LLC vs Other Entities

[rsandy]

My client has all his assets in a revocable trust. When he and another individual decided to purchase a commercial rental, I recommended an LLC to primarily isolate that rental activity from other entities owned by my client while allowing the members to share profits.
The LLC was formed but when the sale was closed, it was in the name of the individual and my client's trust. The lender is willing to redo the paperwork; however, documntary stamps will be in the area of $ 1,000.00. Upon further review, I'm not certain that redoing the paperwork in the name of the LLC provides any significant benefits for my client, besides, perhaps, one of liability. How do others see it?

[erchess]

My two cents

I think the liability issue is a big one and deserves consideration but that liability insurance (which surely would be in place anyway) might do on its own.

You don't say what state the property is in and that matters terribly because the protections for LLCs range between as good as for any Corporation to almost non existent. As a rule of thumb the law regarding LLCs is less settled than for Corporations and Partnerships. It does seem to me that if the LLC was going to be taxed as a C Corp you could just make the entity a C Corp and if it was going to be taxed as an S Corp you could just make the entity an S Corp or a Partnership. You don't say whether any of those options would lower the costs of sale. On the other hand when one is buying a house I am not sure that a thousand dollars is anything but a trivial expense.

[DTS]

Corp

It's my understanding from reading earlier posts on this board that the last place you want to place property in is in a corporation because of having to show a sale of property when the corp is reorganized, sold, etc. LLC is OK.

You should do a search on archived posts here and you will find these very informative discussions.

Be careful.

[Gretel]

The liability issue was probably the only reason to form this LLC, wasn't it? I think it's important now to revisit the liability issue, if it is important, then you want to re-title.

As long as everything goes well nobody cares, but if things go wrong these "little" formalities will make all the difference.

[rsandy]

LLC vs Other Entites

Thanks for the respones. The company and property are located in Florida for those that had that question. I'll counsel the parties on the need for strong liability insurance coverage, as my client is well off financially, and then let them decide if they value the potential protection of the LLC in addition to the insurance. In the long run, I believe the additional doc stamps expense now is a modest price to pay for the greater protection obtained from the restructureing.

[Burke]

I am guessing this is a revocable living trust. About the only reason for forming such a trust is to avoid probate. It does not do much else. Changing title from that to an LLC may mean it would go through the probate process. He needs to weigh which avenue he wishes to take. If there are other members in the LLC, perhaps a buy-sell or other partnership agreement as to disposition of his interest is also in order.