Real Estate Investing Coaching - Brian Gibbons

Using Remainders for Asset Protection - The more real estate you own, and the more assets you accumulate, the more you become a legal target of those who use law suits to extort settlements from their victims

                                       

Posted by: admin, in Asset Protection                                

The more real estate you own, and the more assets you accumulate, the more you become a legal target of those who use law suits to extort settlements from their victims.

Let’s suppose you ran over someone’s dog and a general judgment lien was recorded against you in the public records.  If you lived in Florida or Texas where there are laws which would prevent your losing your homestead, there would be no real problem, but in any other jurisdiction, It could attach to the house, but since you owned less than the full fee simple estate in the house, it would only attach to your term of ownership and be extinguished following that.  Picture a foreclosure sale in which a judgment creditor was trying to liquidate his lien.  Who would bid on a house that could belong to someone else the instant that the foreclosed owner died?  Bear in mind that a lot of people die at young ages because of war, famine, pestilence, aids, and car wrecks.  A few even become despondent when they lose all their assets and commit suicide.  How much money would a foreclosed property buyer want to risk on this sale if he couldn’t mortgage it without my signature, or even dare sign a long term lease?  Whether or not the house was sold, it would pass to me eventually.

Let’s turn the situation around, and say that I ran over the dog and wound up with a general judgment lien against my name.  It wouldn’t attach to the house until I became the owner of the premises at some point in the future.  In the meantime, you’d just have to sit and wait; possibly for decades.  Isn’t it possible that you might not even go to court if this were my only asset.  Even if you did go to court, would you ever find it in your heart to settle with me for a lot less than the judgment called for?

Dividing property into present and future estates can create a lot of confusion for predators who see a large expensive home as a target worth pursuing with a spurious law suit.  When you protect it by carving up the title, you dissuade a lot of would-be get rich quick opportunists to seek elsewhere for their ill-gotten spoils.

Asset Protection - Anybody who has assets can become an attractive target for any legal opportunist.

                                       

Posted by: admin, in Asset Protection,  Title                                

Defending yourself in court can be very expensive when you win, and devastating when you lose.  Protecting your assets is one ounce of prevention that can reap tons of benefits at reasonably low cost.

I just got a call from a guy whose solely owned and operated corporation is being sued.  It produced a very large income from services, but had no assets.  Even fees it earned were generated without a contract.  Because of this, he was afraid that the opposing side would be able to pierce the corporate veil and attach his personal assets.  His insurance company refused to cover this particular situation.  Even prior to the trial, his attorney had thrown in the towel and was advising him to prepare for a large judgment.  This could happen to you.

In his situation, he would have done better to start with some obvious defensive measures that could have been taken long before trouble brewed.  He did the right thing by using a corporation to perform services rather than doing it personally.  So long as he has been scrupulous in observing corporate formalities and maintaining his corporate records; and doing legitimate business with 3rd parties, his corporation will be very hard to pierce.

Where he opened himself up to personal liability was in naming himself as all the officers and all the directors as well as being the sole shareholder.  If he had formed a Limited Liability Company in which to do business, the law in all 50 States would have protected him.  Even if he was the managing member and held all the shares, his personal assets would not have been up for grabs.

Privacy is the cheapest and most effective of all the asset protection devices so long as it is protected.  The essence of privacy is to keep your affairs private.  That means that you shouldn’t talk about them or reveal them to anyone.  Let’s recast what he might have done to avoid trouble.  If all the corporate shares had been held by a Trustee in a different State who was prohibited by the Declaration of Trust from naming the Trust’s beneficial shareholders, it would have been very difficult for anyone to discover that he had any connection at all to the corporation.

If hard-to-serve corporate officers and Directors were domiciled out of the State where the corporation was doing business, it would be very expensive and difficult to depose them, especially if they resigned at the first sign of trouble, only to be replaced by others.

If moneys received were held in escrow by a third party in yet another jurisdiction pending satisfactory completion of the services that were being employed, it would be difficult to levy against these deposits.

As President William Jefferson Clinton said when questioned why he hadn’t been cooperative with his legal adversaries, “It isn’t my job to make their job easier.” Nor is it yours.  Holding assets in Trusts along with the ownership shares of corporations and LLCs you use goes a long way toward assuring you a relative sue-free life.

Are you apprehensive about liability? What have you done so far to offset it?