{"id":614,"date":"2014-08-24T12:10:36","date_gmt":"2014-08-24T19:10:36","guid":{"rendered":"https:\/\/shellyrobersonrealtor.com\/?p=614"},"modified":"2015-03-25T22:04:00","modified_gmt":"2015-03-26T05:04:00","slug":"your-investment-properties-and-your-personal-assets-are-exposed-to-litigation-if-you-havent-properly-protected-them","status":"publish","type":"post","link":"https:\/\/shellyrobersonrealtor.com\/your-investment-properties-and-your-personal-assets-are-exposed-to-litigation-if-you-havent-properly-protected-them\/","title":{"rendered":"Your Investment Properties And Your Personal Assets Are Exposed To Litigation If You Haven’t Properly Protected Them"},"content":{"rendered":"

Why Forming an Entity to Protect Your Private Wealth From Your Investment Property Liabilities is Critical in Today\u2019s Litigious Real Estate Environment<\/h2>\n

Do you believe that an investment or rental property insurance policy is enough protection for you and your personal wealth in the event of an accident or other catastrophe to your tenants?\u00a0 If you are not sure or have not even thought about this then its time \u2013 right now.\u00a0 The parade of horribles that can occur which could result in a serious injury, a permanently paralyzed tenant, or a wrongful death is not that far-fetched.<\/p>\n

The typical landlord insurance policy has burning limits which probably wouldn\u2019t cover the total of all of the liabilities you could be responsible\u00a0for.\u00a0 One way to protect your assets, your personal home, and your personal income from liabilities from investment properties is to legally place the property into a separate entity which shields you from litigation exposure.\u00a0 Most competent attorneys and financial planners recommend each property have its own separate entity such to help prevent one bad event from destroying all of the other assets.\u00a0 Please read below for some practical strategies and techniques which may shed some light on this issue for you.<\/p>\n

\"asset-protection\"<\/a><\/p>\n

Limited Liability Companies (LLCs) Are The Preferred Method Of Entity<\/strong><\/p>\n

Most people choose an LLC in order to protect personal assets – transferring the ownership of investment real estate and other assets to an LLC shields liability from an aggressive plaintiff\u2019s lawyers attacks. \u00a0In the event an injury or catastrophe occurred that was held to be the landlord\u2019s responsibility the landlord\u2019s insurance policy would take over for compensation and litigation defense.\u00a0 If the injury compensation required was greater than the amount of the insurance policy the injured tenant could seek redress from the asset itself, i.e., the equity in the property.\u00a0 If the compensation awarded by the arbitrator or jury exceeded the amount of insurance and equity in the property then the injured tenant would seek the personal assets of the landlord.\u00a0 This is where the properly formed and run LLC protects the landlord.\u00a0 The outer shell of the LLC, so to speak, is the limit of monetary exposure of which the injured tenant could attack.\u00a0 Without this protection the injured tenant could seek compensation from any asset or source of income that the landlord had save for retirement income streams which are statutorily protected.<\/p>\n

An LLC is somewhat similar to a partnership but has the formal legal protections for personal & real estate investing assets that a corporation offers without the formalities, ongoing paperwork and annual fees. The exact rules for forming an LLC vary by state, but in California there is an $800 per annum filing fee to keep the LLC in good standing.\u00a0 Moreover, it is paramount that the LLC be properly formed, and that annual meetings and procedural safeguards are maintained.\u00a0 For example, the LLC can\u2019t be a sham to avoid liability \u2013 it must abide by the rules of the state of formation.<\/p>\n

\"Asset-Series-LLC\"<\/a>
\nWhat LLC’s Can Hold, Control And Protect<\/strong><\/p>\n

Almost all personal and investment real estate, including primary residences, rental and investment properties, and vacation homes can be included as assets in an LLC.\u00a0 If properly formed and allocated this possibly can allow all residences and any type of real estate to be protected from seizure. \u00a0Importantly, an LLC can be a single member LLC asset, with a single owner, and still be considered a valid asset shelter. \u00a0If a real estate loan is required, the LLC may be eligible for special loan terms, but more than likely there are special rules which must be abided by if transferring a property already encumbered into an LLC.\u00a0 Check with your loan documents or loan broker for the requirements.<\/p>\n

