Million smooth or million/100,000

Discussion in 'Flight Following' started by NC Pilot, Apr 17, 2006.

  1. NC Pilot

    NC Pilot Cleared for Takeoff

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    Time to renew my insurance. Two options are $1,000,000 smooth or $1,000,000 with $100,000 per passenger. In the past I've gone with $1,000,000/$100,000, but am considering $1,000,000 smooth this time just to protect assets a little better.
    What do you owners carry and why?

    Thanks in advance.
     
  2. RotaryWingBob

    RotaryWingBob En-Route Gone West

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    We went through that a couple of months ago with the Archer. Smooth clearly has some advantages, but when my partners and I hashed it out we decided it wasn't worth the extra money (in our case about 50% more).

    We don't carry smooth on the R22 either (same reasons, different partners).
     
  3. wsuffa

    wsuffa Touchdown! Greaser!

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    Smooth. You can hit the $100K limit pretty fast.
     
  4. 4CornerFlyer

    4CornerFlyer Pre-takeoff checklist

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    The sublimits apply per passenger. Whether you should get smooth limits depends on who your passengers are. If most of your flying is with your own family, you could get away with less passenger coverage than if you regularly take non-relatives who are more likely to sue your estate.

    Jon
     
  5. Dave Siciliano

    Dave Siciliano Final Approach

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    As has been said, who do you carry and what are you protecting. Not carrying passenges, $100,000 should work fine. Carrying passengers and get sued, it may not go far. If you do not have substantial assets to file suit against, probably not worth the higher limits. If you carry passengers that aren't direct family and you have meaningful assets, it could lead to a suit against you. The insurance company will defend you, and probably if there is high liability, try to settle for the limit. However, if a good advocate sees substantial assets behind the limit, and believes he has a good case to go get them, I'm sure he'll recommend that to his client.

    I have $1MM smooth on each of my aircraft and have thought about raising that. If someone on your aircraft is hurt badly, no matter how friendly they were before the accident, they will need coverage of medical and other accident related expenses. If you're carrying someone that makes a six figure or more income, that creates a loss of future income claim among other things.

    Dave
     
  6. Anthony

    Anthony Touchdown! Greaser!

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    Does anyone have their airplane owned by an LLC to mitigate some of the risk of law suits and claims against personal assets?
     
  7. RotaryWingBob

    RotaryWingBob En-Route Gone West

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    Both aircraft are owned by (different) corporations.
     
  8. infotango

    infotango Line Up and Wait

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    Depending on the situation a court most likely would be pretty quick to pierce that corporate veil if you injured somebody. Also any corporate structure for aircraft ownership wouldn't protect you if somebody sued you as the pilot. A corporation has some advantages for a partnership however.
     
  9. wsuffa

    wsuffa Touchdown! Greaser!

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    That only works if you're not the pilot flying. If you are the pilot, forget the corporate veil.
     
  10. Dave Siciliano

    Dave Siciliano Final Approach

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    I own one personally and one in an LLC. Since I'm the only one flying the A-36, corporate ownership would be pointless and would have the accompanying cost and time to maintain (I have numerous business entities now, and don't need another unless absolutely necessary).

    In the Baron, I have a partner. Here in Texas, the LLC will allow some mitigation against the actions of a partner if I'm not the one flying. Also, I can sell my interest or my partner's without a change in the owner ship of the plane. However, there is another side to this. Here at Addison, the local tax folks take the position if there is corporate ownership, it's a business use aircraft--period. You have to either pay them, or spend a lot of time and some money to fight 'em.

    So, my point is, everything has advantages and disadvantages. You should know what they are before getting into things. There are advisors out there than can 'xplain it to you and know how local laws affect you.

    Dave
     
  11. Anthony

    Anthony Touchdown! Greaser!

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    Duh. Of course. Thanks Bill. Its different for rental real estate, because you're not there. I'm thinking of putting my rental property in an LLC and thought I'd have the LLC own the real estate, plane and maybe cars. My wife is a paralegal and has been telling me nightmare stories about auto accidents and huge awards above and beyond the insurance, so they go after your personal assets. Again, if you are driving the car, the LLC would not protect you either. Sigh.
     
  12. Dave Krall CFII

    Dave Krall CFII Final Approach

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    I've not seen umbrella policies that will cover pilot related risks -are they out there now?
     
  13. AdamZ

    AdamZ Touchdown! Greaser!

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    Its not really a piercing the corp veil situation especially if you keep your corporate records correctly. Its more of a problem as Bill said if you are the pilot. No corporation will protect you from your own negligence. Now if you have partners then that is an entirly different story.
     
  14. wsuffa

    wsuffa Touchdown! Greaser!

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    Right. For rental real estate, different animal (though if you personally do something wrong, then the LLC might not offer protection). The extent of the protection varies by state.

