You may be surprised to learn that for doctors or other professionals, their practice is likely one of their riskiest assets. But, what about your office building or other real estate? If your office building or other real estate have substantial equity, they are obviously valuable assets. Therefore, it is not a good idea to combine ownership of these non-risky assets with more risky ones such as a professional practice. A common solution is to create a limited liability company (“LLC”) to hold valuable assets such as your office building and create a separate entity for your professional practice which will then pay rent to the LLC. Depending on the type of lease, the LLC will generally pay the mortgage and expenses on the building.
How Do You Protect Your Primary Residence?
This is often some of our clients’ biggest assets, after all it is your primary residence. Consider homestead laws where if you live in certain states your house is protected. For example, if you live in Florida your house is completely protected. If you live in Texas your house is also protected. Effective January 2021, the homestead exemption in California was increased to between $300,000 – $600,000 depending on where you live which was long overdue given California’s high home prices. Most states are like California and provide only limited homestead protections.
So What Happens If You Live In A State With Weak Homestead Protection?
It’s important to understand where you should hold your home. Your primary residence will either go in your name, your family limited partnership or your asset protection trust. For most cases, your primary residence will go in your asset protection trust, but it can be put in your individual name. The trust is essentially where you want your primary residence. This gives you all the benefits of primary residence ownership, tax benefits, tax-free capital gain, and the home interest mortgage deduction. It protects the home while maintaining all the benefits of a primary residence. If you are not in a great homestead state, that’s the place you want to be.
We would be happy to discuss your individual situation and how we might help you better protect your assets.
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