In the last article, we began our discussion of moving properties owned in your personal name into an entity—be it a corporation, LLC, partnership or land trust. Property Insurance

This can be a confusing area because each insurance company can make its own decision as to how they want the insurance policy to read for a property held in your entity. Since the entity is the new owner and is at risk of losing its investment in the property should the property be damaged, it should be shown as the policy holder.

And you should be shown as an “Also Insured” or "Additional Insured." There are couple of reasons why you should be shown on the policy. First, most of you will be handling management personally and will be on the premises from time to time. Your exposure is to liability and you want the policy to cover you for that.  Secondly, most insurance companies will want you to be associated with the property to give residential rates (as opposed to commercial rates).

If you have problems with your insurance company, ask your agent to go to the underwriter and explain exactly what you are doing. If you still do not get the answer you are looking for, go to another company.

Umbrella Insurance

By being an also insured, most companies will allow a personal umbrella policy to cover liability on these properties as well. Remember, the purpose of an umbrella policy is to extend the liability coverage under a dwelling policy from its normal limits to a million or more dollars.

Every investor that has a significant net worth (say over $500,000) should consider an umbrella policy. The annual premium for a million dollars in coverage is only a couple of hundred dollars. And you can increase coverage for just a few dollars more.

Federal Taxes

There are typically no federal and state taxes on a transfer to an entity you own directly or indirectly. This is true even if your spouse is a co-owner of the entity. Under IRC section 351 for corporations and 721 for partnerships (and LLCs taxed as partnerships), there is no taxation when a property is contributed to the entity. Certainly, you should discuss the transfer with your accountant to assure that there will be no tax ramifications from debt relief, at risk rules, etc. This is just good business practice.

For entities such as the single member LLC and land trusts where you are the single owner and that are transparent for tax purposes, the transfer is not a taxable event. In these cases, you will continue to report the properties as you did before the transfer. You do not even have to advise the IRS that the transfer has occurred.

You see, it really is not that difficult.  And the result is more privacy and significant asset protection. And, done properly, you may even save on taxes.