For many individuals, their home is their largest asset, and they strive to pay off their home as quickly as possible. This is despite times and attitudes changing about having debt on personal residences or homes.
Whether a homeowner has paid their home debt or not, the values of homes in America, in general, have experienced significant appreciation. This means that many homeowners have $50,000 or more in equity.
While it’s an ideal situation, most states like Utah don’t protect home equities. As a result, homes become an asset that’s at risk to creditors, not unless homeowners file for Chapter 7 bankruptcy. In that case, homeowners can use the homestead exemption to protect some home equity.
In general, there are certain methods you can use to protect your home equity. These can include:
1. Tenant by Entirety (TBE)
This refers to a method that enables a husband and wife to hold the title to a home, but neither can modify his or her interest without the consent of the other.
2. Qualified Personal Residence Trust (QPRT)
This refers to a revocable trust, which is an estate-planning tool that individuals can use to avoid estate taxes.
3. Limited Liability Company (LLC) and Family Limited Partnership (FLP)
LLC refers to a private limited company that combines the pass-through taxation for partnerships or sole proprietorships, with the limited liability of corporations.
FLP, on the other hand, refers to a structure available for wealth preservation, via estate planning and asset protection in Utah, or even tax minimization.
4. Equity Stripping or Harvesting
This refers to a protection and financial planning tool where an individual takes out a loan against the home equity and puts the money in high-performing investments.
5. Intentionally Defective Grantor Trust
This refers to an estate-planning tool, wherein an individual can freeze assets as a shield against estate taxes. This, however, would not be helpful for income tax purposes.
With these options, you may find it difficult to choose which strategy would be best for you. Consulting with experienced asset protection attorneys will help you find the best way to protect your home equity.