If you have a rental property in Arizona, you may want to be proactive about asset protection. For example, if the gas heater explodes at your rental property and people are injured, you will likely be sued. One way to limit your liability or your exposure from a lawsuit is to have your rental property owned by a Limited Liability Company, or LLC. This will limit what creditors can reach to only the assets owned by the LLC rather than all of your assets.
Here in Arizona LLCs are fairly simple to set up and there is no annual reporting or annual fees. You must treat your LLC as a business, however, in order to get the benefit of asset protection. What does this mean? It means you must keep LLC monies separate from your personal assets.
First, create an LLC. After it is approved by the Arizona Corporation Commission, go to irs.gov to obtain an EIN number for your LLC. You will now use this EIN to open a new business account at a bank of your choosing. Whenever you get rental monies in, you are going to deposit those monies into the LLC bank account. If you buy something for the rental property, use your LLC debit card, or submit the receipt to the LLC to have yourself be reimbursed by the LLC. You will also need to talk to your accountant on how to properly file tax returns relating to the LLC.
Another way to help with asset protection is to make sure you have really good insurance including an umbrella insurance policy. Talk to your insurance agent to ensure you are adequately insured! If something happens and you get sued, not only can your insurance policy can cover the accident, the insurance company can also help defend the lawsuit. That means you won’t have to pay for attorney’s fees out of your pocket!
Additionally, register your rental property with the Assessor’s office in county in which the rental property is located. This costs about $10 in Maricopa County and ensures you are covered under the Arizona Residential Landlord and Tenant Act.
If you are interested in talking about some legal strategies for asset protection, please feel free to call our office at 480-497-3770 or check out our website for more information and educational videos at www.GilbertLawOffice.com.