Property that is attached to or built on land is called real estate. It is arguably the most valuable kind of property that anyone can own. The land can be used to build a home, grow crops, and generate income if you rent it out. Furthermore, its value does not decrease with time.
However, real estate is immovable, and its owners cannot be hidden in many cases, as real estate records are public records in many states. Public awareness of real estate investments could expose property owners to frequent lawsuits and liability claims that could adversely affect the property’s value. Creditors who are aware of such properties, which they can attach and sell, may also be less willing to grant debt payment extensions. So, the public record system in this context may be good for third parties but not so good for the property owner.
As a property owner, an excellent real estate asset protection strategy can help you protect your real estate assets from loss or liability that can depreciate their value. Some of these strategies include;
If you want to protect your real estate from foreclosure by creditors, you can use equity stripping. As creditors typically target the equity or value of the real estate, equity stripping reduces the equity of your investments and diverts funds to other investments.
Due to multiple loans or liens on the property, the owner makes it unattractive to creditors. Having multiple encumbrances reduces the property’s value, making it more difficult for one person to sell it. While equity stripping may be a popular asset protection strategy, you need to confirm the technique’s validity under your state laws before proceeding.
Limited Liability Company (LLC)
Limited liability companies are separate legal entities from the individuals that own them. As such, the company cannot be responsible for the debts and liabilities of the owner, and vice versa.
LLCs provide excellent asset protection for real estate owners, especially businesses. Creating an LLC separates you from your business. Since the LLC is a separate legal entity, the LLC is responsible for generating sufficient funds to pay taxes, mortgages, and other expenses.
If, for instance, the company takes a loan and defaults in repayment, only company assets may be subject to forfeiture. Your home and other assets in your name would remain safe unless you expressly used them as collateral.
If you’d like to establish an LLC for this purpose, consider contacting an attorney to advise you on the legal requirements for creating an LLC and guide you through the process.
Real Estate Trust
Land trusts are living trusts that help protect real estate owners’ anonymity and privacy. They operate like regular trusts; however, their use is restricted to land transfers.
In some states, property owners can use land trusts to own property anonymously while maintaining their rights over the property and overseeing the terms of the land trust themselves. However, this is not the case in Georgia.
According to Georgia law, a real estate trust requires the transfer of legal title to the named trustee. If the transferor(property owner) is appointed as the trustee, then the appointment shall be recorded in the relevant real estate records.
The position of the law in Georgia makes it difficult for a real estate owner to maintain control of the property without publicity. However, you can still use an irrevocable trust to protect your property from creditors or third-party liability claims by creating it in favor of close family members or your children and appointing a trusted person as a trustee.
This strategy has an additional advantage other than asset protection. In the event of the owner’s death, properties held in a trust are easily transferable to the beneficiaries without going through probate.
A trust is a valuable asset protection and estate planning resource as it can also be used to protect other kinds of property, including bank accounts or securities.
As such, you might consider having one as part of your estate plan. You can discuss further the pros and cons of establishing a trust with your estate planning attorney.
Taking out an insurance policy over your property is a good way to defend your assets from third-party lawsuits and claims, especially if you have tenants.
Some tenants enjoy suing landlords for every theft and damage that occurs on the property, whether imaginary or real.
That is why you should ensure you have a landlord’s insurance policy to protect you in such cases. So instead of court cases that require time and legal fees, your insurance company can settle the issue with the tenant out of court. Here are some insurance plans you can consider to protect your rental real estate:
Property damage insurance
Insurance for the loss of rental income
Insurance to cover third-party liabilities.