The Advantages of Florida Limited Liability Companiesby 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.