The following is a discussion of both the most common perks of an asset protection strategy as well as the benefits that you can start enjoying at any time. Your customized plan will depend on the asset protection structures that you and your team of qualified professionals decide are best for you.
Your "structure" (or your business entity and how you set it up) typically conveys several benefits at once. The most common asset protection structures we recommend for our clients are the series LLC, a Delaware Statutory Trust for the Californian investor, or a network of a traditional LLC and an asset-holding company. All of these structures give you some unique freedoms and avenues for defending your assets.
Operating your real estate business as a sole proprietor has tons of disadvantages. As asset protection professionals, the first threat we think of is the threat of lawsuits. The easiest way to make yourself a target and your property vulnerable is to own investment property in your own name.
Using an entity can streamline your real estate investments, or truly, any business that you choose to operate with these structures. Some have legal requirements that require organization, but in general, we find that the entities used for asset protection also make running a business easier.
Ideally our assets are compartmentalized, meaning that they are separated legally from one another and you personally. Your entity is typically your best tool for compartmentalizing assets.
The optimal way to protect assets is with Limited Liability Companies that “stand in” as the owner of the property. Of course, you control the company. The beauty of LLCs is you can form as many as you like, preferably with each holding a single asset. Both the the series LLC and Delaware Statutory Trust for California investors make compartmentalization easy. In the case of the series LLC, each asset simply goes into its own series.
Unlike the traditional LLC, investors can leverage the series LLC’s scalability to minimize the cost of compartmentalization. At Royal Legal Solutions, we love teaching investors how easy it is to create a new Series Document from home. Many of our clients have been empowered to create their own series at any time, on their schedule, from the comfort of their homes.
You may be wondering why there’s so much talk of types of limited liability companies in the asset protection world. These types of companies, including the series LLC variation, are designed to remove your personal liability. Because of their legal protections, LLCs offer an elegant solution for basic lawsuit prevention for real estate investors. From a legal perspective, if an opposing attorney can’t make a good case for “piercing” your corporation (a possibility we can anticipate and prevent by deploying certain tools and tactics in the set-up phase of an asset protection strategy), your assets are safe from seizure.
Why? Because for your assets to be seized, an opposing lawyer would need to secure a judgment against you. For that to even be a possibility, that hypothetical attorney must connect you to the property and the liabilities to the property. Our asset protection plans can thwart every step in this process, to the point that we can make it nearly impossible for the lawsuit to even be filed at all.
The best asset protection plans take advantage of every opportunity to secure an investor’s anonymity. Attorneys can use tools like the anonymous land trust to ensure your name is nowhere to be found on public records.
In addition to fortifying your asset protection plan by helping prevent lawsuits, preserving your anonymity is also a reliable way to protect yourself from the threat of identity theft. In the digital era where all of our information is easily stolen, it is critical that investors and high earners protect themselves—and their personal information. Be cautious of who you give information to online. Many scammers have convincing, professional-looking sites designed exclusively for stealing private information.
A properly configured asset protection plan can make suing you nearly impossible. That is part of your attorney’s job: to get you the structures you need to never worry about lawsuits again.
The only way to design the perfect plan for you is to work with a reputable real estate asset protection attorney. Your lawyer should take your entire personal situation into account, get to know you and your investments, and make a tailored plan for your circumstances. After all, what works for one investor may be useless to another.
What we know from talking to our clients is that the peace of mind of not living in fear of a life-ruining lawsuit is worth it. Lawsuits are among the most stressful life events a person can experience, right up there with death and divorce. But unlike the latter two unfortunate realities, lawsuits can be prevented.
The smart play is to be proactive, and create your asset protection plan before there is ever even a potential threat. Take action now, and you might never have to see the inside of a courtroom.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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