Benefits of a Single Asset Entity
Limit Personal Liability
Owning major assets entails risk. Utilization of a separate entity allows owners to limit their risk to the value of the asset.
Single Asset Entities can prevent “liability spillover” by isolating the risk associated with certain assets.
Insurance is loss prevention, not asset protection. Your asset protection plan should include more than just insurance.
Owning assets through an entity provides an extra degree of privacy, making it harder for the general public to know who actually owns the asset.
There are numerous tax benefits to owning an asset through an entity. Possible benefits include eliminating California Sales and Use tax and bypassing Federal estate taxes.
How to Form a Single Asset Entity
Choose the Entity Type
Your individual goals in forming a Single Asset Entity will dictate the best entity type for your situation.
File with the State
You will need to incorporate your entity by filing the proper paperwork with the Secretary of State. Depending on your needs, a strong purpose clause may be advisable.
Develop an Operating Agreement
Your entity choice will dictate the initial agreements you need in place. Some variation of an operating agreement will need to be put in place. Give careful consideration to the terms and clauses you use in your operating agreement.
Capitalize the Entity
One method of capitalization is through the contribution of assets. Property subject to a mortgage will generally need the consent of the lender. If multiple parties have an interest in the entity determining the property’s tax basis will be of key importance.
Do the Work
Maintaining the liability protection afforded by the Single Asset Entity requires work. Remember, a judge must be able to distinguish between the entity and you. Foregoing proper procedure will destroy the very protection you were seeking.