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TL;DR
We asked Aubrey H. Brown III, Attorney at Law at Parker, Pollard, Wilton & Peaden, three common questions about holding rental properties in an LLC versus a trust. His guidance covers liability protection, estate planning, and when an LLC may or may not be appropriate. Read his responses below for general legal insight, and consult a qualified attorney for advice specific to your situation.
We Asked a Real Estate Attorney the Questions Investors Ask Us Most
At Real Property Management Richmond Metro, we often get questions about whether rental properties should be transferred into an LLC or a trust. While we can share property management insights, we cannot provide legal advice.
To provide accurate legal information, we spoke with Aubrey H. Brown III, Attorney at Law at Parker, Pollard, Wilton & Peaden, and asked three of the most common questions we hear from real estate investors. Below are his responses, shared exactly as provided.
From a liability standpoint, what protections does transferring a rental property into an LLC actually provide? At a certain point as sole member of an LLC would you personally become responsible?
“Members of an LLC are not personally responsible for the debts or torts of the LLC. If the LLC is found liable for damages, the members only become personally responsible if the corporate veil is pierced, which usually can only happen if they are not following the formalities of the LLC such as separate bank account. Members would also be responsible for their own torts, so if a person that owned a house did a negligent repair themselves that causes an injury, then the tenant could sue the person that negligently performed the repair.”
How should investors think about the difference between holding a property in an LLC versus a trust in terms of liability, estate planning, and overall strategy?
“We typically recommend that real estate be held in an LLC. The property interest that is owned is the membership in the LLC. A person’s will or estate planning trust can say what happens to the membership interest when a person dies. It passes just like stock would pass. There is also a mechanism that can be used in an LLC’s operating agreement to make a transfer on death designation if that is desired. LLCs are generally more secure that trusts from a liability standpoint and the law is more clear and robust regarding LLC liability.”
Are there any situations where you would not recommend transferring an investment property into an LLC or trust?
“There may always be exceptions where an LLC should not hold investment property, but the general rule of thumb is to place the investment property in an LLC. As an aside, I always tell my clients that the best defense to liability is good insurance with reasonably high limits and a personal umbrella policy.”
Final Thoughts
Every real estate investment strategy is different, and legal decisions should always be made with guidance from a qualified attorney who understands your specific circumstances. We appreciate Aubrey H. Brown III, Attorney at Law at Parker, Pollard, Wilton & Peaden, for taking the time to answer these common investor questions.
If you have additional legal questions or need advice specific to your situation, we encourage you to contact Parker, Pollard, Wilton & Peaden directly for legal guidance. If you’re looking for expert property management services to help protect and maximize your investment, the team at Real Property Management Richmond Metro is always happy to help.
Parker, Pollard, Wilton & Peaden
(804) 262-3600
6802 Paragon Place, Suite 205, Richmond, Virginia 23230
12090 West Broad Street, Third Floor, Richmond, Virginia 23233
This content is provided for general informational and educational purposes only and does not constitute financial, legal, tax, or investment advice. Readers should consult with licensed professionals regarding their specific circumstances.
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