STR structure and insurance

[Paige Harrison]

I am looking for some advice on how to best structure this STR agreement.

My friend and I would like to purchase a vacation home, and it is already a successful STR so we would like to keep that up to offset the expenses. We are both busy professionals and don't have time to materially participate, so are not looking to do the STR loophole. That being said, I am trying to figure out the best structure for asset protection and tax filings.

1. My CPA said that if we do a partnership LLC, it would cost 1,200/year to file a partnership return, not prohibitive, just another cost. In that case we would be an LLC, and we would be restricted to commercial insurance coverage, which is not a bad thing, probably more expensive, I imagine.

2. We use our personal names via a TIC, and then go 50/50 for schedule E's for filing. I don't know that that looks like in terms of insurance, I do know that if we dont use and LLC we could use Umbrella, but I am not sure what that looks like if both of our names are on the deed. Could we both get 5 million in umbrella?

Planning to get second home mortgage for financing. 

Let me know thoughts! 

[Steven Cosner]

The LLC is to separate you from the asset. If you have other assets and someone sues you, they don't have to accept the insurance limits. If they file suit against you for more than the limit and are successful, then they would have access to claim against other assets such as cash accounts, brokerage accounts, jewelry, and any other sort of asset that is worth anything. They could also garnish wages, etc. If it is held as TIC then both you and your friend would be susceptible to this. By holding the home in an LLC, the home is isolated. It keeps your other assets safe from being attacked in a lawsuit. But you have to do it correctly. Then you will only have the equity in the house that they can go after. If that is less than the insurance limit, then you will have better luck having them take the money from the insurance. I know it seems like 5 million is a big number and it will cover you against all claims, but just search the internet and you will see suit after suit where settlements are for way more than that. A wrongful death suit can be for astronomical amounts. I currently have 5 homes in Alabama and one in Florida. They are all in individual LLCs so that if something happens in one property, the others are untouchable. I would make a strong recommendation to follow the advice of @Sarah Kensinger and contact Anderson Advisors.  They are who I use and they are the best.  Tremendous value and full of educational information.