protecting what's held in an llc

[Jeff D.]

All you hear and read about llc's is that they protect your personal assets if your llc gets sued and things go above your insurance limits.   So the slip and fall plaintiff can't get to your house, personal assets, etc.    Phew.  

But the overlooked caveat here is that the property held in the llc is up for grabs.   The llc doesn't protect the property it holds.  It just shields the llc member.    So basically,  if someone sues "the company" the owners are protected, but companies assets aren't .   Oh great.    

And further,   if the owner is sued for something that happens in their personal world,  like a car accident,   I believe the owners share of the llc that holds the property is up for grabs.  ie 100% If you're a single member llc.   Oh great again.   

So I'm feeling like all this talk about "never own a building in your own name,  use an llc,  protect  your personal assets"  is kind of silly.  Because the REAL  "asset protection" needed is protection of the properties themselves.         Because if you are at the level where most or all of your income comes from rental properties, THAT is what you want to protect.   Who cares about your house,  your car,  whatever.........because chances are MOST of your personal wealth and income is in the rental real estate you have held in those llc's.   

And and if you're a decent landlord, and have well maintained properties....odds are you are much more likely to get sued for a personal car accident vs something at one of your properties.    

LLC's only protect from a lawsuit coming from one direction, and it's kind of a slim chance direction.

So if i'm understanding things right....

1) llc gets sued - member's personal property is protected,  rental property is NOT protected.

2) llc member gets sued - personal property NOT protected,   rental property NOT protected

So how can one protect their income producing rental property from being up for grabs in the event of a personal lawsuit that goes beyond their personal umbrella policy??     

[Brian Burke]

@Jeff D. I think your answer lies within the words represented by the letters...LLC stands for Limited Liability Company.  I think that NOT calling them ULCs (Unlimited Liability Company) is intentional.  Imagine a world where anybody could form an ULC and commit all the torts they want with no repercussions!  All sorts of hoodlums would come out of the shadows and the wild west would quickly ensue, and insurance companies would fold...there has to be some accountability.

The original intent of limited liability protection in the world of business entities is to protect, to some extent, the innocent. For example, you and a partner buy a property and hold it in an LLC. Your partner runs over a kid in a crosswalk on his way to the grocery store. A plaintiff in the ensuing lawsuit can reach the distributions made to your partner from the LLC but they can't take the LLC's real estate which would thereby deprive you, an innocent third party, of your property.

Or in another example, you buy a property and have 10 investors provide the cash to your LLC to make the purchase. A tenant falls off of a balcony and dies and the family sues. After the insurance is exhausted, the next asset to tap is the cash and property of the LLC. But they can't go to your 10 investors and take their homes, nor could they take yours (with exceptions...particularly if you were found to be personally responsible, such as if you were seen out there sawing off the support beams of the balcony in the middle of the night).

People selling asset protection services, and many people on BP who have read something somewhere will tell you that LLCs are the greatest thing ever and protect you, the individual investor making real estate investments for your own account, from all sorts of liability.  It's just not true.  Sure, there might be some limited protection in certain circumstances, but liability insurance is called liability insurance for a reason.  It's to insure you in the event that you are liable for a covered loss.  Nothing will give you unlimited immunity from all risks in the business world.