WCI #132: Asset Protection Strategies to Secure Your Wealth

This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011. Here's your host, Dr. Jim Dali. Welcome to White Coat Investor Podcast 132 Asset Protection. I just got back last week from two speaking engagements. One was here pretty close to local down in American Fork, Utah. That's between Salt Lake City and Provo. For those who have no idea where American Fork was actually the town I was married in many years ago, there's a hospital there and I met with the medical staff and talked for them with them for about an hour about financial literacy and all the kind of usual stuff you hear on the podcast. It was great because I had a few people that I actually refer patients to that were in the audience that were great to meet face to face. And so that was a lot of fun. My second trip, I flew out to Detroit, for which the trip went flawlessly. I had perfect flights, the hotel was great and everything, but it's always a little bit more work when you got to spend 30 hours to give, you know, a similar presentation. You're there an hour, two, three hours talking with docs and answering their questions and signing books and hanging out afterward, but you're gone from home for 30 hours. And so it's obviously a little bit more work. But I like to do it because I like going to different parts of the country and getting to know, you know, docs and what they're worried about and what their struggles are and what their questions are. Because I take all that information and pour it right back into the podcast and the blog and the courses and try to meet your needs. And that's partly why the White Coat Investors become so popular over the years, is just because I am literally reaching out, finding out what your problems are and trying to solve them. And so it's wonderful to meet you in person, it's wonderful to help people individually. I wish I could come see all of you, but honestly, I am just not going to travel that much. It's too much work to do. And so we'll reach as many people as we can with the blog and the podcast, but probably never going to do very many more speaking gigs than I'm already doing right now. The White Coat Investor is proud to introduce our no Hype Real Estate Investing course, which will provide the framework for developing further knowledge and experience as you progress in your real estate investing career. We call it an introductory course because there's always more to learn. But this is no short, superficial course. There are over 200 lectures and videos adding up to more than 27 hours of content by over 15 different instructors. We think it just might be the best real estate course on the planet. Continue your wealth building journey today with the no Hype Real Estate Investing course@whitecoatinvestor.com courses. You can do this and the White Coat investor can help. Our quote of the day comes from Charlie Ellis who said don't get confused about stock brokers and mutual fund salespeople. They are usually very nice people, but their job is not to make money for you. Their job is to make money from you. Thanks so much for what you do. Medicine's not easy. I had a kid come into the ER yesterday. It looked like a crime scene. There was blood everywhere. And when I got to the bottom of this massive bandage that had been put on this kid's foot and you know, of course the blood soaked all the way through all this bandage because there's not actually any press pressure on the wound. Once you put that huge bulky bandage on, There was a 1cm laceration, had a little bit of arterial bleeding coming out of it, but it's pretty easily controlled by just putting your finger on the artery. And so while I held my finger on the artery, I had the nurse gather up the supplies we'd need, numbed it up, washed it out and sutured it up quickly. The parents were so grateful. And it's sometimes easy to forget that these easy skills we picked up as you know, an MS.2, probably in some pig lab, really can be pretty life saving, life changing for other people. And so thanks for what you do. I know your patients appreciate it even if they sometimes forget to express that appreciation to you. If you have not checked out the White Coat Investor lately, you may notice that we have some recommendations pages there under the recommended tab. We have a lot of new stuff, including a legal page. We're gradually getting new recommendations there for people that can review contracts and we're trying to get some people that can help you if you've been the victim of fraud, as well as estate planning and asset protection there. So if you're in need of services, whether it be legal or student loan advice or financial advisors, insurance agents, etc. You can find those under the recommended tab. These are folks we've worked with that our readers go see regularly and that we get feedback on. If we're getting bad feedback on them, we take them off those Lists. And so check those out if you have any need of any of these financial services. All right, we've got a pretty special guest today. We've got an asset protection attorney that I'm going to bring on here. Let's get them on the line. All right, my guest today is Brian t. Bradley of trust-cfo.com who describes himself as a leading educator and asset protection attorney for high risk business professionals, entrepreneurs and real estate investors. His firm focuses on adding value for clients and educating them on what they don't realize, they don't know. Acting as an advisor and focusing on setting up systems and strategies and teams to protect your assets and manage your wealth, preserving lifestyle and peace of mind, changing the way predators view you and providing better tax planning, risk management and decreasing your taxable estate. Welcome to the White Coat Investor podcast, Brian.

