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Asset Protection for your Personal Residence - YouTube
Channel: Clint Coons Esq. | Real Estate Asset Protection
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- Hi, Clint Coons here with
Anderson Business Advisors.
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And in this video, we're gonna discuss
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how to protect your personal residence.
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All right, let's get started.
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(rock music)
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Okay, so here's the deal.
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I get this question all the time.
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"Clint, how do I protect
my personal residence
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from creditors if I get sued?"
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Well, you have to be strategic about it.
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It's not like how we structure
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general real estate investments, okay,
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when we get complicated
with corporations, LLCs,
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holding LLCs and moving things around
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and partnerships involved.
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That doesn't work for
your personal residence.
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Because with a personal residence,
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we have to be sensitive to certain things.
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Number one, homestead exemption.
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Now what is a homestead exemption?
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Well, every state provides
some level of equity
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that a creditor couldn't take from you.
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If you lived in Florida and you had
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a personal residence in Florida,
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here's my property and
I had $800,000 in equity
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and someone came after me and
they get a judgment against me
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for a million bucks, they
can't touch that property.
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And that's why O.J. still lives in Florida
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because they can't take
his house from him.
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Now if he sells his house
and he converts the equity
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in his property to cash, well,
that's a different story.
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Now some states don't give you
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this unlimited homestead exemption.
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They may say, "Well, you
could hae $800,000 equity,
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but you only get 10K."
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That is, if a creditor
goes after this asset
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and they sell it at auction,
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you get 10K, creditors get $790,000.
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And you just look at
that and you're going,
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"Well, that's not fair.
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They can take my house from me.
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I want some protection."
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I get it.
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So what do we do?
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Well, one way to protect
your personal residence,
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I tell people, is to
understand where that lawsuit's
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typically gonna arise from.
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A residence is gonna be put at risk
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because of something
that we do personally.
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So you're out there and you're involved
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let's say in a car accident.
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You own this house.
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So somebody is going to sue you.
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They're not suing your house.
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They're going after your house
'cause they get a judgment
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against you for $1 million and
they wanna collect on this,
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so then they're gonna go after an asset
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that appears in your name.
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And so when a creditor's
now looking to collect,
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they're trying to figure out,
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what real estate is your name attached to?
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And sometimes they don't even try
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to take the house from you.
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All they do is record the
judgment in the county
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where your property's located,
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and the judgment now attaches
to your personal residence.
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So if you try to refi or sell,
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they know they're gonna get paid.
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Worst yet, many of
those judgment will grow
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at 10% statutory rates of interest.
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I mean, that's a great
investment for somebody.
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Just keep that judgment on an individual,
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and as they're paying their mortgage down,
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you're building more
equity for your creditors.
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So that's an issue,
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and how do we go about protect that then?
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Well, the first thing is,
we wanna get the property
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out of your name.
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So what I like to do
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is create a land trust here, land trust,
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and use a nominee trustee.
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Remember, in some of my other videos,
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I talk about using a Wyoming
LLC as a trustee over here?
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Why am I gonna do this?
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Because when I take my
property and I deed it out
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of my name into this type of structure,
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let's say the name of this LLC
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is D-10 LLC.
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So and the name of this
trust is Green Thumb Trust.
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So title now would read as follows,
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D-10 LLC Trustee
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of Green Thumb Trust.
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Right, I just truncated that down there.
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So that's how title's gonna read.
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It used to be in my name, Clint,
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but now it's no longer in my name.
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Now it's in the name of a trustee
in the name of this trust.
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So if I was sued personally
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and a creditor obtains
a judgment against me
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and they take that
judgment and they record it
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in the county where they think I reside,
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what's gonna happen is,
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that judgment will
attach to any real estate
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my name appears on.
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You see what I just did, though?
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I took the property out of my name,
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put it into this trust,
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so that property no
longer appears in my name.
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So that judgment doesn't stick to it.
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So what does that do for Clint?
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Well, it gives me the ability, then,
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to sell that property
and not have a portion
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of those proceeds taken out of escrow
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and paid to my creditor.
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All the proceeds would come to the trust,
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so I would have free access to 'em.
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If I can find a lender who's willing
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to refinance the property
in the name of the trust,
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I can refinance that property
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without having to pay that creditor off.
