After talking to many investors as a RE agent, I'm shocked at the broad range of positions investors take on the topic of asset protection. Some investors have multiple layers of protection (trusts, corps, etc.) while other investor's names pop up on a long list beside each of the properties that they own on town tax assessor websites via the internet.
Here's one argument opposing asset protection stratgies, and instead, relying on "being honest and fair" in your real estate activities to keep you out of the courtroom. What do people think of this author's position?: http://investinginland.com/asset_protection_strategies.htm

I'd like to get this board's take on how important/unimportant asset protection strategies are to you. Are they worth the time and money involved?

Thanks.

The United States have far too many attorneys. Our litigation rate is the highest in the world. Anyone with visible assets is always a target.

The primary point being that by implementing asset protection methods you can protect yourself in several ways... one it to appear on the surface of not being a "Deep Pocket".

Attorneys generally check on the assets of people they are considering suing for their clients. If on contingency.... they are much less likely to sign on, if you don't show the "Deep Pockets" AND even if you are the subject of a lawsuit, your much less likely of having all your assets fall like a string of Dominoes if one is successful.

Generally a series of methods are used at the same time, LLC's, Trusts, and things like S-Corps. I use an S-Corp because I have had one for a long time... but I also make use of Trust and have one LLC about to be set up for a specific investment I have in mind. Others attempt to only use Trust which will help but alone they are not as effective as when they are joined with something like the LLC's.

They are not expensive to set up... they can be a lot of book keeping. If all your doing is traditional real estate, a simple PA (Professional Association) like doctors use may be all you need. If, however your investing in real estate and have multiple assets you do need to consider the LLC and Trust combo's. You do not need to work hard and have one frivolous law suite take all you worked for when it can be prevented or at least reduced in impact.

Reality,

Thanks for the reply.

I'm considering a LLC/trust combo. Now, when you mentioned the word "trust", did you mean living trust or land trust?

To complement your current asset protection strategy, do you also have a umbrella insurance policy that you're personally covered under?

Let me see if I understand this correctly, if you have a corp then the only way that someone (a lawyer sniffing around for assets) would know you're the owner of the corp is if they contact the State gov't and tap into the UCC filings, correct?

Thanks.

Was speaking of Land Trust... NOT living Trust.

LLC and Corp provide a firewall, with in the firewall the Land Trust provide a detachment and more anonymity.

If you want more information, one of the best people to get it from is Dyches Boddiford (do a web search).. his information is much more up to date than most others that fail to cover LLC's sufficiently or how to interplay the various options available. Think he has a seminar coming up in Atlanta.. could be worth the time to attend if your in the South Eastern area.

That article is very extreme. I am one of those attorneys that handles injury cases, and I also setup client with holding entities for their real estate and businesses. The author of that article seems to think that if you find any liability with the LLC, be it the manager, the member(s) of the LLC (or owners), that you can automatically attack their personal assets! The LLC is a separate legal entity. It offers a company liability shield to the owners, and unless that company shield is pierced, the owners personal assets are not subject to a judgment by the plaintiff. It is not easy to pierce the company shield, especially with an LLC.
To hold investment property in your own name and forgo a liability shield such as an LLC is like running naked through a rose garden. You are going to bleed.

Aren't you most likely to be sued if you come across to people as being some "big" corporation/company? What I've read- (realty check know's his name) that using your name reduces the chances of being sued. Is it possiple to keep LLC between you and your lawyer-and not the public??

If your LLC owns a property it will be listed as such on tax records. As far as being sued, when you set up the LLC you should have your attorney write you a letter saying that he/she believes that it is in your best interests to hold the property in an LLC for estate planning purposes.

Asset protection is just as critical as tax planning. Asset protection is just as much a part of my long-term financial goals as anything else and is key in helping me keep as much of my earned wealth as possible. As an agent, investor, and property manager, I'm involved in activities that can cause me to be sued. Even if the lawsuit has no merit, it's a problem. The purpose of splitting the ownership of properties into different LLCs or Trusts is to help "hide" ownership of properties and break up liability.

Of course, anyone can do enough research to find out who owns an asset, but the general theory is that the harder it is, the less likely some unscrupulous money-hungry person will come after you. If you've done a good enough job of protecting yourself, it wouldn't really hurt you even if you lost as lawsuit. With LLCs, they have to get a charging order anyway and can't immediately come in and take your assets, especially if you have the management/ownership set up correctly. Talk to some good real estate lawyers and CPAs. The best ones for this type of advice are the ones who are investors or work with realtors/investors.

Lots of great input on this thread. Thanks for contributing!

Another question relating to my initial one. Land trusts...I'm considering using a large bank in another state (i.e. Bank of NY) to serve as the trustee of the land trust. I've been told that is it advantageous to use the out of state (in relation to the subject property) trustee as it creates an additional level of privacy over an in-state trustee. Is that advice accurate?

The town in which I invest in has made it's property records searchable to the public via a website (www.visionappraisal.com). If you use a trustee like Bank of New York for your land trust and a party/lawyer is in the initial stages of evaluating whether or not it's worth the time and $ to sue you by doing a simple internet search on this database and somehow knows that you use Bank of New York as a trustee for at least one of your properties (let's say a tenant in one of your apartment houses), wouldn't it be a good guess on the tenant/lawyer's part that other property using Bank of New York as a trustee might be yours just as well, hence identifying you as a "deep pocket"? To avoid this, wouldn't it be beneficial for asset protection/privacy reasons to use different out of state trustees for each of your investment properties within a city/town? For example, using First Boston and Bank of NY?

Lastly, are there any common paper trails (insurance ownership records, utilities, etc.) that owners who set up a land trusts leave behind that end up identifying them? If you had the property in your name before the land trust, is it still worth using a land trust since your name is on past property ownership records?

I look forward to the responses. Thank you.

The harder you make it for people to track you down, the better off you will be in general. The issue is how much effort you want to put into it. I wouldn't really see that it would be a great difference for a trustee to be in a different state than where you live. If someone don't know who you are, how would a lawyer know that your in-state trustee isn't actually a trustee for someone in another state? It's not like they have enough information to know where the owner lives in relation to the trustee.

The with common paper trails such as utility bills or other private information, this can only be divulged with a court order. Basically, if someone wanted to sue, they can get your name if they look hard enough. What we're trying to avoid are the fly-by-night money-hungry people who just want to do a quick search to see how easy of a target you are. If someone really wanted to sue, they'd have to spend a greater deal of time than if the property was not in some sort of trust.