Asset Protection for Real Estate Investors

A Cause of Action can arise from such an array of events that we will not discuss them here. Let it suffice to say, You are being sued! Historically, insurance has been the first line of defense to protect a defendant from the personal attacks on their assets. Today, additional methods are available to insulate assets from attack, from one another and disconnecting the owner from those assets.
While most methods employed are not ironclad to the extent that the assets in their entirety are protected, the level of complexity to get to the assets is what proves to be greatest deterrent. Each of the legal structures we’ll discuss are readily created through legal services on the internet, but the need of legal counsel to create an entity that considers most of the probabilities is recommended.
Limited Liability Companies or “LLC’s”, Subchapter S Corporations or “S Corp”, C Corporations or “C Corp” are legal persons under the law and are recognized to be separate persons under the law from its owners, with some limited exceptions where the entity veil may have been pierced allowing an alter ego to exist. Of these legal entities, the LLC is favored by many investors because of their simplicity in compliance and flexibility for tax purposes. Single property LLC’s own one asset and as such any liability is contained within that one entity protecting other assets from infection if a legal action arises. The LLC shields the members or owners from liability as well, with few limitations such as fraud. The LLC allows for income, losses and depreciation to pass through to its members. Multi member LLC’s may also enjoy a greater level of protection from charging orders which can pierce a single member entity and grab assets.
Each state has its own laws concerning Limited Liability Companies and the protections found within the entity. Several states namely Delaware, Wyoming and Nevada have strong laws protecting members within the LLC’s and their identity, however Nevada has perhaps the strongest legal system for these types of legal entities, with decades of case law to rely upon. Establishing a legal structure in Nevada can be expensive but can be well worth the investment. It is nearly impossible for any predators to look inside these entities.
Here is how one investor established an Asset protection plan: The investor owned 17 free and clear rental properties, each in their own LLC in the State of Idaho. The Owner of the 17 LLC’s in Idaho transfers all legal ownership to the Nevada LLC, which is a holding company. The managing member of the Nevada LLC “holding company” is an attorney in the State of Nevada, whose only authority is to be named the managing member, and it is this Nevada attorney who shows up in the records at the state. Meanwhile back in Idaho, the Secretary of State is told that the Nevada LLC is the owner of all the Idaho LLC’s. If there is every an inquiry about the Idaho LLC’s to the Nevada LLC’s managing member, who is an attorney, it goes nowhere because of client-attorney privilege. The managing member cannot be compelled to disclose the actual owners or beneficiaries of the holding company.
The need arises for these structures when a lawsuit is filed, but cannot be established once a lawsuit is filed. The structures must be in place before any actions arise. Lawsuits are typically filed once the Plaintiffs attorney discovers recoverable assets, however, if all of the defendants assets are undiscoverable due to placement inside a legal structure the likelihood a lawsuit is filed is minimized.
This article is provided for informational purposes and is not intended to be construed as legal, accounting, or other professional advice.

To establish a Legal structure contact Buttars Business Consulting (253) 861-2263 use promo code IDAsset

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