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Using an LLC to Maintain Privacy When Buying Residential Property

FarmingtonLast week, Business First of Louisville published a report and slideshow on the top 25 largest residential real estate transactions of the first quarter of 2015 in Jefferson County.

It might surprise you to know that a home bought for $646,000 was pricey enough to make the first quarter slideshow.

The most expensive home on the list cost $1.7 million.

I hope clients and their advisors realize that it is very easy to avoid this sort of publicity, if it’s unwanted.

Simply create a limited liability company, and have the property deeded to the LLC at closing.

Be sure to give the LLC an obscure name, like “Marvin Gardens LLC”. Don’t taunt reporters by using “Pulitzer Bait LLC”.

Because Kentucky requires that an LLC’s annual report to the Secretary of State disclose its members (or managers), to keep the LLC’s owners opaque for the long term, it’s often better to organize the LLC in Delaware, where annual reports don’t require a listing of members or managers.

If a home buyer is single, using an LLC to maintain privacy when buying residential property carries no asset protection disadvantages.

In contrast, if the purchasers are a married couple, the privacy advantages of the LLC need to be weighed against a potentially important asset protection disadvantage: losing the opportunity to own the house as tenants by the entirety.

If privacy is the priority, the asset protection features of the LLC can be improved by making it multi-member, with each spouse being a member.

(As an aside, home purchasers in Florida should take ownership in the name of an LLC only with some caution, as Florida’s constitutional asset protections for homestead apply only to property owned by natural persons.)

Unfortunately, we live in an era when the Internet has provided new tools for the same sort of creepy people who have long bothered high-profile people including actors, authors, politicians, and senior executives.

Although it’s virtually impossible to have complete privacy, it’s often sensible to not make it easier for creeps than it needs to be.

Using a LLC to stay off lists that are sort of obnoxious (and that you’d probably rather not be on) is low-hanging fruit.

I would consider it a small success for Kentucky Estates if the Business First list gets a lot duller in future quarters, because more of the big transactions are done in a privacy-protected way.

Advisors, spread the word – your clients probably don’t need (or want) this kind of publicity.

Credit for Farmington photo above: Payne Photography Studio.

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