0:02 hello and welcome to trust and Estates weekly I'm your host Kevin bemel and we are here every Monday at 10: a pacific time that's 1 pm on the east coast and you're probably looking at me and saying what's wrong with this guy he had his eyes covered before and now he's got a split lip yes I I lost a fight with a wooden post yesterday I was taking down something called a Suka which uh is is kind of like a gazebo and uh one of the posts I I lost control of it and it smacked me
0:37 in the face so yes it was it was it was not a bar fight although I thought about making up a story about that U would would have been much you know much funnier at least um and and you know at least I could claim that uh you know it was someone actively trying to hit me instead of my own uh stupidity oh well so stay tuned for next month who knows you know what what injury I will sustain then so so today I'm gonna talk about um
1:14 how you can protect your assets um both uh before um or I should say while you're in the estate planning process and on through the estate Administration process so I've talked about a couple of these before and so on some of them I'm not going to go into a great deal of depth because you can uh go to our YouTube channel and see other shows that that do discuss them in depth um and and but others I I will talk about um more
1:51 more thoroughly so uh you know we can all excuse me understand all of these like there's there's a total of 10 of them okay so let's let's just jump right in because there there's a lot to cover so first of all um one of the best ways you can protect your assets is by creating a trust and putting your assets in the trust now the thing about a trust is they basically can be either revocable or irrevocable and i' I've talked at trust I've talked about trusts
2:27 at length previously um but I just want to hit this point because it it is particularly relevant to the issue of asset protection so generally speaking a revocable trust does not protect your assets because they're just you okay whereas a non-revocable or an irrevocable trust that becomes in essence a separate entity from you and so if if you're for example let's say you got into to an automobile accident
3:02 okay so whatever assets you own as an individual may be at risk but the Assets in the trust may very well not be at risk because you do not own or control those they they're held for your benefit um but they're not owned by you so that's that's the advantage from a liability protection standpoint of having a trust okay uh and um okay it it and by the way it's it's not just liability when we're
3:38 talking about protecting yourself protecting your assets we're not talking just about legal liability for say a car accident but we're talking about potentially protecting you from creditors and even from um um you know tax collection okay so um the rules are not the same for all three of these okay so when it comes down to how they may actually benefit you this is something you're going to want to uh discuss with your attorney but I'm what I'm doing is giving you some thoughts about things you can discuss with your lawyer if if
4:15 you're concerned about this issue and and we all should be especially if you're here in California so uh just as an aside I um was talking with a client last week um who does not live live here in California but owns property here and and they were the client was telling me that their her insurance broker um was surprised that um we are recommending a million dooll uh insurance policy and I said here in California that's that's nothing I mean it frankly it didn't seem
4:53 to me to be a whole lot in the state where this person was um living but in any event here in California that's that's not a high liability limit at all that's that's pretty standard so especially if if you have any kind of assets at all all right so and we we'll talk about insurance in a few minutes next is you can util use legal entities in order to protect yourself so for example if you have a business right um that business can be operated in the form of a corporation be
5:29 a CCP or an S corp um it could be operated in the form of an LLC both of those give you protection so that if the business is sued that business is a separate entity from you okay and so only its uh assets are at risk yours are not that's the benefit of having a corporation or an LLC now and again the same as true of creditors and also potentially taxes now
6:05 for if you have a business and you're a sole proprietor where you're essentially operating as as what's known as a DBA doing business as so I could be you know Kevin bemel doing business as bemel plumbing company well the the company is just me so if I'm doing some Plumbing work in somebody's home and I damage uh let's say I damage their you know the C or something right so not only is the business liable for for that but all my personal assets would be on the line as well because there is no distinction
6:41 legally between me and my business whereas if I were bemel Plumbing Incorporated okay now bemel Plumbing Incorporated is a separate entity and that protects me personally from liability creditors Etc that are related to to the corporation now I'm going to I'm going to skip to one that's sort of lower on my list because it's it's relevant here now when you have a trust or when you have a separate legal entity owning something by the way if you buy a
7:17 piece of real estate investment real estate um typically it's a good idea to consider putting it in its own legal entity that way anything that happens with that investment is within that investment's legal entity it doesn't affect you personally and vice versa okay so the the key thing then in all of these is to pay attention to what are called title vesting okay so let's say you create a
7:53 trust even a an irrevocable trust okay but all your assets remain in your name that trust is not going to afford you any protection let's say you create a corporation for your business but you constantly move funds back and forth and you treat the business like your personal um like your you know your personal account and your personal account like your business account and and don't keep separate records and all those kind of things you may very well have created a situation where the the
