When it comes to building wealth, the most important thing isn’t how fast you accumulate it, but how good you are at keeping what you earn. This is an especially important concept in real estate investment.
The Risk of Losing Assets
There are countless stories of how people lose a vast portion of their assets to a single lawsuit, all because they didn’t take the right precautions. Let’s say that you own a large portfolio of rental properties; if you aren’t careful, someone could legally go after all of it.
How does this happen? Liability for your rental properties can take two forms:
- Inside liability – This is a liability directly caused by your asset, such as a tenant getting injured in one of your apartments and then suing for damages.
- Outside liability – This refers to a liability that is not directly related to the property, but still allows the aggrieved party to sue for your investments.
How to Protect Your Assets
AssetProtectionAtty.com noted that asset protection attornerys in California and other parts of the U.S. use a comprehensive approach to limit the damage that such unfortunate incidents can cause to your wealth. This usually involves various techniques, such as creating trusts to “own” property, rather than keeping it in your name.
For instance, an injured tenant can only go after the property where the incident took place, rather than your entire portfolio. A lawsuit arising from outside liability, meanwhile, cannot pose a threat to any holdings that aren’t technically part of your personal assets.
It is completely legal when done correctly, and doesn’t rely on actions like fraudulent transfers or asset concealment. Considering how litigation is becoming more common every day, this is the best way to control your risks.
Even investors of modest wealth can benefit from asset protection. The only time asset protection isn’t useful is if you have so little that filing for bankruptcy wouldn’t be a problem. In any other scenario, shielding your wealth will always be a wise decision.