Suppose you own a rental property in Nevada and you are concerned about protecting this property from creditors. In particular, you are worried that someone might be injured on the property and that you might be held liable for damages. It’s possible that the damages might exceed the amount of liability insurance you carry. In that case, your other personal assets could be attached to satisfy any judgment which exceeds those policy limits, thus exposing your home and other investments to that risk.
To protect your other assets, consider having a Nevada Limited Liability Company (LLC) formed and transferring your ownership of the rental property to the LLC. Once inside the LLC, any claim made against the property can be satisfied only by the assets owned by the LLC (in this case the rental property) – not your other personal assets.
In addition, if you are sued for a reason not related to the rental property, the rental property is not available to satisfy a judgment on that other claim. If you (or you and your spouse) are the only member of the LLC, it is treated as a “disregarded entity” for federal income tax purposes and no separate income tax return is required for the LLC. All items of income and expense “pass through” the LLC and are reported on Schedule E of your personal 1040.In order to obtain this protection, certain formalities need to be observed.
The LLC requires a written operating agreement which describes the rights and duties of the members and managers. A formal deed is required to transfer the property into the LLC. The LLC should have its own checking account and you should not co-mingle personal funds with the funds held in the LLC account. Any leases you have should identify the LLC, not you, as the landlord. You should notify your insurance carrier of the change. All dealings between third parties and the LLC should be formalized in the name of the LLC. If there is a mortgage on the property, it is likely that you will need to obtain the permission of the lender which is usually not a problem.
Source: Galena Times