Protecting Real Estate Assets From Lawsuits and Creditors

Jun 25, 2022

If you own real estate, you should have a plan for protecting your real estate assets from lawsuits and creditors. The more liquid your assets are, the more likely they are to be lost to creditors. If you don't protect them, you could risk having the property considered fraudulent by your creditors, which could lead to a low settlement. In order to protect your real estate assets, make sure you have a will or trust.

In the United States, one of the best ways to protect your real estate assets from lawsuits and creditors is to create a Limited Liability Company (LLC). Essentially, you will place your investment properties in an LLC. This way, you can protect your personal assets while getting the tax benefits of an LLC. By creating a LLC, you can limit your personal liability and avoid unnecessary tax liability.

Other assets that can be used by creditors to collect on judgments and liens are home equity and retirement plan accounts. You can protect these assets from lawsuits by putting them in an asset that is protected by state law. For example, an apartment building owner could borrow against the equity in the building and place the funds into a special spendthrift trust, which is not vulnerable to lawsuits and creditors.

Another way to protect your assets from lawsuits and creditors is to transfer your property to your family and close friends. In some cases, you can even set up a trust for your children or spouse. However, this is not enough, as a trust can be revoked. However, if you do not have a will, you should consider creating one before leaving your real estate.

In addition to a will, you should also think about forming a business entity. Many people don't realize that they're running a business and don't realize it. Even a slip on ice can lead to a lawsuit for millions of dollars. It is best to purchase a property through a business entity, transfer ownership of it to a business entity, and get approval from your mortgage company before transferring ownership to the business. Finally, be sure to check whether the transfer triggers any state real estate transfer taxes.

As long as you can afford it, asset protection is vital in our litigious society. It can prevent your assets from being seized by creditors and estranged spouses. It is also vital when passing wealth down to the next generation. It is always best to protect your assets before they end up in the hands of creditors and lawsuits. If you don't, you might end up in a courtroom, where the courts could declare the transfer fraudulent.

Another effective asset protection strategy is the use of legal barriers. Creating legal entities out of your real estate assets is a good way to separate them from your personal property, which will make them more difficult for a third party to attach to. A series LLC will separate your assets from you and keep them separated from your identity while still retaining control over the business. Once you've done these things, you're on your way to protecting your assets from lawsuits and creditors.