Incorporating (LLC) + Insurance?

[mhinnc]

The question: should we incorporate our sailing vessel?


The backdrop: We are located in the U.S. We currently carry liability and casualty insurance for our '72 C&C 30. Most of our lives lies 5 hours SW of the biggest part of our lives, our boat, which is located in the lower part of the Chesapeake Bay. We excursion the Bay a handful of times during the year; I do so, that times more. This pattern of use isn't expected to change for the next two or three years.



We recently encountered information regarding the incorporating our vessel as a Limited Liability Corporation in order to limit personal liability and protect our other assets, notwithstanding gross negligence, of course.


Thoughts? Thanks!

[ItDepends]

I am not an expert... but...

If you are NOT incorporated: Doesn't carrying a reasonable amount of liability insurance protect your other personnel assets? That's kind of the point of insurance...

If you ARE incorporated: Wouldn't the LLC still carry a similar amount of liability insurance? at a similar cost?

So what's the point? I mean, you are FAR more likely to cause expensive injury and damage to someone else's health and property driving your car to getting to your boat than when you are sailing. Yet I am willing to bet you haven't incorporated your car (yes... some people do, I know) What's the difference, exactly?

I am not saying there are never reasons to use an LLC, but the "eliminating personnel liability" seems pretty weak soup to me, for most people.

Talk to your attorney, NOT an internet forum. If you don't have a regular attorney, you likely don't have enough assets to actually worry about this kind of thing.

[mhinnc]

Thanks ItDepends. I think your handle says it all
Yes, we have an attorney. Yes, I do plan to meet with him shortly, hence the question to the forum. Our family attorney isn't a boat owner. You guys are. Our attorney (I'm guessing) hasn't had many requests for advice on this matter. You guys (I'm guessing) may have, or know someone who may have. I'd like to go with him with some helpful insight, if possible.

No, I don't have our vehicles in an LLC. We carry a rather large umbrella policy which covers that plus the boat, which hopefully won't be used. The question isn't about insurance but about incorporating a vessel and the issues which come about on the topic, except for the extent which insurance may affect unknown (to us) aspects of the topic, which your reply may touch the periphery. And to address your question: "So what's the point?", exactly, on both my instance and your reply.



(Not be contentious, but your comment as to our assets, except for this mention, will be largely ignored due to it being, in Hamilton Burger's words: "incompetent, irrelevant, and immaterial.")

[TrentePieds]

mhin said: "We recently encountered information regarding the incorporating our vessel as a Limited Liability Corporation in order to limit personal liability and protect our other assets, notwithstanding gross negligence, of course."


I don't doubt that you did, but where, exactly, did you encounter it? What credibility does it have?

An "LLC" is a TAX AVOIDANCE device. It will not protect you in case you incur LEGAL liability when someone is injured by some action of yours.

And what makes you think that an injured party's lawyer ("attorney" to some) isn't smart enuff to sue YOU, personally, in parallel with a suit against the legal entity the vessel is, in the circumstances you seek protection from? In conspicuously litigious societies such would, of course, be a foregone conclusion.

You might also take guidance from the fact the Canada Revenue Agency laughs at American LLCs where such have tax liability in Canada and peremptorily treats filings by such corporations as if they were filed by a Canadian incorporation.

Best not to go looking for dodges where none are required, and where none would avail :-)!

Talk to a competent attorney - if you can afford one. Else read the wordings of your personal liability insurance policy, and those of the liability component of your boat's insurance policy, VERY carefully. And understand them!

And furthermore: The "exclusions" stated therein are to be treated seriously. Conduct your seafaring life so you never stray into the territory of the exclusions!

All the best,

Trente Pieds

[mhinnc]

Thanks Trente Pieds.

Re: where did I "...encounter information regarding registering our vessel..."? Why, right here on this forum. A poster displayed their vessel name as SV ***, LLC. Until seeing that, it wasn't a "thing" for us. But curiosity got the best. Re what the insurance covers, I'll defer to our personal legal representative (or lawyer, or attorney-at-law, mouthpiece, etc. etc.) on that, as well as the tax expert as to how an LLC might benefit financially. I was hoping to hear from those who have incorporated, why and it's benefits. May be only for tax purposes, but are there other reasons? I dunno. Hoping to find out.

[SVF]

Older thread, but came across it while trying to find info on a related matter. I've used LLCs for a number of purposes and there seems a lot of confusion on the topic. Usual caveats: I'm not anyone's lawyer; talk to one about your specific situation.

An LLC is used to provide liability protection for whatever is held under it (hence the name). For example, you cause a massive traffic pileup and someone wins a civil judgement against you, a boat held under a properly setup and maintained LLC wouldn't be part of your personal assets, protecting it from claim.

An LLC also protects you personally from claims against it. For example, the boat is owned by an LLC which holds the liability insurance required by the marina. The boat explodes and many lawsuits ensue - the marina and surrounding boat owners will be suing the LLC and making claims against the LLC's insurance, not yours.

