Dangerous Asset

DEFINITION of 'Dangerous Asset'

An asset which, by its nature, creates a substantial risk of liability to the asset owner. Dangerous assets include commercial real estate, motor vehicles and construction equipment.

Risk of personal injury and/or property damage is higher with dangerous assets. For example, a truck, by its mere use, has the potential to cause physical harm to its occupant as well as bystanders.

BREAKING DOWN 'Dangerous Asset'

Because dangerous assets carry with them a greater risk of liability for personal injuries and property damage, for asset-protection purposes a single business entity should not own more than one dangerous asset. In addition, dangerous assets should not be commingled with safe assets.

For example, if your limited liability company (LLC) owns your commercial real estate as well as your company's bank accounts, a person who is injured while on the property could sue the LLC and not only pursue the property to satisfy his/her claim, but the business bank accounts as well.

Often, it's best to place a dangerous asset, such as your business property, in a separate entity, such as a real estate trust, with your safe assets held in a family limited partnership (FLP) or LLC.