If you're a real estate investor, your chances of being sued are much higher than that of the average person. Why? Because you appear to be wealthy (even if you're not), are simple to identify, and all too easy to sue.
Who Would Sue, You Ask?
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Delivery people who slip and fall
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Angry tenants
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Contractors or employees
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Neighbors and guests
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Utility or public works staff
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Criminals who are injured while breaking in
Why should you worry? Because falls happen, things catch fire, and mold can grow. And because you, your tenant, or someone you hired might overlook something or unintentionally cause harm.
Like it or not, you could be held liable for a host of unfortunate circumstances. One successful lawsuit could demand the sale of everything you have - even your own home and savings - in order to pay up. So, how can you protect yourself in a world where so much can go so horribly wrong?
Asset Protection Planning
Asset protection is a legal term for the measures that make your assets more immune to seizure when you're sued. Contrary to what some believe, asset protection is important for every investor - not just the wealthy ones. There is nothing unethical or dishonest about asset protection, unless you go about it the wrong way. It simply reduces your financial vulnerability in the event of a future lawsuit, just like your homeowner's policy protects you when your basement floods.
Understand Your Options
You can save yourself a lot of heartache - and money - by keeping in mind one simple rule of thumb: owning investment properties in your own name, even jointly, is a bad idea. Why? Because anything simply under your name, or yours and someone else's, is subject to seizure to pay off creditors.
However, there are several asset protection strategies that can protect your business and personal property in the event of a lawsuit.
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Liability insurance - Purchase both business liability and umbrella liability coverage, and make sure it's much more than you think you need. Even generous coverage won't likely cover everything in the case of a civil suit, but it can help tremendously. As a real estate investor, it's something you can't afford to skimp on.
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Legal action - This goes back to that rule of thumb. Consult with an asset protection specialist about structuring your real estate holdings as a separate entity. Consider setting up a limited-liability company (LLC), limited partnership (LP), or corporation (INC). Properly structured, these entities may help you maintain many of the financial and tax benefits of ownership, while limiting your liability in the event of a suit. In some situations, you can also use different types of trusts. Consult an asset protection expert to decide which setup is right for you.
Asset protection can keep your property secure, and keep plaintiffs from bleeding you dry by accessing your personal assets. But you must take the proper steps now, before a suit is filed. Consult an asset protection expert today to learn more about your options.
Jackson Cooper is a writer and real estate enthusiast, involved in the outreach team at Jensen and Company. Look to Jensen and Company, true leaders in the Park City real estate industry for your dream home. Follow them on Twitter Or Facebook. Check out the incredible high life homes for sale in Park City today!
