Registering new LLC in Maryland or Delaware
Maria M.
14 days/year and also rent out. I am interested in limiting my
liability by forming an LLC to own the home. Two questions: 1) We
are residents of Maryland but the beach house is in Delaware, what are
the advantages/disadvantages of registering in DE or MD? Which will
lead to less expenses? 2) Since only a pro-rata portion of the
expenses are deductible based on the rental vs. personal use percent
and since LLCs report on Schedule C, will all expenses be reported in
Schedule C? I know where the allocation happens in Schedule E, but an
LLC files a Schedule C so I am just wondering about the mechanics of
only reporting a portion of the LLC's expenses. Any other things I
should consider before setting up an LLC?
One last thing, have any of you heard of a lender calling in a
mortgage b/se of the title change from an individual owner to an
LLC? Legally I am told it can be done b/se of the title transfer to
the LLC, but is it done in practice?
Thanks!
Maria M.
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Stuart A. Bronstein
> My husband and I own a vacation home in Delaware that we use
> more than 14 days/year and also rent out. I am interested in
> limiting my liability by forming an LLC to own the home. Two
> questions: 1) We are residents of Maryland but the beach house
> is in Delaware, what are the advantages/disadvantages of
> registering in DE or MD? Which will lead to less expenses?
Normally if you create the LLC in Maryland, it will also have to
qualify to do business in Delaware. In other words you'll end up
paying administrative fees and perhaps additional taxes in both
states. If you create the LLC in Delaware you cut down on the
bureaucracy and probably expense.
This varies by state, though, so you should talk with a local
lawyer to determine how it works where you are.
> One last thing, have any of you heard of a lender calling in a
> mortgage b/se of the title change from an individual owner to an
> LLC? Legally I am told it can be done b/se of the title
> transfer to the LLC, but is it done in practice?
If there's not a change in the underlying ownership, it's normally
not a problem. Your loan documents may even specify that you can
do that - take a look at them.
--
Stu
http://downtoearthlawyer.com
Bill Brown
> My husband and I own a vacation home in Delaware that we use more than
> 14 days/year and also rent out. �I am interested in limiting my
> liability by forming an LLC to own the home.
Why do you believe an LLC will limit your personal liability in any
way? Unless your LLC has employees who are not answerable to you, you
will be personally liable for anything that you do that causes damage
to others. I cannot imagine your LLC will hire people who do not
answer to either you or your husband.
I suggest you discuss this idea with an attorney who is not going to
get an extra fee from you if you decide to go ahead with this LLC idea.
Stuart A. Bronstein
> Why do you believe an LLC will limit your personal liability in
> any way? Unless your LLC has employees who are not answerable
> to you, you will be personally liable for anything that you do
> that causes damage to others. I cannot imagine your LLC will
> hire people who do not answer to either you or your husband.
A person is liable for his own tortuous conduct, so a corporation or
LLC won't help for those. For for contract matters or the torts of
employees or contractors, the LLC may limit personal liability.
--
Stu
http://downtoearthlawyer.com
removep...@yahoo.com
wrote:
> Bill Brown <brow...@longwood.edu> wrote:
> > Why do you believe an LLC will limit your personal liability in
> > any way? Unless your LLC has employees who are �not answerable
> > to you, you will be personally liable for anything that you do
> > that causes damage to others. I cannot imagine your LLC will
> > hire people who do not answer to either you or your husband.
>
> A person is liable for his own tortuous conduct, so a corporation or
> LLC won't help for those. �For for contract matters or the torts of
> employees or contractors, the LLC may limit personal liability.
What is "tortuous conduct"?
Maria M.
renter who might slip off the toilet seat and sue me because the
toilet was not stable. I actually heard that given as an example by
Ray Lucia, a financial planning talk show host. Apparently that
happened to someone and the person won an $8M lawsuit against a
hotel. I keep reading that rental properties should be owned by LLCs
because of the liability issue. There are a lot of articles on the
internet that advocate this, but most are written by attorneys or
financial planners. My tax accountant says she has heard of rental
properties in LLCs, but not necessarily vacation homes where only a
percent of the expenses are deductible. This is all so complicated!
I've already increased my umbrella insurance policy. Maybe I'll
increase it some more and forget this whole LLC idea.