    Were it me, I'd think about putting the rental property into an LLC or other corporate structure for liability and other purposes (for the same reason I'd use an LLC if I had a plane that was leased to a flight school). I would not, however, put a personal plane or cars in there unless they are business assets, used primarily for the business. For several reasons: 1) Should the corporation be sued (by, say, a neighboring tenant who loses their apartment because one of your tenants burned his apartment place down), you could lose the plane and cars in the deal. All corporate assets are fair game if the company is sued. 2) The flip side is if the plane and cars are in the same LLC as the apartment, and you get sued after a car wreck, you could lose other assets in the LLC. Not good there, either. And 3) because in many places business "personal property" is taxed even where privately held/non-business property is not (see Dave's comments above).

    The LLC, however, will never protect you from your own negligence... it can protect you from negligence of other owners and/or customers.
     
  15. Dave Siciliano

    Dave Siciliano Final Approach

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    If protecting against large awards, over a reasonable insurance amount, is what your goal is, there are several manners in which one can arrange their financial assets to make it costly, time consuming and distasteful for someone to pursue.

    Homestead exempions in some states, federal retirement plans and other financial planning methods can help insulate one, but each has a cost. If you really have a large amount of assets to protect, you should be talking to your advisors about these. But, in general, Homesteads in some states cannot be attached by creditors. Federal retirement plans are very difficult to attach. There are other mechanisms that can also be useful.

    As my closest legal advisor once made plan for one of her clients and related to me, if one has enough assets, they can legally arrange them in a manner that will make them very difficult to actually attach and collect on. However, there is an offseting cost; it takes time, and if anyone does pursue, one still has the cost of defending. Gene Phillips here in Dallas, at one time, had 87 different business entities. The exchanges between corporations made it very difficult, time consuming and costly to unravel. The Feds finally got him for security violations, but it was after years of following paper trails. Probably far more than what a normal creditor would ever do.

    Dave
     
  16. wsuffa

    wsuffa Touchdown! Greaser!

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    You'd be surprised, especially under the new bankruptcy laws.

    I've been doing some "learning" and background work as a preface to going full-bore into the business turnaround and interim executive business, working to fix troubled companies. The new bankruptcy laws have caused creditors to engage legal protections much earlier than they used to, and have caused them to be more aggressive.

    I heard a story the other day about a creditor that finally got fed up trying to unravel the issues in a troubled company/bankruptcy case. The creditor decided that they weren't going to get their money back, therefore from their perspective it was not a loan but instead was a payment to the executive of the company (who paid himself quite lavishly out of the loan proceeds). So the creditor sent a 1099 to the executive, and reported it to the IRS. :eek: Oops. Guess that falls into the category of "don't get mad, get even".
     
  17. Dave Siciliano

    Dave Siciliano Final Approach

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    Bill:
    I wasn't on the bankruptcy track; although, that could be an option if a large enough judgement was rendered.

    I'm more on the track of setting up different legal entities with assets of different amount in those entities with differing control levels by one owner. Each entity would have to be pearced in order to get to the assest (of course, the assets have to be discovered first). Dealing with each of these entities would be advisarial, time consuming, and costly. One entity can make advances or borrow from another entity and there can be other intercompany transactions. There are some very bright folks out there that form these and would defend. A litigant could prevail, but it could be very distateful--providing more incentive to settle.

    In my case, they would already have access to $1MM from the insurer. Then, many assets are judgement proof (excuse the term). From there, getting to the assets could be distasteful. OTOH, a reasonable settlement could be reached.

    Dave
     
  18. wsuffa

    wsuffa Touchdown! Greaser!

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    I agree, Dave. I was looking at the other side.
     
  19. SCCutler

    SCCutler Administrator Management Council Member

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    Bill, that used to be an oft-used tool. Amazing how someone who thinks they have avoided their own responsibility is shocked to get that 1099 in the mail.
     
  20. wsuffa

    wsuffa Touchdown! Greaser!

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    Even worse when the recipient gets one in the 7 digit range. Ouch.
     
  21. Dave Siciliano

    Dave Siciliano Final Approach

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    Just a reminder to pay your taxes today! Remember 12,000,000 illegal alliens are depending on it!!

    Dave
     
  22. NC Pilot

    NC Pilot Cleared for Takeoff

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    Everyone,

    Thanks for all the responses. I'll now turn this over to my office manager to implement.

    Agatha - get busy...

    :rofl:
     
  23. Anthony

    Anthony Touchdown! Greaser!

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    Thanks Bill and Dave. Good info.

    Get to work Agatha! :)
     
  24. gismo

    gismo Touchdown! Greaser!

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    I've been carrying a million smooth on the Baron for many years. IIRC the cost delta to me for full vs 100k/seat was only a few hundred dollars on a $4000 premium.

    On the Porterfield, I can only get $1m/$100k so that's what I have there.
     
  25. Dave Siciliano

    Dave Siciliano Final Approach

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    Geesh Mike. If you're 69 you take great pics! I would have guessed much younger from the avitar.

    Dave