The Advantages of Florida Limited Liability Companies
by Patricia R Voss on 01/28/19
Estate plans of owners of rental real
estate should include establishing an Limited Liability Company (“LLC”),
inasmuch as Florida multi-member LLCs offer asset preservation that is superior
to an “S” or “C” Corporation (named for those sub-chapters of the Chapter 1 of
the Internal Revenue Code). This is because when a judgment is obtained against
an LLC, the judgment creditor, according to Florida law, gets only some
specific rights of ownership, not 100% of them.
Even if you are already involved in a
lawsuit regarding your rental property, the fact that the rental property is
involved does not, in and of itself, preclude transferring it into an
LLC. However, if a court determines that your transfer of the rental
property into the LLC was done with the intent to defraud a potential creditor,
the court may deem it a “fraudulent transfer” and unwind the transfer.
Therefore, if you own rental property, you should give serious consideration to
transferring it into an LLC before a threat arises.
Rental property owned in another state
can be conveyed (with a new deed) by an attorney licensed in the state where
the rental property is located, to a Florida LLC, provided the laws of that other
state do not prohibit such a transfer. However, certain states require
that documentation remain on file in the state where the real property is
located, such as registering the Florida LLC as a foreign LLC, filing an annual
report, and paying any required fees.
For the “Do-it-Yourselfer:” if
any of your rental properties are mortgaged, you will need written approval
from the lender, authorizing the deed transfer to the Florida LLC, prior to the
proposed transfer. If you are unable to
obtain lender authorization for your transfer, you might consider taking the
equity out of another property, using those proceeds to pay off the mortgaged
property and then transfer the unencumbered property into the LLC.
Although “single-member” LLCs are
valid in Florida, they do not offer the same protection as a multiple-member
LLC. Even if one member holds the overwhelming majority interest (i.e.,
98%), and the other holds a minority interest (i.e., 2%), this is sufficient to
create a multi-member LLC.
As part of your estate planning, your
revocable living trust would hold your ownership units in your LLC and upon
your death, your trust would provide instructions for how to distribute those
units. The LLC may also have a Member Operating Agreement to control the units
on death, divorce or disability so it’s important that your testamentary
document (Will or Trust) and the Operating Agreement are consistent.
If you are unmarried, please repeat after me. . . “I will have a Prenup
before I get married.” Repeat again. This is the only way to protect your
assets, including your LLC, from a future ex-spouse.
Many attorneys base their fees on an
hourly rate for this type of work. While the attorney fees to establish
an LLC can vary, some of the current approximate costs are as follows: 1)
$125.00 – initial filing fee for Articles of Organization and naming a registered
agent for service of process; 2) $90.00 - LLC Corporate Book, when kept up to
date, satisfies the requirement of keeping corporate formalities when operating
a legitimate business in Florida); 3) $138.75 – annual filing fee for the
Annual Report with the State of Florida. Some of the services an attorney
might provide are: obtaining a tax ID number (EIN), guiding you in opening a
business checking account; drafting an Operating Agreement, Organizational
Meeting Minutes and Annual Meeting Minutes.
Owners of rental property in Florida
should be concerned about someone on the property being injured or worse. A Limited Liability Company (LLC) for each rental
property is a solid tool for protecting property owned outside of a particular
LLC.