Asset protection is the concept of and strategies for guarding one’s wealth from third parties. Asset protection is a component of estate and financial planning intended to protect one’s assets from creditor claims. Individuals and business entities use asset protection techniques to limit creditors’ access to certain valuable assets while operating within the bounds of debtor-creditor law.
- Asset protection refers to strategies used to guard one’s wealth from taxation, seizure, or other losses.
- Asset protection helps insulate assets in a legal manner without engaging in the illegal practices of concealment (hiding of the assets), contempt, fraudulent transfer (as defined in the 1984 Uniform Fraudulent Transfer Act), tax evasion, or bankruptcy fraud.
- There are many legitimate strategies and techniques that work as asset protection.
Understanding Asset Protection
Asset protection helps insulate assets in a legal manner without engaging in the illegal practices of concealment (hiding of the assets), contempt, fraudulent transfer (as defined in the Uniform Fraudulent Transfer Act), tax evasion, or bankruptcy fraud. Experts advise that effective asset protection begins before a claim or liability occurs, since it is usually too late to initiate any worthwhile protection after the fact. Some common methods for asset protection include LLCs, Corporations, asset protection trusts, accounts-receivable financing and family limited partnerships (FLP).
If a debtor has few assets, bankruptcy may be considered the more favorable route compared to establishing a plan for asset protection. If significant assets are involved, however, proactive asset protection is typically advised. Certain assets, such as retirement plans, are exempt from creditors under United States federal bankruptcy and ERISA (Employee Retirement Income Security Act of 1974) laws. California, in particular, specifically provides for the use of Retirement Trusts as a method of asset protection.
In addition, many states allow exemptions for a specified amount a home equity in a primary residence (homestead) and other personal property such as clothing. Each state in the United States has laws to protect owners of corporations, limited partnerships (LPs), and limited liability corporations (LLCs) from the entity’s liabilities.
The usual real property asset protection strategies and planning we provide to our clients include, but are not limited to, the following:
- Privacy of Ownership
- Limited Liability Companies
- Limited Partnerships
- Anonymous Land Trusts
- Titling methods
- Equity Stripping
- Pre-Creditor, gifting and other transfers
- State Exemptions
- Avoiding Risky Situations
- Dividing up ownership of real properties among separate entities
- Off shore design, planning and structure
We review brokerage agreements presented to our clients by real estate brokers.
There is more than one form of brokerage agreement, each with different legal consequences. It is usually wise to have us review the form of agreement presented to you for signature BEFORE you sign it.
We provide review, analysis, drafting, and advising on real property CC&Rs.
Covenants are often referred to as “covenants, conditions, and restrictions” or CC&Rs, a term commonly found in real estate documents. Most covenants involve some kind of condition or restriction placed upon the buyer, and therefore the collective term “CC&Rs” has been more widely used in recent years. This is done to indicate the existence or future existence of limitations associated with the use of the land.
CC&Rs are used by many “common interest” developments, including condominiums and co-ops, to regulate the use, appearance, and maintenance of property. CC&Rs, most commonly drafted and enforced through homeowners’ associations (HOAs), often restrict what homeowners can do on their property.
If you buy a home, like a single-family home, in a planned, covenanted community, you’ll most likely be required to be part of a homeowners’ association (HOA). The rules of the HOA community are described in the CC&Rs). The CC&Rs describe the requirements and limitations of what you can do with your property. The goal of the CC&Rs is to protect, preserve, and enhance property values in the community.
We review and prepare construction contracts.
Notice: Construction projects are often complex. Often, they involve multiple parties.
There may be numerous entities including the owner, the general contractor and subcontractors, for a single construction project.
Contracts are imperative to establish who is responsible for completing specific work within a particular time-frame and at the contractual price. Construction contracts are designed to protect our clients’ interests in many different situations, such as when change orders occur on the project or when payment issues arise.
We advises upon, review, negotiate and prepare development agreements.
A development agreement is a contract between a local municipality, such as a city or county, and a property owner whose land is located within the municipality’s jurisdiction.
The development agreement sets forth the obligations of both parties. It sets forth the various standards and conditions that will control development of the property. Although the parties may enter into a development agreement on a voluntary basis, once the agreement is signed, it becomes binding on all parties, as well as their successors in interest. Therefore, all of the laws and regulations pertaining to contract formation, breach, and termination will apply.
We provide “Due Diligence” services to our real property clients.
