One of the major concerns people have is how to protect their home in the event of a lawsuit. Many times the fear of losing your home, is enough to force a legal settlement even if the lawsuit has no merit or is not even legitimate. Lawyers know this and many lawsuits are filled in this country just because the lawyers know that they can get a settlement. They know that the fear of losing one's home or other assets will bring the defendant to the settlement table.

Although the family home is a reasonably Safe Asset, with liability generally covered by insurance, because of tax issues it is extremely important how the family home is handled:

The first problem concerns the availability of the income tax deduction for home mortgage interest. Section 163 of the Internal Revenue Code permits a deduction for "qualified residence interest." A "qualified residence" is defined as the "principal residence" of the taxpayer. The only requirements appear to be that (1) the house is the principal residence of the taxpayer; (2) interest is paid by the taxpayer; and (3) the taxpayer has a beneficial interest in any entity that holds legal title to the property. Based upon the language of the statute, the deduction for mortgage interest would, therefore, not seem to be adversely affected by a transfer into a Corporation, or a Limited Partnership. However, until the law on this issue has been conclusively decided you should not risk the consequences of a disallowance of your mortgage interest deduction.

Secondly, under IRS Code Section 121, only an individual or a grantor trust would be entitled to qualify for an exemption of $250,000 ($500,000 if married) from the sale of a personal residence. If a personal residence is transferred to a Corporation or Limited Partnership or Family Limited Partnership then this Tax benefit will be lost, see below: The 5 Biggest mistakes made in Asset Protection.

However, if the Residence is transferred to a "Nevada  Asset Holding LLC" taxed as an LLC Disregarded Entity the Tax benefit is maintained. Under Treasury Reg. 301.7701-3 the default "tax status" of a single member LLC is: "Disregarded as an entity separate from its owner". This single member LLC would be completely disregarded for tax purposes and the individual member will be taxed as if he or she had never transferred the asset. A married couple also qualifies as a "single member" per IRS Rev. Proc. 2002-69, 2002-2 CB831 if 100% of the membership interests are owned by husband and wife as community property in a community property state.

This situation is ideal since it allows you to have the best of both worlds: You can deduct mortgage interest, qualify for the $250,000 exemption ($500,000 if married) and have charging order protection against creditor claims.

When it comes to your homeowners' insurance, you will be able to maintain your policy "as is" because you have an "insurable interest" as the member of the LLC. Ideally you would add the LLC as an "additional insured" on the policy.