Passing on ownership when you die

[hpeer]

Well I’m totally confused.

Why would I want to leave the boat to a trust?

Why would I want an LLC?

[JDGreenlee]

One strategy: USCG documented vessel 100% owned by LLC of which my wife and I are sole members and whose Operating Agreement addresses change in control, succession, etc., the vessel is registered in the state of Texas since she is no longer in transit, our wills define how our assets are to be dispersed when one or both of us die, including ownership in LLC, and thus the boat. There is a little voice that suggests an ancient seafarer's funeral pyre for me might solve two problems at once. All I'll need are a couple of coins to get across the Styx.

[joebeach]

Originally Posted by StoneCrab

Silversailor,. What does an LLC provide?

I understand that the point of a trust is to hold ownership and provide direction or limitations to the trustee under certain life or death triggers, but adding the trust to an LLC is a concept that I am not familiar with.

Would the LLC pay income taxes prior to my death? Would that be at the individual or corporate rate?

Did you convert ownership of your investments and IRA's to the LLC as well?

This is a LONG reply, FOR GENERAL BACKGROUND INFORMATION ONLY. I am a retired lawyer (licensed in only 1 of the 50 United States), and I hope this will be helpful generally to those reading this thread. BUT IT IS NO SUBSTITUTE FOR LEGAL ADVICE, AS STATE LAWS AND INDIVIDUAL CIRCUMSTANCES WILL VARY. CONSULT A COMPETENT LAWYER IN YOUR STATE OF DOMICILE FOR SPECIFIC LEGAL ADVICE.

In the US, an LLC, or limited liability company, is a creature of state law that blends some of the main desirable characteristics of general partnerships and corporations. This blend of characteristics is the main reason why LLCs came to be in the mid-to-late 20th century.

Like a general (ordinary) partnership (and unlike a corporation), there is no entity-level taxation of the LLC, so taxable income items "pass through" to the individuals or other entities (called "members") that own the LLC, in proportion to their percentages of ownership (although other allocations can occur by written agreement of the members). This taxation scheme avoids the double taxation of profits (as happens in corporations).

Like a corporation (but unlike a partnership), the LLC also has limited liability, meaning any claims against the LLC are limited to its own assets (typically even if it owns a single asset), and do NOT "pass-through" to the individuals and other entities that own the LLC.

In other respects the typical LLC looks more like a small corporation than a general partnership, with its "members" being the equivalent of shareholders and "managing member/s" being the rough equivalent of corporate officers or board members. There are fewer legal "formalities" to be observed in an LLC than a corporation, so there's less paperwork. There are also single-member LLCs (unlike a partnership that requires at least 2 partners, and much like a sole proprietorship, but with limited liability). State law limits the maximum number of LLC members, usually to somewhere between 10 and 50 or so.

The likely main reason to have an LLC for a boat is limited liability (though that's not a panacea, given the possibility for negligence claims against an individual captain, etc.). Unless a boat is used in a business, the LLC's taxation benefits are usually irrelevant.

A living or revocable trust is used to avoid the necessity of probating a will, or administering an intestacy (a state's default plan for distributing assets for those who die with individually-owned property but without a will). Both of these require certain fees and court oversight and approval to pay claims, determine beneficiaries, distribute assets, etc. Using a trust allows all these things to happen directly, through a named Trustee/s, without the necessity of court involvement, and as specified in the written trust instrument or document.

SilverSailor's plan combines an LLC that owns the boat, and a living trust that owns and is managing member (and maybe sole member) of the LLC, with SilverSailor controlling the living trust that owns the LLC. So SilverSailor effectively controls the boat in lifetime, and at his/her death (and probably, disability) the boat remains in the LLC, which itself is held, managed, and distributed, or sold with its net proceeds distributed, by the Trustee as is provided in the trust.

A living or revocable trust (like a will) can be changed at any time its originator (called the Settlor or Trustor) determines during his or her lifetime, and typically becomes fixed or irrevocable (like a will) when that person dies (or if provided in the trust instrument, becomes disabled). It has no effect on estate or inheritance taxes, which become due on property in the trust at the same rates as if the property was owned by the individual.

Typically a living trust is accompanied by a "pour-over" will, written as a backstop in case an individual does not transfer some of his/her eligible property to the trust before dying, so that certain property remains individually owned at death. Any such individually owned property requires a probate process, though all that property then would be distributed by the pour-over will to a single beneficiary, being the trust, for distribution.

Some assets, however, require neither a trust nor a will to pass on death to the owner's intended beneficiaries.

Pensions, IRAs, insurance policies, annuities, etc. will make payment on death directly to beneficiaries specified by the owner in beneficiary designations filed with sponsor company, and these pass outside of probate and are not governed by the trust or any will/estate, unless it is a named beneficiary.

Some states also permit POD (pay on death) or TOD (transfer on death) title designations to be made by an owner, and these operate like beneficiary designations, passing title to that asset outside of any living trust (unless it is named in the TOD form) and avoiding any probate process (unless an estate is named in the TOD form, which is not advisable).

