Real Estate Asset Protection
Real estate asset protection strategies. How to protect your home and investment property. Described below is an asset protection strategy for real estate. As you will see, each element of the plan protects your assets, provides privacy and/or is a deterrent for a legal opponent.
Real Estate Asset Protection for Personal Residence and Income Properties
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Real Estate Asset Protection Strategy
The first element of this asset protection strategy is a Land Trust that holds the property. The first thing you gain here is privacy, the property is titled to a trust, not you. Notably, before a law firm makes a plan to pursue an individual, they usually run an asset check to see what is within reach. This is as simple as searching public records to see what you own. Thus, with your property titled to a trust, it won’t come up on an asset search. With this type of privacy shield, you control the beneficiary of the property. Fortunately, you can do whatever you want with it at any time. So, you essentially have as much control as if it was in your own name.
We address limiting internal liability, which is liability your asset creates, by establishing legal entities. For instance, a tenant or guest slips and falls. A loose wire cause a fire that injures someone. To protect you, the Limited Liability Company (LLC) is the most likely candidate. This is the beneficiary of the Land Trust holding the title to your investment property. Here we gain lawsuit and asset protection as well as tax and estate planning benefits.
How Much Protection Is Needed?
One of the most common questions we answer is how many legal entities do I need? It depends on who much each property is worth. The average home in California will be worth more than the average one in Iowa. Ideally, you want one LLC per property. With this arrangement, it helps to prevent one lawsuit from taking all of your real estate. Thus, you have each property in a separate cubbyhole.
In general, you want to limit the amount of equity per legal entity to around $200,000. Typically, we will put each investment property into a separate land trust. Then, a separate LLC owns each land trust. The land trust gives privacy of ownership. The LLC provides asset protection. When someone sues LLC owners personally, there are provisions to prevent creditors from taking the LLC or anything inside of it. The LLC also acts as a lawsuit shield. When someone gets hurt on the property and sues for more than your insurance covers, it can keep the lawsuit within the LLC and away from you, personally.
The Garn St. Germain Depository Institutions Act of 1982 says, in short, that you can transfer one to four dwelling units into a trust without the bank calling the loan due. There are a few more details but we have never seen a lender invoke the due-on-sale clause when someone has placed a house into one of our land trusts.
Asset Protection & Estate Planning
The structure continues to grow in detail here with some estate planning tools. We take the beneficiary entity and put that into a Living Trust. This allows you to specify exactly who or what receives your assets upon death. It will also reduce your probate costs and could reduce some estate taxes. At this point, you have placed your investment property in a trust. The beneficiary is a legal entity, such as an LLC, that a Living Trust holds. You have privacy, internal liability protection, lawsuit protection and estate planning all within your asset protection strategy.
Protecting Real Estate Equity
One final measure that is a detouring factor is to have an LLC mortgage the equity in your investment property. This is a publicly recorded note that strips the equity out of your property. These structures are in place and each offer a different degree and angle of protection. Using the right tool mitigates your liability. For a legal opponent planning to pursue your assets, you have placed multiple roadblocks. You have hidden, protected and stripped the property of its value. And in the end, there isn’t a prize.
To learn more or to establish a real estate asset protection strategy, there are telephone numbers and a form on this page to discuss your needs. The sooner you get started, the better it will be for you when the process server shows up at your door.