what’s the difference between a trust and an llc for protecting your assets?
A trust provides some measure of anonymity. An LLC limits liability exposure to only the assets held by the LLC. Think of the trust as a cloak of invisibility that makes your assets difficult to detect. Once detected, the LLC provides the armor that shields your assets from attack in the event of a lawsuit.
If an attack is successfully mounted, only the assets owned by the LLC are vulnerable, your personal assets are safe. Your liability insurance carrier will provide an attorney to represent your LLC, while any judgement that may be awarded to the plaintiff in the case will be covered by your insurance up to the limits of liability you purchased.
Dave, could you offer more details on this liability insurance? Where would we get it and does it have a specific name other than liability insurance, which sounds like the Errors and Omissions insurance I have as a Realtor?
When you own real estate, you purchase hazard insurance to protect yourself from severe loss in the event your property is completely destroyed by a covered hazard.
Liability insurance is a rider you purchase with your hazard insurance. A $1MM liability rider only adds about $25 to my annual hazard insurance premium. I purchase the maximum liability rider the insurance company will allow for each rental property I own.
Additionally, you can purchase an umbrella insurance policy as a second line of insurance defense to kick in when your losses are greater than your primary insurance policy’s coverage.
Liability insurance coverage is not limited to your investment property. You could purchase liability insurance coverage with your homeowners policy and with your automobile policy.
Dave, thanks so much for laying out those details for me. Makes total sense now.