TODs are often used for bank accounts, certificates of deposits, and vehicles - which MAY include boats. This depends on state law.

Property that is jointly owned "with right of survivorship" or between spouses also passes to the surviving owners outside of any trust or probate process. Property that is jointly owned "as tenants in common" does not, however - each owner's share of that property is considered individually-owned property that requires probate (unless the joint owner is a living trust, or there is a state-authorized TOD process). This is the case in most "common law" states that originally derived their probate, trust, and estate laws from England, primarily east coast and midwestern states. Certain "community property" states, usually western states, and other states whose legal origins are not in English common law, such as Louisiana, may treat property passing at death differently. State law should be consulted in each case.

Finally, AGAIN THIS SUMMARY IS NO SUBSTITUTE FOR LEGAL ADVICE IN YOUR STATE OF DOMICILE. It is simply background info so that you can better understand legal advice from a competent lawyer in your state.

Regardless of which means you choose to transfer your boat, or other assets, on your death, retaining a lawyer and making a suitable plan ahead of time is the right way to do it, and to avoid unpleasant surprises. Good luck!

[jmschmidt]

If you are confused about trust and LLCs your need to get educated. Both have values and drawbacks. Although I can't think of any serious drawbacks for an LLC. In some cases they may provide a measure of personally liability protection but most people who have LLCs don't know how to structure them to provide that benefit.

PS: Contrary to some statements on this forum there are no tax advantages with an LLC unless the vessel is operated as a business. An LLC is a passthrough entity which is reported on the owner/member's personal tax returns. If one reports it as a business it better be operated as one and not as a "Hobby Farm." If so the owner may utilize only fourteen days a year personal use, just like a mountain or beach cabin. Any amount over that and the owner must pay the scheduled charter rate.

[sailorboy1]

I fail to see why a boat needs to be/is different from any other part of ones estate.

[cherylchecheryl]

Originally Posted by jmschmidt

Great response SilverSailor. Our system of laws and lawyers has devolved into a mess where the laws, lawyers, judges and courts that were intended to protect the people victimize them.

I am constantly amazed by those on this forum who actually hirer a lawyer to do an LLC, corporation or partnership. Every state has a website where you can download a usually one page form and pay $50 to maybe $200 by credit card to form one of these entities. Many state forms can be filled out online. Annual renewals are usually online by credit card.

I recommend Legal Zoom for nearly every type of legal document for anyone who really doesn't trust their own basic legal knowledge. Don't get sucked in by other online hawkers of legal stuff including documenting a vessel. And don't use some website called "FastEverything.com, for everything from passport renewal to living trusts.

Because legal services are not a tangible product, people can tend to not fully appreciate the value of the service provided. DIY vs paying for an expert is fine up until the moment it isn't. For example, a DIY person installing drywall in his shower instead of hardibacker. Everything looks fine for awhile before water undermines the drywall and mold and mild set in.

State forms for setting up your own entity (LLC, Corp., etc.) are very easy to use. People still fill them out wrong (manager managed vs member managed happens a lot). But also, the very important decision of "what" entity is the proper one from a tax planning/business strategy is often underlooked with a DIY approach. So, yes, filling out the form is easy. Knowing what is the right form to fill out is where an expert provides an important service.

Moreover, while DIY state forms may create the LLC, these DIY forms don't include an operating agreement for the LLC. Particularly if you are creating an LLC with more than 1 member, the DIY creator may not be happy with the default provisions of LLC law. Canned forms off the internet suffer from similar limitations. For example, if 3 people form a business together and 1 later wants out of the business because he hates everyone else, you need to be comfortable with how that process happens when you start the business, not when it all goes south. A good operating agreement tailored to your needs will cover that situation and provide a mechanism for resolving the situation that suits your situation.

There are times when it is worth every penny to hire an expert, and there are times when it is not. It is just hard to know when those times are. And it is only fair to pay someone for their knowledge. When the $$ involved is large enough, it is better to get an expert. You can reduce your expenses of hiring an expert by educating yourself and doing some of the work yourself.

[ejjawhite]

I did it the easy way. When I bought my current boat 10 years ago, I put my wife on the purchase and sale agreement and on the documentation. If either of us go 1st,, the other only needs to provide a death certificate with the sale of the boat.
My previous boat (documented vessel) was purchased from a widow, so I have gone through the other end of the transaction, and was in fact provided with a death certificate. So the big question is... how much do you love your wife, partner, etc? If you have one...

[RSH]

Originally Posted by billgewater

Imagine that you still own the boat and enter the twilight zone of dementia or an old folks home for ten years. When you do drop off, the boat would probably be worth nothing due to lack of maintenance. If you have some one intended for the boat I would consider giving or gifting it ASAP. That way you may actually enjoy it in your fading years.

We looked at a boat that was for sale as a result of this situation. It was a total wreck-covered in mold, engines were kaput-ish, just could tell that it had sat there unloved for a while . Last time I looked it was still for sale, having had at least one survey fall through on it. Ludicrously, it's still the same price.

