Congratulations. You’ve discovered one of the best ways to grow your personal wealth – investing in real estate. This is as true now in these turbulent financial times as ever.
But nagging in the back of your mind is the question of personal risk. What happens if someone trips and falls on the doorstep? What happens if the wiring is faulty and a tenant is caught in a fire!
The title to the property is in your name, so it isn’t as if it will be hard to find YOU, the owner, the person responsible for maintaining the property.
Is there any way to bulletproof the ownership of your rentals?
The answer, in a nutshell, is no. You can’t.
However, you might be able to make it so difficult and unprofitable for an attorney to pursue the case that he might think twice before going forward.
Enter the LLC – and its new best friend, the Trust. In the paper by David Adkins, Esq. he points out that a properly constructed and managed LLC will provide you with excellent liability protection except in the case of active negligence. To get a copy of his article [click here].
Active negligence occurs when you personally make a decision or you do something that results in harm to someone else. A great example of active negligence is when you try to save money by hiring an unlicensed handyman or by doing a repair yourself. Better to contract the appropriate professionals or better still, hire a property management company – properly staffed and managed – to take care of your real estate for you.
If the LLC provides all this wonderful protection, then what does the Trust do? It provides a few valuable added extras.
Hands up those of you who were told the best protection comes from placing each property in its own LLC so a lawsuit in one LLC doesn’t affect your other properties.
Keep your hand up if the cost of following this strategy turned you completely upside down.
Enter the Trust – which when properly structured compartmentalizes liability risk – read that as gives you one entity per property for a reasonable fee.
In addition, a Trust gives you privacy, making it more difficult to figure out whom to sue. While the Trustee of the Trust is known, the beneficiary is not – especially if you use a management Trust to handle the money.
So, what is the structure we recommend for rental properties?
We recommend one Trust per property, using an out-of-state Trustee for each Trust, with the beneficial interest in each Trust held by a common LLC, or in some cases a “Series” LLC, and using a management Trust to handle the money so you stay hidden.
Sound complicated? Don’t worry. We’ll do the heavy lifting.
All you need to do is say YES. Interested in finding out more? Just give us a call at 702.506.0190 or use the form below to email us. We’ll be happy to discuss your situation.