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"If You Own Rental Properties or a Business,

Are Your Personal Assets at Risk?"


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Estate Planning Update
July 2012

Unfortunately, we live in a very litigious society in which any one of us may be sued at any time. Consequently, it is prudent to proactively limit our potential liability as much as is practicable.

Who might sue us?
If you own rental properties or a business, it is vital to remember that anyone who enters your property or does business with you is a potential claimant - e.g., employees, customers and guests of your business; tenants and their employees, customers and guests; delivery persons; etc.

If you are a landlord, and your tenant or an employee, customer or guest of your tenant is injured on your property, you should expect an aggressive plaintiff's attorney to sue you if there is any plausible basis for claiming that you were negligent for not properly maintaining your property or for failing to protect the injured party from illegal activity being conducted on your property.

If you own rental properties, are they titled in your name?
If you own rental properties, and they are titled in your individual name, you face a significant risk of loss. Potentially all of your personal assets - e.g., your home, assets in bank and brokerage accounts, valuables, etc. - could be awarded to a successful claimant.

If you own a business, are you operating it outside of a limited liability entity?
If you operate your business as a sole proprietorship, or as a partnership without having registered it with the California Secretary of State, again you could lose all of your personal assets if you are successfully sued.

How should you protect your personal assets?
The two best ways to protect your personal assets from being taken by a successful claimant are (i) to maintain liability insurance, and (ii) to form a business entity with limited liability to hold your rental properties or operate your business.

Purchasing liability insurance is an important first step to limiting your potential losses. However, if you owe damages in excess of your policy limits, and you hold your rental properties or operate your business in an individual capacity, your personal assets may be taken to satisfy the judgement against you.

Alternatively, if you hold your rental properties in a limited liability company (LLC) or limited partnership (LP), or you operate your business as a corporation, LLC or LP, your potential losses will usually be limited to the assets of your business entity. In other words, although a tenant, customer, etc. may win a judgment against your business entity, your personal assets will likely be protected.

The ideal business entity to utilize for a particular situation depends on a number of factors, including the type of property or business, preferred management structure, tax consequences, etc.


Please contact me at 323.654.9513 or if you would like to find the best way to protect your personal and business assets, or to discuss any aspect of your current estate plan.


Brooks Paley, J.D., LL.M.

Attorney at Law


About Paley Law Corporation
Paley Law Corporation is based in Los Angeles and specializes in providing personalized, sophisticated estate planning and related legal services. Brooks Paley, J.D., LL.M., is the managing principal of Paley Law.  Brooks has been a member in good standing of the State Bar of California since he was admitted in 1993. He is a member of the Trusts and Estates Sections of the State Bar of California, the Los Angeles County Bar Association, and the Beverly Hills Bar Association. Brooks earned his Master of Laws in Taxation with High Distinction at Loyola Law School Los Angeles, his Juris Doctor at the USC Gould School of Law, and his Bachelors Degree at Stanford University.

The above material is provided for general informational purposes only and is not intended to constitute legal advice in any particular matter. Transmission of this material does not create an attorney-client relationship. Paley Law Corporation does not warrant the content of this material and is not responsible for any errors or omissions associated with it.

To ensure compliance with requirements imposed by the Internal Revenue Service, Paley Law Corporation informs you that any U.S. tax advice contained in this communication (including any links to other websites or material) is not intended to be used, and cannot be used, for purposes of (i) avoiding penalties imposed under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.


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2012 Paley Law Corporation