Maria
Bill Brown
gro...@yahoo.com> wrote:
> On Nov 12, 12:29�pm, "Stuart A. Bronstein" <spamt...@lexregia.com>
> wrote:
>
> > A person is liable for his own tortuous conduct, so a corporation or
> > LLC won't help for those. �For for contract matters or the torts of
> > employees or contractors, the LLC may limit personal liability.
>
> What is "tortuous conduct"?
Behavior that damages another person.
Stuart A. Bronstein
> My LLC will not have employees. I am worried about being sued
> by a renter who might slip off the toilet seat and sue me
> because the toilet was not stable.
Depending on who installed the toilet seat and who supervised the
person who installed it, an LLC may or may not protect you in this
situation.
Even if the LLC protects you, you can lose the entire property in a
lawsuit. Much better is to get good insurance. That way you are
unlikely to lose the property. And someone will pay your attorneys
fees if the suit is frivolous.
Again, insurance won't protect you against intentional torts, and is
unlikely to protect you for breach of contract. An LLC won't help
with the first of those, but could with the other.
--
Stu
http://downtoearthlawyer.com
LoTax
quite torturous and not quite tortious. The important thing about
tortuous conduct is that holding your property in an LLC won't protect
you from being sued for it.
Stuart A. Bronstein
> "Tortuous conduct" is, like, sorta in the middle, you know.
> It's not quite torturous and not quite tortious.
Tortuous conduct is well defined in the law, and generally
encompasses any kind of wrongful personal injury.
> The important thing about tortuous conduct is that holding your
> property in an LLC won't protect you from being sued for it.
Again, that's only true to the extent that the taxpayer herself is
being sued for her own tortuous conduct. If the company is being
sued for the wrongful conduct of an agent or employee, the LLC will
protect the owner who did nothing improper herself.
To me the major downside is that, even if the case of an employee
engaging in wrongful conduct, the taxpayer can lose her whole
investment in the LLC - just nothing beyond that investment. But
that can be a heck of a lot of money.
This is the kind of thing you can insure against. So with a large
investment it's foolish not to have insurance.
--
Stu
http://downtoearthlawyer.com
LoTax
Tortious,
Tortuous,
Torturous.
IANAL
Dick Adams
>> My husband and I own a vacation home in Delaware that we use
>> more than 14 days/year and also rent out. I am interested in
>> limiting my liability by forming an LLC to own the home. Two
>> questions: 1) We are residents of Maryland but the beach house
>> is in Delaware, what are the advantages/disadvantages of
>> registering in DE or MD? Which will lead to less expenses?
> Normally if you create the LLC in Maryland, it will also have to
> qualify to do business in Delaware. In other words you'll end up
> paying administrative fees and perhaps additional taxes in both
> states. If you create the LLC in Delaware you cut down on the
> bureaucracy and probably expense. ...
That is an excellent point. Many people form out-of-state corps only
to learn the hard way that they also have to file in-state if they
are running their business in-state.
>> One last thing, have any of you heard of a lender calling in a
>> mortgage b/se of the title change from an individual owner to an
>> LLC? Legally I am told it can be done b/se of the title
>> transfer to the LLC, but is it done in practice?
> If there's not a change in the underlying ownership, it's normally
> not a problem. Your loan documents may even specify that you can
> do that - take a look at them.
I am not current on Banking laws and regs, but back in the days of
"Iron Men and Wooden Ships" I purchased a house and put into a Trust.
Unless your lender prohibits that, you can put the house into a Trust
with the LLC as the owner.
To avoid all of this, contact your hazard insurance carrier. If you
have your all of your home and auto insurance with them, they can
write you a high coverage Umbrella policy for close to the initial
and continuing legal fees of incorporation. If I recall correctly,
my Umbrella policy with Geico. I know the premium is $274.90. The
coverage is either $500K or $1M. I can't look it up at the moment
as childbride does not allow me to go into the file cabinet. ;)
Dick
Stuart A. Bronstein
>> If there's not a change in the underlying ownership, it's
>> normally not a problem. Your loan documents may even specify
>> that you can do that - take a look at them.
>
> I am not current on Banking laws and regs, but back in the days
> of "Iron Men and Wooden Ships" I purchased a house and put into
> a Trust. Unless your lender prohibits that, you can put the
> house into a Trust with the LLC as the owner.
Most if not all residential mortgages I have seen contain a
provision that any change of ownership is considered a default, and
the lender has the right to call the loan immediately, even if all
payments are current. I have never seen a bank call a loan when
property was transferred to a trust.
