To LLC or not to LLC

[paul m]

Hi

 

Wanted to get a sense of what percentage of airplane owners own their plane in their own name and what percentage set up an LLC or similar. Not looking for pro's and con's or legal advice. Just trying to get a sense of how many people actually set one up. Paul

[Jim Meade]

I don't know the answer to this question. My sensing based on knowledge of local pilots is that more do use an LLC than one would imagine, but that most don't. It's my sense that those who are in business or use lawyers a lot are more likely to use an LLC, maybe simply because they're comfortable. I do not personally.

 

The place to ask this question is probably the AOPA or Pilots Of America forums where you will reach a much, much bigger chunk of the pilot population.

[Tom Baker]

You can look up registration information on the FAA website. That way you can see how many aircraft are registered that way. Here is the list of CTSW's. http://registry.faa.gov/aircraftinquiry/AcftRef_Results.aspx?Mfrtxt=FLIGHT+DESIGN+GMBH&Modeltxt=CTSW&PageNo=1

[Doug G.]

Another possible reason for an LLC would be to register the plane where the state fees are minimal. In my case I am penalized for being a resident of MN. My plane is based in ND where I pay a $26 registration fee, but because my residence is in MN they add on another $900+. I have not done it, but am considering an LLC in ND because of this.

[Doug G.]

To clarify - MN adds on the extra $900+.

[S4Flier]

Paul,

 

You didn't ask for pros/cons but you certainly got them! I wouldn't go with the herd on this -- there are many owners I know who formed LLCs because "everyone does it to limit personal liability, avoid personal property tax, avoid sales tax, etc.". If there is no business involved and its a single member LLC, it will do none of these. States are much smarter these days and will levy a tax based on where the plane resides and you are the position of explaining the reasons why you don't owe the tax. Check your local laws; it is typically a crime to form a business whose sole purpose is to avoid tax.

 

On liability, seach the internet and you'll find that a single-member LLC, unlike multiple-member LLC’s, will not protect against personal liability in the event of a lawsuit. Many courts have “pierced the veil” of a single-member LLC and have held that it is not a separate entity and may not be used to protect the assets of the LLC and vice-versa.

 

[paul m]

Thanks you all for your responses. You're right Dave, always say you don't want something to ensure you get plenty of it. Massachusetts, surprisingly, has the lowest taxes of any state for airplanes. No sales tax, no property tax, no use tax, just a $100 annual registration fee. So my motivation is not one of taxes (or estate planning). I'm simply concerned with limiting personal liability so that after the insurance runs out on the plane, there is no residual claim against my other assets. I have consulted two Mass attorneys who think a single member LLC does limit liability if managed properly and all steps are taken to treat it like a stand alone entity. Notwithstanding, I am somewhat dubious and still undecided whether to use an LLC when I take delivery. Its other purpose would be to mask ownership in the FAA database so it is not so readily apparent who the owner is. I'm not sure that's worth the annual $500 filing fee in Mass (I know would be cheaper if I use other states).

[Roger Fane]

Thanks you all for your responses. You're right Dave, always say you don't want something to ensure you get plenty of it. Massachusetts, surprisingly, has the lowest taxes of any state for airplanes. No sales tax, no property tax, no use tax, just a $100 annual registration fee. So my motivation is not one of taxes (or estate planning). I'm simply concerned with limiting personal liability so that after the insurance runs out on the plane, there is no residual claim against my other assets. I have consulted two Mass attorneys who think a single member LLC does limit liability if managed properly and all steps are taken to treat it like a stand alone entity. Notwithstanding, I am somewhat dubious and still undecided whether to use an LLC when I take delivery. Its other purpose would be to mask ownership in the FAA database so it is not so readily apparent who the owner is. I'm not sure that's worth the annual $500 filing fee in Mass (I know would be cheaper if I use other states).

 

The benefit of an LLC is liability protection. However, if there is only one owner, that is pretty much a mute point as well. If you own the LLC and are flying the airplane owned by it, where is the liability protection? It really comes into play when the plane is owned in a partnership. Then if one of the other partners causes something to be sued over, the other LLC members are not personally liable, and the LLC umbrella provides protection. If each is named on the registration of the aircraft, each is liable.

[paul m]

Agreed Roger. I expect to be the pilot 98% of the time. But let's say I ask an instructor at airport to exercise it for me one day if I haven't been up there in a while. While he will have his own insurance coverage I can't imagine not being dragged into the litigation as the owner.

[Doug G.]

OK, I have not been to visit a lawyer on this point, but my situation is that the plane resides in ND but I do not. It seems as though if I have a representative of the LLC paid a small yearly fee (they are people recognized and registered for the task in ND) which gives the LLC and address in ND. I think I can still save money. If I need to declare it a business it will be a one plane maintenance business with me as the LSRM-A and my plane the only one worked on.

It may be obvious to some of you that I have not yet researched this and, I may be completely wrong about its efficacy or legality. (I am not trying to get away with anything here, just trying to save some money by paying the registration in one state instead of two - the state the plane is based in.) My other option would be to sell the house and move accross the river to ND, the plane would be in the same place, I'd fly the same places, but I would not be a resident of MN.

[paul m]

My concern Roger is that a $1 million policy is not enough. Something tells me when a plane falls out of the sky onto someone's house, the liability will be much more. If I could buy more than $1mm I would.

[Doug G.]

OK, two things...One, I am paying registration in two states - the state the plane is hangared in and the state I live in. Doesn't seem right to me.

Two, a living trust does not do anything unless you ar beyond a certain net worth when you die. I would have to look it up because I know it has changed but it was $1.5 million. If you are under that there is no need for a living trust. You might want to make sure of joint ownership, or "transfer on death" (or the like) depending on what the asset is, and of course have a will.

[Doug G.]

I guess you also might consider a living trust if there were other issues with inheritance that you wanted to avoid. My parents went through the work and expense to create a revokable living trust but by the time my father passed away they had taken everything back out and revoked the trust. (The only hassle we ran into was in changing the ownership on the car since dad had forgotten to change the registration, we had to come up with the document saying the trust had been revoked.

A quit claim deed can also transfer property.

[Doug G.]

Just checked - federal estate tax doesn't kick in until $5 million, and possibly more. If that is the reason for a living trust.

[S4Flier]

Doug,

 

I was curious so I did a little research and read the various MN statutes for aircraft registration and I'd opine that you're screwed. MN does not assess the registration based on where an aircraft is based but on where the aircraft is flown and the residence of the owner. If you are a MN resident and you use the MN airspace, then you must legally register your plane. It does not matter where your plane is based. There is a very narrow list of exceptions for businesses. You certainly could form a ND LLC that takes advantage of your LSRM but then the primary member of the LLC is a MN resident who is using the LLCs equipment for personal flying in MN airspace. They don't except this from registration. Leasing the plane to yourself won't work either. Looks like the best route would be to become a licensed dealer. In short, talk with a real attorney. Boy, I'm glad I live in a no registration, no personal property tax state!

[Doug G.]

You are probably right, but I thought it was worth looking into. The other strange thing about MN is that the yearly registration is based on the original mfg price of the plane with slow adjustment for the age.