Due diligence in real estate is determining whether the property is going to fit your needs. If you’re buying residential property to live in, you need to know that the house isn’t ready to fall down or that you won’t have unexpected expenses piling up. If you’re buying real estate as an investment, you want to make sure that it’s actually going to make you money before purchasing it. Buying real estate is a big financial commitment, so you should also be investing some time in making sure you know what you’re buying and that you’re getting a fair deal. Due diligence includes surveys, title searches and hazardous waste investigations.
Whether acquiring raw land for development or property improved with existing residential or commercial buildings, buyers need assurance that the property is suitable for the buyer’s intended purpose. Buyers also need to know the property’s condition and state of repair (or disrepair). A buyer’s review of the physical aspects of the property and the various factors that affect its use and value is commonly known as “due diligence.”
The importance of a buyer’s careful investigation of the property cannot be overstated. Buyers are advised not to rely too much on the representations and warranties in the purchase contract, but to treat the purchase as if it were an unqualified “as-is” purchase. Litigating defects or misrepresentations after closing is rarely a satisfactory substitute for a well-conducted, thorough due diligence investigation
We provide legal advice and document preparation regarding easements.
An easement is a legal right to use someone else’s land for a particular purpose.
For example, the municipal water company may have an easement to run water pipes under your property. Your name is on the deed (you’re the title holder and the property owner), but the water company has the right to use a part of your property for its pipes.
Easements are sometimes in writing and referred to in property deeds or title papers prepared by a title insurance company or attorney.
Easements are related to the parcel of the land they affect. They don’t change when the property changes hands. Subsequent owners are obligated to let whoever owns the easement use the property. As a result, anyone buying a real property should be certain to find out exactly what easements a property is subject to before finalizing the purchase. This is done for the most part by a title report prepared by a title company. However, some easements are not recorded and would not be discoverable by a title search.
There are several types of easements, including the following:
- utility easements,
- private easements,
- easements by necessity, and
- prescriptive easements (acquired by use of property).
We provide comprehensive estate planning for owners of real property.
Real property can make up a significant portion of a client’s gross estate. The property may include the client’s personal residence, rental properties, vacant land, or real property held as part of the client’s business. We assist in gift and estate planning for the client by helping to determine the most advantageous way to hold real property or the best way to transfer real property during the client’s lifetime or at death.
We review, negotiate and prepare Personal Guarantees.
The term personal guarantee refers to an individual’s legal promise to repay credit issued to a business for which they serve as an executive, shareholder or partner. Providing a personal guarantee means that if the business becomes unable to repay the debt, the individual assumes personal responsibility for the balance. Personal guarantees provide an extra level of protection to credit issuers who want to make sure they will be repaid.
We advise, review and prepare documents related to Hazardous waste matters.
Concern about toxic contamination has become a primary issue in acquiring, selling, and leasing real property. In representing a client in a purchase and sale or lease transaction,we guide the client through the toxic investigation and evaluation process and negotiate a buyer’s or seller’s (or lessor’s or lessee’s) rights and obligations regarding toxic contamination that may exist on or under a parcel of land or in a building.
We provide legal advice to our clients during the leasing phase of a lease agreement.
During the term of the tenancy, the rights and duties of the parties are governed primarily by the lease or rental agreement between them unless the state legislature, a local governing body, or the courts adopt standards that override the contract terms, which happens frequently. Because leases function as both conveyances of real property interests and contracts, practitioners we first review the lease or rental agreement to determine what rights and duties it creates. In the absence of an agreement, and even with an agreement, there are certain areas of overriding public importance, for which statutory or case law may govern the transaction in part, create an implied right in the tenancy, or provide an express, complementary right. Thus, we consult not only the lease but also statutory law (federal, state, and local) and case law.
We have found that some property owners continue to use older forms of pre-printed leases or rental agreement forms that may not comply with current law. For your protection, you should nearly always allow us to prepare your lease agreement. That way you will have one that is legally up to date and is designed to address your specific needs.
We negotiate, review and prepare lease agreements.
A lease agreement to lease real property is a written contract concerning the rights and obligations between a landlord and a tenant.
There are several types of leases:
- Other types
We negotiate, prepare and render advice to our real property selling or purchasing clients concerning Letters of Intent (LOI).
As a general rule, we recommend the negotiation, preparation and signing of a non binding letter of intent before entering into a more formal real property Sale and Purchase Agreement. The reason is that the parties can avoid a lot of wasted time, fees and costs if there are terms that one party or the other would never agree to. The LOI helps to find this out at the beginning of negotiations. Your LOI should be prepared by this office because I have seen parties think they were signing a non binding letter or covered all the terms in the LOI, which turned out not to be true.
