092: Assess Assets from Attack

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Do you ever lie awake at night thinking about what might happen? 🤔🤔

Maybe you are thinking about an upcoming trip, dealing with family, or…you guessed it, finances. We aren’t saying you should stay up all night stressing about your assets, but we do think it’s better to be safe than sorry!

We love ❤️️ how our very first president, Mr. George Washington himself, put it – “If we are wise, let us prepare for the worst.”

We, the Kitti Sisters, want you to be prepared for any situation!

Here are some things that have gone through our minds and that might go through yours too ⏬

• Should I invest through an LLC?
• What happens if a tenant sues the apartment?
• How can I protect my money?
• What would happen to my investments if someone tried to sue me personally?
• How does it all work?
• Does investing affect my personal credit?
• Will the tenant know my name?

You work so hard as real estate investors to acquire assets and create a cash flow over the course of your apartment investing career, but what do you do to protect those assets? 

Asset protection is another none sexy topic but we need to talk about protecting all the goodies that you build up because if you don’t, it could all be gone!

In full disclosure, we never actually watched Game of Thrones. But everyone these days is talking about House of the Dragon 🐉, so there must be something there?    

Protecting your assets from attacks is kind of like building a fortified wall like we imagine they do in one of those series. We should probably watch it sometime so that we can be in the loop.

We do feel it’s important to stop here and remind you that as always, make sure you consult your team of trusted professionals as each individual situation is different and protecting assets for one person might look very different than protecting assets for another person. 🙌🙌

Why Having Safeguards is a Good Idea?

Why is having safeguards a good thing? For starters, you need safeguards against legal threats.

Why wouldn’t you want to own a property in your own name? When you own a property in your own name and you’ve rented out to a tenant, the tenant is doing business with you personally. If a problem arises at the property, hopefully, you have insurance, but some accidents exceed insurance limits. 🙏

Insurance companies have an economic incentive to not cover every claim, and we would never want that for you. 

It’s very easy to have the title be in the name of an LLC, and the tenant leases from the LLC through a lease agreement – that’s one way to mitigate personal risk. 

The first line of defense can be your insurance policy, but there is so much that can happen beyond a physical incident or occurrence on property.

Unfortunately, there are all kinds of predators out there, people might come after you and your assets, so it’s in your best interest to set up a few entities to protect you!

Keep in mind also that tenants’ attorneys have an economic incentive to sue because they get a percentage of what they collect. We always recommend having an umbrella policy of personal insurance covering your home and your cars. 

On top of that, you should consider purchasing at least a million dollars of extra coverage. 🧐🧐

The reality is that attorneys on a contingency know how to get an insurance claim. It’s probably not the best use of their time to get it through an LLC, so that’s another good way to protect yourself. The best part is that it isn’t difficult or expensive to set up these structures. 🤩🤩

Another important reason to have safeguards is so that you can control your assets and business ventures

Asset protection provides a great way to ensure that your business doesn’t suffer any “hitches.” Most companies whose assets aren’t legally insulated suffer numerous problems, especially when dealing with creditors. This is because when the asset isn’t protected, the creditors have a genuine claim to part of your business’s assets.

To put it another way, the creditors can gain access to some of the valuable assets within your business. 

As a result, part or whole of your business operations may end up being halted.

Keep in mind that such a huge setback may affect you and your business’ reputation. Asset protection guarantees you what you need to overcome the hurdles associated with unprotected assets in your business by regulating the assets that the creditors can gain access to. ✨✨

So, how do you get the best protection for your investments?

A few years back we read the book Start Your Own Corporation by Garrett Sutton. The cool thing about this book is that it got us started thinking about putting structures in place ahead of time because we are living in a ligitious world.

The good news and bad news is that like it or not, owning something in your own name can create some liability. Now, there’s a few reasons why you might want to own a property in your own name, but they certainly aren’t very many, so let’s talk about some other options that you might or might not know about.

Because protecting your assets doesn’t have to be overwhelming, time-consuming, expensive, or complicated.

Here’s some options:

One option is a limited liability company, otherwise known as an LLC.

This legal structure can protect your personal assets from being seized by business creditors. In other words, your home, car or bank account typically would be safe from a business creditor, while your business assets in an LLC normally would not be safe. 🤓🤓

Another option is insurance, such as an umbrella policy. ⛱

An umbrella policy supplements liability coverage you already have through a homeowners policy, an auto policy or another type of policy. Let’s say you’re hit with a $1 million court judgment as a result of an auto accident. Your auto policy contains liability limits that cap an insurance payment. For example, you might have a cap of $300,000 for injuries to others and $100,000 for property damage. If those limits are maxed out, an umbrella policy could cover the other $600,000.

We also want to remind you about a little thing we like to call domestic asset protection trusts.

Attorney, accountant, and author Mark J. Kohler calls the domestic asset protection trust “the most affordable asset protection tool” available in the U.S.

This type of trust is aimed at protecting your assets from creditors. 😉😉

Believe it or not, assets in a domestic asset protection trust may include cash, stock, LLCs, business property, and real estate. Keep in mind that the trust may be forced to pay obligations like child support, alimony, and taxes.

And, finally, retirement plans such as a 401(k) or IRA.

In most situations, a creditor can’t access your retirement plan. This can include an IRA or an employer-sponsored 401(k). However, a creditor may be able to tap into your retirement account if, for instance, you owe back taxes or past-due alimony payments. So just keep in mind that like anything, there are variables that affect almost every situation. 😌😘

 

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