Camp, Cottage, or Hunting Property Limited Liability Companies (LLCs): Part One
What is a Limited Liability Company?
A Limited Liability Company, or LLC, is a legal entity created under state law with the legal ability to hold, buy, and sell property. The LLC is run by its members or managers appointed by the members.
Why would I put my Camp, Cottage, or Hunting Property into an LLC?
There are a number of reasons for a property owner to put his or her recreational property into an LLC, including:
- Succession Planning. The LLC allows you to designate where your property will go after you pass away. You create your own rules for where the property will go, how it will be used, and how it may be bought and sold in the future.
- Property Management. If you own your recreation property with other people, an LLC is the easiest way to manage and make decisions about the property. The LLC documents will lay out how taxes and costs are to be paid.
- Asset Protection. Since an LLC is a separate legal entity, it provides protection from creditors. If you own your property as an individual, it may be taken from you in the event you have a judgment against you. In Wisconsin, state law limits the asset protection motivation by allowing creditors some access to memberships. As a practical matter, multi-member LLCs offer greater protection than single-member LLCs in Wisconsin (and in most other states).
What is the process for setting up a Camp, Cottage, or Hunting Property LLC?
First, the property owners must decide on a name and file documents with the state in which they are creating the LLC. Then, the property owners set up their Operating Agreement, which lays out the rules for the management and succession of the property. Once the owners have agreed on the Operating Agreement, the land is deeded to the LLC to be governed under the Operating Agreement.
What are the property tax consequences of using an LLC?
An LLC is pass-through tax entity. This means that you will not be subject to additional tax. However, there is one significant property tax consideration with LLCs—uncapping.
Under Michigan law, property taxes are capped and may only increase as proscribed by law. This provides significant tax savings over a period of time. Although this area of law is in a bit of disarray in Michigan, taxes will likely be uncapped upon transfer to the LLC and upon transfer of more that 50 percent of the shares of the LLC.
In Wisconsin, there are no property tax consequences to using asset protection LLCs.
Jacob D. Lynch is a real estate attorney at Ryan Law Offices in Iron Mountain, Michigan, where he specializes in helping individuals and businesses plan for the future. This article should not be relied upon as advice for your specific situation. Please contact Jacob at (906) 774-3808 with any specific questions.