Airplane owned by non-profit?

[dell30rb]

My uncle has always been interested in aviation. He likes to fly, but can't be PIC due to a medical condition. I think he may be interested in buying a plane and essentially leasing it back to myself and maybe 2-3 other pilots. So what's the best way to set this up, tax wise and limiting his personal liability? We may use it for Angel flights, if the plane is suitable.

 

[evapilotaz]

Is your Uncle Rich. A Citation Jet comes to mind.

 

[denverpilot]

Best way to set it up: Get it done before he changes his mind and runs the actual numbers.

 

[PPC1052]

My uncle has always been interested in aviation. He likes to fly, but can't be PIC due to a medical condition. I think he may be interested in buying a plane and essentially leasing it back to myself me and maybe 2-3 other pilots. So what's the best way to set this up, tax wise and limiting his personal liability? We may use it for Angel flights, if the plane is suitable.

An LLC or LLP isn't going to insulate your uncle from liability for his own acts of negligence. So, if he allegedly fails to maintain the aircraft, and it allegedly causes an accident, he's still potentially going to be in the lawsuit with his own personal assets at risk. He'll need to be named as a named insured, or be an additional insured on a good insurance policy.

 

[midlifeflyer]

I don't know enough about the tax issues to comment on those.

On the rest, in most states, setting up an entity to own an aircraft will provide a certain degree of liability protection to the member/officer/shareholder who is not flying when others are. It can also, to some degree protect the airplane itself as an asset. It's usually a good idea in co-ownership situations.

But the amount of liability protection and the procedures within an entity required in order to maintain that protection can vary quite a bit from state to state. So your best bet is to consult an attorney who deals corporate formation and asset protection to get a complete picture and advice for your uncle's situation.

With others flying, one typically also wants a set of rules and procedures. That part usually requires some aviation knowledge, so your best bet is usually someone who understands both the corporate issues and the aviation ones. But if I had to choose one or the other, I'd go with the corporate/asset protection guy. The aviation issues can usually be handed by a brief lawyer-to-lawyer consultation.

 

[dell30rb]

Appreciate the comments.

The limiting factor is probably not the purchase price but the ability of me and maybe 2 others to keep up with the insurance and operating expenses. So the Citation and King Air are out. I would likely handle maintenance and setting the scheduling rules, etc...

This is just an idea I had today. I am confident he would seriously entertain the idea to buy an airplane that would more or less take care of itself. As far as the airplane goes, something that can be operated for $175/hr or less. Split 3 ways. Maybe a twinkie.. most likely a big 4 or a 6 seat single. 182RG, 210, Bonanza...

 

[Mopauly]

As a non profit that flies rescue animals, I'd advise to make sure you are well versed on the IRS and FAA side of the house; there are lots of variables involved with this. We do not yet have a dedicated aircraft however that is the next step. Do your due diligence and talk with as many attorneys as you can; my non profit insurance alone is $2,000 a year, last year I spent $10,000 out of pocket flying rescue animals. No good deed goes unpunished in this sector.

 

[Fearless Tower]

An LLC or LLP isn't going to insulate your uncle from liability for his own acts of negligence. So, if he allegedly fails to maintain the aircraft, and it allegedly causes an accident, he's still potentially going to be in the lawsuit with his own personal assets at risk. He'll need to be named as a named insured, or be an additional insured on a good insurance policy.

That is true, but it will limit his liability if one of the renters is at fault.

 

[midlifeflyer]

As a non profit that flies rescue animals, I'd advise to make sure you are well versed on the IRS and FAA side of the house; there are lots of variables involved with this. We do not yet have a dedicated aircraft however that is the next step. Do your due diligence and talk with as many attorneys as you can; my non profit insurance alone is $2,000 a year, last year I spent $10,000 out of pocket flying rescue animals. No good deed goes unpunished in this sector.

I'm guessing, of course, but based on the question, I think he's talking about a "non-profit" as an ownership vehicle for non-business purposes. As in "we don't make a profit on this," not a educational or charitable organization that would be seeking 501(c)(3) or other preferential federal tax status.

I think it's gone a bit out of style with the growth of the use of LLCs but, at least in some states, the use of the non-profit corporation as a form of private ownership of aircraft was pretty common.

 

[flyingron]

Understand that such a non-profit owning an aircraft can still be a substantial liability when it comes to the eventual disposition of the aircraft.

Absent knowing what state this is and all the other items involved, best to have rich uncle speak to an attorney about what would be best for him.

 

[Mopauly]

I'd suggest consult with multiple attorneys, as not one will have the exact same answer - there is a lot of grey areas that can magically become crystal clear if something bad happens. The best advice I received was from a local attorney that also helped found the local Angel Flight chapter, and in short, it boils down to this...how much risk are you willing to take on? if you go the non profit route I would also advise a contract that would indemnify you from liability between you and the corporation.

That said it's just the tip of the iceberg. You'll also need to make sure you are interpreting the FAR's correctly to keep straight with the FAA if you plan to attempt any type of reimbursement; in my case I'm pursing my commercial endorsement just to help the non profit.

 

[ChemGuy]

LLC. Rules and procedures that are followed by all users. Good maintenance. And a good umbrella/liability policy for your uncle.
But if someone does a stupid pilot trick into a bus full of rich kids, you all get sued anyway. That's what the umbrella policy is for.

Good luck.
Oh you left Saratoga of your list...

 

[coloradobluesky]

There are some online LLC boilerplate outfits. Or you can go to a lawyer and have him draw one up. The question is, who is going to own it? If you want a 501 3 c charity type one, you're gonna need a lawyer. Where most people screw up with those is upon liquidation (liquidate it wrong and the IRS comes a calling). You can't just take the assets for yourself upon liquidation. All this is a real hassle but it can be done. As for limiting HIS
liability your first line of defense will be insurance. Corporate entities dont necessarily limit liability, they can, but ones that only own one thing, they usually cant, very much. Any lawyer could penetrate it. All this is costly.

 

[flyingron]

There's no such thing as a 501(c)(3) LLC.

A single member LLC is ***NOT*** likely to provide ***ANY*** liability coverage. What he needs is sound legal advice and a good insurance policy.

 

[PPC1052]

That is true, but it will limit his liability if one of the renters is at fault.

True, for the vicarious liability aspects. But the negligent failure to maintain claim likely won't be a vicarious liability claim. That was the point I was making, albeit poorly. Thanks.