Deborah:
There’s a misconception that form an LLC, and that all risks magically disappears.
People stands behind the LLC’s, and if you did something outrageous, and stupid in the LLC’s name as the manager, you get sued personally too!!
Make sure you act ethically, cautiously, and carry plenty of insurance. Make sure your tenants carry renter’s insurance, your contractors are insured etc.
That is, insurance, insurance, insurance.
My wife was a commercial loan officer, and tells most of the folks coming in for loans runs the company under “his” name, and put the home under the “wife’s” name. Granted, the bank would ask the wife for her guarantee. but still, it insulates the person’s home from many other risks.
The other risks could include many many other things, would include crazy tenants. I heard from some conversation down at church that a member had a tenant go after him for “attempted” rape, and had the law on him, and filed a big lawsuit. He tried to agressively collect from a tenant who was way behind on the rent.
You think the tenant’s attorney would be stupid enough to sue the LLC?? Or do it the smart way, simply sue the owner himself!! The LLC can’t rape anyone, can it?? The fact that he has 10 houses in 10 LLC’s will make no difference here.
On the other hand, not much the plaintiiff can do if the family home is in the wife’s name, is there??
Anther risk is simply a contractor claim he’s insured, and actually not, and suppose he fell off the roof. Who do you think the hospital is going to go after?? YOU!! You, because your LLC failed to get workman’s comp. I was going to hire a contractor to do siding, showed up with a truck that said “license and insured”, yet when I asked for proof of insurance, he admitted the insurance lapsed a few months before.
In NY State, state law is very specific. Have no workman’s comp for your company, and they can come after you personally for failing to get workman’s comp. I alleviate my risk asking contractors for proof of insurance.
So the key is the person running the business does not have a BIG BAG OF ASSETS, and if something goes wrong, the assets is in some else’s name.
IF you’re just starting out, and don’t have billions in the bank, just separating assets, and get good insurance, make sure contractors and tenants are insured, is the most simple.
Yes, you can use trusts to insulate assets too. A freind of the family, whose wife died long ago, did not want to lose his home to lawsuits, his only big big asset, and want’s to leave it to his still not of legal age grandson. He placed the home in a trust, with my wife as trustee. It’s OK, but every time he needed something done, he had to come by and have my wife sign the paperwork. as on paper, the trust owns the home, and my wife is the trustee.
As you can see, just putting assets into LLC’s will do nothing to alleviate your management responsibility, and lawsuits when mismanagment occurs.