Real estate assets are vulnerable to litigation and probate. Many people get insurance to protect real estate assets from harm or loss. However, they are often unaware of the need to implement an asset protection plan to shield their real estate holdings from lawsuits and probate. If you own a rental property, there is always the possibility that one of your tenants will sue you if there is a breach of the tenancy agreement as a result of your activities. If you do not arrange your estate or leave a suitable will, your death may cause internal conflicts, and your intended heirs may not receive what is rightly theirs. Here are a few best strategies to safeguard and protect real estate assets against litigation and natural calamities.
Insurance
The most common, simple, and easy way to cover your property against loss or damage is to get it insured. Though insurance does not restrict anyone from suing you for one reason or another, insurance gives you sufficient coverage for actual accidents but may not protect you from many lawsuits.
These days, umbrella insurance coverage for your fixed assets is available in the market. It provides extra coverage over and above your primary policy. Every property owner should have an umbrella protection policy, especially those who own rental properties. This coverage is quite cheap and thus gives you proper value for money. However, be careful not to over-insure. This can actually make you a target for lawsuits.
Protective Entities
One of the best options to protect your assets is not to own anything and retain control of all your assets by transferring them in the name of protective entities like a limited liability company, trust, or limited partnership. LLCs are popular because a member’s financial exposure is normally restricted to their stock investment in the LLC, with no personal assets at risk.
Since creating and maintaining an LCC is costly and time-consuming, you must consult your lawyer and chartered accountant before pursuing any venture.
Debt
Debt is the least expensive approach on this list and includes some asset protection. After all, if you don’t have much equity, a future lawsuit won’t be able to take much away from you.
The main strategy is consistently extracting equity from your holdings and investing it in other properties or ventures. This is beneficial for two reasons: first, the money you take out of your equity is a loan you utilize to buy another home. This “loan” is not taxed, which is a huge benefit.
Land Trust
Consider an additional layer of protection for anonymity. To avoid legal repercussions on your property, create an anonymous land trust. The trustee, beneficiary, and grantor are the parties of the trust.
You don’t have to have your title on any documents when using a trustee. Lawyers cannot link your land trust to any of your real estate when you are involved in a lawsuit. Your investment will be safeguarded by placing your home in a trust.
Homestead Exemptions
A homestead exemption is among the simplest ways to safeguard a real estate asset, but it is only valid for the primary residence. Enrolling a property under homestead laws shields it from the majority of creditors. While other states have statutory limits, some states, like Florida and Texas, protect the valuation of a homestead property.
An investor may be able to safeguard real estate assets from lawsuits, liability claims, and creditor claims by choosing the appropriate combination of strategies. Most property owners already practice these asset protection techniques, including getting landlord insurance and keeping a manageable level of debt. Investors may be better able to safeguard their wealth, which has taken a lot of time and effort to accumulate, by holding their property in an LLC or trust.
