Anonymity & Asset Protection for Dummies: How to Avoid Lawsuits

What if I told you that you could introduce a layer of privacy to your entire portfolio through anonymity of ownership on public filing for your assets?

Holding assets in your own name makes a lawyer’s job easy when they are intending to sue you. As an attorney, I just can’t stand by and let my fellow real estate investors be caught up like easy prey.

If you don’t know how to avoid lawsuits, I’m here to help.

Let’s talk about the biggest mistake you can make in asset protection and how to avoid it by introducing anonymity to your ownership structure. We’ll also discuss the personal factors that may make you a juicier target for lawsuits.

Why Holding Property in Your Personal Name Is Dangerous

Holding property in your personal name, rather than anonymously, takes all the guesswork and risk out of any attempt to litigate. Any search on public record presents your name on the documents, so any upset tenant or overprotective tenant’s parent can search your name. This ends up leaving many investors exposed to frivolous claims that are a hassle and can cost thousands of dollars.

Instead, I’m going to show you a better way. Owning property might sound cool, but that’s your ego talking—a thing which can really undermine your better investing mind. So, ignore that ego’s cry and consider doing what uber-wealthy investors do: control property anonymously.

Anyone can, but for some of us, it’s more important than others.

High-Risk Traits & Careers That Can Get You Sued

One in four Americans will fall victim to a lawsuit. But real estate investors, in particular, find themselves in one of the most highly litigated professions in the United States.

Those involved in deals with corporate partners are at greatest risk. Your odds of getting sued simply go up from there if you happen to be risky in other ways; however, some of this can be controlled.

The beauty of an asset protection strategy is that you can structure it to fit your needs, rather than avoiding potential opportunities to limit your exposure. This enables you as an investor to proactively establish a strategy that allows you to invest in great opportunities while retaining peace of mind (i.e., falling asleep without lurking thoughts of losing everything in a lawsuit).

There’s always a method to counteract the risks that threaten you most.

The Most-Sued Jobs in America

While these statistics shift on an annual basis, some professions are routinely at the top of the “litigators most visited” list.

Medical professionals. Doctors, you guys win, with specialists in gyno, surgery, and ortho leading the pack. While they generally expect great paychecks for their years of education and practice, a large portion of the income is devoted to paying insurance!
Law enforcement. Lawyers and judges are statistically a bit safer than, say, local cops, but risky lines of work that intersect with crime do create liability risks.
Attorneys are most at risk of negligence and confidentiality breach suits. Not only are we the ones conducting many lawsuits, but we end up getting sucked into them from time to time. Be sure to vet any attorney you work with!
Helping professions that intersect with mental illness also find themselves on the frequent flyer list for attorneys.
Accountants. Obviously there is a lot of liability for those who are managing the money and taxes of other people and companies.

How Getting Property Out of Your Own Name Can Prevent Lawsuits

Fortunately, you have many wonderful and diverse legal alternatives to keeping property in your own name. The best part is that it is a process that can be executed both at the corporate level for your LLC and at the individual level for investment properties with each property title.

This has been the strategy of the rich for centuries, and it is becoming more commonplace for anyone who is willing to put in some extra effort. Try to figure out what a celebrity owns personally. You likely won’t be able to find it. Go ahead and try if you’ve never done this—see if you can use a real famous person’s name to trace them to their real estate.

One of the strongest strategies you can add to your asset protection plan is implementing anonymity into your ownership structure. Celebrities understand this concept and capitalize on it.

Related: Top 3 Real Estate LLC Myths: Busted!

Why Rich People Don’t Have Property in Their Own Name

When you own property in your own name, just entering the address into local records reveals your ownership. Determining ownership is basically one search away. This means any person with internet access can prove your legal ownership of a property. Oh, the joys of living in the 21st century!

Yet celebrities such as Kim Kardashian and Kanye West can own property that paparazzi camp out next to, and nobody is suing them for their property. It certainly isn’t because everyone just adores and respects these two. Kanye seems to be one of America’s foremost experts on the topic of Twitter antagonism, the art of the unhinged interview, and the skill of turning public adoration into hatred on a dime. Kim’s not much more popular in some sectors, so you can only imagine how many individuals would love to sue them.

But here’s the deal: Anyone with this kind of money is protecting their assets—real estate, businesses, all of them. You or any attorney can figure out one of those mansion’s addresses pretty easily. But if you type it into a public records search, you’re not going to see a famous name you recognize on the deed. You’ll see an LLC, series LLC, or possibly a trust, anonymously owned by some other entity. In order to try and dig to the bottom of the ownership structure, you would end up paying thousands of dollars simply to get started.

A lawyer who sees this result in lieu of a name immediately knows that a lawsuit against any entity or trust is infinitely more difficult to win than one against a person. Even if said attorney does win, he or she may not have much to really “win” upon judgment. These entities can severely limit what you can actually recover via court judgment, which happens to be how the kinds of lawyers who sue people usually get paid.

I can’t speak for the West family’s attorneys, but I’m confident they’re smart enough to give the asset protection advice essentially any attorney would give a high earner for free. Hell, I gave it to you in the first heading of this article. That advice?

Get your property out of your own name!

How to Save Your Assets: Controlling Property & Limiting Liability

No matter how you invest, you can use the power of entities, trusts, and other legal tools anyone can use to free yourself of burdens—with or without Kim and Kanye money. Anyone can enjoy the power of asset protection in 2019.

This area of law, once known only to the wealthy, is now as easy to Google as the official owner of a property. Of course, be sure you’re using quality resources like this article to learn about entities and other legal subjects.

Asset Protection Basics

Pick Your Entity

I wasn’t kidding when I said you’ve got options. While I could dive into more details on practical matters about which of these entities is likely to be best for you, these are the most common types we form for real estate asset protection.

You’ll need at least one:

Traditional LLCs. These rock at protecting one single asset as a holding company. You can add more, but you are clumping them together and making the entity look like a better target for lawsuits. They also make great operating companies in a two-company structure. The traditional LLC serves as your shell corporation that manages activities while another entity just holds assets.
Series LLCs. We love this entity and have made no secret of this fact. Its fantastic structure gives RE investors the ability to split up assets into separate series. Each can hold its own assets and conduct its own business, and each is shielded from litigation against another series.

Secure Your Anonymity

Now all that’s left to do once you’ve acquired the entity to compartmentalize your assets is worry about your anonymity. After all, anonymity is a key pillar of asset protection and one of the most important concepts for keeping your investments safe from the courtroom mambo.

Do you have any follow-up questions for me about asset protection?

Ask me in a comment below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.