Rochester Real Estate Tips:
Asset Protection for Landlords!
By: James J. Cummings III, Esq.
“Asset Protection,” as discussed here, means devising
legal methods that will help protect you against lawsuits, claims and judgments arising from the ownership and
operation of rental property.
Today’s insurance policies include a growing list of
“exclusions” intended to reduce the items for which insurance companies must provide coverage. Accordingly,
as the list of exclusions grows (lead paint, mold, asbestos, etc), property owners are increasingly at risk of
suffering staggering losses from lawsuits.
“Litigation Lottery” is a term often used to describe the
explosion of litigation in America today. Newspapers and television bombard us with news of huge
judgments in favor of people who seem to have caused their own injuries. Our juries have failed us as they
give our money away like Lotto proceeds!
Asset Protection is a long-term strategy of “lawsuit avoidance”
as well as protection against judgment creditors. Asset Protection requires advance planning and careful
implementation with the help of your attorney and tax advisor. It is critical that you implement asset
protection strategies before trouble strikes. A good asset protection plan will discourage suits against you
in the first place, and then even if you are sued, it will help protect your assets from
seizure.
So what can an embattled landlord do to hold off the
predators? Plenty! But one size does not fill all. Unlike real estate closings or other such legal
work, asset protection requires individualized legal planning.
Situations differ from one landlord to the next. Some
landlords have just a few rental units and depend on a full time job for their primary support. This person’s
assets might include a house, car, savings and other income. Another person may be a full-time landlord and
depend fully on his rental property for income and support. Some landlords may do much of their own work,
while others may hire management companies or contractors.
Each of the situations above require different approaches to
asset protection. The object is to:
Discourage suits in the first instance
Minimize loss of rental properties
Protect salaries from garnishment
Fortify savings and investment funds
Retain the family home
Guard against personal judgments
Segregate rental property ownership
Make assets unattractive to creditors
Keep personal assets invisible
Asset protection strategies usually involve a combination of
things including the creation of limited liability companies or corporations, transfer of rental properties to
various entities you own, transfer of personal assets, “equity stripping” of your rental properties, handling
operations through your own management corporation, becoming an employee of your corporation, transfers to
out-of-state companies, and similar techniques designed to discourage and frustrate the litigation predators.
A cost-effective and practical plan is within everyone’s reach.
Lately, asset protection has become the subject of
popular books and newsletters. Asset protection strategies have been sugar-coated, over-simplified,
described as “bullet-proof” and otherwise made to sound easy. Let me tell you that when you are sued for
everything you ever worked for, it will shake you to your bones. You will pray that your asset protection
plan works and that you did not scrimp on it. Effective asset protection requires advance planning and
careful implementation.
(c) All Rights Reserved - James J. Cummings III, Attorney At
Law
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