Cover Your Assets: Ways to Protect Your Real Estate
Protecting your real estate assets is of particular importance for owners who operate or participate in business ventures that hold high levels of risk, liability or both. While the best way to protect yourself is by minimizing or reducing these risks and liabilities, only in a perfect world is this possible. Since this isn’t a perfect world, knowing your options is beneficial. A qualified estate planner or manager can help, but it’s important to know how some of these protection vehicles are utilized.
No one method works in every situation, and there are many established options, but there are some pretty common ways to protect your assets. This brief introduction will help you understand which is best for you. From creative asset ownership to a variety of trusts, here are eight ways to ensure your assets are covered.
photo/ mohamed Hassan
Creative Ownership
The first four ways to protect your real estate assets involve creative ownership. The most important takeaway here is that you can’t lose what you don’t technically own.
1. Placing ownership of assets in your spouse’s name
If you engage in business behaviors that could put your home or other real estate investments at risk, one option to protect yourself is by placing these assets in your partner’s name and covering these assets with either a pre- or postnuptial agreement. This could cause problems should the relationship ever dissolve, but this is a helpful choice nonetheless.
2. Title Exemptions
If giving your partner or spouse full ownership of large assets isn’t the best option for you, one way to protect yourself is by taking advantage of title exemptions, if they’re available in your state. For assets like homes, co-owning allows you to create indivisible interest, meaning your stake in the property can’t be separated from your partner’s share thereby protecting the entire asset.
3. Incorporate your company by creating an LLC
When you create a limited liability corporation (LLC), you are removing yourself from many scenarios for which you could be considered liable and placing that liability onto the corporation. You don’t “own” a corporation; it becomes a separate entity. Therefore you aren’t held responsible (financially) when an act of negligence or other unfortunate circumstance occurs.
4. Equity Stripping
If you own property with lots of equity, you can consider something called equity stripping to reduce or eliminate the chance of losing the asset if you’re called to pay up for an accident. Here’s how it works:
- You own the property.
- The property has one million dollars’ worth of equity.
- You utilize an LLC to mortgage that equity.
- The asset is now stripped of equity or usable value.
Trusts
In the final four options for protecting your large assets, you’ll learn about a few different types of trusts. A trust is a way for you to benefit financially from property you own while preserving that ownership if you experience legal liability issues. This is not an all-inclusive list of types of trusts; they’re simply some of the most commonly used.
5. Land Trusts
A land trust is a type of trust that places your property under the care and control of a third party. Land trusts are revocable, which means you may dissolve the trust and retake full control of the property. For this reason, they aren’t foolproof, but still provide a modicum of safety in liability situations.
6. Offshore Trusts
An offshore trust functions in much the same way as the land trust mentioned above, just outside of the United State. You place your property in this trust, relinquish control and thus any potential liabilities. You still own and benefit from the asset, you’re simply more protected.
7. Domestic Asset Protection Trusts
A land trust may function like a Domestic Asset Protection Trust (DAPT), but not all DAPTs are land trusts. Essentially they work the same way, which means you can utilize this method of asset protection to help remove yourself from a potentially worrisome financial liability situation.
8. Bridge Trusts
One of the best ways to protect your real estate assets is by using a bridge trust. A bridge trust is helpful because it is a way of merging the benefits of both offshore trusts and DAPTs. Some certain issues and complications can arise while keeping your assets solely offshore, like quick and easy access to the asset’s value and foreign bank account reporting to the IRS.
Hopefully, this brief overview of ways you can protect your real estate assets will help you understand some of the options your estate planner presents when it’s time to cover yourself and your family. Proactive planning for future potential legal threats is the best way to keep you and your assets safe.
Author: Sharron Brown
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