asset protection strategy

[Marcin G.]

I live in IL, am single, have several rental properties, have landlord insurance and umbrella policy. I do all the work myself (repairs, upkeep, accounting, screening, approving of tenants etc). The following idea I have in mind, in my opinion is very simple, cost effective, preserves my tax status (hedging my W2 income with loss coming from my properties) and most importantly is done in good faith not trying to defraud anybody…just to protect myself against frivolous lawsuits or when my insurance policy or umbrella policy declines my claim
Here we go …

LLC – I have turned down that option. I do all the work myself and even if I create 1 LLC per property I still would not enjoy full protection as myself and my LLC would be named in the lawsuit. In IL I believe creditors can even foreclose on an LLC. I would have to create a 1 member LLC anyways. Not a strong protection, costly, up to 750 in the first year, 120 thereafter per 1 LLC. Keeping separate tabs, separate bank account, doing everything in the name of LLC. A lot o hassle

Trust - Pretty complicated, costly, not sure I could still declare profit/loss on my tax statement. I read about so called 541 trust …when a creator brags the trust was not penetrated so far in any case. The cost of setting up. $6K …probably something I would consider if I had $1M in real estates …

Friendly Lien – my parents (who reside outside of US) incurred considerable debt paying for my eduction, bringing me up etc (consideration)…I plan to create a contract with my parents that would state that I am obligated to repay the money. I plan to record the lien against each of my properties up to its market value (all of them are free and clear). As a result I will still own the properties, enjoy tax benefits, to the outside world it will look like I am indebted pretty heavily. Anybody who will hire an attorney to sue me will pretty soon hear from his attorney that there is not much they can get even if they win against me. This will make me less of a prey for all those chasing quick buck. Again, this strategy is not to be implemented to defraud anybody or declare bankruptcy the next day . I do not have any pending lawsuits a of now. I am purely interested in protection and preservation of my assets. Please let me know and thank you……

[Bill Gulley]

Actually, to your note idea, I'd say your agreement should have been made earlier as a future advance private loan that could be later rolled over to a new note and blanket mortgage. Since real money was paid out in your case, this would dodge the sham transactions others usually try to employ in similar equity skimming transactions. It needs to reflect the real money paid out, with some proof of amounts paid, just in case as otherwise the arm's length is pretty short. And you really need to make payments too. :)