A letter of intent is a writing in which the parties to a proposed transaction state a mutual interest in or commitment to one or more important terms of an agreement and, in most cases, show a mutual intention to prepare a more definitive contract to embody the complete agreement.
A letter of intent may take a variety of forms, e.g., a commitment letter, a memorandum of agreement, or an agreement in principle. The document may be a formal writing or an informal letter. The letter of intent may be expressly legally binding in whole or in part, or it may be legally nonbinding. In real estate sales transactions, letters of intent are usually intended to be nonbinding.
The distinguishing characteristic of a letter of intent is that it does not and is not intended to contain all the terms and conditions contemplated by the parties to be part of a final complete contract for the deal. Rather, it is intended to contain only the important business and financial terms.
Although the parties may not intend the business terms contained in a letter of intent to be binding, by using a written letter of intent without the LOI containing the correct language, the parties may implicitly or mistakenly make a binding agreement or agree to negotiate in good faith. By failing to negotiate in good faith a party may be subject to damages suffered by the other party. The parties may specifically provide in the letter of intent that there is no obligation to negotiate in good faith, but such a provision may have a chilling effect on the continuing negotiations.
We provide legal advice and document preparation concerning real property licenses.
People, and sometimes courts, sometimes confuse the terms ‘license’ and ‘easement’. They wrongfully use those terms interchangeably. But they are vastly different rights, with different legal consequences.
There are differences in what uses the holder can make of the property, what the owner of the property can do about, and what happens if the property is transferred or the right is assigned to someone else.
A license gives the holder legal authority to perform some act on property of another, or use the property in some way. It gives the holder a personal privilege, but not an interest in the land itself. It can generally be terminated or revoked by the grantor / property owner at anytime. If the owner of the property transfers the property, the license is automatically revoked. Any attempt by the holder of the license to transfer it or assign it automatically terminates the license. Because it can be terminated at any time, a license is not insurable by a policy of title insurance. It is not subject to the statute of frauds, so it can be created orally as well as in writing. A license is a permissive use, as opposed to adverse possession or a prescriptive easement.
An ‘easement’ is a present interest in real estate, giving the holder a right to the real property and the ability to bring a suit for trespass or ejectment. Because it is an interest in the property itself, it is subject to the statute of frauds, so must be granted in writing.
However, a license can become irrevocable, and thus for practical purposes similar to an easement. This can occur when, in reasonable reliance on the license, the licensee spends time and a substantial amount of money on improvements, with knowledge of the property owner, such that it would be unfair to terminate the license. The license then continues for as long a time as the nature of the license calls for. The license becomes irrevocable on the grounds of something called ‘estoppel.’
Once the license becomes irrevocable, it is treated like an easement. If the property is transferred, the license is not automatically revoked, but is transferred with the land. The holder of the irrevocable license may transfer or assign the license. Irrevocability adds a lot of weight and legal rights to a license. Landowners who grant licenses must take care to clearly define the license, and pay attention to what is happening on their property.
We provide loan related negotiation services. related to the process of obtaining financing secured by commercial or residential real property. This includes the following:
- The role of the loan broker
- Types and sources of financing
- usury issues
- Concerns of lender’s counsel
- Concerns of borrower’s counsel;
- Negotiating techniques for specific loan terms; and
- The advantages, disadvantages, and requirements of conduit financing.
We provide legal counsel, guidance and planning as well as preparation, review, analysis and negotiation of real property option agreements.
An option- to-purchase agreement is an arrangement in which, for a fee, a tenant or investor acquires the right to purchase real property sometime in the future. Option contracts are used in both commercial and residential real property transactions.
We have advised upon, negotiated, reviewed and prepared numerous Real Property Purchase and Sale Transactions and Agreements.
A California purchase and sale agreement is a contract between an individual/entity selling a property and the individual/entity intent on purchasing said property. The parties, buyer and seller, will settle the terms of this agreement to arrive at a mutually beneficial arrangement. A price will be set by the seller (and perhaps negotiated by the buyer) and a closing date for the sale will be implemented. A purchase and sale agreement will also contain covenants and provisions covering everything from financing options and earnest money to property condition and inspections. It is the seller’s duty, by law, to include a disclosure notifying the buyer of any issues concerning the condition of the property.
Our role in a real estate transaction will vary widely, depending on what we are asked to do, the complexity of the transaction, the real estate experience of the seller and the purchaser, the stage at which our assistance is sought, and whether the property is commercial or residential. Many sellers and purchasers who are experienced in the acquisition and sale of real property may engage counsel for very limited purposes—for example, to draft a purchase agreement for the seller, or to review a buyer’s comments to the seller’s purchase agreement and to advise the seller as to acceptable changes, or to review the title condition of the property for the purchaser. If either of the parties is inexperienced, we may have a more extensive role in the transaction.
