For many Pennsylvanians, a rental property is more than an investment. It’s a source of income, a family asset, and a cornerstone of long‑term financial security. Yet few owners realize how vulnerable rental real estate can be — not only to lawsuits and creditor claims, but also to the devastating cost of nursing home care.

Stanley Vasiliadis, an attorney with the law firm of Vasiliadis Pappas Associates LLC, notes “We regularly meet clients who assume their rental property is safe if adequately insured. Unfortunately, that sometimes is not enough.” Without proper legal planning, a rental can be exposed on multiple fronts — and it can also jeopardize your eligibility for Medicaid benefits should you ever need long‑term care.

The good news is that with the right structure, you can protect you and your rental from creditors and preserve it — or the proceeds from its sale — as an unavailable resource for Medicaid purposes. Consider several options.

Place the Rental in an LLC

Create a Limited Liability Company (LLC) owned by you and or your spouse. Fund the LLC with one or more rental properties plus enough money to meet anticipated costs and expenses for property maintenance and other business obligations.

This shields you, the owner of the LLC, against claims arising from operation of the rental (“inside creditors”). Liability is limited to the LLC assets. Your home, bank accounts, investments, and other property cannot be touched. Moreover, this protects the rental property from claims against you that are unrelated to the rental (“outside creditors”).

But there are some downsides. In Pennsylvania, if you transfer an already‑owned rental into an LLC, you’ll trigger Pennsylvania realty transfer tax — typically two percent of the property’s value – often thousands of dollars. Moreover, if you fail to adequately capitalize the LLC a creditor could potentially “pierce the corporate veil” and pin the liability directly on you. In any event, you will need the assistance of an attorney to set up and fund the LLC and there will be some annual costs and regulatory requirements.

Another consideration when seeking to protect your rental property with an LLC is to consider the consequences of the future need for you or a loved one to qualify for Medicaid benefits to pay for long-term care. In Pennsylvania, virtually any rental real estate will qualify as an exempt asset for purposes of Medicaid eligibility due to being considered an asset used in a trade or business essential to self-support. But if the rental is sold, the sale proceeds will not be protected.

Place the Rental in a MAPT

Assets in a Medicaid Asset Protection Trust (MAPT) that names a Medicaid applicant as the beneficiary are protected. This includes rental properties and proceeds from the sale of a rental that occurs inside the Trust. Moreover, rental real estate inside a MAPT is protected from creditor claims against the beneficiaries of the MAPT (“outside creditors”). An additional advantage to using a MAPT rather than an LLC is avoidance of Pennsylvania realty transfer tax when funding the MAPT in most but not all cases.

Using a MAPT to protect rental real estate does, however, have some downsides. As with an LLC, the rental property itself is not protected from the claims of “inside creditors”, which, as noted earlier, are claims relating to operation and maintenance of the property itself. This can be especially problematic in the case of a MAPT, if, as often occurs, investments and other assets are included in the Trust in addition to the rental. Those other assets would be at risk. Moreover, as in the case of an LLC, there are costs, in particular attorney fees, that will be incurred with implementing a MAPT.

Use LLC and MAPT Together

For maximum protection — legal, financial, and Medicaid — the most effective structure uses both an LLC and a MAPT:

  1. Transfer the rental into a MAPT
  2. MAPT leases the rental to an LLC
  3. The LLC then subleases the property to tenants.

This structure:

  • Shields you and the rental from liability relating to the rental (“inside creditors”)
  • Protects the rental from claims against you not relating to the rental (“outside creditors”)
  • Preserves Medicaid exemption for both the rental and its sale proceeds
  • Avoids Pennsylvania Realty Transfer Tax in most cases
  • Avoids cross-liability for multiple rentals by leasing each rental to a separate LLC

The obvious downside to the LLC-MAPT option is complexity and cost. But it provides maximum protection and preserves peace of mind.

If you have or contemplate acquiring rental real estate, contact the lawyers at Vasiliadis Pappas Associates to discuss implementing legal measures to protect that property. We cam help!