Asset protection for real estate investors can be an important component of a real estate investment plan. In the event of legal issues or unexpected downturns, proper asset protection can help secure your wealth for the long term. This guide will help you understand the basics of asset protection, and steps you can take to protect yourself and your investments.
By the way, we believe in tried-and-true solutions that just work. Our law firm isn’t glitzy or fancy. But what we use has NEVER failed.
Asset Protection Strategies vs. Tactics.
A strategy is the action plan that takes you where you want to go. The tactics are the individual steps and actions that will get you there.
Asset Protection Strategies.
Here are some typical strategies when it comes to asset protection for real estate investors:
What you don’t own can’t be taken from you.
A basic asset protection strategy is to transfer your assets out of your name, so your creditors can’t take them. The thought is that what you don’t own can’t be taken from you. But, meanwhile, you also want to have the benefit and use of those assets. So, you want to control them. That is the most basic asset protection strategy.
But … don’t be stupid. Don’t go transferring your properties to your ex-wife or to your brother. They could turn out not to be as loving and reliable as you thought. Or they could get creditor problems. Or they could die and all your assets now belong to their kids.
Transferring risk of loss.
Another strategy is to transfer the risk of loss to someone. Insurance is a perfect example of this. You pay a premium in exchange for the insurer agreeing to pay in the event that a covered loss occurs. Another example of this is inserting an indemnification clause in a contract.
This strategy is pretty obvious. Just be careful. If you have someone paying bills for you, make sure you approve the payments. If you’re a real estate investor, have have a systematic way of making sure you are complying with the laws, paying your taxes, and protecting yourself. If you have a pretty assistant, don’t promise her a promotion in return for sexual favors. And so on …
Do what works.
You would think this is obvious. But apparently it’s not. A lot of people still use Bridge Trusts, Foreign Asset Protection Trusts, Domestic Asset Protection Trusts, and other methods that have been proven NOT to work over and over and over. They pay big bucks because they sound amazing. You get to be the beneficiary of the trust and also be protected from creditors?!? Who wouldn’t sign on for that. (ANSWER: People who aren’t stupid.)
Understand the Tactics Behind Asset Protection.
Asset protection uses specific tactics that you can use to secure and safeguard your financial assets. But don’t get overly focused on tactics. Remember that you need a strategy first. And a very good strategy is to use something that is proven to work. Based on that, you are left with s limited number of tactics. Now, those tactics actually work. They’ve worked for generations. They will continue to work. But they may not sound “exciting.” Tactics of asset protection for real estate investors include setting up multiple entities, utilizing irrevocable trusts, or purchasing insurance policies.
Imagine asking “What should I do to make money in real estate?” The tactical answers will sound stupid to you. Here are some examples of “tactics” for making money in real estate:
- Repair the roof
- Fix the floor
- Remodel the kitchen
If you’re a real estate investor, you know that those may or may not actually make you money. The STRATEGY for making money is to buy low and sell high. Or just buy, and rent it out.
Tactics like “domestic asset protection trusts” or “foreign asset protection trusts” or “bridge trusts” DON’T WORK in terms of asset protection. They are like telling you to throw salt over your left shoulder. (I grew up with an Irish step-dad who had relatives who believed in all this.)
Instead, you should focus on tactics that are proven to work. That’s all we use. We would never experiment with our clients. You aren’t a Guinea pig to us.
How to Use LLCs as a Real Estate Investor.
Limited Liability Companies (LLCs) offer a number of advantages for real estate investors, such as asset protection against liabilities, creditor claims, and potential legal action. An LLC can be used to purchase real estate and protect your personal assets from any related debt or obligations associated with investments. Additionally, the LLC structure allows you to easily transfer property titles and execute other transactions without jeopardizing your liability protections. To take full advantage of an LLC’s asset protection benefits, it is important to carefully consider the terms of the Member Operating Agreement before signing it. It’s also important to know what the Articles of Organization should say before signing and before registering it with your state.
Use a Family Limited Partnership.
Another strategy to support asset protection for real estate investors is to set up a family limited partnership. This type of investment structure allows you to transfer title and control of your investments to trusted family members without paying taxes on the transfers. By assigning ownership rights to different family members, you can further reduce the risk of personal liability from business decisions made on behalf of the partnership. In addition, by using a trust, you can protect your assets from accidental transfer, protect against future generations from misusing them, and limit gifts and estate taxes.
Transfer Property Ownership in Order to Protect Assets
In order to protect your assets, one of the best strategies is to transfer ownership to yourself or family members. By transferring ownership out of your personal name, you can reduce the personal risk if anything were to go wrong with the investment. Depending on your particular legal structure, you may have the option to transfer title and control of properties via a family limited partnership or a trust. These could help shield the contents and profits from creditors, court judgments, divorces, and future taxes.
Do You Want Bulletproof Asset Protection For Real Estate Investors?
What we do is not “sexy.” It’s not exciting. But it works. It’s that simple. If you want a a comprehensive asset protection plan that has worked for decades, give us a call at 602-443-4888. If you want something that sounds exciting (like a Foreign Asset Protection Trust or a Domestic Asset Protection Trust), call someplace else. Then in 5 years then you discover you made a mistake, give us a call and we can help you with real asset protection.