When purchasing real property, such as a personal residence or vacation home, buyers concerned with maintaining privacy and protecting personal assets may take title in the form of a trust or limited liability companies (LLCs) to ease these concerns.
The anonymity associated with making a purchase through an entity is a major draw for celebrities, professional athletes and other public figures. Jennifer Aniston realized the importance of privacy when she purchased a penthouse several years ago under “Norman’s Nest Trust.” “Norman” was the name of her beloved dog that had recently passed.
Depending on the terms of the trust, information regarding the beneficial ownership of the property could remain limited during the beneficial owner’s lifetime and, if the trust provides that the assets bypass probate, also after their death.
By taking title to property in a LLC, an individual can shield other personal assets from certain liabilities. If not structured properly, however, in Tennessee there could be adverse tax consequences to taking title to real property in a LLC.
Purchasing adequate insurance to minimize liability exposure is a step that should not be overlooked. Adequate insurance will be sufficient to cover most claims. Insurance, however, does not cover every potential claimant, which is why a LLC is appealing for those who wish to put a “backstop” in place to further minimize the risk of liability.
Establishing a LLC or trust for the purchase of real property may subject you to certain taxes and administrative costs. If bank financing is involved there may be certain restrictions or guidelines which must be strictly followed.
Utilizing a trust or LLC to hold title to real property can, if structured property, preserve privacy and protect assets. When determining whether a LLC or trust is right for your situation, however, it is important to fully understand the tax and administrative consequences of establishing such an entity.