Protecting the family home or primary residence from lawsuits is a leading concern for many individuals. There are several asset protection strategies for this purpose. You may accomplish this by using one or a combination of legal structures and equity stripping techniques. We discuss this in detail below.
Privacy of Ownership
The first step in protecting real property is to own it privately. Privacy of ownership removes the asset from one’s name. We often accomplish this through the use of a trust, such as a land trust. This simple technique titles real estate in the name of a trust. So, let a legal opponent performs an asset search using your name. Presto, no property pops up in the public records.
Attorneys will almost always perform an asset search prior to taking a case on contingency. What if an individual appears to have no assets to satisfy a judgment? The chances of a frivolous lawsuit or predatory legal attack drops significantly.
Land trusts are simple and revocable. You can change, modify or terminate them at any time. They create a layer of privacy when you use them to own property. The land trust is a document that you keep in your home, office or safe deposit box.
Another trust commonly used to protect the home is the Qualified Personal Residence Trust, or QPRT. This trust is most advantages ways to hold title for those in the latter stages of their lives. You can learn more about it by clicking the link above.
Equity Stripping Your Primary Residence
Another strategy for protecting property is to reduce the apparent value by stripping the equity. A property that you have encumbered 100% with mortgage liens is not an asset to a judgment creditor. A legal opponent is looking for a judgment and a payoff. If they cannot find assets they can use to satisfy it, it drastically reduces the chance of litigation. It reduces the odds of someone pursuing your home. Litigators are generally not interested in suing people who have no assets or no equity in an asset.
Thus, you strip the equity from the property. You can do this by measuring the available equity based on state homestead protection laws. Some states, such as Florida and Texas, have 100% homestead protection of one’s primary residence. However, most states have only a minimal dollar amount of equity that the law protects compared the average home’s value. This is especially true if you have a home in California or New York, with substantially higher average home values. In these cases one can strip out the equity using an asset protection strategy. Then combine it with the state’s protection limits to leave no available equity to creditors.
State homestead protection only applies to one’s primary residence. For investment properties or second homes, we implement a different asset protection strategy.
Liquidation & Asset Protection Trusts
In some cases it’s necessary to liquidate the asset and place the proceeds into an asset protection trust. The proper type of trust nearly guarantees protection of the assets; especially if in an offshore trust. Liquid assets are easier to transfer and protect. You do this by taking a maximum home equity loan and transferring the money into a well-protected account. This involves multiple legal structures and a business entity, however we can establish it for you quickly and easily.