Maybe twice or three times a month, I am posed a question about asset protection. The client usually has a fresh investment education and has called me to “move” a rental property into a separate company to protect the house from a nasty pernicious lawsuit.
This question is accurately posed when the asset has no existing loan, in both spouses names, and might need to be moved as a part of an estate plan. What I usually encounter is a jointly held asset encumbered with an existing loan so “moving it to an LLC” is fraught with issues. In the former case, I strongly urge the unencumbered asset be transferred to an LLC with guidance on how the LLC should pass to the client’s heirs. In both cases the one question that should be asked is if the hazard liability amounts and coverages are sufficient. Then the ultimate question for budding investors is if they have an umbrella policy to protect them. These questions apply to everyone and the purchase of the umbrella policy is far more critical than if the asset is in an LLC. Most people will move the house to an LLC and never check if the insurance is adequate.
In the case of fighting a lawsuit, the key is insurance to defend the case and pay for liability. So if you are interested in real protection check out your insurance coverages.
Albert R. Hartley
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