Does It Make Sense to Put Your Tennessee Property in an LLC?

We are going to give you the most lawyerly answer ever - it depends.

Owning rental or investment property in Tennessee (or elsewhere) raises a common question: should you hold the property in a limited liability company (LLC) for protection?

Many believe an LLC is essential to shield personal assets from lawsuits. However, sometimes an LLC isn’t always necessary. Often, simply having substantial insurance coverage can offer ample protections.

Liability Protection: LLC vs. Insurance

The main reason people consider an LLC is liability protection. An LLC creates a legal separation between you and the property: if someone is injured on the property and sues, only the LLC’s assets (the property itself) are typically at risk, not your personal home, bank accounts, or other assets.

In other words, the LLC can act as a liability “shield.” This is a real benefit. Having a property in an LLC can protect you personally from a lawsuit, so a judgment would target the LLC’s assets and not everything you own.

However, it’s important to understand the limits of this protection. Forming an LLC does not prevent lawsuits – you can still be sued, and your LLC can be sued. If you don’t maintain the LLC properly as a separate entity (for example, if you commingle finances or fail to follow required formalities), a court might even “pierce the corporate veil” and hold you personally liable despite the LLC.

On the other hand, insurance is a direct and often simpler form of protection. Every landlord or homeowner should carry liability insurance on their property. A standard landlord insurance policy usually includes liability coverage (often $300,000 or $500,000 by default, with options to increase it).

In practice, many property owners carry $1 million (or more) in liability coverage per property, and you can request higher limits. If an accident happens (say a slip-and-fall or a tenant is injured) and you are found liable, your insurance policy will pay out up to its limit for legal damages.

For additional peace of mind, umbrella liability insurance can be added on top – umbrella policies are relatively inexpensive (a few hundred dollars per year for an extra $1–2 million in coverage). This extra coverage kicks in if a claim exceeds your base policy limit.

An LLC shields your personal assets from liabilities tied to the LLC, but it does not protect the property inside the LLC itself. If a major claim exceeds what the LLC can cover, the LLC goes bankrupt and you lose the property. On the other hand, having strong insurance—such as a $3 million umbrella policy—can cover the entire claim and allow you to keep the property.

The most common mistake? Failing to maintain a clear separation between yourself and your LLC (e.g., signing leases in your own name or using personal funds for LLC expenses), which opens the door to “piercing the corporate veil” and coming after your personal assets. Bottom line: use an LLC and carry high-limit insurance, but don’t rely on the LLC alone to protect your wealth.

When an LLC Does Make Sense

While a lot of everyday landlords forego LLCs in favor of insurance, there are situations where holding property makes absolute sense. Consider using an LLC in scenarios like these:

• Multiple Owners or Investors – If a property has several co-owners, an LLC provides a formal structure to define each member’s ownership share, roles, and responsibilities. The LLC operating agreement spells out management and profit split, which can prevent disputes.

  
  

• Privacy of Ownership (Anonymity) – Titling the property in an LLC’s name (e.g. “123 Maple LLC” instead of John Doe) offers a degree of privacy. On public property records, only the LLC name appears, keeping your personal name off the county deed search. This can discourage nosy neighbors or potential litigants from easily identifying you as the owner. (Keep in mind, LLC ownership isn’t perfectly secret – determined individuals could still look up the LLC’s registration info with the state to find the members’ names in many cases).

  
  

• Owning Multiple Properties – Landlords with a portfolio of properties often use separate LLCs for each property or a group of properties. By doing so, you isolate the liability of each asset. For example, if Property A is in ABC LLC and Property B is in XYZ LLC, a lawsuit related to Property A generally can’t go after Property B or your personal assets. This compartmentalization is frequently recommended for those with multiple rentals or units.

  
  

• High-Risk Properties or Activities – Certain properties inherently carry more liability risk. For instance, rentals with a swimming pool, trampoline, or old wiring can invite higher chances of injuries or accidents. Likewise, operating a short-term rental (Airbnb or VRBO) with many transient guests coming and going can increase the odds of something going wrong.

  
  

Finally, consider practical factors. Forming and maintaining an LLC does come with costs and paperwork. You’ll pay state filing fees and possibly annual taxes or reports. (For example, Tennessee requires LLCs to file an annual report with a fee – at least $300 per year – and pay a small franchise tax minimum. You’ll also need a separate bank account for the LLC and must avoid mixing personal funds with LLC funds. Some lenders won’t finance a mortgage in an LLC’s name, and insurance companies might require you to get a commercial policy or add the LLC as an insured party on your liability policy. These are additional hassles that individual owners don’t have to worry about.

Bottom Line: For many single-property owners, especially those with steady long-term tenants and good insurance, holding a property in your personal name with a solid insurance plan can be simpler and sufficient. If you’re adequately insured (including an umbrella policy for extra coverage), you may already have the protection you need without an LLC.

However, if you fit one of the scenarios above – e.g. multiple co-owners, a desire for privacy, a large portfolio, or a high-risk rental – then using an LLC could be a smart extra layer of protection. It’s about weighing the costs and complexity of an LLC against the marginal increase in liability protection it provides.

Every situation is different. Be sure to consult with a knowledgeable attorney about your specific circumstances and to ensure that if you do set up an LLC, you do it correctly. And regardless of what you choose, make sure you carry ample insurance on your property – that is non-negotiable for peace of mind. With the right strategy (or combination of LLC and insurance), you can protect yourself while investing in real estate confidently and responsibly.

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Disclaimer: This blog post is for informational purposes only and does not constitute legal advice. Reading this article does not create an attorney-client relationship between you and The Law Office of Will McSeveney. Real Estate and LLC law can be complex and fact-specific, and you should consult a qualified attorney for advice regarding your particular situation.