Asset Protection for Your Primary Residence

Your primary residence, or the home you use more than any other housing options, is often entitled to special treatment. Even better, Oklahoma law allows you to maximize that treatment by using asset protection strategies that fit your unique circumstances. Some state law asset protection is already guaranteed by statute, but the best protections require you to intentionally choose how to structure your real estate ownership.

Timing of Asset Protection

All asset protection strategies are only effective if planned and executed BEFORE an issue arises. Once you or your property are the subject of a lawsuit or creditor claim, the opportunity to gain protection through changing ownership or property details is significantly reduced.

Cost of Asset Protection

Each structure and strategy is also dependent upon each person’s financial position – some will be required to obtain bank or lender agreement for their methods while those with strong cash/liquidity positions generally have more options available to them through not having to obtain outside approval. The cost of legal services to plan and achieve asset protection strategies usually varies depending on the complexity of the plan and the number of assets being protected.

How to Own Primary Residence – The Most Common Strategies in Oklahoma:

• Option 1: In Your Personal Name. This strategy allows you to maximize tax benefits, but will require either an affidavit of surviving joint tenant or a probate (or both) upon the passing of the owner(s). Another benefit to owning a primary residence in your personal name is that the risk of losing a state homestead exemption is effectively eliminated.
• Option 2: In A Revocable Trust. This strategy has the primary benefits of completely avoiding probate and giving the trustee complete control over how to manage the property, while preserving the option to change strategies in the future. Learn more about revocable trusts and estate planning here.
• Option 3: In An Irrevocable Trust. This strategy is less common than revocable trusts for primary residences, as it requires the owner to surrender control, reducing the ability to change strategies in the future. Learn more about irrevocable trusts and estate planning here.
• Option 4: In An LLC. This strategy is most common for individuals who intend to live in their primary residence for a short time then convert their primary residence into a rental, such as those who follow the 2-year rule to minimize capital gains taxes. Learn more about Oklahoma LLCs here. Learn more about primary residence capital gains here.
• Option 5: Creative Strategies. Other options and structures are available but are not usually advisable for most people. These strategies are also more prone to legal and governmental challenges.

Tips for additional protection for your primary residence:

• Tip 1: Have adequate insurance. Protection for your property is solidified by having adequate insurance. Plan to have an annual insurance coverage review with your agent in order to make sure coverage keeps pace with your improvements and activities. Having sufficient insurance is crucial for avoiding judgment creditor claims in the first place. This is especially true if you’re conducting business on your property, such as licensed medical marijuana growing or production, or cash leases for agriculture or hunting.
• Tip 2: Know the homestead exemption for real estate. Each state has specific rules for what value, square footage, or size of real estate parcel can be held as exempt from creditor claims. At the time this article was initially published, the Oklahoma exemption protects a person’s homestead of up to 1 acre (if within a city/town) or 160 acres (if outside city/town limits) from being forcibly sold to pay creditors no matter the market value of the property.
• Tip 3: Operate your closely-held business with best practices. When solo or small family companies are the target of a lawsuit, contract claim, or creditor claim, it is very common for would-be creditors to attack the business owner’s personal name in an attempt to gain access to the owner’s personal assets; this is known as piercing the corporate veil. Learn more about protecting Oklahoma LLCs here.

Contact Avenue Legal Group to discuss asset protection strategies for your property.