Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/475894
10 March | April | 2015 Commercial Investment Real Estate IS SUE S BUSINE S S o by Mary Stark-Hood, JD, CFP Real Estate Asset Protection Ownership of real estate has many benefi ts from an investment and tax standpoint. There is downside risk, however, since the value of real estate holdings may be signifi cant and can be used to cover damages awarded in a lawsuit. Therefore, it's important to consider asset protection strategies relating to real estate holdings in order to minimize such risk. plex, or undeveloped land, make sure the property is adequately insured for its type and its use. Occurrences associated with the property, such as injury to a tenant or delivery person, employees, f res in the build- ing, or breaking and entering, may cause an owner to be sued. T erefore, consult with an insurance professional on possible areas of exposure and insurance needs based on the type of property owned and its current use. Also discuss coverage, costs, and limits for business liability insurance and umbrella business liability insurance. Since real estate investors are easy to identify, easy to sue, and appear to have deep pockets, being ade- quately insured is a necessity. Structuring Assets T e second step involves the proper struc- ture in which to hold real estate. For invest- ment properties, it is highly unusual to hold them in an owner's personal name. Hold- ing property in one's personal name or jointly with a spouse places personal assets and other investment properties at risk if a lawsuit results in damages being awarded. T us, investment real estate is typically held in a corporation, a limited partnership, or a limited liability company. Transferring title to one of these entities will provide some insulation from lawsuits. Since the early 1990s when legislation pro- viding for the formation of LLCs was enacted in all states, the LLC has become the struc- ture of choice for many real estate holdings. T e key features of a LLC are that owners are called members and no member is person- ally liable for the obligations of the LLC. T e LLC can elect to be taxed as a partnership with items of income or loss f owing through to the members' personal tax returns. If it is struc- tured as a single-member LLC, the LLC can be disregarded completely for tax purposes. T e income is included on an individual's personal return. mindscanner/Thinkstock Insurance Asset protection planning is a way to reduce exposure to future lawsuit risk. It encom- passes insurance and how real estate is titled to make it and other assets less vulnerable to the claims of individuals who may sue in the future. It is about pre-emptive planning. T e f rst place to start is with the property itself. Whether it is a single-family home, a portfolio of apartment buildings, shopping centers, of ce buildings, an industrial com-