People often think of “asset protection” as the hiding of assets in off-shore accounts, forming “dummy” corporations and operating in the shadows. Asset protection is a much broader legal concept that is applicable and advisable for literally every owner of real estate as well as for owners of significant other types of assets. This article is intended for owners of investment property, but asset protection planning takes many forms and should be something everyone of even modest means should contemplate. Aside from the risks of owning real estate, there are other financial liabilities people should plan for such as medical expensed, nursing home care and disability.

Asset protection planning is, essentially, the legal organization of assets to provide maximum protection against losses and unwanted transfers. An asset protection plan makes your property less vulnerable to aggressive creditors and less susceptible to unwanted transfers that can be compelled by unexpected events or even death. A good asset protection plan includes sound estate planning and is intended to provide a heightened level of security over your affairs in a global sense.

In today’s litigious world, owners of real estate, in particular, are fighting an increasingly intense war against claims based on lead paint, asbestos, radon, low level radiation, ground contamination, terrorist attacks, civil disruption, and now, even the presence of molds are generating massive losses because of relentless litigation and
remediation costs. Yes, insurance helps and sometimes saves the day. But increasingly, the insurance companies are successfully weaving into their policies exclusions from some of the very things that pose the highest potential risks to your financial well being.

I challenge you to dig out your property insurance policy and read the section on “exclusions.” Many of you will be shocked and properly alarmed to see how vulnerable your assets really are.

You can fight back! Do not allow yourself, and all of those assets that you worked all of your life to achieve, be an easy target. Do not be the “low hanging fruit’ for some aggressive personal injury law firm. Engage a competent attorney to conduct a comprehensive review of all of your business affairs, including your business and personal assets. Think of it in the same way as you do about going to your doctor for a physical. Do not wait until you are being sued or are in financial trouble. In many cases, it is too late at that point to employ some of the most effective asset planning techniques.

Asset planning is not a mysterious process but is practiced widely today by many. It can include such fundamentally simple things as holding assets in one or more entities that provide protective veils for it owners. Obvious examples include forming a limit liability company or a corporation instead of owning the real estate individually or as a general partnership. This is nothing new but it is truly amazing how many owners have failed to take even such elementary protective measures.

Owners of multiple assets and significant wealth must employ more complex and sophisticated asset planning techniques. Such include layers of ownership entities, carefully planned transfers, coordinated financings, multiple bank accounts in various institutions, succession planning and carefully coordinated estate planning. Estate planning will include not only an updated will but can include the placement of assets and other wealth in various types of domestic and foreign trusts, including medicaid
trusts.

Asset protection planning, then, should be a “big picture” examination of all of your assets and affairs. The examination should then lead to a comprehensive plan that provides a coordinated and logical approach to providing (a) a protective “shield” around you and your family against risks and liabilities and (b) a logical and effective approach to the distribution and preservation of assets in the event of your passing. Do not wait until you are faced with financial catastrophe. Call and set an appointment with your attorney today. The cost of asset protection planning is nothing compared to what you could lose by failing to protect yourself and your family.

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Asset Protection for Landlords

by James J. Cummings III on February 15, 2011

“Asset Protection,” as discussed here, means devising legal methods that will help protect you against lawsuits, claims and judgments arising from the ownership and operation of rental property.

Today’s insurance policies include a growing list of “exclusions” intended to reduce the items for which insurance companies must provide coverage. Accordingly, as the list of exclusions grows (lead paint, mold, asbestos, etc), property owners are increasingly at risk of suffering staggering losses from lawsuits.

“Litigation Lottery” is a term often used to describe the explosion of litigation in America today. Newspapers and television bombard us with news of huge judgments in favor of people who seem to have caused their own injuries. Our juries have failed us as they give our money away like Lotto proceeds!

Asset Protection is a long-term strategy of “lawsuit avoidance” as well as protection against judgment creditors. Asset Protection requires advance planning and careful implementation with the help of your attorney and tax advisor. It is critical that you implement asset protection strategies before trouble strikes. A good asset protection plan will discourage suits against you in the first place, and then even if you are sued, it will help protect your assets from seizure.

So what can an embattled landlord do to hold off the predators? Plenty! But one size does not fill all. Unlike real estate closings or other such legal work, asset protection requires individualized legal planning.

Situations differ from one landlord to the next. Some landlords have just a few rental units and depend on a full time job for their primary support. This person’s assets might include a house, car, savings and other income. Another person may be a full-time landlord and depend fully on his rental property for income and support. Some landlords may do much of their own work, while others may hire management companies or contractors.

Each of the situations above require different approaches to asset protection. The object is to:

Discourage suits in the first instance
Minimize loss of rental properties
Protect salaries from garnishment
Fortify savings and investment funds
Retain the family home
Guard against personal judgments
Segregate rental property ownership
Make assets unattractive to creditors
Keep personal assets invisible

Asset protection strategies usually involve a combination of things including the creation of limited liability companies or corporations, transfer of rental properties to various entities you own, transfer of personal assets, “equity stripping” of your rental properties, handling operations through your own management corporation, becoming an employee of your corporation, transfers to out-of-state companies, and similar techniques designed to discourage and frustrate the litigation predators. A cost-effective and practical plan is within everyone’s reach.

Lately, asset protection has become the subject of popular books and newsletters. Asset protection strategies have been sugar-coated, over-simplified, described as “bullet-proof” and otherwise made to sound easy. Let me tell you that when you are sued for everything you ever worked for, it will shake you to your bones. You will pray that your asset protection plan works and that you did not scrimp on it. Effective asset protection requires advance planning and careful implementation.

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Avoiding Some Critical Mistakes When Buying REO’s

February 14, 2011

When REO buyers bring in contracts that they have already signed for REO properties, it is usually late for changes. Typically the “contract” consists of the standard form of contract used locally plus some onerous addendum that the REO seller insists upon. These one-sided REO contract addendums often provide for (1) a ridiculously short closing […]

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Mistakes to Avoid When Signing Residential Real Estate Contracts (Part 2)

February 13, 2011

In Part 1, we talked about some of the basic aspects of choosing the right contract forms and the fundamental information to be included. Here I will give you some brief tips on other portions of a good residential real estate contract. With increasing frequency I am seeing buyers asking for a “seller concession” and […]

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Mistakes to Avoid When Signing Residential Real Estate Contracts (Part 1)

February 13, 2011

You would not believe the common mistakes that I see buyers and sellers make when they sign contracts. Reading this article will help you sidestep some of these mistakes. After you have finally found the real estate you want to make an offer on, you have to make that offer on a form of contract. […]

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