8:28 protection that Corporation a gives you is diminished so you want to make sure that assets owned by an entity are in the name of that entity so let's say that you buy a property at one two three main street okay and you decide well I'm going to create an LLC to own that property and you name the LLC 1 2 3 4 Main Street LLC okay when you buy that proper property it needs to be titled in the name of the LLC not you personally
9:06 and indeed it would be best if you never took title to that property personally but but the LLC was in fact the buyer of that property that makes it clear from the get-go that that that property was owned by a separate entity okay and for sure it needs to be titled in the name of that entity okay if your business buys some property let's let's say it you have a vehicle that your business uses I'm going to keep the the example of the plumbing company let's say you
9:41 have a van that you use for you know bringing your equipment around that van should be in the name of your corporation okay so let's say you call your plumbing company plumbing company Inc right so when you buy a car Plumbing Company Inc should be the buyer of that car and your company plumbing company Inc should ensure that car on behalf of the company okay you shouldn't rely on your personal insurance to insure you for driving that car around so you want
10:16 to make sure all of your assets are properly titled in order to make sure that you get the protection that may be offered by a trust by a corporation by an l L LC okay now I'm going to talk I'm going to go back to the second one using legal entities and talk about another way that you can use them Pro to protect you so let's say you're not really the owner of the entity but you're an investor in the entity okay and let's say it's you know you you you're going you want to invest in a piece of real
10:52 estate so a common way of doing that is through something called a limited partnership now in a limited partnership the people who run and control the the investment are called General Partners but they but they can have limited partners who provide the funds necessary to acquire and perhaps even renovate um and and initially pay for the operation of the property the general Partners have unlimited liability with respect to the
11:30 operation of that partnership but limited partners liability is limited solely to their investment so if you invest $20,000 in a limited partnership and that partnership maybe racks up a lot of debts and and the creditors you know are looking to collect those debts the most they can get from you is your $10,000 investment in that limited partnership okay but they can't come after your other assets that are in your own name because you
12:08 are a limited partner meaning your liability is limited okay that's that's the benefit of investing as a limited partner is you can only be held responsible for the amount of money you put into the partnership now there there can be some exceptions to that so for example if as a limited partner you get yourself involved in the day-to-day running of that partnership that may create a situation where your liability is no longer limited because now you're involved in the operations and so it
12:45 makes you look like a general partner and so someone dealing with that that property or that partnership might think well it must be a general partner it calls me every day about all these you know details of running it okay so so again these things have some complexity to them I'm giving you just some basic information now to consider okay but in all of these cases unless you are a knowledgeable skilled investor you really you know really encourage you to learn more about them get expert advice okay so next
13:21 insurance so um insurance is is typically what we think of as the way we protect our assets assets and indeed it is and that is the purpose of insurance it's to protect ourselves financially from things that happen so gen and generally speaking in this case we're we're talking about um uh C Li um Property and Casualty Insurance although life insurance can also be used to protect your assets in a different way but and and I've again I've talked about uh different types of insurance on my
13:58 shows for so I'm not going to get into a lot of it here uh but but suffice I'm going to talk about the the the two basic categories of insurance there's Property and Casualty and then there's kind of Life Health and disability so Property and Casualty is is protecting you against liability so for example automobile insurance is a type of Property and Casualty Insurance it protects you if you get in an automobile accident it protects you if your car gets damaged those kinds of things same with homeowners insurance or renters insurance they protect you
14:33 against damage so instead of having to pay to repair the damage or pay uh let's say you know let's say you cause the accident um God forbid and and you get successfully sued as if you have automobile insurance generally that insurance will pay for the damages in that lawsuit as opposed to it coming out of your own pocket so that's that's generally speaking how property and casual insurance works now sometimes especially if you have a very high net worth your basic automobile
15:09 policy may not have high enough limits to protect you so in that case you may get something called an umbrella policy and that umbrella policy sits above your other policies your car insurance policy your homeowner's policy whatever and it provides you additional liability protection often times these umbrella policies are not particularly expensive relative to the coverage and that's because they're kind of a almost a secondary type of of coverage for you okay but it's again if if if let's say you've got a net worth of you know a few
