Limited Liability Companies, a Staple of any Asset Protection Plan Involving Real Property

I know that many Michigan asset protection planning attorneys mistakenly take for granted that what I am about to say is common knowledge, but utilizing limited liability companies to hold commercial real estate and residential rental properties is an invaluable tool to protect your assets. I spoke with a prospective new client recently and was surprised to see that this sophisticated businessman who owns more than 100 commercial and residential rental properties throughout Michigan holds all of these properties in his sole name.

This gentleman is aware that placing the properties in separate LLCs is beneficial in order to protect each property from the risks associated with the other properties, but he has never wanted to deal with what he perceived to be administrative inconveniences that go along with owning numerous LLCs. However, after a catastrophic event at one of the properties put everything the man has worked for at risk, he is now rethinking his approach to the situation.

I understand that some may view holding 100 properties in 100 separate LLCs as far too cumbersome, especially if much of the real estate consists of moderate to low priced residential rental properties. However, at the very least it is prudent to form several LLCs and segregate the properties possessing different values and levels of risk. Those properties which have less value and higher risk may be segregated into one or more separate LLCs, while the other properties that may have more value and less inherent risk may be placed in different LLCs in order to protect them from the exposure of the higher risk properties.

The actual allocation of numerous properties among different LLCs requires thorough analysis and a well crafted approach. In fact, determining the proper allocation is as much art as it is science. Nonetheless, I think we can all agree that it is well worth the time and effort if it enables you to protect your assets from the potential financial disaster that could occur as the result of a single unexpected accident or occurrence.

If your objective is to protect your assets from external creditors unrelated to the properties themselves, then don’t make the mistake of using single members LLCs to achieve your Michigan asset protection planning objectives. Multimember LLCs will provide for greater protection in this regard.

For those who are interested in utilizing more sophisticated planning techniques, several additional options are available. As with all asset protection planning, there are many nuances involved that relate to such techniques, but the real key is a thoughtful approach that matches each individual’s situation and helps that individual best accomplish his or her goals and objectives.