We represent landowners and developers who seek to subdivide real property.
The California law concerning subdividing real property are complex and elaborate.
By subdividing your piece of property into multiple lots, you will potentially increase its uses and reap additional profit. The property’s marketability might increase as you attract additional potential buyers, who perhaps wouldn’t have been interested in a large piece of land or (if you plan to build before selling) unimproved land.
Simply stated, by subdividing you are creating more properties that can be sold to different people. Nevertheless, if it were that easy, then everyone would subdivide.
Almost any time someone subdivides California property—whether the land is improved (has buildings or structures on it) or unimproved, and whether the owner’s purpose is to sell or lease the resulting portions, it’s considered a subdivision, which must comply with applicable laws. (See Cal. Government Code §§ 66410 et. seq. and Cal. Business and Professions Code §§ 11000 – 11200.)
Much of what these laws set forth, however, is a delegation of authority to local governments, which will thus play an important role in evaluating your project and issuing needed permits.
The most common form of a subdivision is a condominium project. Even an ordinary person selling portions of a piece of property falls under California’s laws on subdivisions, however.
Before you go too far with your plans, make sure there is truly an interested pool of people wanting to buy lots in a proposed subdivision in your area. To find this out, reach out to qualified real estate agents and homebuilders for information on whether the market wants your proposed lots.
If you are not in the construction business, you should consider selling your vacant subdivided property to a homebuilder who can then do the construction.
Your plans to subdivide must consider:
- whether you bought the property subject to any existing restrictions
county and/or city rules and regulations regarding subdivisions, and
- California state law requirements.
We have handled a large number of real estate transactions and performed tax analysis and planning on nearly all of them.
The subject of real estate taxation is broad and complex. It encompasses most areas of taxation—basis, holding period, capital versus ordinary gain or loss, capitalization versus current deduction, depreciation, credits, gain deferral, gain exclusion, and many more. It also includes California property taxation.
YAHNIAN LAW CORPORATION provides tax planning and reporting guidance for real estate transactions. Our services cover issues (e.g., passive activity loss limitations and interest capitalization) that are not unique to real estate transactions but are commonly encountered by clients owning interests in real estate.
Real estate transactions are frequently a source of tax controversy. Taxpayers naturally try to structure such transactions to receive favorable capital gains or beneficial current deduction tax treatment. The IRS, however, may challenge this tax treatment. This creates substantial taxpayer/IRS conflict. This conflict is worsened because real estate transactions typically involve large dollar amounts.
Real Estate Businesses
Taxpayers in the real estate business have a continuous interest in real property taxation. These businesses include the following:
- Residential rentals (e.g., single-family and multifamily).
- Retail outlets (e.g., stores, restaurants, shopping centers, and malls).
- Commercial (e.g., office buildings).
- Industrial (e.g., warehouses and manufacturing facilities).
- Related businesses such as construction contractors, brokers, and management companies.
Real Estate Taxation and Planning involve all of the following:
- Form of Ownership
- Acquisition of Real Estate
- Subdivision and Development
- Limitations on Real Estate Losses
- Dispositions of Real Estate including tax free exchanges
- Tax Depreciation and Credits
- Personal Residences
- Estate Planning
- California Property Taxes
We have advised upon, structured and documented numerous like kind exchanges of real property.
Steve Yahnian is an Attorney/CPA/CFP® with a Masters in Taxation from NYU, and a Tax Certificate (With Distinction) from UCLA. He is also a California State Bar Board of Legal Specialization Specialist in Taxation.He also has a separate accounting practice called DSA ACCOUNTING.
As tax specialists, we both analyze tax law and render tax opinions. We also provide tax planning and provide documentation to structure various tax planning techniques and tools.
Like-kind exchanges (1031 exchange) can be an important tax savings device for people who own investment property that has gone up in value.
In a like-kind exchange (also called a Section 1031 exchange), you can defer paying taxes upon the sale of property by exchanging your property for similar property owned by someone else. The property you receive in a like-kind exchange is treated as if it were a continuation of the property you gave up. The result is that you postpone the recognition (taxation) of gain by shifting the basis of old property to the new property. So you defer paying taxes on any profit you would have received and own new property instead.
For more information see our affiliated website YAHNIAN TAX section discussing Like Kind Exchanges: YAHNIAN TAX LIKE KIND EXCHANGES