If you have invested in real estate and have one or more rental properties, creating a trust can really simplify the distribution of your property after you pass. However, by owning rental property you are susceptible to potential liability for injuries that could arise on your property.
The first step to protecting yourself and your assets from liability is to have adequate insurance coverage. However, there may be situations where damages can exceed your insurance policy. In those instances, you do not want to own the rental property individually and you definitely do not want to own that property in the name of your trust. Doing so may put your personal property or the property held in your trust susceptible to creditors.
If you own rental property in your own name, you are likely now worried you may have made a mistake. However, there is a simple solution to protecting yourself and your assets while still allowing you to create a trust without it being on the hook for potential liability.
You should likely create an entity to hold the property. In Arizona, the only remedy a creditor of a limited liability company (LLC) has is against the LLC itself. The creditor cannot obtain the LLC owner’s personal assets, but is limited to only the assets held by the LLC. In most instances, a Trust can be the owner of the LLC to ensure the LLC’s assets are distributed according to the provisions of the trust, while still protecting the trust assets from potential liability.
There are other steps to take to protect yourself from liability while owning rental property. At REP Law, we are here to help you establish an estate plan, which protects yourself, your assets, and those you leave behind once you pass. We are experienced in creating entities to hold real property and can include this in your personally tailored estate plan.