How to Protect Your Home Against Lawsuits (Land Trust + LLC)

By Gary Mialocq, Ph.D

There are more than 80 million lawsuits filed in America every year. Property owners, landlords and real estate investors are susceptible to liability.

Are your assets easy to locate?

Is your real estate in your name?

Why would you expose your most valuable assets to public scrutiny?

Anyone can go to the county recorder’s office and find the owner of any property. Real estate records are computerized, so your real estate holdings can be located in a flash. If there are mortgages on your property, they will also be recorded and state the amount of the original principal balance and the date the mortgage payments began. Anyone can figure out your mortgage balance and subtract that amount from the market value of your house. They will know how much equity you have and whether you are a suitable candidate (target) for a lawsuit.

A contingency-fee lawyer charges a percentage of whatever he collects. Most will refuse to accept a case unless the defendant has means. If you have no real estate in your name, chances are they won’t take the case.

Having the appearance of owning nothing is the best lawsuit-repellent you can have, and that is provided by the privacy features of a land trust.

The first thing you want to do before you invest in income property is to protect your own home against liens and encumbrances including protection from creditor judgments, tax liens, and probate and to keep the property hidden from actions in bankruptcy, marital dispute, and lawsuits. This can be done easily and inexpensively.

Using a land trust by itself does not provide asset protection. It will shield the property, but not protect it. In a similar fashion, an LLC does not protect you from lawsuits other than from those against the asset or assets of the LLC. In rare cases, single beneficiary land trusts have been penetrated if not properly structured.

I recommend that for the best protection, title to your property should be vested with a corporate trustee in a Co-beneficiary land trust with one of the beneficiaries being your LLC. It’s double protection and the end-result is that the co-beneficiary land trust prevents creditor partition and charging orders against the property, and the LLC keeps you from being sued personally regarding matters concerning the property.

The trustee and the beneficiary should never be the same entity and should always be an arm’s length entity whose death would not subject your property to probate (i.e., as is the case with a natural person as trustee). When a property is placed into a land trust, the beneficiaries remain responsible for all debt, management and maintenance; and passing any such responsibility to the trustee may invalidate a true residential title-holding Illinois-type land trust.

You own the land trust (personal property) and your Trustee owns the real property. This is very important because your asset is no longer governed by mortgage law, but now by the Uniform Commercial Code (UCC) Article 9. When sued, a creditor first goes for the property but is stopped dead by the co-beneficiary nature of the trust (either two or more unrelated parties, or one beneficiary and a remainder agent holding personalty vs. realty). The creditor may then give up and go after you personally, but will be stopped again due to your exposure and liability being limited by the LLC to its only asset, the trust property.

This kind of asset protection security is not available in any of the traditional holding methods such as lease options, subject to’s, land contracts, wraps, etc., all of which leave the property exposed and subject to liens and encumbrances.

About the Author

Gary Mialocq, Ph.D. is a former self-employed vocational rehabilitation counselor with significant experience in helping others improve the quality of their lives, having worked with disabled children and adults, juvenile felony offenders, and industrially-injured workers. He has dabbled in real estate since 1980 using creative financing strategies and techniques to acquire and manage properties. He specializes in the Equity Holding Trust and is a Certified Land Trust Consultant.

• View my complete estate planning presentation Protecting your Family with a Living Trust.

• Read my Financial Checklist & Service Model.

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