Well, thanks Dr. Jim. And just one update on I'm a Bradley Legal Corp. And then I'm an of counsel in house counsel for trust cfo. So I actually have my own practice and then they outsource, you know, legal representation for theirselves internally to me. So just we don't confuse your listeners on that.

Awesome. Appreciate that clarification.

Yeah. But you know, thanks for having me on. And you know, this really is a big topic especially for, you know, the physicians who have to manage a lot of their risk and on top of also investing and having business liability and all these moving parts.

Yeah. Now you describe yourself as an asset protection attorney. Occasionally I talk to attorneys about asset protection attorneys and they tell me that's not even a real specialty of law. What do you say to those guys?

First I would laugh because it's pretty. I've never actually heard that because I work with a lot of other firms that don't have asset protection in there, especially a lot of estate plan like traditional estate planning firms or real estate firms. You know, they, they need to bring in the asset protection component into it. And asset protection has been around since the crusades and putting property into trust or different organs, different type of holding patterns for when they would go and fight wars. And the oldest firm asset protection firm in the Nation is over 113 years old here in the US so it's been around for a long time. I think the confusion is the standalone term asset protection really started to be used as a specialty in the 70s and then it really took off in the 80s when specific asset protection trust came about in the islands and then in the US and so I would bring it down to, you know, what is Asset protection, I think, is what the confusing part of it is. And asset protection is not, you know, like I said, traditional state planning. It's modern estate planning fighting the things that are destroying modern family assets, like predatory lawsuits, which we're going to jump into a lot to today. And then also fighting out of control medical costs, death of one spouse and then remarriage of that other one, or even death of your one child and remarriage of that child or your children's divorce. So even your children can affect your estate and legacy when they're adults. And so these are the things that are really modernly destroying wealth. And that's what asset protection does. So it's really a niche field and it's a combination of a lot of different areas. It's advanced estate planning, strategic planning, insurance law, real estate law, business organization and tax law all combined into one basically on steroids because it's the manage of all of them together with all these moving parts that have to be done correctly. So we're working with a lot of other different attorneys in their specialty to make sure that the overall systems that we create function if and that when they ever need to be protected.

Now let me share a hot take I got from an author of real estate investing books, a guy by the name of John T. Reed. His suggestion, one of his books was that asset protection is immoral. At least the idea of getting out of paying a legitimate legal judgment. He's not talking about carrying insurance to pay that judgment, but he's talking about getting out of it. He says that if you've injured somebody, you should pay them. What's your response to that?

I think it's hilarious and kind of hypocritical, to be honest with you. I get it here and there. What's that same person? What's that same person going to do the second they get sued? They're going to go run to their insurance provider and then go lawyer up. So they're going to make a claim that they want everybody to pay, whatever that money comes out, whether it's unfair or not. And we're not talking about paying unfair claims. Sometimes those damages are just out of, you know, they're there to prove a point when no one has that kind of money ever, you know, $16 million claims, for example. And then what's going to happen is these guys are going to be scared out of their mind and on how much they're going to pay, how much their reputation is going to take a hit, how much, you know, how's it going to affect their business and professionally? They're not going to be worried about, oh, my God, I have to do the morally right thing and pay every penny in the world. They're going to go lawyer up and go hire a defense firm. And what do you think those defense lawyers are going to do? They're going to go after that plaintiff that's suing them and call them liar, cheats and frauds. That's a defense argument right there. And so you hired someone to then go call the person who's suing you a liar, a cheat and a fraud. But then you're trying to make the counter argument that everybody in the world should go pay everything and there never should be any defense to it. If you think that's the case, then don't go hire a lawyer. And don't, you know, just tell your insurance provider, hey, pay what you want, and then I'll pay whatever else I can. So I think it's just. What side of the fence do you fall on? If you want to protect yourself, protect yourself. If you don't, then don't.

