President Donald Trump is making a lot of headlines these days. I’ve mentioned him in this week’s blog, not as political commentary, but because his prior vocation is helpful in adding depth to today’s topic of how to structure your real estate holdings for maximum asset protection.
A number of years ago, President Trump’s lawyer at that time, J.J. Childers, released a book entitled Asset Protection 101 which explores how to title real estate assets in detail. I recommend this book as a good overview, noting that specific legal advice from an experienced asset protection attorney is always recommended…the book is featured on Amazon here.
How to hold title to real estate in order to maximize available legal asset protection strategies?
As I’ve mentioned in past articles, Asset Protection is a broad term used to describe the legal strategies utilized to create barriers to legal predators seeking to acquire your assets through liens, judgments, etc. For more asset protection insights, check out our prior post on Asset Protection in Florida.
4 General Ways to Title Your Assets
So, real estate assets may be acquired and title held in the following 4 general structures which are as follows:
- Individual Name
- Multiple Parties Names – Marriage, Domestic Partnerships, General Partnerships, Joint Ventures
- Entities Such As Corporations, LLCs, Limited Partnerships
- Trusts – Revocable and Irrevocable and Land Trusts
These 4 structures are broad categories and within the latter 3, a fair degree of complexity can occur. Rather, than overwhelm my reading audience with a novella of details, I decided to just focus on broad key concepts within 4 categories above so that you’ll be empowered with the right questions as a starting point.
1. Titling Assets in Individual Name
Unless real property is your personal residence, referred to as a homestead in Florida, there is almost always unnecessary liability that results from owning real property in your own name. We live in an extremely litigious society and even owning raw land poses some risk of litigation, as a landowners have in some cases been held liable for certain injuries suffered by trespassers.
Personal residences; however, have a certain amount of protection under State laws in most areas, such as Florida’s homestead protection, and so titling in one’s individual name may be acceptable. The other issue with real property held in an individual name is the requirement of probate if that individual passes.
2. Titling Assets in Multiple Parties Names [Marriage, Domestic Partnerships, General Partnerships, Joint Ventures]
Holding property jointly is preferable if you’re married in many jurisdictions because this titling may offer some “asset protection” against 3rd party creditor attacks. Many states call this “Tenancy by the Entireties” or something related. However, the asset protection with joint titling may stop here depending upon your jurisdiction.
Other kinds of joint titling may offer a “right of survivorship” which can address the possibility of probate administration in Florida or wherever the real property is located; however, this is an area to be very careful and get professional advice because a “Tenancy in Common” may result if your deed is worded incorrectly and this does not allow a right of survivorship. Where there is no “right of survivorship”, a probate is be required to transfer 1/2 interest (or whatever percentage) to the owner’s heirs. It is also worth checking to see if your State allows asset protection for domestic partners who own property together, and this is referred to as non-traditional estate planning in Florida.
General Partnerships and Joint Ventures should be governed by a well prepared Partnership Agreement or Joint Venture Agreement if this approach is adopted. In these circumstances and in the absence of a clear agreement, the joint owners are asking for trouble because they are fully liable for the other owner’s actions concerning the real property.
3. Titling Assets in Legal Entities [Such As Corporations, LLCs, Limited Partnerships]
Generally, an entity such as an LLC is highly preferable to the General Partnerships or Joint Venture structure for holding real property because the LLC limits the liability of the member (partners). An LLC in Florida, for example, should include a well prepared Florida LLC Operating Agreement.
Generally, Corporations are not preferable for holding title to real property due to the tax laws related to the transfer of real property assets. Limited Partnerships may also by utilized; however, these days the same things can often be accomplished with an LLC at a lesser costs than establishing the Limited Partnership.
4. Titling Assets in Trusts [Revocable and Irrevocable and Land Trusts]
I have often written about how to use a Florida revocable living trust effectively. The important thing to understand is that while a revocable living trust is great for these purposes and can provide asset protection for your beneficiaries if properly drafted, it does not provide asset protection for you because it is revocable. So, I often advise people with revocable living trusts and real estate investments to utilize the Trust in combination with an LLC. In my opinion, these two real estate titling vehicles work very well together.
Irrevocable trusts in Florida may also be used as an effective asset protection strategy for holding real property as well as other kinds of vulnerable assets such as banking and financial accounts.
So the take away here is to think about your goals and discuss with your experienced asset protection attorney in Florida or wherever your state of residence, and focus on the approach that makes the most sense for your goals and situation.