What do house hackers need to know about estate planning and protecting their assets? Strategic Partner Pam Maass Garrett is a lawyer who specializes in estate planning and shared the most ...
What do house hackers need to know about estate planning and protecting their assets? Strategic Partner Pam Maass Garrett is a lawyer who specializes in estate planning and shared the most important things house hackers need to consider when it comes to wealth preservation and protecting themselves.
She gave us her top 5 tips house hackers need to know to protect themselves, their families, and their property.
Three Learning Options! Listen to the podcast "#414: Is Your House Hack Protected? 5 Moves You Can Make Right Now" Denver Real Estate Investing PodcastWatch the YouTube video (at the bottom). Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
How Is Estate Planning Different for House Hackers?
Before we dive into the tips, it’s important for house hackers to understand that estate planning looks different for them compared to other real estate investors.
Even though you’re living in the property, you need to look at your house hacks as a business. In many ways, house hacking is analogous to owning an apartment complex. There are multiple tenants and common areas, and you need to consider the specific liability that comes with both of these.
1. The Time to Start Planning Is Now
You don’t want to put your asset protection or estate plan in place after something bad happens. Making moves after the fact can be considered a fraudulent transfer, and Colorado has a harsh fraudulent transfer act.
Pam once represented a woman who was sexually assaulted by her doctor. The woman reported it to the medical board, after which the doctor started moving his real estate assets into his wife’s name. When Pam found out about this, she went to a judge and was able to freeze the doctor’s assets by arguing that he was getting rid of assets in a way that would deprive her client from being able to collect what she was due. Although they settled the case, Pam could have further pressed for additional damages because of his actions.
Moral of the story: create a plan ahead of time and never move things around after the fact.
2. Get the Right Insurance in Place
Because you’re running a business, you want to get insurance that reflects that fact. A typical homeowner’s insurance policy won’t cover everything, such as tenant injury or flood damage. Work with a broker who’s familiar with commercial insurance and can provide you with the necessary coverage.
As the property owner, it’s your responsibility to be aware of potential dangers on the property. Whether it’s an unsafe stairwell or a dog who bites, you are on the hook if something happens on your property. Make sure you resolve potential issues, screen tenants thoroughly, and get the proper coverage.
Finally, it’s important to make sure your tenants have renter’s insurance. Because you’re in a situation where one tenant has the potential to damage other tenants’ property, everyone needs to be covered. You don’t want to be responsible for a tenant who left the water running and ruined other people’s belongings.
3. Plan for Disabilities
Here are some sobering statistics: 1 in 4 people will be incapacitated at some point. 30% of all people ages 35-65 will suffer a disability for at least 90 days, and at least 1 in 7 will become disabled for at least 5 years or more.
What does this mean? It’s vital that you get long term disability insurance, and have a plan for someone to step in and take care of your property if you are unable. Loved ones can’t automatically step in and pay bills, which means you could end up losing your property.
Create a plan and get insurance to protect yourself against this outcome.
4. Plan Ahead for Death and How to Preserve Your Wealth
A lot of house hacking clients are young and don’t think about dying. But the reality is that if something were to happen, having no plan means your assets go through probate.
view more