In today’s litigious times, protecting your rental property means more than just spreading ice melt in the winter or ensuring that the HVAC system works correctly. Homeowners associations and local/county zoning boards have strict rules regarding rental properties. The North Carolina Vacation Rental Act governs the obligations of landlords and renters for short-term rentals.
The unfortunate truth is that rental property owners have a greater risk of facing creditors or a lawsuit. With the help of an asset protection attorney, you can set up a protection plan to mitigate risks such as creditors, bankruptcies, business and personal lawsuits, taxes, and more.
Protect Your Real Estate Investment Against Future Risks
Here’s the thing about asset protection planning: It’s only effective as a preventative measure. For example, if you don’t have a plan when a tenant sues you, you could face serious financial consequences regarding your personal assets.
Let’s say your tenant slips and falls down the stairs because the railing snapped off while they were holding it. You didn’t know the railing was faulty, but the judge at small claims court awarded your tenant damages for their injury because you hadn’t kept up with the proper maintenance and inspections, which would have revealed the problem.
Let’s take it one step further: Since you didn’t have a plan to protect your business assets, you must pay for financial damages from your personal assets, such as your savings and investment accounts. If the amount of damages is significant, you could be forced to sell your property to satisfy the lawsuit.
Limited Liability Corporations in North Carolina and Protecting Your Assets
One of the best ways to protect your personal assets and business from a lawsuit is to set up a Limited Liability Corporation (LLC). What is an LLC? It’s a business entity or legal structure that you can create with the help of an estate planning or asset protection lawyer.
Essentially, an LLC provides what’s known as “inside liability” since it separates and keeps your business assets distinct from your personal assets. Then, if someone sues your business or you have creditors coming after you, your personal assets will not be up for grabs—only those assets directly related to your LLC will be vulnerable.
What Is a Single Asset LLC?
Many property owners in North Carolina use LLCs to protect their personal assets. However, people with multiple properties should consider setting up a “single asset” LLC or a different business entity for each property. Having single asset LLCs for each property allows you to mitigate the liability of owning investment real estate. It also helps keep your business assets safe from personal creditors.
If you add all of your properties under the same LLC, one lawsuit could target all of your assets under that specific LLC, which means that all of your hard-earned money and investments could be at risk.
Asset Protection Trusts
Single asset LLCs are a popular method for protecting investment properties, but they’re not the only option. Many clients prefer to bolster their LLCs with asset protection trusts. The primary benefit of choosing asset protection trusts is the ability to mitigate risk from inside and outside liability.
By protecting yourself from inside liability, if a tenant or someone else sues your rental LLC, your personal assets would be safe. In addition, asset protection trusts protect your property investments from outside liability, which refers to risks that stem from your personal life, such as credit card debt, a car accident, etc.
Under North Carolina law, a creditor cannot seek to take ownership of your business, but they could initiate a charging order. A charging order gives a person the option to go after any asset distributions from your LLC, since you are the owner. However, if you have an LLC that also exists inside an asset protection trust, you have an extra layer of protection that will give you peace of mind and lower your overall risk.
Create Your Comprehensive Asset Protection Plan
At Carolina Family Estate Planning, we have helped thousands of individuals, families, and business owners in North Carolina protect and secure their assets for the future. Remember, asset protection plans are only effective if they are already in place when an unforeseen event occurs.
Our legal team offers a range of estate planning and asset protection services, including wills and trusts, probates, power of attorney, business planning, and more. Call us today at 919-443-3035, or fill out our online form to schedule a needs-assessment call. We’ll help you get your ducks in a row.
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