by JJ Childers

One of the biggest misconceptions I hear about asset protection law - even from other lawyers - is that everyone should have his or her personal residence owned by a business entity such as a corporation or LLC.

This is a huge mistake. I realize that this may sound counter-intuitive, but your home should always be owned by you and your spouse and held in a revocable living trust. (I discuss revocable living trusts in detail in my new book Trump University Asset Protection 101. You can also learn about them from your attorney and accountant.)

So why wouldn’t you want to have your personal residences owned by a business entity? For starters, let’s think about what would happen if that business entity is sued. Since your business conducts more activities, deals with more money, and interacts with more people than you do personally, your business entity stands a greater risk of being sued than you do. Therefore, if your business entity is sued, all of its assets, which would include your personal residence, stand to be lost.

The second reason you should own your personal residence in a revocable living trust rather than in a business entity is because you would lose the personal deduction on your individual taxes that you would otherwise have. As you already know, the amount of interest you pay on your mortgage each year, depending on the amortization schedule, amounts to a significant deduction. Moreover, this deduction would not be available to your entity. Accordingly, it would not make good tax sense to place your home into a business entity.

The third reason why you would not want to place your home into a corporation is because you would lose the homestead exemption. As you’ll recall, the homestead exemption allows for your home to be protected, up to a certain amount, from most types of creditors. Homestead exemptions (and all other types of exemptions) are not available to business entities. By transferring your home into a business entity, you will be losing a powerful asset protection tool.

So what benefits does placing your home into a revocable living trust give you? As we just discussed, placing your home into a revocable living trust allows you to keep the tax and exemption benefits that you personally enjoy as a homeowner. Another benefit is that it allows you to pass your home on to your heirs and beneficiaries outside of probate. To learn more, check my future installments on this blog or get your hands on a copy of Trump University Asset Protection 101.  

JJ Childers is an attorney dealing primarily with the topics of asset protection, estate planning, and tax reduction.  He travels the country extensively working with individuals and companies to help them with their small business wealth structuring.  He is author of the new book Trump University Asset Protection 101.