Originally Posted by Nicholson58

The question does come to mind, does anyone seriously want to inherit your boat?

I agree; it's not like a cute lakehouse or beach house that has been in the family for decades and has sentimental value-my kids would be appalled to inherit our very beautiful, well taken care of catamaran because it's not their thing. 100% it is not being willed to someone but instead sold if we both kick off at the same time.

Originally Posted by Sailing4Jesus

In addition, if you do not mind my warning you, what you do with your yacht is in no way as important as to What Shall You Do With The Man Called JESUS. NOTE: Matthew 27:22 KIJ 22:Pilate said to them, “What then shall I do with Jesus who is called Christ?” What you do with your earthly possessions have little importance, However, What you do with Christ Jesus will have great and eternal consequences.

Does Jesus suggest a trust or probate?

Originally Posted by StoneCrab

I am a bit sensitive about leaving it to my heirs to sort out the paperwork. Having had several relatives die recently and being asked to be the executor, I can tell you that the task of sorting it all out is not as simple as it would seem.

As a contrast, when it became obvious that my dad only had a few weeks left to live, he gave my brother power of attorney and we adjusted beneficiaries, and titles before he passed. We could ask him for clarification on issues we didn't understand, and it gave us something meaningful to do before his passing. The contrast between having it done before death and what happens when it is left until after death was quite striking.

My MIL was the executor (I know the gendered term is executrix, but I prefer the gender neutral term) for her mother, and it was a year of her dining room table being turned into Will-Figuring-Out Central as she had to disperse assets among herself and four siblings (none of which were particularly fond of each other). However, she said trying to deal with her (not very nice) mother before she died to disperse assets would have been worse, so it's probably a case-by-case thing. I wouldn't want to be dying and have people squabbling at the foot of my bed over who gets my engagement ring and bullying me about it.

Originally Posted by thinwater

Sell it beforehand. It is VERY, VERY unlikely your family will actually want that boat. You have an attachment, but they do not.

Well, that's good advice if Death gives you a nice 6 month + heads up, but it often doesn't.

This is an interesting thread for me because my husband and I are redoing our will now that our daughters are now adults, and the executor named in the old will actually has dementia and wouldn't be able to fulfill their duties. We don't have a lot to disperse, but we don't want there to be any more difficulty for them than would already exist if they lost their parents.

[Belezar]

Tom F and Joebeach have given you good info. Anyone who says hire an attorney is giving you good advice. Laws of inheritance are controlled by the states, and vary wildly. The advantage to a trust (in this instance) is that it allows a trustee to manage the property of the trust without having to go through probate. The trustee can maintain and sell the boat immediately upon death. A boat is not a great assets to leave in your estate unless you are sure your heirs want it as it needs care and is a liability to the executor. They will want to sell it fast to avoid upkeep costs and falling value. Have a plan, talk to your family, get it written and signed. You can change it at any time, and don’t dump the responsibility on those left living.

[StoneCrab]

I want to thank everyone for their thoughtful and informative contributions. This has narrowed down the scope of what I need to look into. It is also good to hear some of these issues presented from different perspectives as with any new territory, the amount of information absorbed changes with each nuance.

Jobeach, your detailed explanation of how the trust and LLC inter-relate is impressive. I agree with Belezar that Tom F and Joebeach have indeed given me good info. I do feel a need to get my estate and affairs in order for peace of mind. I also will take heed of the advice to discuss this with my heirs as I am setting up the paperwork. I really hadn't fully considered whether receiving ownership would be considered a burden after my passing, no doubt due to my own bias. Better to find out now.

Thanks again.

[thinwater]

[QUOTE=StoneCrab;2991219... I really hadn't fully considered whether receiving ownership would be considered a burden after my passing, no doubt due to my own bias. Better to find out now.

Thanks again.[/QUOTE]


My daughter likes to sail and has covered many thousands of miles with me, often just the two of us. BUT, when downsized from a cruising cat to a trimaran, in many ways she liked that better (horses for courses).


My point is, even if they like sailing, at this point in their lives it is probably the wrong boat. It might be perfect at some point... 20 years in the future, but it will be a maintenance burden until then.



I think kids (adult children) want and need to forge their own path. But ask them.

[Sailing4Jesus]

Answering the question one Shipmate asked above:" Does Jesus suggest a trust or probate?" Yes to your question.

Matthew 6:19-21 King James Version (KJV)
19 Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt, and where thieves break through and steal:

20 But lay up for yourselves treasures in heaven, where neither moth nor rust doth corrupt, and where thieves do not break through nor steal:

21 For where your treasure is, there will your heart be also.

Note: Ask yourself, Where is my treasure and my heart? You can find the answers to any of man's questions in God's Holy Breathed Word. For English Speaking Peoples there is only ONE that has not been perverted by religious men and their religious dogma, which is The King James Version commonly referred to as the KJV.

As for me, I am praying that when my time comes to graduate to heaven that I will be aboard my Sailing Church at sea on watch at the helm of the Sailing Yacht that God provided for me.