Should our Mooney be in an LLC

[Tmarsha]

Interested in the Pros and Cons about putting our Mooney in an LLC or leave in our living trust. I haven't done the research but my understanding is to protect your personal assets, an LLC is a good option. Your feedback is appreciated. Tom

[carusoam]

There is a thread or two on that subject....

Few people found the benefit to actually exist.

Seems to be a personal driver that would make it make sense...

Others found it a bad tax dodge...

Are you trying to separate the aircraft from your person to avoid a potential law suit from going after you?

The resulting situation was to pay the taxes and get $1 or 2MM in insurance...

I clearly don't have any legal experience...

Best regards,

-a-

[Tmarsha]

Thanks. I will look for the other threads as I haven't seen them since joining a couple years back. One thought is if I perish in an accident, my wife (our trust) could not lose everything if sued ?

[cliffy]

I read somewhere a couple of years ago (don't know if it is still valid) that the FAA frowned on LLCs as the purpose of it was to "provide transportation" and the LLC was not a 135 carrier. Someone may know more about this here. Seems there was mention of an FAA legal interpretation on it. 

[Jerry 5TJ]

Thanks. I will look for the other threads as I haven't seen them since joining a couple years back. One thought is if I perish in an accident, my wife (our trust) could not lose everything if sued ?

 

I did seek counsel when buying a plane in a partnership in 2010, we paid a lawyer skilled in aviation issues of this type to evaluate our options.  His long and fairly expensive opinion distilled down to -- get the best training and all the insurance you can buy and do not expect any particular form of ownership to protect your estate from actions you take (or fail to take) as pilot in command.

 

I am not a lawyer and this is not legal advice, just a lay summary of what turned out to work for us, for our situation, in the state where we live.

[TTaylor]

Interested in the Pros and Cons about putting our Mooney in an LLC or leave in our living trust. I haven't done the research but my understanding is to protect your personal assets, an LLC is a good option. Your feedback is appreciated. Tom

One positive of an LLC for partnerships is you can change partners without triggering sales of an aircraft and all the paperwork and taxes that come with that.

[RobertGary1]

In California LLC's must pay a minimum $800/yr franchise tax. This is regardless of the state the LLC is registered in. So if the LLC has assets (read:airplane) you'll eventually get a bill. They may miss you for a couple of years but they'll eventually find you and add penalties. Other states may be similar.

There is probably little if any liability benefit for personal use aircraft in registering in an LLC.

Bottom line, there is a pretty huge negative tax risk so it would be good to consult an attorney if you're really intent on doing it.

Ref: https://www.ftb.ca.gov/businesses/faq/712.shtml

"An LLC required to file Form 568 pays an annual tax of $800, and may be subject to an LLC fee based on total income from all sources derived from or attributable to the state of California. The annual tax is due by the 15th day of the 4th month of the taxable year, and is paid using CA Form 3522, Limited Liability Company Tax Voucher."

[ArtVandelay]

A LLC doesn't protect you if you are the pilot, you are always responsible for yourself, LLCs make sense for leasebacks, or corporate planes where you are a passenger

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[BorealOne]

An LLC or other legal personality for the aircraft does nothing to mitigate the liability of a private pilot-in-command in the event of an accident. As above - insurance is the only solution to that particular issue.

 

LLCs may be useful to address tax liability, privacy, and other 'ownership' issues, depending on your personal situation and applicable jurisdiction. YMMV.

[midlifeflyer]

This came up on an email list I participate in. FWIW, this was my response (copy & paste):

 

People will argue the point all day long but, while the value of an LLC in the case of a sole owner is somewhat open and depends highly on a lot of specifics one gets into when one hires an attorney, I think once one gets into a co-ownership situation, it should be done as a matter of course. Two benefits that come to mind immediately are asset protection (which in no way negates the need for insurance) and flexibility.

The asset protection part is this: You will always be liable for what you do. You crash your airplane and harm someone else, and no limited liability entity can take away your personal liability (#1 in any list of things the average person doesn't understand about LLCs). Not enough insurance and your personal assets can be reached.

In a co-ownership situation where both pilots are direct owners of the aircraft, there is a high potential for you to be liable, not for what you do, but what your co-owner does.  In other words, if your partner injures someone, there is the potential to be be held personally liable and your personal assets reachable solely because you are an owner of the airplane. That's not for your half of the damages; that's potentially for all of it if the injured party can't collect from your partner.  A LLC is designed in large part to avoid that transferred or "joint" liability of the co-owners.

The second thing you have is a lot of flexibility. The operating agreement between the co-owners of the company can pretty much do what you want it to between yourselves.  Some reason for other than a 50/50 relationship? No problem. Types of contributions can be identified (such as a CFI/owner being credited for investment in the form of instruction services). Addition and retirement of partners can be done without transferring the aircraft. Theoretically the airplane can be completely sold without changing aircraft title. Advance decisions on how to handle upgrades and major repairs can be made. Many potential disputes can be, if not resolved in advance, at least designed to use procedures to save time and money at the back end. That's just a short list of the possibilities.

Hope this helps with you thoughts. And I would be remiss if i didn't say this is just general information and not legal advice specific to your situation (I don't even know your situation )

[midlifeflyer]

I read somewhere a couple of years ago (don't know if it is still valid) that the FAA frowned on LLCs as the purpose of it was to "provide transportation" and the LLC was not a 135 carrier. Someone may know more about this here. Seems there was mention of an FAA legal interpretation on it. 

