Asset protection may sound intimidating and complicated, but it doesn’t need to be. In this primer, we’ll go over some broad principles of asset protection strategy and learn more about the basic legal tools investors can use to stop lawsuits before they even start. If you read this start to finish and still have questions, shout them out in the comments section below.
Before we can dive into those details, let’s start with most people’s first question.
Why Do Real Estate Investors Need Asset Protection?
The reality is that anyone with assets is at risk for a lawsuit. This is true whether you own a single rental property or several hundred apartment complexes. You’re not safe
There are only two real ways to lose money in the real estate business: bad investments and lawsuits. Bad investments will happen to anyone who is in the game long enough. Sadly, so too will lawsuits. 90% of us investors will be sued in a twenty year investing career. Will some of those investors be okay? Sure. Will some lose everything? Certainly. Are you willing to take the chance with everything you’ve worked for in the most litigious country in the world?
No, and you don’t have to either. The best asset protection strategies aren’t about defending you in court. They’re about keeping you out of court altogether by stopping lawsuits before they start. We’ll get more into this strategy piece below, but for now, the critical thing to understand is that one of the two things that is most likely to cost you dearly. You can have peace of mind that you won’t experience the emotional, financial, and personal stresses of a lawsuit, and that your real estate assets will be safe and protected.
How Asset Protection Works: The Two Pillars of Asset Protection
The two pillars of asset protection are the defining features of a good strategy. These two principles are the separation of assets and anonymity. Ideally, you should have your name off of your assets, and they should be separate from you and each other. The more compartmentalized your assets are, the safer they are. Let’s move on to how we achieve these goals.
Asset Protection 101: The Legal Tools For Protecting Your Assets
It’s time for our closer look at the legal tools we use, and how they support the goals of your asset protection plan. Each piece of your plan serves at least one of the pillars of asset protection. By no means is this an exhaustive list of all of your options, but more of a glance at the most effective weapons we have in the asset protection arsenal.
Asset protection relies on entities to remove personal liability from you. The A-students in the crowd may have realized by now that this is meeting the first pillar of asset protection: separation of assets. The entity is the most straightforward way to separate your assets not just from you, but also each other.
Some of your entity options include the following:
Of these, we tend to recommend the Series LLC for most investors. We have a laundry list of reasons why, but the biggest is its structure’s ability to grow and provide liability protection for each asset easily. This unique form of LLC allows you to grow your business indefinitely, scaling up as much as you like for no additional cost. Whether you have one series or a hundred, you pay the same filing fee as everyone else and can have the protection of an infinite number of LLCs. While each entity has its pros and cons, the Series LLC is highly effective for a diverse range of investors. Learn more about the basics of the Series LLC and the benefits of the Series LLC from our previous explainers.
Anonymous Land Trusts
The anonymous land trust is a valuable tool that can hold title to real estate for you, thus removing your name from the public record. Property owners are typically named on the public record, and this is in fact one of the first things an opposing lawyer will do in attempting to sue you. If they see your name, you’re toast. If they run into our network of trusts and LLCs, they hit a corporate brick wall that preserves your anonymity. If a lawyer can’t even prove you own a property, they know you’ll be difficult to defeat in court for quick material gain. When you’re a pain-in-the-neck to sue, smart attorneys move on to lower hanging fruit (or in reality, a defendant with their name on the deed.)
Bottom Line: Defend Your Investments By Getting Professional Help With Asset Protection Today
If you wait until someone threatens to sue you, it could be too late. The best time to set up asset protection is well before you ever have a problem. When you choose to protect your assets today, you’re potentially saving yourself the value of your entire portfolio. And take it from a lawyer and fellow investor: it’s generally cheaper for an investor to spend money on legal services preventatively on asset protection than in a frenzied panic after being served with a lawsuit.
If you want some of the best professionals in the asset protection business by your side, Royal Legal Solutions is here for you. Contact us today to ask questions, request information, or set up your consultatio