Why Real Estate Should Never Be in Your Personal Name?

This morning, I received a phone call from a real estate investor/developer. Unfortunately, this person is filing bankruptcy and he wanted a referral to a reputable bankruptcy attorney. My law firm does not do bankruptcy.

His problem was he had several mortgages and structured all of his real estate in his personal name and him and his wife's name. This is a common problem that has occured because I have been counseling these families the last couple of years.

For example, if you own your own commercial building, do not have it in your name or your wife's name. It also should not be titled in your business name. This is a big no-no. If your business experiences economic troubles, your real estate is considered a business asset if the title is in your business name. Thus, your commercial real estate property make prevent you from filing bankruptcy because you are afraid of losing your property.

Assume you have a business named ABC Carpenting, LLC and you own your real estate property in you and your wife's personal name. At a minimum, you should consider placing the property in a Private Land Trust. A private land trust is a strategy where liens and judgments do not attach to the property. Thus, if you have a foreclosure on a different property, you can still own the property referenced above and you will not lose it. A private land trust also provides you privacy and simple estate planning. You can designate your beneficiary or beneficiaries with a private land trust. Generally, the beneficiary of your private land trust is a LLC. However, it is a different type of LLC called a Family LLC/Partnership. Thus, there will be voting and non-voting membership interests. This is similar to purchasing shares of stock in IBM. Your owners and entrepreneurs often take 1% of the ownership of voting shares in their personal name or a S corporation's name. The other 99% ownership of the LLC is in non-voting shares. Typically, I like the non-voting shares to be titled in an irrevocable trust or business entity such as a LLC or S corporation. The goal is to make your real estate property judgment proof and protectable against your creditors. This is a very short explanation of what occurs and how to properly structure your real estate.

By no means does this substitute for experienced legal advice. Sean Robertson can assist you by calling either (312) 498-6080 or (630) 364-2318. Sean Robertson concentrates in business and corporate law, asset protection, and commercial litigation.