Co-Ownership - Structuring the Agreement - Co-Ownership Agreement Checklist

Sep 16, 2026

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Co-ownership of an aircraft should be treated as a serious business and structured to manage liability, taxes, and operational decision-making. The article explains how U.S. citizens or permanent residents may hold title directly or through a revocable trust to avoid probate, but warns that multiple individual titleholders expose owners to other pilots’ negligence. It outlines LLC ownership structures that meet an LLC citizenship threshold and discusses how taxes and depreciation drives the choice between multi-member and separate single-member LLCs. It then emphasizes a professionally drafted written agreement covering scheduling, basing, funding, lending, pilot access, insurance costs, maintenance authority, upgrades, transfers, disputes, and events like death or insolvency.

LanguageEnglish

CategoryLetters

FormatPDF

Pages3

Reading Time1 min

AccessFree to download

How should title be held?

Direct title and revocable trust

LLC structures and citizenship requirements

The Written Agreement

Core issues to codify before purchase

Funding, maintenance, pilots, and decision rights

Co-Ownership: Structuring the Agreement Scott Williams, Esq. Principal Attorney This article appeared in both MMOPA and COPA Pilot Magazines, 2023 In a perfect world, money would be no object. All general aviation aircraft would be purchased for cash, none would be financed, and all would be wholly owned a single owner. Unfortunately, economic realities often don’t allow sole ownership of an aircraft. Even if the Direct Operating Costs (DOCs) are manageable, significant fixed expenses such as the aircraft payment, hangar, insurance etc. are often too high for some to avoid the temptation to seek sharing among several co-owners. Irrespective of whether they use the aircraft exclusively for recreational purposes, coownership is serious business and should be set up and run like a business. How should title be held? For United States Citizens or Permanent U.S. Residents, an individual owner could simply hold title of an N-numbered aircraft in their own name. For estate planning purposes, title would beheld in their revocable trust to avoid probate in many states. Individual (or trust) ownership is fine if nobody else will ever fly your airplane, including post-maintenance of ferry flights. However, if anyone else will be flying your aircraft, especially if two or more co-owners will frequently operate the aircraft, taking title as multiple, individual co-owners exposes each of them to every other pilots’ negligent actions. For this reason, Limited Liability Companies (LLCs) are often used as a firewall between a member’s personal assets and another pilot’s liabilities. Thereis an FAA requirement that at least 75% of the members of an LLC must be United States citizens (not merely Permanent U.S. Residents) . While an LLC will not protect anyone from personal liability from their own negligence as PIC, it will almost always limit the liability of the other nonPIC co-owners to their equity in the LLC (i.e., their equity in the aircraft) . A common LLC structure has a single LLC owning the aircraft, with the LLC’s members all being individuals. If nobody is expensing the aircraft for business use, all member funds deposited into the LLC bank account are classified as “capital contributions”(not income) to avoid the filing of any federal income tax returns. If the LLC receives any income (such as rental to a member’s business) this multi-member LLC usually requires the annual filing of an IRS Form 1065 partnership tax return. However, if any of the co-owners want to depreciate the aircraft in any manner, a single LLC structure does not work. Since each co-owner will have a different percentage of business use and varying depreciation schedules (i.e., MACRS, Section 179, or soon to be phased out Bonus depreciation), none of them want their business deductions to be dependent on the flying habits or tax returns ofthe other co-owners. In this scenario, each co-owner would own their share of the aircraft in a separate LLC, with the sole member of each LLC being either that individual or their business entity. Hypothetically, if there were three co-owners with unequal depreciation, the aircraft would be co-owned by LLC \#1, LLC \#2, and LLC \#3 (all three of which would be on title with the FAA. Since each LLC is a single member LLC, each are disregarded entities for tax purposes, no “partnership” style entity exists, and no 1065 tax return need be filed. Note that the FAA does not recognize co-owner percentages, so in their eyes, it is up to them to enter into a separate agreement to clarify that relationship. The Written Agreement Regardless of structure, anytime two or more co-owners (who are not already husband and wife) take title to an aircraft, there should be a professionally drafted co-ownership agreement that clearly identifies each co-owners’ rights and responsibilities toward each other and the aircraft. Without one, misunderstandings can turn the best of friends into the worst of enemies. Too often, co-

FAQs

When is direct ownership or trust ownership an acceptable approach for aircraft co-owners?

Direct ownership can work when only the named owner will fly the aircraft, including after maintenance and ferry flights. For estate planning, title held in a revocable trust can help avoid probate in many states.

Why do co-owners often use LLCs when others will fly the aircraft?

If others will operate the aircraft, especially multiple co-owners, individual title exposes each owner to other pilots’ negligent actions. LLCs are used as a firewall to limit non–pilot owners’ exposure to their equity in the LLC.

How does depreciation planning affect the choice of LLC structure?

If co-owners want to depreciate the aircraft differently, a single multi-member LLC may not fit because deductions could depend on the others’ flying and tax outcomes. The article recommends separate LLCs for each co-owner, treated as disregarded entities for tax purposes, to avoid partnership-style filings.

What key topics should a co-ownership written agreement cover?

The agreement should address flight scheduling, aircraft basing and who can change it, contribution amounts for DOCs and reserves, additional funding triggers, who can fly and required qualifications, insurance premium allocation, maintenance spending limits, upgrade authority, sale and first-right rules, dispute and forced-sale concepts, and what happens on death, insolvency, or divorce.

Sep 16, 2026

Upload by Riley