Does forming an LLC really protect your "ass"ets?

If I had a $1 for every time I heard "My friend told me...." I wouldn't be here writing these articles. I would be sippin' my fancy umbrella drink down in Turks and Caicos without a care in the world. Over the course of my 17 years in insurance, I have heard this line so many times! While I am not an attorney, I am a marine insurance specialist and can attest to the insurance side

Today let's talk about forming LLCs for tax or asset protection purposes.

Fir,st let's talk about WHY people choose to form these LLCs to "own" their boats.

One of the number one reasons we all get insurance is to protect us against "something happening". "Something" can be an infinite number of things but the worst that can happen to us is an incident that involves LIABILITY. Why? Because there is no stop-loss on liability. Depending on the severity of the incident, a court could find you liable for exorbitant amounts of money. Amounts that could bankrupt most people or cause severe financial distress. At least with the physical damage you know the stopping point. You have $1M invested in the boat. It catches fire, you know you're out $1M and it's done. So, this is why people choose to get insurance most of the time. The formation of the entity and subsequent registration and ownership of the asset is meant to protect someone from having their personal assets as part of the settlement equation in the event of a liability claim.

But that raises the question: Does a boat owned in an LLC really protect an operator for negligent operation charges and civil penalties? The short answer: NO.

With the LLC formed for the purpose of protecting their owners (also called members), managers, and the LLC itself from certain types of legal liability. Under most circumstances, the owners and co-owners are legally protected from the wrong-doing and negligence of employees. There is one extremely significant exception to the limited liability provided by your newly formed LLC. This exception exists in ALL states.

Listen up and listen good. Don't ever forget this message as long as you are a boater:

Boats do not operate themselves. YOU will remain personally liability for any harm or wrongdoing you commit while operating your vessel. Period. Your LLC will not protect you from pending damages if you are found to be guilty of negligent operations.

In the event that you are found personally reliable for negligent operations the assets of the LLC and your personal assets will be used for satisfying damages and are at risk.

MORAL OF THE STORY: Do NOT downplay liability insurance. Get the max you possibly can. In the grand scheme of the costs to own a boat, the liability portion of your policy is the cheapest thing you'll pay.