15:46 million dollars so your automobile insurance policy probably does not uh come even close to protecting your net worth okay so even a high high limits on automobile insurance policy may only be $250,000 $500,000 so that's just a fraction of your net worth so in that case you you know you would be well advised to consider getting an umbrella to protect you over and above the limits of your automobile policy now Life Health and disability doesn't help doesn't protect
16:21 you so much against what cat what are called casualties like being sued or having your property damaged they protect you from unforeseen circumstances so life insurance protects uh really your family your heirs from your untimely death okay it can also be used if you have a large estate that's subject to estate taxes there's a way to use life insurance to potentially pay some or all of the estate taxes that you might be liable for when you pass away okay and and by the way if you have your property in a trust or in several Trust
16:58 trusts that alone does not necessarily protect you or I say should say prevent you from being liable for estate taxes okay so these these become complex situations and and so life insurance can be a way of helping with that now health insurance obviously that protects you if you get sick and disability insurance again if you get disa it protects your assets because it provides money for you to be able to live without having to use whatever assets you have to do that okay same this long-term care insurance right
17:34 there's many different types of of Insurance within this larger realm all of those are designed to help you to help cover things like your cost to live without defraying the value of your assets so insurance is a very important tool okay next is something called a homestead exemption now I don't know if all 50 states have this but I know here in California we have a homestead exemption and uh you know what I I
18:09 should have looked uh what the amount is I'm going to look it up here really really quickly uh okay yeah so um the the homestead exemption varies by which county you live in here in California but it it runs from roughly 350,000 to $700,000 okay and and how can this help you well let's say that you have a house and that house is worth
18:45 $600,000 okay and you live in a county where the homestead exemption is $350,000 and let's say that you have A200 ,000 loan balance I'm sorry let's say you have a $300,000 loan balance still outstanding on your house okay so the house is worth $600,000 you have a loan balance of $300,000 which means you have essentially $300,000 of equity in the house okay now the
19:22 $350,000 homestead exemption covers more than your equity in the house so Not only would it protect your Equity meaning your house you're not going to be forced to sell your house to pay the $300,000 it will most likely prevent having your house sold at all because if the Creditor were to sell your house they're going to get zero anyway okay now let's try a slightly different example where your loan balance is $200,000 that's why I changed the amount
19:58 of minute ago so you've got a house worth $600,000 you have a loan balance of $200,000 meaning your Equity is $400,000 now in this case with a with a homeowners exemption of $350,000 do you see that only protects 350 of the four $400,000 in equity okay so it may not prevent the sale of your home for the Creditor to try and get that other that additional $50,000 it'll depend on costs of sale
20:36 and those kinds of things okay but now you're not on as firm ground okay so um the homeowner exemption it can prevent your home from being sold at all or but at least it will protect your Equity to the amount of the homestead exemption okay now I'm there are likely other states that have this I would encourage you to look into this in the state in which you live to see what kind of protection if any it may afford you okay and in some cases it it it almost
21:14 incentivizes you you know not to pay your your loan off um because paying your loan off could mean that you know you have Equity over and above the homestead exemption and therefore it makes your home potentially liable to sale um if someone is trying to collect that Equity nonetheless I'm I'm not saying by the way that you should borrow money simply to take advantage of the protection that the homestead ex exemption gives you I'm only pointing out that these two things can work in concert and there's something to think
21:49 about as you consider your overall financial situation so you may decide that overall you have more peace of mind owning your house free and clear that's a perfectly valid decision on the other hand you you you maybe you've been thinking well if I double down on my mortgage payments I'll pay off my loan more quickly um but in light of the fact that um having a higher loan balance protects me potentially from my home being sold adversely so you know maybe I won't pay it down as quickly maybe you have a very low interest rate anyway and
22:24 so you know it again these are all things to talk to your financial advisor about your attorney about assuming that your state has a homestead exemption Okay so we've covered one two three four five uh okay next is retirement accounts so often times uh well not oftentimes but sometimes if you have Assets in an IRA or a 401k they may be shielded from creditors okay it it it just it depends on the
23:01 circumstances now these can be very complex issues I'm not going to get into them too deeply but if if you have retirement accounts and you're concerned about this issue this is something to talk to your advisors about to see what if any protection asset protection you have in them and how you may be able to increase that asset protection um if if possible okay um but it but savings Savings in retirement accounts as opposed to a savings account in your own
23:36 name May afford you some asset protection that uh again having the account in your own name does not all right pre- and postnuptial agreements so these protect your assets in the event of the breakup of a marriage okay and I had a a guest uh Lori Israel on I think this is probably about a year ago now one of the top experts in prenuptual agreements and I I encourage you to take
