Asset Protection Strategy: LLCs

The LLC that will provide the asset protection you need from a lawsuit. By placing your real estate properties into a trust name, you can then more easily facilitate the transfer of ownership from your name into an LLC. This transfer of ownership is important because it avoids informing the banks that you are in fact relinquishing ownership of the property into a business entity. It is important to note that simply transferring a property into a land trust and then transferring the trust into an LLC is a task that requires careful consideration.

• Multiple properties in one LLC is not recommended:

It is ill advised to place more than one property into an LLC. The reason is simple: should one of your properties in the LLC face a lawsuit, then by association the other properties within the LLC might also be at risk. This is especially important for investors that have rental properties. Instead, the best practice approach is to have multiple LLCs to hold all of your investment properties, including your rental properties.

• More insurance versus multiple LLCs:

In the face of setting up several LLCs you might instead be tempted to ask why you can’t simply take out additional insurance to protect yourself in the face of a lawsuit. The primary issue is knowing if the insurance company will actually cover you. While you can read and re-read your insurance policy, the truth is that there are typically several clauses and then sub-clauses that make it difficult to know exactly what is or isn’t covered. The moral of the story is simple, you shouldn’t put all of your eggs into one basket, i.e. insurance may or may not be there when you need it most.

• Making sure LLC statutes are up to date:

The LLC is a fairly new real estate asset option within the United States, as such the laws governing this entity are subject to change. In fact, each state has its own set of statutes concerning LLCs.

Topics: Real Estate Investment, LLC, Land Trust

Work cited: Jessica Conflitti, Real Wealth Network, November 2019

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