Bought a plane, told to form an LLC. Your input welcome.

stevenhmiller

stevenhmiller

Pre-takeoff checklist
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Steve's Archer
I just bought an Archer II. No liens on it, paid cash. A friend told me I should form an LLC and register the plane under the LLC.

I'm not clear on this topic at all. Isn't an LLC for business? This plane is for personal pleasure only. Any input and guidance would be helpful, such as where to form LLC, do I need an EIN, separate bank account, or anything?

I'm in Tampa, FL area.

Thanks!
Steve
 
A limited liability set up is easily made worthless by a good lawyer. This has been worked over many times. Spend 100 bucks with a good lawyer and his advice. Much more productive.
 
If you are a sole owner/pilot there is unlikely to be ANY benefit to having an LLC. You are always personally liable anyhow. It only begins to make sense in the case where others are involved (and even then it's not foolproof). EINs and bank accounts do nothing to shield you from liability.

Har, let me know where I can find a lawyer who will advise me on LLC formation for $100.
 
Unless you have partners or other people flying your plane it buys you nothing other than complexity. Even in the above cases it provides limited value.
 
If you've already bought it, moving it to an LLC, could cause a taxable situation :eek:
 
All of the above is correct.

In the vast majority of circumstances in which non-business aircraft are held in corporate entities (Corp, LLC, LP, whatever), the entity only creates additional expense and (sometimes) additional taxes.

But it makes the canned services happy.
 
stevenhmiller said:
I just bought an Archer II. No liens on it, paid cash. A friend told me I should form an LLC and register the plane under the LLC.

I'm not clear on this topic at all. Isn't an LLC for business? This plane is for personal pleasure only. Any input and guidance would be helpful, such as where to form LLC, do I need an EIN, separate bank account, or anything?

I'm in Tampa, FL area.

Thanks!
Steve
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I have spent a dozen years defending people who get sued when something goes wrong with a plane. As the sole owner and the only person flying the plane, placing the aircraft in an LLC is of no help liability-wise. In some circumstances there may be tax advantages, but that I am not an expert on.
 
No need to go llc for a private owner ,using airplane for pleasure.
 
N747JB said:
If you've already bought it, moving it to an LLC, could cause a taxable situation :eek:
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No, LLCs are transparent as far as taxes are concerned

LLCs protect you from a partner/employee, doesn't protect you from you.
You crash the plane, you are to blame
 
Llc's don't work in a vacuum. If the only one you have is for your airplane, then it is probably useless. If you have other Llcs. Then it may make sense to put a plane in one.
 
Tflhndn said:
If you have other Llcs. Then it may make sense to put a plane in one.
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NO, it doesn't! Putting the plane in an LLC exposes the plane, anything under the LLC is fair game, anything outside (like your home, personal car, personal airplane!) are not.
 
Here is how a LLC works:
everything in the LLC is fair game
everything outside the LLC is hands off.
Unless you break the rule; LLCs don't protect you from yourself.

you have 3 planes in a partnership, one crashes
The plane owner (which is the LLC) will be sued, all property under the LLC is subject to the lawsuit.
If its found the mechanic had a role in the accident, he will be sued as well.
If it's found that you did some maintenance, then you personally will be sued, everything you own, including other LLCs are now fair game.
LLCs limited your liability from actions other than your own.
If your brother-in-law did the maintence and is found not certified to do the work on the plane, you will be exposed because you did not do due diligence in hiring of the mechanic.
A good lawyer will look for any ways to find where you failed to make sure the plane was safe to fly, if they find any, they pierce the LLC protection.
Mr Smith, did you check the mechanics credentials?
Mr Smith, do you have a log entry proving the mechanic did the work?
Mr Smith, isn't it true you flew the airplane the day before my client, thus breaking the airplane, causing clients accident.
Mr Smith, isn't it true the engine was 0.1 hours past it's TBO?
Mr Smith, did you have a squawk form in the plane for clients to fill out, did you review this on a daily basis?

This is why if I had planes being rented out in LLC, I would have somebody like Savvy company managing the maintenance:
Mr cheesy lawyer, I hired Savvy to manage the maintenance for me...I defer all questions to them, if you don't have any other questions, I'm late for my tee time.


One more thing, the client MUST be made aware that he is dealing with an LLC, must be stated on the form and all published materials, if you don't disclosed this, you don't get LLC protection.
 
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stevenhmiller said:
I just bought an Archer II. No liens on it, paid cash. A friend told me I should form an LLC and register the plane under the LLC.

I'm not clear on this topic at all. Isn't an LLC for business? This plane is for personal pleasure only. Any input and guidance would be helpful, such as where to form LLC, do I need an EIN, separate bank account, or anything?

