Have you considered ways to protect your home beyond insurance? Are you concerned about planning for your estate? Have you considered your options for placing your home in either a trust or a Limited Liability Company (LLC)? Both can be great options to avoid certain estate tax penalties. While trusts are much more well-known as an estate planning tool, an LLC may be just what you should consider! But what exactly is an LLC?
An LLC is a hybrid business entity that has characteristics of both a corporation and a partnership but is not a true corporation. It is controlled by a single manager, or multiple mangers if more than one person is involved in the LLC. One of the benefits of an LLC is the limited liability which means that in the event of a lawsuit, a creditor could only go after the assets owned by the LLC; your personal assets would be protected. Another benefit of the LLC is the availability of pass-through income taxation; the LLC is only taxed once, at the owners’ level as opposed to the corporate level.
However, with the advantages there are also some drawbacks to be aware of. For example, there’s the possibility of a self-employment tax. And most often, homes owned by an LLC are secondary or vacation homes, or rental properties, so it may not make sense to place your home in an LLC.
Forming an LLC is relatively easy: choose a name that complies with your state requirements, file the formal paperwork called “Articles of Incorporation”, pay any filing fees, create an operating agreement, and then obtain any necessary licenses.
While an LLC is typically considered a business entity and ineligible for personal insurance, the insurance industry is recognizing a need for LLC coverage for your home. Some insurance companies offer an LLC endorsement that can be added to your homeowners or personal umbrella policy and provide coverage for the home itself, as well as other structures on the property such as a detached garage or fence. It can also provide personal liability coverage and medical payments to others should the LLC manager or members be found liable for an accident on the property.
Ask your independent insurance agent about protecting your LLC-named home with an LLC endorsement. What other ways do you protect your secondary or vacation home? I’d like to hear your ideas in the comments below!