Litigation Happens; Cover Your Assets
What you don’t do now can be held against you later in a court of law
The main reason people go into real estate investing is the same reason people fail to protect their assets in real estate investing – money.
“There’s an assumption out there that it’s going to be extremely expensive,” says Bud Lethbridge, managing member of Utah-based asset protection program Veil Corporate. “People also think it’s going to be complicated — paperwork and an accounting nightmare — and even if they know they should do it, they don’t know what to do.”
Organizations like Veil Corporate walk investors through the ins and outs of setting up an entity, protecting their assets, developing a tax strategy and doing comprehensive estate planning.
When investors get educated about protecting their assets, all of a sudden, what previously seemed expensive and complex becomes doable. They find the costs, which are actually simple and minimal, are worth the benefits.
The Pros of Protection
Lethbridge, who is not an attorney but contracts with the finest attorneys in the U.S. and Canada, says “we live in a super litigious society. People are just suing everybody left and right. The problem you see in the courts today is that there are bogus lawsuits that are won. You would think reason would prevail in the courts, but reason doesn’t always prevail. We have to make sure we’re protected.”
Peace of mind and financial safety are the two main reasons people establish an entity, but the side benefits are good and plenty.
“The way the structure comes together can provide some great tax write-offs,” Lethbridge says. “It’s a huge side benefit and another important reason to dig in.”
Tax benefits are a significant bonus of entity establishment, but not the only bonus. Proper asset protection will protect all that investors own – cars, paintings, jewelry, stocks, bonds and other items of value.
“Many people don’t realize that personal property would be vulnerable in a lawsuit,” says Blair Jackson, partner at Invictus Law, PC.
Establishing an entity is also a great way to transfer or share ownership with family members, to build credibility and to separate your personal life and personal assets from your business life and business assets for tax and profit-tracking purposes.
One of the most important things people need to know from the start is that protecting yourself in the beginning is infinitely more effective than trying to protect yourself later on.
“Most people think about asset protection when its too late,” says Carl Thurgood from Veil Corporate. “If you’re already being sued, it’s too late. Put yourself in a protected position beforehand.”
Entities created after properties have already been purchased might not be recognized in court if a 1-3 year “seasoning period” has not yet passed since the property was protected. But if investors have purchased properties within already established entities, there is no seasoning period of vulnerability to endure. Protecting before purchasing means protecting completely.
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