I'm in Tampa, FL area.

Thanks!
Steve
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Think of the plane as a car. You're not going to put your cars under an LLC are you? If you have significant assets and are worried about liability, do the same thing you would do for the car. Get a good insurance policy. It won't be very expensive for an Archer II. Enjoy your new plane!
 
teejayevans said:
No, LLCs are transparent as far as taxes are concerned
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Maybe for income taxes in a business situation, but if you transfer ownership from yourself to another entity then the state/local taxing authorities look upon that as an opportunity to squeeze additional sales/use tax out of you.
 
paflyer said:
Maybe for income taxes in a business situation, but if you transfer ownership from yourself to another entity then the state/local taxing authorities look upon that as an opportunity to squeeze additional sales/use tax out of you.
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But you own the LLC, so technically it hasn't. BTW, these are very common in real estate rentals. I've never heard of a local entity trying to tax a move of a property into a LLC. BTW, you have to let the bank know you are moving the plane into an LLC, everyone must be aware the plane is in an LLC
 
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What is your motive? Are you trying to limit liability for a crash, insurance is the route for that...are you setting up a way for your kids to inherit the aircraft outside of estate taxes? that's a good motive...an LLC associated with living trust is something you should look at for all your assets, including the plane.
 
teejayevans said:
NO, it doesn't! Putting the plane in an LLC exposes the plane, anything under the LLC is fair game, anything outside (like your home, personal car, personal airplane!) are not.
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Sorry. Let me clarify. If you have other LLC's, then it may be worth it to create a new one just for the plane...

The only real protection an LLC can offer is to protect the assets of one LLC from a claim against you or another of your LLCs

Sent from my iPad using Tapatalk HD
 
Tflhndn said:
Sorry. Let me clarify. If you have other LLC's, then it may be worth it to create a new one just for that plane...
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Yes, you could have each plane in its own LLC, I would name LLC using the tail number. IF you going to have multiples, they you should look into a Series LLC. BTW, LLCs costs $, you should consider that before you start creating LLCs, there is annual fees charged by the state...you need to weigh that against just getting umbrella insurance.
 
N747JB said:
If you've already bought it, moving it to an LLC, could cause a taxable situation :eek:
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Not usually. Sec. 721(a) of the Internal Revenue Code allows tax-free contributions of assets to a partnership or LLC. Of course there are exceptions. For example, if you contribute an asset to a partnership, your partner contributes cash, and you withdraw that cash within a certain time frame, that is deemed to be a disguised sale.

If you have a single-member LLC (i.e. You have no partner), it is deemed a disregarded entity by the IRS. No tax return needed. It will remain a legal entity, but doesn't exist for tax purposes.
 
paflyer said:
Maybe for income taxes in a business situation, but if you transfer ownership from yourself to another entity then the state/local taxing authorities look upon that as an opportunity to squeeze additional sales/use tax out of you.
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That's a good point. Depends on the state.
 
teejayevans said:
Yes, you could have each plane in its own LLC, I would name LLC using the tail number. IF you going to have multiples, they you should look into a Series LLC. BTW, LLCs costs $, you should consider that before you start creating LLCs, there is annual fees charged by the state...you need to weigh that against just getting umbrella insurance.
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If you know of a carrier offering umbrella insurance that covers aviation, I (and many others here) would like to hear about it.
 
teejayevans said:
Yes, you could have each plane in its own LLC, I would name LLC using the tail number. IF you going to have multiples, they you should look into a Series LLC. BTW, LLCs costs $, you should consider that before you start creating LLCs, there is annual fees charged by the state...you need to weigh that against just getting umbrella insurance.
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You could put each plane in an LLC, but I was referring to other assets. For example, I own several rental properties and and apartment building. The single family rental homes are in one LLC. The apartments are in a separate LLC. Were I to be sued by the tenant of the apartments (and lose), they would be unable to seize my single family rental homes because they are not owned by the LLC that owns the apartments.

Likewise, were I to buy and airplane, I would own it in an LLC, because I have assets other than the airplane I wish to protect.

The thing to keep in mind is that an LLC does not reduce your liability from anything. It also can be defeated going upward.

That is, if I get sued as LLC A, all of the assets of LLC A are at risk, as are all of my personal assets.

What is very well protected are any assets of LLCs B, C, and D.

I first used LLCs for my rental properties because I also own my own business and if something every happened in my business I did not want to lose the rental properties and vice versa.

It is all about asset protection. If you don't have a lot of other assets, the cost of an LLC may very well not make sense.

Only your attorney and accountant can really help you make that decision.
 
stevenhmiller said:
I just bought an Archer II. No liens on it, paid cash. A friend told me I should form an LLC and register the plane under the LLC.

