Why You Need to Hire An Asset Protection Lawyer
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Is asset protection for you, or is it just for a bunch of rich people?
Asset protection is something that everyone who invests in real estate needs to know about.
This week, we had an important conversation with Garrett Sutton about liability and insurance. It’s a must-listen for every investor.
At a basic level, asset protection is protecting your assets from attack. Let’s say you invest in real estate syndication in your individual name, you get in a car wreck, and you don't have enough insurance. The car wreck victim could go right to court and get control of your assets. By setting up an LLC transferring title into the name of the LLC, you have much better protection.
There are different levels of protection and the first is obvious, don’t act in such a way that people start suing you. The second is, have insurance protection in case there is a lawsuit.
There is a financial drain to litigation, but there's also an emotional drain. You are out there doing business and then all of a sudden, you're sidetracked by a lawsuit, and it can really drain you emotionally. You want to avoid litigation at all costs, and to do that, you’re going to keep the property up and you're going to have insurance. It's for the benefit of your tenant, as well.
That’s why setting up the LLC for that property is important, and a big mistake people make is forgetting to transfer title into the name of the LLC. You’ve set up the LLC, you think you're protected, but someone goes to the courthouse and sees in the recorders office, that title is still in your individual name, then you are not protected.
You need to take a second step of using a grant deed or a warranty deed to transfer title into your name. You're not going to use a quitclaim deed that severs your title insurance. So use a grant deed or a quitclaim deed. And then you need to do the proper filings, tax filings. If it's a one owner, LLC, it's a single member LLC. So you don't have to do a federal return it flows down to the next level. It’s not that difficult from a tax standpoint.
The other mistake people make is they forget to follow the formalities. There are simple things you need to do, like have a meeting once a year. That’s required for corporations, some states don't require it for LLCs. But you don’t want to walk into a courtroom in front of a judge and jury and have them say, Well, where are your minutes? Where where are your meeting minutes? A good attorney is going to say, How do you run an LLC for 12 years without ever having a meeting? and they're going to score points with the jury.
You also need to consider cyber liability coverage. If you're running a property management company, you want to have insurance. If you're in a large corporation that has a lot of contracts and a lot of employees, you can get sued as a director and officer. Cyber liability insurance is for you if you have an internet presence, and you're collecting information, especially credit card information and sensitive information.
If you get hacked, and someone gains that information of all your customers, there's a problem. You want a cyber liability policy to come in and help and deal with the issues and also cover the people who may have lost sensitive information. If you run an active business, especially you're collecting information over the internet, that is definitely something to consider.
Asset protection is something that every everybody who invest in real estate needs to know about, but what about protecting your assets after you’re gone?
You want to leave your assets to your family while avoiding negative tax consequences.
How do revise your will to make sure that those assets protected? First, you need a CPA who understands real estate syndication and contingent trusts. You also need an asset protection attorney.
You should hire an asset protection lawyer to:
- Avoid probate and frustrations with estate taxes. A well-designed plan will help you avoid guardianship proceedings in the event you become disabled, and probate and estate taxes after your death. This will save you and your loved ones money, time, and stress.
- Reduce your liability and insurance cost. You will always need insurance coverage, but When your assets are well-protected, you’ll need less.
- In the event your insurance company denies your claim.There’s no guarantee that your liability insurance company is going to come through for you when you need them. They may look for loopholes to avoid paying your claim Strong asset protection planning can be a supplement to your liability insurance.
