utah properties and another for the FL property. Or, is it enough to have a single LLC for ALL properties?
Thanks in advance,
Ray

LLCs do not keep you from getting sued. LLCs cost money to create and to maintain. LLCs are to protect something. If you don't have anything to protect, you don't need to have an LLC. LLCs make you feel "cool", so what? You want to have something to protect, not just to feel "cool". No properties, no need for an LLC. Here's a recent example of people using the SubTo method getting sued, even though they used their LLCs

An LLC might help, IF you do all of the steps consistently in your Operating Agreement. What?? your online downloaded LLC didn't come with an Operating Agreement?? FOR SHAME!!

So, even if you DID create an Operating Agreement and you strictly adhere to it's rules, that doesn't make you immune. It might mitigate the problem, but you'll still have a problem.

If you want to avoid being sued, for the most part, you deplete the equity in your properties. You may still get sued, but there is nothing to collect. Attorneys don't sue when they can't collect. Let Umbrella insurance take the brunt of your liability. By the way, attorneys will sue for the full amount of the umbrella insurance, so having an outrageous amount of coverage will get you sued. Have a nice day.
1 Reply
Jason Zundel
Member since 2025 · 111 posts · 123 votes
1y
@Ray Heraldo - You are right on both points - having the properties in the trust now is a GREAT idea, but there will be an expense and hassle each time you transfer the properties. My general recommendation is to look at the timeline: If you will move forward with LLCs in less than a year, then it's not worth moving properties to the trust and then out to the LLCs. If it could be a year or longer before the LLCs are set up and ready to go (of if you go the route of a large umbrella policy and won't use LLCs), then it's worth it now to move the properties to your living trust directly.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

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