When you own real property, whether as an investment, your personal residence, or other real estate holdings, you need an effective strategy to protect your real estate assets. There are several real estate asset protection strategies available for lawsuit protection and to limit risk from creditor claims.
Creditors’ claims and lawsuit settlements could all threaten your wealth and assets. You are personally liable for assets held in your name, and this property can be used by federal or state courts to settle lawsuits, and debts to creditors. Developing an asset protection plan can protect personal assets in these instances.
When Is Real Estate at Risk?
Your property could be at risk of seizure if it is an asset in your name and you have a high-risk career or owe a large amount of debt or get hit with a lawsuit. For example, doctors, engineers, real estate investors, and high net worth often face lawsuits. Real estate investors are also often subject to lawsuits due to property management disputes with tenants, developers, and buyers.
If your real property is in your name and someone files suit against you for your business practices or a creditor claim for a debt owed, your property is at risk of seizure by the court to settle your lawsuit or debt.
What Is Real Estate Asset Protection?
There are several available options to protect real estate assets. The best solution for you may not be suitable for the next client. This also means that your friend’s suggestions of what worked for him may not be your best advice for managing your real estate assets. Instead, you should contact an experienced real estate asset protection attorney who can guide you toward a custom strategy to help you protect real estate assets.
Real Estate Asset Protection Strategies
To protect real estate assets, consider first what assets you own. Then consider how you might lose those assets. Do you have a large amount of debt or a high-risk career? Depending on the potential threats to your personal and business assets, your asset protection plan may rely on overlapping strategies to offer several layers of protection for your property.
Before beginning your asset protection planning, find an experienced real estate asset protection attorney who can help you take inventory of your multiple properties and other real estate assets. Your attorney can help you understand the different options to protect real estate assets, including LLCs, trusts, insurance, title transfers, and equity stripping.
1. Create a Separate LLC for Each Property
There are many kinds of limited liability company structures you can use for real estate holdings. An LLC protects only the assets owned by that LLC. Most real estate investors have a separate LLC for each of their properties.
2. Real Estate Investors Should Consider a Land Trust
A land trust is a type of trust used to file the documentation to create a limited liability company without naming you as the owner. Instead, the trust owns the LLC, and your name never enters the public record as the owner of the LLC and its property.
3. Get Insurance
Asset protection insurance exists to protect personal assets from judgments that exceed existing insurance policy limits. Your insurance company will assume part of the risk to protect your assets beyond your existing homeowner’s insurance policy or other property coverage.
4. Create a Domestic Asset Protection Trust
There are 18 states in the U.S. that allow for the creation of a domestic asset protection trust (DAPT):
- Alaska
- Colorado
- Delaware
- Hawaii
- Michigan
- Mississippi
- Missouri
- Nevada
- New Hampshire
- Ohio
- Oklahoma
- Rhode Island
- South Dakota
- Tennessee
- Utah
- Virginia
- West Virginia
- Wyoming
Each state’s legislation regarding protections and liability for DAPT property varies, and many other states don’t recognize the legitimacy of a DAPT. However, if you want to keep ownership of your real estate assets onshore, a DAPT offers more protection and flexibility than other domestic trusts.
5. Create an Offshore Trust
Offshore asset protection trusts allow you to transfer assets to financial institutions located overseas. The most protective offshore jurisdictions do not recognize judgments made in the U.S. Countries such as the Cook Islands do not allow courts to seize assets from offshore asset protection trust domiciled there unless a lawsuit takes place and succeeds in their courts.
6. Use Equity Stripping Strategies
A real estate investor with rental property may have hundreds of thousands of dollars’ worth of value in each property. If your investment portfolio includes rental properties and a steady cash flow, consider borrowing against the value of each rental property to strategically reduce its value with debt.
7. Homestead Exemptions
Most states allow for a homestead exemption to protect the equity in your primary home. New Jersey and Pennsylvania are currently the only states that don’t offer a homestead exemption. Florida and Texas, subject to certain acreage limitations, offer full protection.
Offshore Trusts vs. Domestic Trusts vs. LLCs for Real Estate Investors
To protect your investment property, consider the differences between offshore trusts, domestic trusts, and LLCs for your investment real estate assets. Losing assets to a lawsuit or creditor claim can devastate your real estate investments and money-earning potential.
Pros:
- Offshore jurisdictions are beyond the reach of U.S. court decisions for asset seizure
- The country may have a shorter statute of limitations to claim fraudulent transfer of assets
- Protection from U.S. plaintiffs
- Some countries require creditors to post a cash bond before bringing a lawsuit against a trust grantor
Cons:
- You must still report taxable income and assets held in an offshore trust to the IRS
Pros:
- Structured as an irrevocable self-settled spendthrift trust
- Generally less costly to set up than an offshore trust
Cons:
- Assets held in domestic trusts may be subject to seizure by the U.S. courts
- Assets may be subject to exception creditors, including child support, tort, alimony, and government creditors
LLC
Pros:
- Fairly easy to create an LLC for each of your properties
- You can create an LLC using an anonymous land trust to keep your name off the public record of ownership
- Creates separate entities for the properties
Cons:
- Each LLC is still vulnerable to a lawsuit as a business entity
- Very limited protection is given to the owner
Protecting Real Estate Assets Often Uses Multiple Asset Protection Strategies
Whether you want to protect your primary residence or investment properties, it behooves you to implement a multi-pronged asset protection strategy to reduce your liability. Trying to save money by not using an experienced asset protection attorney can leave your personal residence, office buildings, and other properties vulnerable to seizure.
Your best solution to protect a real estate asset depends on your situation. If you’re involved in real estate investing, you need to separate personal finances from your investment properties, holding each piece of property in different limited liability companies and using a land trust for each.
If you need asset protection strategies for real estate preservation so you can pass the property on to your beneficiaries in your estate plan, you can probably place the property in an irrevocable trust and add property protection insurance to cover any additional liability.
Contact a Real Estate Asset Protection Attorney With Blake Harris Law
At Blake Harris Law, we focus strictly on asset protection, including real estate, crypto, offshore trusts, and Titanium Trust protection solutions. When you need real estate asset protection anywhere in the U.S. or across the globe, turn to our experienced team. Contact us online to schedule a consultation for asset protection strategies.
