LLC in California when managing property yourself

[Ben Coppola]

I have a rental property in California that I currently manage myself. I am trying to decide if it should be placed into an LLC for increased personal asset protection, versus only having an umbrella insurance. I have spoken to two people that I trust within my inner circle, as well as a couple of attorneys, and have gotten some conflicting advice.

In theory the LLC makes a lot of sense to me, to make sure my personal finances stay out of it. However I have heard that there is a larger risk of 'piercing the veil' if I manage the property personally. It's just not as clearly a 'business' if I don't have employees and the like. I certainly don't want to pay $800 a year LLC fees if it is not going to be effective. Has anyone heard this before, and know if its true? Any resources would be appreciated. If true, it would seem that the viable choices are to 1) continue with umbrella insurance only, or 2) hire a professional property manager and form an LLC.

I have also seen some advice that it's not necessary to form an LLC for a single property. But if the purpose of the LLC is to segregate my personal assets from the business, why would that matter? It would seem to me like the size of my personal assets would be the larger consideration.

Lastly, I've read on BP that the insurance companies have good lawyers that will go to bat for you in the case of a lawsuit.  However, one attorney that I spoke to mentioned that the insurance company is not necessarily on the landlord's side if an issue occurs.  The insurance company could try to push the liability back on the landlord (which might be easier for them to do if the landlord is also managing the property).