What is Asset Protection?

Asset protection means safeguarding what’s yours against liability, damage, and loss. This often comes in the form of purchasing an insurance policy to cover your property.

However, at Moschetti Law Group, we recognize that planning for their protection should be more strategic than a one-size-fits-all insurance policy when you own multiple assets.

Asset protection also includes the creation of business entities for a layer of legal separation between you and that asset—especially in the commercial and residential real estate realms. Many real estate owners will form a Limited Liability Company to separate their personal assets (their personal residence, etc.) from their business assets (the commercial or rental property) while maintaining the ease of submitting only personal tax forms.

Why do you need asset protection?

Without asset protection like insurance and an LLC, you are open to the potential of a lawsuit against the property you own that could damage or completely negate the asset’s value. With multiple properties, you run a higher risk of exposure to lawsuits by the sheer numbers of people on each property and the potential for mistakes and accidents.

Between tenants, guests, deliveries, maintenance and repairs, and neighbors, each property sees hundreds if not thousands of people every year. If even one of them gets hurt due to something you, the owner, might have possibly prevented, you can be sued out of everything you have.

Of course, it would be difficult to monitor every nook and cranny of every one of your properties each month or know what a previous owner forgot to mention. But, proper asset protection in the form of sufficient liability coverage and separation of personal assets from business (through an LLC) can help protect you from complete devastation.

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The Best Way to Protect Your Assets

The best practice for owners of multiple commercial or residential rental properties is to create a limited liability company or LLC for each of those assets.

If your LLC owns all of your properties together and a lawsuit arises against one of them, the penalty may be more than the value of that property alone. In this case, all other LLC assets may also be taken as part of the payment. If each property is held under a separate LLC, it is the LLC’s sole asset and the only one at risk in the case of a lawsuit.

If you also own a business operating within one of the buildings you own, it is wise to set up an LLC for that building separate from the LLC or corporation you’ve created for your business. You can then lease the building back to your company and pay rent to the LLC you’ve created for that building.

An LLC is the best choice for business structure in these situations because a corporation is subject to significantly more taxes whenever you sell the property. At Moschetti Law Group, we can assist you in creating a limited liability company to protect what matters.

How to Create a LLC to Protect Your Assets

Proactively completing each of these steps prevents the Assessor’s Office from initiating a reassessment or transfer tax and creates the most airtight protection for each of your assets individually.

1. Change the Title
After forming your LLC, you will use that LLC (instead of your own) on the title of the property. If your lender has any doubts about making this change, they usually just need reassurance that you are the LLC owner and the same name currently on the title.

2. Proportional Interest Statement

3. Preliminary Change of Ownership Report

4. Assign LLC Assets to your Revocable Trust
In your estate planning, assign your right, title, and interest in the LLC to your revocable trust.

TALK TO AN ASSET PROTECTION ATTORNEY

Asset Protection and Estate Planning Attorney

Moschetti Law Group specializes in estate planning for real estate owners and investors.

We are experts in asset protection and will help you build a strategic plan to cover all your properties and interests.
We can help you choose between creating a Trust or a Will and ensure that the transfer of assets will be accessible when the time comes.

What can happen without Asset Protection Planning?

Perhaps one of the most famous California cases of poor asset protection planning is that of Chor Ng, a real estate owner of 17 properties. One of those properties was a warehouse that she leased to two artists. Those tenants illegally resided in the property that they had rented as a workspace in addition to illegally subleasing space to more tenants who also used the space for housing. They called the space “Ghost Ship.”

One December evening, these tenants hosted a concert even though the warehouse was only permitted as industrial space, not entertainment or residential. A series of improper electrical and space-use issues resulted in a building fire. Around 100 people were in attendance at the concert, and 36 of them perished in the fire.

Chor Ng was sued by the victims’ relatives for millions of dollars, putting all 16 of her other properties lumped together in the same trust at risk.

If she had designated each property as its own individual asset and protected each with the legal separation of an LLC, the lawsuit would only have had the single warehouse property and its insurance money from which to draw. Her personal assets would also be untouchable.

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