A Guide to Asset Protection for Real Estate Investors

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 The Law Office of Paul Black offers information and advice regarding asset protection for real estate investors. For additional resources, contact us today!

Author: Paul Black

Paul’s experience as the son of two parents with big health challenges is what led him to the work he does today and gives him first-hand knowledge of the challenges that many caregivers and family members face. After graduation from GSU Law, Paul was chosen from dozens of applicants nationwide as one of three 2010-2011 Borchard Foundation Law & Aging Fellows. Paul has been named as  a SuperLawyers “Rising Star” in the area of Estate Planning and as a member of Georgia’s “Legal Elite” by Georgia Trend magazine. Published on: December 13, 2022. 

What Is Asset Protection?

What Is Asset Protection

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Investing in property ownership (assets) is a great way to save for the future. However, the more assets you accumulate as an individual or business owner, the more likely you’ll be the target of lawsuits by third parties. 

In many cases, litigants only sue those they can get money from, either from out-of-court settlements or a court judgment. As such, it is essential to protect your real estate and personal assets from the effects of such actions.

Asset protection is a strategy or combination of strategies that allow property owners to protect their personal and business assets from being depleted by the effects of civil money judgments or creditor action.

If you fear losing your property to creditors or litigants, consider being proactive and setting up an asset protection plan before any dispute arises or long before your debt becomes due. There are several asset protection strategies to choose from, depending on the nature of the property. Here, we discuss some strategies you can adopt to protect your assets as a real estate investor.

Keep reading to learn more about real estate asset protection and how an estate planning attorney can help you.

Asset Protection Strategies for Real Estate Owners

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;

Equity Stripping

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.

Insurance

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.

Asset Protection and Your Estate Plan

There are several other asset protection strategies not mentioned here. The specific strategies that could work for you may depend on the value of the real estate you own. In many cases, more than one asset protection strategy may be needed, especially as your real estate investment portfolio grows.

Therefore, it is important to be proactive and plan for such eventualities by making real estate asset protection a crucial part of your general estate planning.

This way, you can protect your investments from unforeseen issues and liabilities and make arrangements for how the property will be transferred to your beneficiaries when you’re no longer around.

How Experienced Estate Planning Attorneys Can Help You

Asset protection is usually not something you can handle on your own. This is because there are many options to choose from and legal requirements to fulfill for each one.

An estate planning attorney can help you protect your land assets by evaluating your unique circumstances and developing a suitable asset protection strategy for you. They are also responsible for preparing the necessary paperwork and legal documentation for the process, such as trust documents, deeds, and company registration documents. You can rest easy when you work with an estate planning attorney or law firm, knowing that your real property has been secured legally.

If you have further questions about legal ways to protect your real estate from adverse creditor claims and other liabilities or risk management in estate planning, you can contact us at The Law Office of Paul Black. We are an experienced estate planning law firm in Atlanta, Georgia, and we are committed to helping you protect your investments and secure them for the next generation. We can assess your case and help you get started with a suitable Atlanta asset protection strategy. Contact us today to schedule a consultation. 

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