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LLCs as Asset Protection

If you are a landlord or a real estate flipper or investor, then aside from having good liability insurance, moving your real estate into a limited liability company (LLC) can be a great way to help protect your assets from creditors, predators, and lawsuits.

There are two types of liability you should be concerned about with rental or investment property: (1) inside liability (where the rental or investment property is the source of the liability, like a slip and fall on the property, and the creditor wants to seize an LLC member’s personal assets) and (2) outside liability (where the creditor of an LLC owner wants to seize LLC assets to satisfy the member’s debt).

An LLC will limit your inside liability related to the real estate, such as a slip and fall accident or a fire caused by faulty wiring, to the value of the property. In addition, in many states, the outside creditor of the member of an LLC cannot get their hands on the member’s ownership interest in the company (in some states, this will only work for multi-member LLCs, while in others, it will also work for a single member LLC). At a maximum, the outside creditor would only be entitled to the member’s share of the distributions and would have no voting or management rights. This type of outside creditor protection is often referred to as “charging order” protection. This means if properly protected, a creditor will have to look to your liability insurance and any unprotected assets to collect on their claim, not the LLC.

If you are interested in asset protection planning for your real estate investment using an LLC, then you will need to work with an attorney who understands the LLC laws of the state where your property is located to ensure your LLC will protect you from both inside and outside liability.

You worked hard to attain your real estate investments matter. Do not rest on your laurels and let failing to plan take it all away from you. Give us a call today, at 301.892.2713, so we can evaluate your situation and craft an asset protection plan that best serves your real estate investments.

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