Protecting Rental Properties from Creditors

Under Florida law, your homestead property, or primary residence in Florida, subject to some limitations, is exempt from creditors trying to collect debts from you. However, other real estate you own, such as rental properties, are not similarly exempt. Likewise, your rights to income from those properties, such as the right to receive rental income, are not exempt from collection efforts by creditors. A Florida asset protection lawyer at Kramer Green can evaluate your situation and determine the best means of asset protection for your rental properties and any income from them.

Liability and Your Rental Properties

Operating any type of business, including owning and operating rental properties, always puts you at a greater risk of legal liability. Injuries at rental properties that you own, lease disputes, and other legal claims can threaten your business and personal assets. While sufficient insurance coverage is always your first line of defense, there are situations in which insurance policies are inadequate to satisfy judgments against you.

Similarly, if you are sued personally for a debt, a motor vehicle accident, or another type of claim, and a court enters a money judgment against you personally, creditors may be unable to garnish your wages if you are the head of your household. Likewise, your homestead is exempt from creditors under Florida law. As a result, creditors may look to your rental properties as a source to satisfy their judgments. Therefore, taking proper precautions to insulate your rental properties and the income you derive from them is critical.

Ownership of Rental Properties

In almost all circumstances, you should not personally own the rental properties. Instead, it would be best to place titles to the rental properties in a business entity that creditors cannot easily reach through their collection efforts. For instance, if you place your rental properties in an LLC, a plaintiff with a judgment against the LLC could go after any assets owned by the LLC but not your personal assets.

Conversely, you can further protect your assets by establishing a multi-member LLC. Under Florida Statutes §605.0503, a creditor’s exclusive remedy against this type of LLC is a charging order, which gives the creditor a lien against any distributions of cash or other property to the debtor. However, if the LLC distributes no money or other income to the debtor, the creditor receives nothing; the undistributed funds can remain within the LLC, and the creditor has no other recourse. These types of laws prevent a creditor from using LLC assets to satisfy the personal debts of a member of the LLC and taking over the member’s role in the LLC.

Of course, using an LLC to hold your rental properties has other advantages, too. For example, you can make a living trust the owner of an LLC to avoid probate and estate taxes and provide for asset management should you become incapacitated. You can also easily transfer property ownership to family members through membership interests in the LLC.

Florida Land Trusts

Establishing a Florida land trust is another means of asset protection for rental properties. A land trust converts an interest in real property into an interest in personal property through a contract between the trustee and the trust beneficiary, which can be either an individual or an LLC. The trustee holds title to the property, so the beneficiary’s creditors, whether an individual or a business entity, cannot reach the property.

Nonetheless, if a creditor discovers that an individual or entity is a land trust beneficiary, the creditor could attach their interest in the land trust. However, since land trusts are wholly private, they are nearly impossible for creditors to discover. As a result, if set up correctly and in advance, using a land trust can be an effective way to shield rental properties and income from those properties from the reach of creditors.

Allow Us to Assist You with Your Asset Protection Needs Today

An asset protection attorney at Kramer, Green, Zuckerman, Greene & Buchsbaum, P.A. can provide the tools to protect your rental properties and any income that they generate from your personal liabilities. We know how to provide you with the maximum asset protection available to safeguard the rental real estate portfolio and income that you have worked to accumulate over time. Call us today at (954) 966-2112 or contact us online to set up a time to discuss your legal issues with our experienced asset protection lawyers.

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