Asset Protection: Got It? Keep It!

Excerpt from Millionaire Real Estate Mentor by Russ Whitney

Chances are you have assets right now that need protection, and as you begin building your real estate business, your assets will increase substantially. This makes the issue of asset protection critical. The money you make will be money you’ve earned, and if you want to give it away, that should be your choice. Don’t let anyone take it from you.

Many people worry about getting sued, and that’s a legitimate concern in our ever-increasingly litigious society. The United States has more lawyers per capita than any other country in the world and they’re advertising everywhere—in the telephone directory, on radio and television, on billboards and bus benches, you name it. They’re looking for people who want to sue someone and they can be remarkably creative at coming up with a cause of action (the reason for the lawsuit). And they look for targets with deep pockets—that is, money to pay a judgment or maybe the willingness to settle out of court for a tidy sum. As you build your own fortune, your pockets are going to get deeper and deeper and that bull’s eye on your forehead will get bigger. So let’s talk about how you can stay out of the line of fire.

My students often asked how to set up their affairs to avoid getting sued. One way is to stay poor forever. Obviously that’s not your first choice, or you wouldn’t be reading this book. The reality is you can’t avoid lawsuits. You can take steps to minimize the risk of getting sued, but if you’re out there doing business and being successful, there’s a chance you’ll be sued at some point. Perhaps even more than once.
Will the suit have merit? Maybe, maybe not. Under our legal system, anybody can sue anybody else for any reason, and it’s up to the judge or the jury to determine whether the plaintiff (the person doing the suing) has a legitimate claim and is entitled to compensation. I think some people file lawsuits for the same reason they buy lottery tickets—they know it’s a long shot, but they’re hoping to hit the jackpot and they figure it’s worth a try.

Over the past 25 years, I have owned hundreds of single family and multifamily residential units, as well as a number of commercial properties. That translates to thousands of tenants, and I have only been sued once in a real estate issue involving liability—and it wasn’t even by a tenant. It was an employee in a commercial building I owned who fell on the property. Her name was Sue, and I found out later that she made jokes about being very appropriately named. She had fallen at other jobs and sued other employers and landlords. She claimed that she tripped over a clothespin in our parking lot. I believe it was a planned fall and a fraudulent claim and probably would have fought it on principle, but I turned the matter over to my insurance company (after all, defending lawsuits is part of what insurance premiums go for). Sue was able to scheme about $60,000 out of my insurance company. I understand that they later initiated an investigation against her for fraud, but I never learned of the final outcome.

My point of sharing that story is to stress this: Do not allow the possibility of being sued stop you from investing in real estate and building your own fortune. Litigation is just a fact of life in today’s business environment. There’s no way to predict if, how often, or for how much you’ll get sued. Recognize that and prepare for it by using the techniques I’m going to share with you in this chapter, then get on with enjoying your businesses successes.

It’s important to recognize that the possibility you might at some point be sued and even lose a lawsuit is only part of the reason you need to understand and apply sound asset protection techniques. You want to protect what you’ve worked so hard to get from other claims, you want to keep your taxes as low as possible, and you want your heirs–not the government—to get your estate when you die.

A problem you’ve prepared for isn’t anywhere near as damaging as a problem that blindsides you. When you’ve developed strategies for dealing with assaults on your assets, you’ll know what to do when it happens, and you’ll be able to stay calm and in control. If you panic, you’ll lose control and make stupid mistakes that will cost you dearly. If you prepare for a disaster that never happens, you haven’t lost anything. But if you aren’t prepared when disaster strikes, you could lose everything.