A lawyer is not required to set up an LLC since state requirements are usually fairly simple. \u00a0However I would never recommend anyone doing it on their own since it is such an important process in protecting your real estate portfolio.\u00a0 Your operating agreement, your procedures, and your filing are all very important so please make sure your interests are protected and hire a competent attorney to help you.<\/p>\n

There Is Added Privacy Inherent In LLCs<\/strong><\/p>\n

Ownership of an LLC is difficult to track and locate for most members of the public but this won\u2019t provide complete privacy. \u00a0Owners of LLCs will be found in the event of a lawsuit, but this added layer of privacy will prevent some nuisance contact and provides a much desired minimum level of anonymity.<\/p>\n

\"Asset<\/a><\/p>\n

LLC’s Can\u2019t Be Used Like Personal Piggybanks<\/strong><\/p>\n

If an action is filed against your LLC, the property or other assets in the LLC can be seized if a judgment is entered. \u00a0Additionally a lien could be placed against the LLC, which can cause disruptions. \u00a0Importantly personal expenses like haircuts and shopping sprees cannot be paid by the LLC directly.\u00a0 The LLC must distribute the income in an orderly and consistent manner.\u00a0 If it does not then the LLC can lose its limited liability status and will become a legal nullity. \u00a0A plaintiff\u2019s attorney could argue that paying personal expenses makes the LLC invalid and that the member illegally transferred assets to the LLC as a sham \u2013 it\u2019s a form of \u2018piercing of the corporate veil.\u201d\u00a0 Thus, its important to follow the rules.<\/p>\n

LLC\u2019s Taxation Is a Pass-Thru Entity Just As If the Income Were Personal<\/strong><\/p>\n

LLCs are treated as pass-through tax entities similar to sole proprietorships and partnerships – so there is only one-layer of tax. \u00a0Unlike an S- or C- corporation, which required double taxation and must file tax returns separate from an individual’s income tax, the LLC is only taxed a one level.<\/p>\n

\"Asset<\/a>
\nHire A Competent Attorney To Help You Form Your LLC<\/strong><\/p>\n

In California the filing process is fairly simple.\u00a0 You will need a few basic details about your LLC, such as its name and address, and contact information for a person involved with the LLC (usually called a “registered agent”) who will receive legal papers on its behalf. \u00a0You will need to file Articles of Organization, an Operating Agreement, and Charging Papers.\u00a0 The operating agreement is an important document because it sets out the LLC members’ rights and responsibilities, their percentage interests in the business, and their share of the profits.<\/p>\n

Protect Yourself, Your Family And Your Future<\/strong><\/p>\n

If you own investment property, or other assets which are exposed to potential liability an LLC is something that you should consider right now. \u00a0This is especially important\u00a0if your investment property is being managed by a professional property manager<\/a> wherein you don’t have any day-to-day knowledge of the property or activities. \u00a0Without doing anything you are potentially exposing that asset and all of your personal assets to litigation.\u00a0 Do the right thing and look into this process right away.\u00a0 If you have questions please don\u2019t hesitate to contact me.<\/p>\n

\"IRA<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Why Forming an Entity to Protect Your Private Wealth From Your Investment Property Liabilities is Critical in Today\u2019s Litigious Real Estate Environment Do you believe that an investment or rental property insurance policy is enough protection for you and your personal wealth in the event of an accident or other catastrophe to your tenants?\u00a0 If…<\/p>\n","protected":false},"author":5,"featured_media":617,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[12,116,115],"tags":[103,104,45,47,106,89,109,105,108,107,31,52,14,40,34],"yoast_head":"\nYour Investment Properties And Your Personal Assets Are Exposed To Litigation If You Haven't Properly Protected Them - shellyrobersonrealtor.com<\/title>\n<meta name=\"description\" content=\"Limit Your Personal Asset Exposure Risk For Investment Property Liabilities By Using LLCs To Hold Assets\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/shellyrobersonrealtor.com\/your-investment-properties-and-your-personal-assets-are-exposed-to-litigation-if-you-havent-properly-protected-them\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Your Investment Properties And Your Personal Assets Are Exposed To Litigation If You Haven't Properly Protected Them - 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