One of the most common questions I receive is about protecting home equity. It makes sense as for many people, a home is one of the most valuable assets they own. Also, living in the Seattle area, the real estate market has been growing at an incredible rate! Home owners are seeing their equity sky rocket and in turn get a bit nervous about how to protect that equity from lawsuits and creditors. Check out the video to learn about how much equity is protected by state law and hear what common mistakes home owners often make.
Colin Ley is a Seattle asset protection attorney. He is also the co-founder of LayRoots along with his wife, Shreya.
Protecting Home Equity Video Transcript:
Hi Colin Ley here with LayRoots, and I want to talk to you about protecting your home equity. As an asset protection attorney, I get questions about how to protect that home equity from creditors, and real estate in Seattle is hot right now. A lot of people, if you’ve purchased your property a while ago, or even maybe just a few years ago, you’re going to have quite a bit of home equity. I met people with two million dollars of equity, a lot of other people with a few hundred thousand, it can represent a significant chunk of a person’s nest egg. People are wondering is my house safe from creditors, lawsuits, judgments, that sort of thing. The answer is sort of. In Washington state, you can protect up to a hundred and twenty-five thousand dollars in equity in your home.
Basically if your house has more equity than that, and somebody has a judgment against you, there’s a creditor after you, whatever, they can come in and sell your home, and take whatever is above that hundred and twenty-five thousand dollar exemption. You got five hundred thousand dollars in equity, they can sell it, you get that one twenty-five, and they get the difference, whatever that is, three hundred and seventy-five thousand. The answer is as long as you’ve got less than a hundred and twenty-five thousand in equity, your home is safe. If you’ve got more than that, then your house is not safe. How do you avoid that, or what kind of planning can you do to protect the extra equity in your home, there’s a number of ways.
Equity Stripping and Trusts
One common way is what’s called equity stripping, so if you take some of that equity and get maybe home equity line of credit, or something like that, that puts an additional lien on your house that might make it look like you don’t have as much equity in your home. Another way is, that I recommend for some people, is an asset protection trust. Basically that’s a trust that protects a trust property from creditors, but it also does not ruin or blow your capital gains exemption for your personal residence if you end up selling it.
Because that’s something … Some people try to put their house in an LLC. That’s a mistake because, well, it’s not a real business if it’s just holding your personal home, and therefore it’s not really going to provide you with any protection, since it’s essentially a sham business. Also, if it’s owned in an LLC, and it’s not owned personally, then you’re not going to get those capital gains exemptions when you sell the property. Thanks for watching. If you have any questions or anything, hit us up, [email protected] Take care.