When it comes to protecting your property, you should build a castle, not a fence. This is where an asset protection plan comes into play. Think of an LLC’s protection as being on par with a fence. It offers you decent protection, but you could do better. How? By getting an Anonymous Trust. When you compare a trust to an LLC, it’s like comparing a castle to a fence. A trust offers superior asset protection you can’t get from an LLC alone. Protecting your assets is about building legal walls. When you get a trust, you’re putting up high walls to defend against an attacking litigation attorney. A trust isolates your assets so even if an attorney files and wins a lawsuit against you or your LLC, they can’t get at the prize assets. Poor guys, all that work for nothing! Why An LLC Doesn’t Completely Protect You Are you a real estate investor with one or more properties held in an LLC? If so, listen up: There are many tricky ways litigators are able to break into an LLC and get access to all your assets—even when the lawsuit pertains to a single property. The LLC will protect the properties from suits against you individually, but a lawsuit relating to the sale or lease of property will go against the owner (the LLC). In a landlord/tenant dispute or a dispute relating to the sale of a property, the LLC is liable as the owner. If the opposing party is successful in the lawsuit, they will be able to collect on their judgment against the assets of the LLC (as in ALL of your properties). They will be able to foreclose and auction off your properties at a discount until they have collected enough money to satisfy their judgment. Poof. There went your years of hard work, into the pocket of an attorney. Anonymous Trusts Stop Lawsuits Dead The more walls you have, the harder it is for the other side to recover your hard-earned assets and the more likely it is that they will not even bother filing suit. Lawsuits are a three legged stool, and a trust destroys one of the legs, which causes the lawsuit to crumble. The three stool legs which support a successful lawsuit are: Legal liability Injuries Recovery In layman’s terms it translates respectively to: The law recognizes liability either by common law or statute, The facts show that the party suffered money damages because of the defendant’s conduct, and Assuming that previous two are true, there are assets which we can take from the defendant to satisfy the judgement. A Trust Makes Attorneys Think Twice Before Suing You An attorney won’t file a lawsuit without all three legs being in place. Using an Anonymous Trust/LLC combination cripples litigation because it makes the pool of assets for recovery, the third leg of our stool, unattractive. Ten properties held in an LLC makes an attorney drool like a hungry dog. That’s a lot of assets, and likely some equity an attorney can get a hold of. A single property held in trust doesn’t even get an attorney to the keyboard to type out a petition to file suit. There just isn’t enough equity to recover against. A Trust Is The Castle Protecting Your LLC’s Assets Let’s say you have all your property held in an LLC and want to transfer each of those properties into individual trusts. The first step toward developing your asset protection plan is to establish an irrevocable trust. You can hold property in the name of this trust instead of your LLC or personal name. Now that the trust owns the property, you or your LLC are merely beneficiaries. This entitles you to the income from the property without exposing you to liability. In a dispute regarding the property, the opposing party will only be able to collect against the asset of the trust, the trust property, which hopefully has limited equity. Why do I hope that the trust property has limited equity? The lawsuit that is filed against the trust is limited to recovery against the trust property. If the mortgage on the property is close to the value of the property, then there isn’t enough equity in the property to justify a lawsuit. Remember, the litigation attorney only gets paid after he auctions off the property and pays off all the liens including the mortgage. And it just so happens that there are several ways to hide the equity in your property. An Auction Can Work In Your Favor The fees for the auction and the costs in litigation to get it to auction are also subtracted from the equity. In the end, there is hopefully little hope that an attorney and his or her client will make any profit. Same goes for the client, who also pays large litigation fees. If neither the attorney nor the client can make money, they won’t file suit.