> To avoid all of this, contact your hazard insurance carrier. If
> you have your all of your home and auto insurance with them,
> they can write you a high coverage Umbrella policy for close to
> the initial and continuing legal fees of incorporation. If I
> recall correctly, my Umbrella policy with Geico. I know the
> premium is $274.90. The coverage is either $500K or $1M.
Excellent point and excellent value. An EA I work with here in
California estimates that the additional costs of using a
corporation or LLC can be as much as $2,000 per year (including the
state's $800 minimum tax). Insurance could be less expensive and
much better protection.
> I can't look it up at the moment as childbride does not allow me
> to go into the file cabinet. ;)
Oh, is that where you keep your Scotch? :-0
--
Stu
http://downtoearthlawyer.com
Dick Adams
>>> If there's not a change in the underlying ownership, it's
>>> normally not a problem. Your loan documents may even specify
>>> that you can do that - take a look at them.
>> I am not current on Banking laws and regs, but back in the days
>> of "Iron Men and Wooden Ships" I purchased a house and put into
>> a Trust. Unless your lender prohibits that, you can put the
>> house into a Trust with the LLC as the owner.
> Most if not all residential mortgages I have seen contain a
> provision that any change of ownership is considered a default, and
> the lender has the right to call the loan immediately, even if all
> payments are current. I have never seen a bank call a loan when
> property was transferred to a trust.
My experience is also that transferring propriety to a trust does
not trigger a "due on sale" clause. However, one of the advantages
of a holding property in a trust is the ability to sell the trust
without triggering "due on sale" clause. So go figure?
>> To avoid all of this, contact your hazard insurance carrier. If
>> you have your all of your home and auto insurance with them,
>> they can write you a high coverage Umbrella policy for close to
>> the initial and continuing legal fees of incorporation. If I
>> recall correctly, my Umbrella policy with Geico. I know the
>> premium is $274.90. The coverage is either $500K or $1M.
> Excellent point and excellent value. An EA I work with here in
> California estimates that the additional costs of using a
> corporation or LLC can be as much as $2,000 per year (including
> the state's $800 minimum tax). Insurance could be less expensive
> and much better protection.
It should be noted the attornies who will represent you on behalf
of your insurance carrier are the most vicious, cut-throat SoB's
(meant as a professional compliment) on the planet.
>> I can't look it up at the moment as childbride does not allow me
>> to go into the file cabinet. ;)
> Oh, is that where you keep your Scotch? :-0
No, I keep Scotch and Drambuie in my downstairs fridge and all other
liquor in a closet down there. Susan claims that I only know how
to keep computerized records.
Dick
Stuart A. Bronstein
> My experience is also that transferring propriety to a trust
> does not trigger a "due on sale" clause. However, one of the
> advantages of a holding property in a trust is the ability to
> sell the trust without triggering "due on sale" clause. So go
> figure?
One thing I've seen a lot is that banks don't like to give mortgages
to trusts. If you want to refinance property in a trust, for
example, the bank has the property taken out of the trust first. But
usually they don't put it back in when the transaction is complete.
I've gotten work from families who thought they would avoid probate
with a trust, only to find out later that their property wasn't in a
trust after all.
--
Stu
http://downtoearthlawyer.com
Katie
> On Nov 12, 10:19�pm, "removeps-gro...@yahoo.com" <removeps-
>
> gro...@yahoo.com> wrote:
> > On Nov 12, 12:29�pm, "Stuart A. Bronstein" <spamt...@lexregia.com>
> > wrote:
>
> > > A person is liable for his own tortuous conduct, so a corporation or
> > > LLC won't help for those. �For for contract matters or the torts of
> > > employees or contractors, the LLC may limit personal liability.
>
> > What is "tortuous conduct"?
>
> Behavior that damages another person.
>
I think it's what the CIA did to some of those terror suspects ....
<G>
I suspect Stu meant "tortious."
Katie in San Diego
Bill Brown
> I suspect Stu meant "tortious."
>
I don't know what Stu meant but I did, indeed, mean "tortious."
Tortuous more accurately describes, sometimes, the legal proceedings
initiated because of someone's alledged tortious conduct.
Stuart A. Bronstein
> I suspect Stu meant "tortious."
Yes, you're right. Thanks. Sometimes my fingers type faster than my
brain thinks.
--
Stu
http://downtoearthlawyer.com