I'm not clear on this topic at all. Isn't an LLC for business? This plane is for personal pleasure only. Any input and guidance would be helpful, such as where to form LLC, do I need an EIN, separate bank account, or anything?

I'm in Tampa, FL area.

Thanks!
Steve
Click to expand...

If you are going to be the only person flying it, an LLC will do nothing for you. If you decide to let some friends rent the plane from you (it's completely legal, they just have to meet the 'open warranty' clause in your insurance policy, or you can have them as named pilots. The insurance usually allows for 5 pilots flying a plane in a given time frame on a business personal policy, after that you're looking at commercial insurance.) then it protects you from being liable for their flying.
 
I'm not an attorney, but I've paid a lot of money to quite a few of them.

I agree with those who say if you don't have other assets in different LLCs or Corporations then putting the plane in an LLC doesn't do you much good.

I agree with those who say if you do have other assets in different LLCs or Corporations, then putting the plane in an LLC might do you some good.

I agree with those who advise you to consult a local attorney.

At one time I had 5 farms and my construction business. Each farm was a different LLC and the business was an S-Corp. Actually, two farms were split up into two LLCs because they had houses on them. The house and 5 acres in one (rented out), the rest of the property in another. At that time my plane was owned by the corporation.

The 160 acres I live on is split into two entities also. 150 acres in one LLC, the house, barn and 10 acres in another.

Yes, you need a checking account and the LLC needs to be run like a business. You need to do everything by the book or it'll afford you no protection at all.

Cost of setting up and/or dissolving vary widely by state. In Missouri it costs me $25 to do either so it's cheap. In Arkansas, as a foreign entity, it cost me over $500 to dissolve (they love taxing people who don't get to vote).

For a simple LLC, with few transactions, my annual cost of doing business, including tax returns (less insurance), doesn't exceed $100...$200 on the outside.

Speaking of insurance, I've found that insurance costs vary widely once you establish an LLC, at least on properties it did. When shopping for umbrella policies on my land I found that some insurance companies were outrageous because they consider an LLC commercial. A million dollar umbrella costs me just over $100 / year on each property for a residential/farm type policy. The companies that considered the property full blown commercial because it was an LLC were at $1,500 to $2,000.

So there are complications that pop up but most can be worked thru.
 
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Would putting an aircraft in an LLC prevent a future buyer from paying sales tax/use tax down the line if you were to sell the LLC (which includes the airplane)?
 
Here's my situation.

I own my home outright, my car outright, my airplane outright, and have some cash in the bank.

I want to protect my home, car, and cash should something happen while flying the plane. I will not be renting it our to others, and the only other person that may fly it is my neighbor, who is my instructor, and mechanic (has his AP) and has well over 15,000 hours of time as a pilot (commercial jet and private). As for maintenance, I will defer it to my neighbor mentioned. I will not be doing any maintenance myself, other than maybe the oil change.

With the above knowledge, does it make sense for an LLC, or just get good liability insurance? My insurance guy also said get LLC...
 
stevenhmiller said:
I just bought an Archer II. No liens on it, paid cash. A friend told me I should form an LLC and register the plane under the LLC.
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Did your friend give you a reason to spend that money and go through all the continuing effort for an LLC?

I'm not clear on this topic at all. Isn't an LLC for business? This plane is for personal pleasure only.
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If it's just your plane, operated only by you, then as a local aviation attorney can tell you, there is little or nothing to be gained by putting it in an LLC.

Any input and guidance would be helpful, such as where to form LLC, do I need an EIN, separate bank account, or anything?
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Yes, you would need all that to make an LLC work.
 
teejayevans said:
But you own the LLC, so technically it hasn't. BTW, these are very common in real estate rentals. I've never heard of a local entity trying to tax a move of a property into a LLC.
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There is more in this taxable world, TJ, than is dreamt of in your philosophy.
 
Turningfinal said:
Would putting an aircraft in an LLC prevent a future buyer from paying sales tax/use tax down the line if you were to sell the LLC (which includes the airplane)?
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It might,but as a buyer, I don't want any surprises like some hidden creditor of the LLC showing up after I've bought the operation. Note that only liens against the aircraft itself will show up on a title search at the FAA Aircraft Registry, not debts of the LLC. In that case, a past creditor of the LLC could seize the plane to cover the debt of the LLC incurred by the previous owner of the LLC.
 
stevenhmiller said:
Here's my situation.

I own my home outright, my car outright, my airplane outright, and have some cash in the bank.

I want to protect my home, car, and cash should something happen while flying the plane. I will not be renting it our to others, and the only other person that may fly it is my neighbor, who is my instructor, and mechanic (has his AP) and has well over 15,000 hours of time as a pilot (commercial jet and private). As for maintenance, I will defer it to my neighbor mentioned. I will not be doing any maintenance myself, other than maybe the oil change.

