Why You Should Not Put Your Primary Residence In An LLC In Washington State

By: Washington State Business and Real Estate Lawyer David Tingstad

David TingstadIn my earlier blog posting, titled “Should you put your primary residence in an LLC?”, I discussed my opinion that one of the rationales for not transferring your principal residence into an LLC was a likelihood that the homestead exemption would not apply.  By statute, a “homestead” provides an exemption from creditors for up to $125,000 of equity in a property. On August 15, 2016, Division One of Washington’s Court of Appeals, for the first time, the court ruled that a homestead exemption does not apply to property owned by an LLC. In Performance Construction, LLC v. Glenn, the Court ruled that because the LLC was the owner of the property claiming the exemption, and the LLC was not a “person”, the homestead exemption did not apply.  In other words, the LLC could not claim the $125,000 in cash from the property and the proceeds could be retained by the creditor.

What does this mean for you? Many investors transfer their investment properties into an LLC for a host of reasons including asset protection, and ease of management. I am regularly asked whether or not you should one should put their principal residence into an LLC. The answer remains “no”.

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