 

You may be recalling incorrectly. The situation the FAA is concerned with is when a company decides to separate aircraft ownership from the rest of the company and creates a subsidiary to be its flight department. It's not the form of ownership that's the issue; it's that the subsidiary is being created for one purpose - to provide transportation to the parent. That's a 135 operation. Completely different situation from pilots co-owning an airplane and has nothing to do with whether the subsidiary is an LLC, a corporation, a partnership or a human being.

[Bob - S50]

We formed an LLC to own the plane.  We have a total of four partners.  We did it for two reasons.

 

1.  Liability.  As others have mentioned, if one of us causes damage, they can't come after the other three of us.  If I'm the one flying I fully expect them to come after me.

 

2.  Taxes.  In Washington state, when you buy a plane, you have to pay a 'use' tax of 6.5%.  Our LLC did that when it bought the plane.  There is no 'use' tax on an LLC.  The LLC owns the plane, we each own a share of the LLC.  When one of our partners decided to sell, they were selling a share in the LLC, not a share in the plane, thus, no 'use' tax.

 

Bob

[ArtVandelay]

BTW, if you have the plane in an LLC, don't do maintenance yourself, even if you aren't flying the plane, they can hold you responsible.

[RobertGary1]

Bob, just remember to protect the veil. If you start writing checks for maintenance that don't have the LLC's name on them, etc you can quickly lose any protection. Hopefully WA doesn't charge you a hefty franchise tax like CA does.

[Bob - S50]

Bob, just remember to protect the veil. If you start writing checks for maintenance that don't have the LLC's name on them, etc you can quickly lose any protection. Hopefully WA doesn't charge you a hefty franchise tax like CA does.

 

We pay for everything with the LLC debit card.  I think it costs us something like $75/year to keep the LLC active.

 

Bob

[Tmarsha]

I appreciate everyone taking the time to provide your thoughts, experiences which is helpful. I do know an attorney and will send him a note requesting his recommendation. He is a non-active pilot so may be up to date on the details in Arizona. I will be sure to post what I learn. Thanks again. Tom

[Parker_Woodruff]

1) talk to an attorney

2) your best defense is good insurance, to the liability limits that make sense for your situation and exposure. Talk to an insurance professional.

[cliffy]

midlifeflyer- Thanks for bringing me up to date  Makes sense. As I said, I didn't remember more than what I said. 

[M20JFlyer]

I will begin by disclosing I am not a friend of our legal system wich allows an owner of ANYTHING to be sued for any exposure deemed to have a negative result by an opponent.

I am not going to go down tyrant road, my 33 yr experience as a business owner instilled in me that all pockets deep or shallow will be vetted for what those pockets can contribute when someone thinks your ANYTHING can enrichen the POT

in lay laguage " if your pot to piss in is an airplane," you can be assured YOU will recieve nasty grams .. And if the opposing party has GOOD council your insurance of 1M or 2M will be the FIRST firewall. If when the firewall is consumed and YOU still have additional assets the ownership of an airplane and the 1-2M for openers...puts the ANYTHING you posses at 7x more Risk than a party with NO airplane. ( check me out on this, it will flux by the state you reside)

My question for the MS team: who has or presently has invested in a SURAGATE owner for your airplane?.

[FloridaMan]

Another advantage of an LLC, especially with a registered agent is that if somebody google's your name to see if you've got anything worth taking, they'll have to do some digging to find out you own an airplane. With an attorney as a registered agent, they know they'll be writing a letter to a lawyer to begin with.

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[RobertGary1]

I initially had my Mooney in a Mutual Benefit C-corp (basically the same as an LLC for the purposes of this discussion). I eventually removed it. The complexity, paperwork, and accounting to maintain such a structure wasn't worth the effort. If you fail to mange it as a real LLC (the paperwork, complexity, accounting) than courts will invalidate it anyway. So its a commitment that didn't seem to have reciprocal benefit. Just my experience.

 

-Robert

[CLEMENS]

One positive of an LLC for partnerships is you can change partners without triggering sales of an aircraft and all the paperwork and taxes that come with that.

Would you consider taking me on as an additional partner? What are the requirements?

clemens, Logan, Ut. f: 914 218 7078

[midlifeflyer]

I initially had my Mooney in a Mutual Benefit C-corp (basically the same as an LLC for the purposes of this discussion). I eventually removed it. The complexity, paperwork, and accounting to maintain such a structure wasn't worth the effort. If you fail to mange it as a real LLC (the paperwork, complexity, accounting) than courts will invalidate it anyway. So its a commitment that didn't seem to have reciprocal benefit. Just my experience.

-Robert

One of the primary and significant differences between an LLC and a C-Corp is exactly what you describe - paperwork. In most states LLCs have much less. That was a main purpose of the creation of the LLC as a recognized legal entity in the US - in Wyoming in 1977 - less formality.

[N201MKTurbo]

OK, all you legal types. My plane is in an LLC. My ex partner wanted to do it. The paperwork is a PITA.  

 

How do I take it out of the LLC without any sales tax or such? What is the process?

[tony]

what paper work?  I've been thinking about putting my airplane in one.