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So the land trust gets the
property out of your name,
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puts it in a vehicle that you're
no longer associated with,
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so judgments don't attach.
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So that's the first step in protecting
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your personal residence,
move it out of your name.
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If you live in an unlimited
homestead exemption state,
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I wouldn't, I would
still use this strategy.
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Why?
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Because when you sell that property,
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if you wanna move to another one,
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you live in say Florida, the problem is,
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once that becomes cash,
if they find out about it,
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they can go and garnish your
account and get that cash
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'cause it's in your personal name.
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So we wanna always keep it
out of our personal name.
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So the second step in
this overall structure
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is you could take your beneficial interest
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in the land trust if you so desire
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and create a second LLC down here.
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This is gonna be a disregarded LLC.
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What do I mean by that?
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A disregarded LLC does
not file a tax return.
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I'll typically set this up in Wyoming.
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So now I'll take my land trust
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and have my land trust
held by the Wyoming LLC,
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just like that.
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So I've got a different LLC as a trustee,
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the beneficial interest is
this other LLC over here.
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Now does anybody know about this?
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No one knows about it
because it's all private.
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None of, all the transfers
with the trust itself,
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this does not hit a public record
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because it's not recorded anywhere.
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The only two entities that
are recorded are these two.
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The only one that the
public's gonna see is this one
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because it's tied to the
property as a trustee.
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They don't know about this one down here.
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Why would you do that?
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Well, you're gonna be the member
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of that limited liability company.
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And in a lawsuit, if somebody
gets a judgment against you,
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one of the things they may do is bring you
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into a debtor's exam,
supplemental proceedings,
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and they're gonna ask you,
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"What do you own?
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Do you own a personal residence?"
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Well, in this example here,
how would I answer that?
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How would you answer that?
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Do you own a personal residence?
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If you're saying yes,
look at the diagram here.
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The personal residence, the
house, is owned by what?
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The trust.
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It's not owned by you.
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So if they ask me, "Do
you own a residence?"
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my answer is, "No, I do not
own a personal residence."
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"Where do you live?"
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"I live in a property located here."
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"Do you own that?"
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"No."
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"Do you have any ownership
interest indirectly in it?"
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Well, the answer to that is no.
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Well, you have to probably say yes.
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"Well, how is it held?"
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"Well, it's held through a
limited liability company."
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Oh, so now they start unraveling.
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They find out that you have an LLC.
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So now what they need to do is this.
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They need to figure out
a way to break the LLC
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in order to get to your property.
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Now is this scenario here bulletproof?
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Not quite, because the
argument they could use
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to break the LLC is that your
LLC is a business entity.
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It holds an asset that you're living in,
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you're not paying rent,
so you're not treating it
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as a business activity.
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Therefore, it lacks substance.
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And that's a legitimate argument.
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But how many creditors are
willing to spend the time
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and the money to go through that process?
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How 'bout if you could offer 'em this?
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"Listen, you can try to fight this
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and I'm gonna fight you the
entire way going against it,
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or we could settle.
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Take my policy limits,
maybe I'll agree to give you
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a little bit more and we
go our separate ways."
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So what this is doing is putting some
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of the bargaining power
back into your hands.
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That prior to that, when
you have all the assets
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in your own name, it didn't exist.
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Now if you wanna take it one step further
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or not use this and use
one other technique,
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then you could always
utilize what's called
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a friendly lien.
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Okay, or you get an equity line of credit
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against your house.
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You go to the bank and have 'em file
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and equity line of credit, get a HELOC.
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There's two ways to do this,
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get a HELOC on your
property or friendly lien.
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And all that's doing is taking the equity
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out of the property.
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So if somebody does look at the property,
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they see that you've got this house
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and the fair market value
of the house is $900,000,
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but you have debt on it of 900K.
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So there's no equity.
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So even if you wanted
to go after my house,
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you would never get paid.
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So it's not even worth your time.
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Again, take my policy limits and go away.
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So it gives you bargaining position.
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If you're not familiar with
the friendly lien strategy,
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check out my zero-loss
real estate strategy
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on my channel where I talk
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about how you can take real estate
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and make it seem extremely
unattractive to a creditor,
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and that's why I call
it my zero-loss strategy
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where I discuss it in-depth.
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But this is how I typically strategize
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for protecting personal residences.
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(upbeat music)
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