24:13 a look at that show if you're interested in prenuptual and postnuptial agreements because I think that Lori has a very balanced approach to these because when you think about it if you're going to get let's say typically they come up where spouses either there's a big imbalance between net worth where one spouse has a very high net worth and the other doesn't or where both of them have very high net worths and they're concerned that you know somehow if they get divorced you
24:50 know the other spouse will get a hold of their money so Lori has a very sensible approach to this because on the one hand it can be very off-putting to the spouse who's being asked to sign a prenup right what you think I'm only marrying you for your money or you know it can be very difficult for the person who thinks they may need the protection of a prenuptual agreement I.E I don't want this person that I love to think that I think they're after me for my money or anything like that um and and and yet at
25:27 the same time it may be necessary especially if it's a a second marriage where you want your assets to go to children from your first marriage and and maybe there are other children involved that the person you're marrying has children as well and you know your children may not think it's fair for the other children to get it because after all it was from you know their parents that the money was or whatever these are all these can all become very difficult family issues they're first of all they're Bel best dealt with upfront not
26:03 with wishing and hoping and second of all a prenuptual agreement may be an effective way to provide some protection and as Lori points out it's not just because you have a prenuptual agreement at the beginning doesn't mean it has to continue Forever After in your marriage it may Sunset after a number of years or something like that or or the terms may change over a certain term of years where if the marriage proves to be enduring then the the spouse would end
26:38 up getting you know more than if the marriage ends after say three months or six months or something like that so this is an area where you absolutely want expert advice It Is by no means a simple area and so um if if you know if you really so someone like Lori Lori Israel I I I I highly recommend in fact I will put Lor's contact information in the show notes just because I brought up this issue of prenuptual agreements now next is regular estate
27:16 Plan reviews so I I was just having this discussion with a client uh last week I believe it was maybe the week before um we're I'm helping them put together an estate plan and the one of the questions they asked uh their lawyer was well how often should we have this reviewed and we've again this is an issue I've talked about before but just real quickly in general anytime you've had some kind of significant change in your situation you are well advised to have your estate plan reviewed and in any event maybe
27:52 every five years or something like that it's a good idea if nothing else just to have a a curse review done of it and and you know even if it's just something that takes your lawyer an hour or so to do and confirm no there's no changes nothing need needs to be done here you know that hour of your lawyer's time is is probably money very well spent okay but in any event it is it is something and minimally if something changes in your life or you think there may have some something something may have happened in your life that could warrant a review of your estate plan so pick up the phone or
28:28 send your attorney an email and say hey here's what's going on uh should we review my estate plan okay and and ask the question better to ask the question uh and and be told no okay so you know no cost no foul no nothing right then to not have asked the question and then regret because you should have had it reviewed and now your estate plan is not as effective as it might have been okay next uh this is number nine is co-mingling assets so I alluded to this a little bit
29:04 earlier in the show if you have a separate business entity from yourself you do not want to be co-mingling assets okay because that can cause a situation where separate entities the the fact that there's separate entities no longer really matters or it can allow someone to be able to to um puncture the separate entity okay so be have separate sets of Records separate bank accounts separate checking accounts separate savings accounts whatever are necessary
29:40 for them this also a little bit ties into to um proper titling of assets okay these two kind of work hand in glove um a little bit but if again if you have a business with a separate entity a corporation or an LLC it needs to have its own set of Records its own tax returns all that kind of stuff in order to maintain its existence as a separate entity and the same is true of your personal finances then you shouldn't be crossing over so let's say that you make
30:15 an out-of-pocket expense for your business okay so in other words you you use your personal credit card I don't know let's say you you happen to be at an office supply store uh helping your child get school supplies here here's a good example right school's going to be starting up in a few weeks uh to you know a month or so all right and you're in an office supply store with your with your child buying school supplies or your children buying school supplies and you realize oh shoot you know what I need copy paper for the office okay so while you're there you pick up a case of
30:51 copy paper you know and think oh no big deal right well it's perfectly fine for the business to reimburse you for that but you should have you should write up an invoice showing the expense that you bore personally and have the corporation if it's Corporation or LLC issue a reimbursement payment to you for that cost and then provide evidence of that expense now that is not comingling funds