With the above knowledge, does it make sense for an LLC, or just get good liability insurance? My insurance guy also said get LLC...
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If you are sharing he plane with someone else, then an LLC might provide some liability protection for you if the other pilot prangs it. The person you need to ask about this situation (which differs significantly from your originally posted premise) is an aviation attorney familiar with your state's corporate and liability laws.
 
stevenhmiller said:
Here's my situation.

I own my home outright, my car outright, my airplane outright, and have some cash in the bank.

I want to protect my home, car, and cash should something happen while flying the plane. I will not be renting it our to others, and the only other person that may fly it is my neighbor, who is my instructor, and mechanic (has his AP) and has well over 15,000 hours of time as a pilot (commercial jet and private). As for maintenance, I will defer it to my neighbor mentioned. I will not be doing any maintenance myself, other than maybe the oil change.

With the above knowledge, does it make sense for an LLC, or just get good liability insurance? My insurance guy also said get LLC...
Click to expand...


If it is just you operating, the LLC protects nothing you own. The LLC is to protect your assets when other people are operating.

You cannot escape the personal liability of your own actions by having the plane in an LLC, the liability resides with you, not the aircraft. Liability only attaches to an aircraft, it does not originate there. An LLC protects you from that liability which gets attached to the aircraft through the actions of a third party.

If you carry the insurance industry standard insurance and are in the sub million dollar wealth bracket, that insurance will prevent further attachments to your property in all cases of normal negligence. The insurance companies will work it out. Only if your acts are Grossly Negligent (you valued money over risk to life is the most common, 'Gross' is about attitude, not quantity of stupidity; when you do it for personal gain) will see attachments to your personal property.
 
Ron Levy said:
There is more in this taxable world, TJ, than is dreamt of in your philosophy.
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I know that, I was trying to keep it simple, assuming...
The LLC is not a partnership
The LLC is in the same state as the owner
The address of the LLC and owner in the same locality
There may be taxes when you remove or sell it

I was trying to keep it simple...like everybody said, see a lawyer, a tax professional, and a good insurance agent.
One other thing about LLCs, they keep the plane owner somewhat private, a quick lookup of your tail no. will show the LLC, not your address. They would have to take extra steps to lookup LLC ownership
 
I understand that, I should have been more clear, I was referring to sales taxes. :D

nddons said:
Not usually. Sec. 721(a) of the Internal Revenue Code allows tax-free contributions of assets to a partnership or LLC. Of course there are exceptions. For example, if you contribute an asset to a partnership, your partner contributes cash, and you withdraw that cash within a certain time frame, that is deemed to be a disguised sale.

If you have a single-member LLC (i.e. You have no partner), it is deemed a disregarded entity by the IRS. No tax return needed. It will remain a legal entity, but doesn't exist for tax purposes.
Click to expand...
 
Ron Levy said:
If you already own the plane personally and then transfer it to an LLC, there probably are taxes to be paid. Ask a tax professional for details.
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Not federal income taxes, but possibly sales taxes, depending on the state.
 
nddons said:
Not federal income taxes, but possibly sales taxes, depending on the state.
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Or other aircraft-related taxes, again, depending on the state. But generally speaking, if you paid such a tax/fee/whatever-they-call-it when you bought it, if you transfer it to an LLC, you will probably have to pay it again. So, if for any of the reasons discussed above you need LLC ownership, set up the LLC first, then have the LLC buy the plane.
 
Ron Levy said:
Or other aircraft-related taxes, again, depending on the state. But generally speaking, if you paid such a tax/fee/whatever-they-call-it when you bought it, if you transfer it to an LLC, you will probably have to pay it again. So, if for any of the reasons discussed above you need LLC ownership, set up the LLC first, then have the LLC buy the plane.
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No, you won't:
From California law:
Will the new entity (whether it is a Corporation, LLC or Partnership) be more than 80% owned by the same person(s) from whom the tangible personal property is being transferred from? If you answered“Yes”, then it can be a nontaxable transaction
From Tennesee law:
No. Tennessee does not view the “LLC” to be an entity separate from the Taxpayer for sales or use tax purposes. Therefore,the proposed transfer of tangible personal property from the Taxpayer to the “LLC” would not be recognized as a taxable event for sales or use tax purposes.

Now you show me the state that does...
 
PA definitely will retax you on the transfer of the plane to an LLC. I looked into it when I had a partner and decided I did not want to lose another 6K to sales/use tax, so I opted not to set up an LLC.

Good thing. to. since I bought out my partner shortly thereafter.
 
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