I have heard that putting my assets in an LLC will shelter them from legal problems. Is this true? – Estate Planning Attorney – Portland, Oregon

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The attorneys with Nay & Friedenberg explain the pros and cons of putting assets into an LLC.

Yes, it is true, but not for everyone or in all instances.  An LLC, or ‘limited liability company’ is a new, separate ownership entity similar to a corporation.  An individual or group of persons can create one and then fund it with assets.  Typically this is done to begin a business, say a plumbing company, but it can also be done for investment assets such as a rental.  It’s not well suited for non-business assets such as one’s home.  Typically an LLC has an agreement that sets forth the business objectives, rights and obligations of the members.  This is a good idea even if there will only be investment assets.

Assets in an LLC need to be managed with all the formalities of a business.  That is, the ‘LLC’ signage, separate accounts, annual meetings, etc.  If this occurs properly, then the legal problems of the LLC will not spill over to the owners of the LLC.  For example, if a rental is in the LLC, and a tenant is harmed, the liability stays within the LLC.  Also, the legal problems of the owners will be mostly insulated from the LLC assets.  These advantages are similar to those of a corporation with the difference being that an LLC is simpler to run, tax-wise and conceptually.

There are potential down sides.  An LLC with a rental personally managed by the owner will have watered down the protection.  This is why good liability insurance is so important.  An LLC may have separate tax filing requirements.  Also keep in mind that in the event of divorce or taxes, an LLC will probably have no shelter advantage.

Lawyers advise on the use of LLCs for more than liability protection.  They are used to segregate assets, as efficient wealth transfer mechanisms for the next generation and to lower estate and inheritance taxes through valuation discounts.

Whether or not an LLC is the best answer to any given set of facts requires consideration of the goals, possible options and administrative tasks.  If you’re thinking about making an LLC part of your estate planning – consulting an experienced estate planning attorney is advised.

An experienced estate planning attorney can help you choose the proper planning options to fit your family’s specific needs. Contact the Estate Planning attorneys with the Law Offices of Nay & Friedenberg in Portland, Oregon at (503) 245-0894 to set an appointment.