Today we offer the final part of our series on protecting your assets in case you are sued.
Many people mistakenly think that they don't make enough money to be a target for getting sued. The reality is that this is simply not true.
According to the CDC, 4.5 million people are bitten by dogs each year. Although sometimes these are just harmless incidents, some have resulted in lawsuits resulting in multi-million dollar settlements. General homeowner's insurance will usually cover $100,000 to $300,000 in liability. The homeowner is responsible for any portion of the settlement above the limits of liability.
If you have a pool, you are also at risk. In fact, a common misconception is that only wealthy families and people in high-risk professions need to have an asset protection plan. But in reality, anyone can be sued. A car accident, foreclosure, unpaid medical bills, or an injured tenant can result in a monetary judgment that will decimate your finances.
What Exactly Is Asset Protection Planning?
Asset protection planning is the use of legal structures and strategies to safeguard property that creditors might snatch away, by completely, or, at the very least, partially, protecting it from the creditor’s reach.
Unfortunately, this type of planning cannot be done as a quick fix for your existing legal problems. In fact, if you transfer assets to shield them from existing creditors, it could be considered a fraudulent transfer, resulting in legal penalties. Instead, you must put an asset protection plan in place before a lawsuit is imminent, let alone filed at the courthouse. So, now is the time to consider implementing one or more of these tips.
Below is the final tip that you can use right now to protect your assets from creditors, predators, and lawsuits.
Asset Protection Tip #3 – Move Rental or Investment Real Estate into an LLC
If you are a landlord or a real estate flipper or investor, then aside from having good liability insurance, moving your real estate into a limited liability company (LLC) can be a great way to help protect your assets from creditors, predators, and lawsuits.
There are two types of liability that you should be concerned about with rental or investment property: (1) inside liability (where the rental or investment property is the source of the liability, like a slip and fall on the property, and the creditor wants to seize an LLC member’s personal assets) and (2) outside liability (where the creditor of an LLC owner wants to seize LLC assets to satisfy the member’s debt).
An LLC will limit your inside liability related to the real estate, such as a slip and fall accident or a fire caused by faulty wiring, to the value of the property. In addition, in many states, the outside creditor of the member of an LLC cannot get their hands on the member’s ownership interest in the company (in some states, this will only work for multi-member LLCs, while in others, it will also work for a single-member LLC). At a maximum, the outside creditor would only be entitled to the member’s share of the distributions and would have no voting or management rights.
This type of outside creditor protection is often referred to as “charging order” protection. This means that if properly protected, a creditor will have to look to your liability insurance and any unprotected assets to collect on their claim, not the LLC.
If you are interested in asset protection planning for your investment real estate using an LLC, then you will need to work with an attorney who understands the LLC laws of the state where your property is located to insure that your LLC will protect you from both inside and outside liability.
Contact Us for Help
If you are concerned about protecting your assets, we can help you. Click here to email us or call us at 309-807-2885 for your FREE 15-minute consultation regarding umbrella policy information to help protect your assets.
