If you own real estate, there are a number of strategies you should consider to protect your assets.
If you own real estate, chances are that you have purchased insurance to protect your assets against damage or loss. Liability insurance should be your first line defense in litigation. Make sure that your personal umbrella liability coverage is for an amount at least equal to your net-worth
But, have you taken the essential steps to protect your real estate against a lawsuit or probate?
If you own rental properties, do you have a nagging fear in the back of your mind about a disgruntled tenant suing you? If not, there probably should be. It’s a major risk.
And while it may be heartbreaking to think about, there is always a chance your death could trigger a family feud over your home, vacation home or other real estate investments.
Two common estate planning tools for real estate asset protection include limited liability companies (LLCs) and trusts:
Limited Liability Companies.
If you have income-producing property, then a limited liability company may make sense for you. An LLC protects your personal assets from lawsuits or claims that result from your ownership of the real estate. An LLC may also offer owners additional privacy as the property may be listed in a company name, not in your name directly. However, you must be sure you maintain the LLC properly so the planned for protections remain intact. It’s not too difficult though, especially with counsel.
Tip: Create a separate business entity for each rental property or a Nevada Series LLC to protect each property within a single LLC.
If you own vacation home property that you do not rent out on a regular basis, then a trust may be a better choice for you. There are several options: a Qualified Personal Residence Trust (QRPT) is an irrevocable trust (meaning it cannot be changed without the consent of the beneficiaries) that allows an owner to use the property for a fixed term, and then pass the property on to heirs. This is a commonly used structure to reduce the size of your estate for estate tax purposes.
A revocable trust (which can be changed without consent of the beneficiaries) is more flexible and, if you choose a dynasty trust, can last for multiple generations. The major benefit of the revocable trust, besides control of what happens to the assets after the death of the grantors, is that it keeps your assets out of the hands of the Court after your death, and totally within the control of your family.
You can also use a combination of LLCs and trusts to protect real estate assets if you have a combination of primary residence and rental properties. We can help you decide on the best course of action for your individual circumstances.
Call our office today to schedule a time for us to sit down and talk about a Family Wealth Planning Session, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security.