The main purpose of a revocable living trust is to hold your assets in an entity that is separate from you personally, so that if you die or become incapacitated, the assets can be controlled and managed by someone else (your successor trustee) without the need for a legal proceeding to appoint either a personal representative or a conservator.
Nathan B. Hannah, attorney
A revocable living trust isn’t separate from you for other purposes, however. Since you can revoke the trust, or pull the assets out of the trust, at any time while you are still alive and competent, the trust isn’t separate from you for tax or liability purposes. That’s why a revocable living trust doesn’t protect your assets from your debts, business or otherwise.
There are some trust or trust-like arrangements that will protect your assets from your debts. They are often quite complex, though, and will almost always involve some impairment of your ability to control the assets. The concept is that if you retain control of the assets, the assets are generally going to be subject to your liabilities.
Some relatively recent legislation in a few states has created arrangements that purport to alter, or at least chip away at, the basic concept that retaining personal control of assets makes the assets subject to your personal liabilities. Even those arrangements have exceptions and are not always effective. If you are intending to pursue such an arrangement, I suggest that you proceed with caution.
Should I Own The Building For My Business Separately From The Business Itself?
If you own commercial real estate that houses your business, you might own the property separately from the business and have the business pay you rent for the use of the property. The most common arrangement is to own the business through a corporation or a limited liability company (LLC), and own the property in your personal capacity. There are a number of advantages to such an arrangement, including keeping the property insulated from debts of the business.
Taking the concept one step further, it’s a good idea for any real estate held for business or investment purposes to be owned by a (separate) corporation or LLC (not the one that owns your business), rather than in your personal capacity. Any real estate, even vacant land, has the potential to create a liability for the owner. If the owner is a corporation or an LLC, any liability that may arise from the real estate won’t jeopardize your personal assets, or the assets of your business.
If the ownership of your business is separate from your ownership of the property, you should maintain a written lease between the business as the tenant and the owner of the property (whether that’s you or another corporation or LLC) as the landlord.
If you are concerned about potential liabilities that can be covered by insurance, then buy more insurance. A liability umbrella can usually be obtained in conjunction with your existing property insurance at comparatively low cost. It’s also always recommended to get advice on how these arrangements will affect your tax reporting.
While I’m On The Subject Of Ownership Of Property, Don’t Do What This Guy Did- Attempted Theft By Deed
According to a story in the New York Post on October 12, a thief in Queens, New York Recorded a fraudulent deed naming himself as the owner of a house that had no one living in it, but that still contained a houseful of the real owner’s personal possessions. The thief then moved into the house with his two adult sons. When the real owner called the police, the thief told the police that he had purchased the house.
The thief was eventually arrested, but the owner’s troubles weren’t over yet. When a follow-up story appeared in the Post on October 15, it still wasn’t clear when the owner would recover possession of the property. Apparently, the police would not or could not remove the house people who never had any legal right to be there.
The story seems to have come to a just ending. According to the latest story in the Post on November 5, the thief actually posted bail after his arrest, went right back to the house, and filed an emergency request for a stay of eviction.
A Queens Housing Court Judge has apparently put an end to the scam, however. The judge has entered an eviction order, to be enforced by the sheriff if the thief and his entourage aren’t out in ten days.
Nathan B. Hannah is a Shareholder in the Tucson office, and practices in the areas of estate planning and administration, real estate, and commercial transactions. He is also a noted blogger, and you can find more of his articles on his private blog,
Contact Attorney Hannah: nhannah@dmyl.com or 520/ 322-5000
