Asset Protection for the real estate investors – The critical levels

Posted On Saturday, 09 October 2021 23:52

Do you wish to experience a more significant return on your IRA (individual retire account) investments? Also, are your children eyeing that costly out-of-state college? Alternatively, do you wish to leave your regular 9 to 5 job and start something of your own? Irrespective of the reason, if you are searching for diversifying your investment portfolio, real estate is a good option. But simultaneously, it's a business that can result in financial and legal issues as well. Hence, as a real estate investor, it is essential to opt-in for asset protection. 

A minor slip in the property can result in a court ruling which can bankrupt you. A generic judgment will also consider medical damages, pain compensation, and other costs an injured party faces. Your total net worth will come under the scanner. So, in this article, we consider the ideal ways to secure the real estate assets and yourself from costly judgments and court rulings. And for anything else, Mitchell Nachtigal Law is the best counsel provider for real estate investors

Understand your present real estate liability

In real estate investing, your liability might take you to court! Irrespective of the root cause, a lawsuit is evident if you are accountable for injuries or damages. It's because, according to the law, liability indicates that you are answerable. The majority of lawsuits typically end with a judgment or settlement. Hence, you will have to pay for all the damages that occurred. In real estate, the majority of liability lawsuits branch from accidents. 

No one can anticipate an accident. It doesn’t omit you from the liability. But you can secure your assets and yourself from lawsuits in many ways. It comprises of:

  • Compartmentalization
  • Insurance
  • Anonymity
  • Shell companies or separation 


Do you want to determine which action you must follow? For this, we need to look at each individually. Each action is unique and requires a careful assessment when you are all set to establish your real estate empire. 

Can real estate insurance prove sufficient for asset protection?

Simply put, insurance is your initial defense line when you want to secure yourself. There are advantages and restrictions for multiple insurance plans. Hence, you need to choose the one that is ideal for you. The fundamentals usually comprise of accidents, such as falls and slips. And when the accident is doubtful, the insurance company can get into a debate. 

Generally, the insurance providers refuse to cover varied scenarios. And gross negligence is a huge one. And if the insurance organization thinks that you didn't fix the issue that led to the accident, then it's your fault. The insurances are also available with multiple coverage amounts. Most of the big claims and judgments will not come under a standard insurance plan. The insurance companies don't cover the financial disputes that exist between suppliers, vendors, and contractors. These companies also don't cover the tenant dispute, which comprises evictions, liability, rent, and discrimination. Most insurance companies will not provide you coverage. 

Compartmentalizing the real estate assets

The concept of compartmentalization indicates that you isolate the real estate assets from liabilities and risks that might cost you dearly. And one of the ideal ways for this is to create an LLC (Limited Liability Company) for every asset. It's known as a Series LLC. It offers the boundaries between the assets and averts judgments and lawsuits against an LLC from taking from another. 

Do you want to know how an LLC can secure your real estate assets? If yes, you need to consider the advantages of the LLC. And if you want to make a direct property investment, your personal finances and you will get subjected to court judgments. It means that you can lose your bank savings, car, home, and various other investments. Also, in contrast, when you use an LLC for property investment, those assets that an LLC owns will be exposed to judgments. Here we might look upon an LLC as the barrier wall. And anything outside this wall gets considered off-limit for the court. The other benefits of establishing an LLC for real estate investments include fewer meetings, less paperwork, flexible management, profit distribution, and pass-through taxes. 

The legal asset separation (Utilizing shell companies)

The shell organization is your business face. It owns nothing, yet it appears that it’s operating everything legally. You can consider the conventional LLC an example of the shell organization when owned by an anonymous trust. Also, in the case of the Series LLC, the conventional LLC enables you to keep the business and personal assets separately. It obscures your net worth legally.

If you decide to invest in one asset, the conventional LLC offers sufficient asset security. It provides similar benefits to the Series LLC, but it comes with a single barrier comprising all the investment assets. Furthermore, it protects you from having your finances garnished provided your business defaults on loan or undergoes bankruptcy. 

Assets are protected by anonymity

Anonymity is another protection stage that gives you peace. And for attaining this, you should create Anonymity Trust before developing an LLC. Are you wondering the reason for this? The Anonymous Trust, also known as Land Trust, has three parts: the trustee, grantor, and beneficiary. 

When you think of creating an Anonymous Trust with a company, it assumes your "nominee trustee" role and files the necessary paperwork on your behalf. It removes your name from all records. And after filing, the company resigns as trustee, and you are a designated sole trustee. It indicates that your name doesn't ever get filed with the clerk. And that makes it challenging for lawyers to link your Trust to LLC and thereby to your property. 

Since the Anonymous Trust can generate a Series or conventional LLC, your name remains obscure. An LLC needs to share its members' names while filing the Articles of Incorporation with a state clerk. But when any Anonymous Trust owns an LLC, the trust name is what gets listed in the document. When you add this essential aspect to the asset protection plan, it is possible to shut down any lawsuit before it gets filed. 

Layer the assets with security

Different experts have different approaches for real estate investments. As a real estate investor, you should have a three-layer approach to investing. 

1. First, you need to get an insurance plan which covers what you consider essential. It’s because an insurance payout might be sufficient to halt a lawsuit before you consider one. 

2. Second, it’s essential to create an Anonymous Trust. As an entity, it will make your identity vague and not let others discover your net worth. It can also stop a lawsuit from taking place owing to the challenging legal hindrance it generates for a lawyer to consider the case. 

3. Third, you must create a Series or conventional LLC through the Anonymous Trust. The option is dependant on your future intentions and your requirements. And as mentioned above, if you only wish to invest in a single piece of property, a conventional LLC is a good choice. Doing this enables you to categorize every asset into a separate LLC and keep each secure from others if there is a lawsuit. And if you create a Series LLC by taking professional help, the overall structure is scalable without you having to pay extra.

If you use only a single protection level in your real estate investing, it might lead to a problem? The problem mainly arises because of real estate's dynamic nature. It’s because the majority of real estate lawsuits occur from accidents. And since you cannot plan for every probable incident, when you have protection layers, it ensures that you are secured irrespective of all that happens. 

And from lawsuit prevention, such as getting insurance, to generating a legal hindrance course, such as an Anonymous Trust, to ensure lawyers don’t pick up the case – the protection layers can halt a lawsuit before it begins. But when a lawsuit occurs, creating boundaries via a Series or conventional LLC can bring down any judgments and secure your business and personal assets. 

It would help if you had confidence in the real estate security plan

It would help if you aimed to make your real estate investments successful. And for this, you need to consider the bigger picture. It comprises finding out the ideal way to secure your real estate investments, name, and personal assets. Today, several service providers follow a three-layer approach to ensure your asset, and it has proven to be useful for many people interested in real estate investment. 

These companies have experts who streamline the process to make sure everything flows seamlessly. The experts will help you create an Anonymous Trust and come up with the LLC structure you want. And just in case you already possess an LLC, the service providers can help you roll over the direct ownership to the Anonymous Trust to provide you with another protection layer. 

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