Asset protection

Whether you own a stunning waterfront property or a portfolio of investments, protecting yourself from legal and financial risks is a priority. A good friend recently ran into some legal issues with an investment property that could have been easily avoided with proper asset protection. This month, let's look at essential asset protection strategies to secure your investments.

Insurances

Insurance is probably the most important and practical form of asset protection. In addition to standard homeowner's insurance, consider policies such as umbrella, flood, and title:

• Umbrella insurance offers extra liability protection beyond your existing policies, which is imperative for high-net-worth individuals.
• Flood insurance is critical in coastal areas prone to flooding, such as Delaware, given rising sea levels and increased storm activity.
• Title insurance protects against potential disputes over property ownership if unrecorded encumbrances (deeds, loans, liens, etc.) are discovered post-purchase.

Ownership and legal structures

The structure of property ownership significantly impacts asset protection. Here's an overview of the most popular strategies:

• Holding properties in an LLC can shield personal assets from lawsuits or creditors. LLCs are a popular choice among Delaware investors due to the state's favorable business laws.
• Holding each property in a separate LLC can further limit liability exposure. Segregating assets prevents a legal issue with one property from affecting others.
• Family limited partnerships help distribute ownership among family members to protect assets and can also help with estate planning and tax benefits.
• Trusts are another valuable tool in the investor's tool kit. Trusts provide privacy, protect assets from creditors, and can be tailored to ensure properties remain within the family.

Equity stripping

Equity stripping reduces the equity in your property by borrowing against your home to make it less of a target to creditors and litigators. Using lines of credit to secure equity and limit exposure is particularly useful in high-value markets. You can use these funds to make improvements or fund other ventures.

Homestead exemptions

Homestead exemptions protect a portion of your home's value from creditors. In Delaware, the homestead exemption is $125,000, which can be doubled for married couples, providing a substantial safeguard for your primary residence.

Retaining advisors

Consulting experts ensures your strategies are appropriate and compliant. At a minimum, seek counsel from:

• Real estate attorneys specialize in property law and asset protection and can provide crucial guidance on structuring deals and protecting assets.
• Financial advisors provide insights into optimal financial structures and insurance needs.
• Accountants ensure tax efficiency and compliance with state and federal regulations, particularly with Delaware's specific tax laws.

I'm here to guide you through these asset protection strategies and tailor them to your needs. You can secure your investments against unforeseen risks with careful planning and the proper advisement. Contact me if you have any questions. -Henry