You have a second home – either at the shore or in the mountains and you are very generous with letting others use the home. It may be while you are there or to enjoy your home without you. Your guests are so lucky. And you feel good knowing they are enjoying your home.
But while they are your guests – with or without you being present – an accident occurs. An accident that has caused catastrophic injuries and the medical bills add up. You’ve made a claim on your homeowner’s insurance, but your once-friendly guests now file a lawsuit against you. And, the amount of potential liability is causing you sleepless nights thinking that you could lose assets which you have accumulated.
So how can you protect yourself?
Consult with an attorney, but a good manner of protection would be to consider putting the property into an LLC – a limited liability company. This would remove you as an owner and you would have an interest in the LLC, but the assets of the LLC would be limited to anything titled in the name of the LLC and not in your individual name. This can help to protect you as an individual.
When someone owns rental property, attorneys will usually advise to create an LLC and title the rental property in the name of the LLC. The exposure to liability is limited, just as the title states.
Some may say that they don’t want the hassle of the extra record keeping needed for the LLC and that a separate income tax return will be required. If the only members of the LLC are an individual or a married couple, then the information can be reported on the individual income tax return – Form 1040 for the owner(s). No additional tax return is necessary unless there would be members of the LLC who are not husband and wife.
Protect yourself and your hard-earned assets. If you think that an LLC might be a good idea, discuss it with your attorney and/or tax preparer.