Also, my recent experience with an older "uninsurable" boat found it easier to setup an LLC and obtain commercial liability insurance to satisfy marina requirements. Note it's more expensive than the BoatUS-type insurance and you need to be up front with the agent about what you're doing. Chubb has some great info on LLC usage for assets.

Finally, an LLC is handy for a boat with shared ownership or one you intend to to sell. The Operating Agreement for the LLC can hammer out all the details before arguments ensue among friends. Setup as an LLC, if you sell the boat you are selling the business and it's "assets" versus selling "personal property" which has lower taxes in some jurisdictions.

I respectfully disagree that an LLC is a "tax avoidance device". I can't imagine how that would work and predict anyone trying to dodge taxes will end up in tears or on the run. Many LLCs are established in tax-friendly states like Delaware, Wyoming, and Nevada, but you pay the taxes required in those states and keep your books clean.

An LLC isn't a magic bullet, but separating assets helps keep a problem with one from taking down everything else if you do it right.

[Overdue]

Originally Posted by SVF

Older thread, but came across it while trying to find info on a related matter. I've used LLCs for a number of purposes and there seems a lot of confusion on the topic. Usual caveats: I'm not anyone's lawyer; talk to one about your specific situation.
....

An LLC also protects you personally from claims against it. For example, the boat is owned by an LLC which holds the liability insurance required by the marina. The boat explodes and many lawsuits ensue - the marina and surrounding boat owners will be suing the LLC and making claims against the LLC's insurance, not yours.
....

An LLC isn't a magic bullet, but separating assets helps keep a problem with one from taking down everything else if you do it right.

-------------------------------------------------


I think I disagree. An attorney representing the injured or owners of damaged property, or representing the insurers seeking subrogation after paying to repair property damaged, will conduct quick and easy research to find out the individual owner of the LLC, and he/she will be a named defendant, personally, in addition to the LLC. The drafting of the Complaint will, of course, depend on the results of any fire marshal testing/investigation of the cause of the explosion - improper wiring, device left "turned-on", other actions by "you" (the one primarily responsible for maintaining the boat). Such Complaints usually include claims of liability "jointly, severally and jointly and severally."

Certainly seek the help of a local attorney to guide you.

[Brioche]

Retired lawyer here. Liability is complex. If the boat does something -- like explode -- LLC protects you as owner. But if you are operating the boat there is a possibility that your actions cause damage, and the LLC may not protect you from that. With cars, insurance covers both the car and the driver, but insurance on boats is more varied. Especially if you are not close to the boat at all times, putting it in and LLC will give you an additional layer of protection personally, so not a bad idea.
That said, insurance provides various protections. If you put the boat in an LLC you should have yourself covered as "additional insured" if possible so that if you are sailing and something happens you are covered as well as the boat.
Another issue is that, at least in the US, having insurance requires the insurer to provide two kinds of coverage -- the duty to indemnify, that is, to pay claims up the other limit of coverage, and the duty to defend, which is to pay for a legal defense. That means that if a claim exceeds the policy limits, the insurer will pay the policy limits if need be, but will also pay for your cost of defense. That means that to avoid paying both sets of costs an insurer will try to settle within the policy limits to save the cost of ongoing litigation. Likewise, a claimant will often find it tempting to settle for the policy limits rather than get nothing and have to wait for a case to go to trial, be affirmed on appeal, and so forth.
On top of that, a plaintiff usually has the benefit of offering to settle within policy limits. If the plaintiff offers to settle for policy limits, and the insurer refuses and goes to trial, and loses with bigger judgment than policy limits, then the defendant who now owes more can assign a claims against the insurer to the plaintiff, because the insurer rejected an offer to settle, and then the insurer could end up paying even more than the policy limits.
This can get complicated, but bottom line is that if you have decent insurance and you are personally insured as well as the boat, you are pretty safe event if you get sued for a much larger amount.
That said, our boat is in an LLC.

[clamshack]

I am not a lawyer, but I just want to shed brief light. My understanding is that if a 3rd party is involved in your boat, it can be beneficial to hold it in an LLC.

In other words. If a person hires your boat through an agent you could be protected from liability in the event of an accident.

[CarlF]

An LLC for a boat makes sense if you plan to charter it or otherwise run it as a profitable business.

If you are on the boat when the accident happens - or had any role in maintaining it - then anyone wanting to sue will sue both the LLC and you as an individual. The LLC structure won’t even be a speed bump to the other side’s lawyer.

Your current practice of good liability coverage on the boat policy and then a large umbrella (I carry $5M) works well as the insurance company pays all the legal costs.

[SVF]

My response was to the OP's question which hadn't yet been answered: why do people use an LLC? Nowhere did I say that an LLC absolves personal liability, but there are certainly reasons to hold a yacht under an LLC even if there is no shared ownership or a charter business. Privacy, ease of transfer, and estate planning are big ones. Liability is another.

I'm currently docked at a marina which had a bad storm with a lot of "act of god" damage to boats and the piers. There's no personal liability being assigned, but costs are being born by the various named insured. Our neighbor, whose boat ended up partially inserted into another, has been very happy they took the time to setup the legal structure they did.

[jbinbi]

No one brought up the issue of financing which for llc is usually at higher rates than personal loan.