31:28 okay and in fact paying for paying for the paper personally but not being reimbursed that would be more like co-mingling funds because you're using your personal assets to support the business okay so if you buy something for the business again using your personal money then make sure you reimburse yourself but make sure you have something in writing showing that so it's not just sort of money passing back and forth between your business and your personal checking accounts that's not a good thing either okay so make
32:04 sure everything is properly documented okay so avoid comingling not only accounts but also debts so if if your company uh borrows money then make sure it borrows money in its name not in your name personally now as a new business you may be required to make a personal guarantee for that debt but again the debt is in the business's name not in yours that personal guarantee does not constitute co-mingling it only means that at least for a portion of the debt
32:39 whatever the extent of the guarantee is you are pledging your personal assets to pay it off okay so but that's that doesn't necessarily create a situation where the business entity can be pierced okay again these are these can be somewhat complex so you're going to want to get proper advice specific to your situation on them from your accountant from your lawyer and that's the final of the 10 tips is getting proper legal advice so I've mentioned throughout this show on I think on almost all of these
33:16 that if they are something that you might want to take advantage of this is something to discuss with your lawyer now there are different kinds of lawyers right you may have an estate planning lawyer but that lawyer may not specialize in corporate law which is you know business law so you may need to have a lawyer who handles legal matters for your business and then you may have in essence a personal attorney who helps you with matters related to other things in your personal life besides just your estate
33:52 planning okay so the the key thing is to make sure that the lawyer from whom you're getting legal advice is qualified to give you that advice okay they have the knowledge and the experience to be able to properly advise you and so that may mean that you have more than one lawyer that you're dealing with now you know I I'm in California lawyers can be expensive especially here it's it's amazing how much more expensive lawyers are here than they are in other
34:29 states nonetheless an hour of a lawyer's time can be the most Wells spend asset protection that you could ever hope to get okay because that lawyer May identify something you can do with one of these other nine tips whether it's a trust a legal entity Insurance Homestead exemptions pre pre- or postnuptial agreements all these other things they may able may be able to suggest something to you that can be done very
35:04 inexpensively that will give you a tremendous amount of asset protection okay so so do seek out that advice okay and when you have concerns pick up the phone send an email I know most of the lawyers I deal with if not all of them when I send them an email they're not charging me for every single email they respond to generally speaking when I have an ongoing relationship with a lawyer they are only charging me if they're actually doing some kind of
35:40 significant work for me okay and or for you know a client where I'm you know essentially engaging the attorney on behalf of the client and in fact lawyers do this because they realize that they just can't nickel and dime clients on these matters okay so you know they they want to establish a long-term uh solid relationship and so so that's why they they will help you out okay and and it's a it's a you know it's a it's a valid question to ask a lawyer that you're considering so what
36:15 if I have kind of a one-off question uh am am I are you g to charge me for answering that question I think you're going to find most lawyers say no I'm not going to charge you for that now if they takes some very sub substantial legal research in order to the answer the questions so you know I'm Then I then I'll let you know and we'll you know we'll work something appropriate out to make sure that you know you get your uh question answered and and my you know staff time is covered or my time is covered for doing this but say you know 90 plus percent of the time the answer
36:52 is going to be no for a one-off question I want you to ask me those questions to make sure I can serve you as well as possible so and I can't do that unless I know what's going on with you so I want to encourage you to ask me those questions and then when something significant does come up so then we'll talk about an engagement and then at that point there will be an expense okay so those are the 10 tips that I have I'm going to go through them one last time here real quickly so you so you got them all I'll list them in the show notes uh so that you have them there as well but it's establish a trust
37:28 use legal entities homestead exemption Insurance retirement accounts pre- and postnuptial agreements uh regular estate plan reviews avoid comingling your assets and properly title your assets and finally get good legal advice okay so that's our show for today tomorrow at 10 P 10 pm 10 a.m. uh Pacific time is my show people make money and I'm going to be talking about when should we advance and when should
38:03 we we re retreat in our businesses and I'm going to be using the example of Marshall Ferdinand fos as uh sort of a a case study from a military standpoint as uh as to when we what we should consider when making that decision and then on Wednesday at 10:00 a.m. Pacific spe time yes specific time um on my show people making money I'll be talking about writing a book why you should do it what it should be about and how to do it so I
38:39 I suspect uh a lot of a lot of you uh you know have thought about writing a book so what why should you do this I know I've I've written a book some of you may have a copy of it and I I thought it was it would be a a worthwhile subject for us to discuss so thank you very much for joining me today wishing you a wonderful rest of the day and signing off Marie darling You are my