Whether an individual has inherited an asset portfolio or has self-built wealth over time, it is important to protect and preserve assets in the event of a lawsuit or bankruptcy. Creditors can seize real estate if it is not protected, so those who own substantial assets including real property should be aware of asset preservation strategies. Real estate asset preservation, also called real estate asset protection, is a method of planning in advance and legally shielding your property and assets from creditors.
These are common strategies used by property owners.
Insurance is the first line of defense against creditors. Coverage can be increased as real estate equity and total wealth is built. It is wise, among other things, to secure an umbrella liability insurance policy and any other appropriate insurance coverage that covers your net worth.
Landlords and other property owners can set up business entities to hold property and keep that real estate separate from other personal assets. This provides some protection to property owners from lawsuits stemming from incidents arising on the property or from a renter. A single asset limited liability company is a common business entity that is used.
Offshoring of Assets
This strategy has been made popular by wealthy individuals who use offshore trusts in locations like the Cook Islands to protect assets from creditors. Tax laws abroad can prevent a bank from disclosing a person’s net worth or can make a person’s assets in that country exempt from U.S. judgments. Unfortunately, it is a costly endeavor to set up offshore trusts, which is why many Americans are setting up asset protection trusts here at home.
Specifically, many states allow asset protection trusts (“APTs”), which are run by a third-party trustee. APTs must meet several requirements but could help keep your assets out of creditors’ reach.
If you plan to pass a portion of your total wealth to children or other heirs and do not foresee needing access to it during your lifetime, these assets can be placed in an irrevocable trust. This relinquishes your control over the assets.
Real Estate Asset Protection in Arizona
Each state has its own set of statutory exemptions and state laws that protect assets from creditors. In Arizona, these are as follows:
- Homestead exemption: Per A.R.S. 33-1101, up to $150,000 of home equity is automatically protected from creditors.
- Personal property: Arizona law protects personal property up to a specified amount, including cash, clothing, musical instruments, household pets, wedding rings, books, bicycles, firearms, computers, cars and wheelchairs. Necessary professional tools are also protected by A.R.S. 33-1120.
- Life insurance: The total life insurance policy amount becomes protected once the policy has been active for two years, provided the insured has named a beneficiary. After the insured has died, the death benefit is protected from the insured’s creditors if the beneficiary did not agree to be responsible for inherited debt. If the beneficiary did agree to take on the inherited debt, Arizona allows a $20,000 exemption so a portion of the death benefit is still passed on.
- Retirement accounts: Although federal law automatically protects qualifying retirement accounts, Arizona has particularly strong safeguards for various retirement plans.
Find an Experienced Phoenix Real Estate Asset Protection Lawyer
If you have become involved in a lawsuit or bankruptcy that could result in a loss of real estate assets, you want to ensure you have experienced legal representation. The most effective approach in a potential dispute is working with a legal team that can evaluate your potential case and break down the best options for success. MacQueen & Gottlieb has significant experience with resolving legal disputes involving real estate. Contact us today at 602-562-7218 to schedule an initial consultation or make an appointment online.