LLC Myths
LLC Myth #1
Holding my investment property in my Florida LLC shields my assets from the claims of creditors
Not necessarily! First of all, a single member Florida limited liability company provides virtually no protection from creditors’ claims. Only multi-member limited liability companies provide the creditor protections most people are looking for from holding assets in an LLC. However, some very careful practitioners go a step further regarding multi-member limited liability companies when the multiple members consist of a husband and wife. The concern is that a court may look upon a husband and wife as a single person, which is an accepted English common law view of the status of a husband and wife.
LLC Myth #2
Holding my investment property in my Florida LLC is the best way to hold my investment property assets.
Again, not necessarily. It turns out that insurance premiums on limited liability company held assets are typically higher than the insurance premium on the same asset held in the name of a natural person. Additionally, if you want to carry excess liability insurance, commonly known as umbrella coverage, and you have minimized your cross-asset liability exposure by holding each asset in it’s own limited liability company, you are going to need multiple umbrella policies. If, on the other hand, you held the assets in your individual name, you might be able to obtain a single, extremely large umbrella policy that covers all of the assets at a lower cost.
LLC Myth #3
If I am a foreign person, I can hold my Florida real estate in an LLC and avoid FIRPTA.
If your LLC is a single member limited liability company, the limited liability company is considered a disregarded entity and the law and the regulations look to the true owner, being the single member foreign national or foreign entity, for application of FIRPTA. Thus, in such case, FIRPTA withholding would not be avoided at the real estate transaction level unless some other exemption is applicable.
If your LLC is a Florida multi-member LLC, there would be no FIRPTA withholding at the LLC level, but there would be FIRPTA withholding and compliance at the next level, which is the distribution of funds from the LLC. Bottom line is this: Uncle Sam always gets his way, sooner or later. Work with someone who understands limited liability company, FIRPTA and real estate law whenever you are involved in a real estate transaction.