Can you talk just for a minute about kind of the daily life of an asset protection attorney? I mean, do you spend your time setting up trusts? Do you spend your time meeting with clients? Do you ever go to court? I know you're in California, and I suspect you do a lot of, you know, California retirement plans. I think, for lack of a better term, I think we had a guest post on the blog a few years ago from Jay Atkinson out there who talked about that. What is it that you spend a large percentage of your time doing as an asset protection attorney?

Yeah, and we'll break down that later on because I think we're going to talk about exemptions and different ones. And one I really want to talk about is specifically that California PRP exemption plan, because there's not many people really know about it, and it's a great one for California residents. But for me specifically, you know, I'm licensed in a bunch of states, California, Oregon, Washington, Michigan. We represent clients nationwide, all over the nation and internationally. I was trained as a trial litigation attorney and got really good, you know, accolades, super lawyer, rising star list, lawyer distinction list. And I built myself through trial and litigation, and then I made this transition into adding asset protection as a specialty in my firm. And because I just got tired of seeing clients come in, being sued in their livestream, just completely upside down and had no protection or false sense of security set up and they couldn't do anything about it. And so I wanted to get ahead of the game. And so what I do with most of my time is I spend a lot of my time talking to clients and educating investors and business owners, talking to doctors and lawyers and even CPAs on asset protection and how it is an actual investment for them to not just protect their assets, but also if you do it properly at a higher level, you can get these return on investments from it itself. Or I'm consulting with, like I said, other estate planning firms who are doing the traditional revocable living trust but they don't know anything on the protection side or real estate firms who are, you know, buying and selling and closing the transactional part of the deals. But they need help on what bucket and what mechanism to put the property or asset in to maximize value and to protect it. So it's a of a lot of different things that I have to manage. And I'm just spend a lot of my time managing my law practice and the legal team and you know, the legal production teams are just a group of the best and most amazing lawyers handling hundreds of different types of trust exemption trust, offshore and onshore trust. And I affiliate with the top firms in the nation on asset protection. And so my day is generally spent talking to, like I said, the clients, the trust administrators, financial advisors and CPAs managing this big network of people to accomplish our clients goals.

All right, let's talk a little bit about cost to value. I got a lot of questions about this from readers, mostly on value kind of questions. So we'll go through a few of those first and then we'll kind of give you an open ended question. Talk a little bit about the costs of doing this. I think the worry a lot of docs have is this above policy limits judgment they read about in the medical journals or they read about in the paper where some doctor ends up with a $20 million judgment against him. But I've gone out and calculated the likelihood of a successful above policy limits malpractice lawsuit that isn't reduced on appeal for me at about 1 in 20,000 per year. Now given that very low risk, why should I spend a bunch of time and money and effort on anything more than the most basic and inexpensive asset protection plan. I think one of my readers put it when I was collecting questions for this episode, he said, my sense is that the odds of losing money is very low or am I just not paying attention? Another reader said how much of this in a number needed to treat sort of way is really shown to Protect assets versus the emotional side and just helping people sleep better at night. And so those are kind of the questions about value and what kind of value there really is there. Can you talk a little bit about that?

Yeah, I'm actually, I can break it. It can be a little bit longer of a talk than that because there's a lot that you just asked in that. So I want to kind of break down the malpractice part of it, plus the other part of the business life and the investment life, plus the actual numerical value of cost to value and how it gets money back into the client. So it's going to be, you know, it's a more in depth answer that I'm going to give right now than I think you were expecting. Just off the numbers that you calculated. I mean, the AMA and Medscape and others have current studies that the numbers are being, you know, a lot higher than yours. But I think that's really not the point of what we're getting at. Like the points are on appeal and basic and inexpensive. And so cheap forms of protection is in protection, that's obvious. But it's all about personal risk tolerance. At the end of the day, some people just don't perceive enough risk. So a simpler and more inexpensive form of protection is enough for them. That's a personal choice. Malpractice, then, is probably not their greatest risk, but there's other areas of their life and business and investments that they also have to manage the risk and liability from. And to the first part of the question, you know, there's a lot to it. Like I was saying, the actual price doctors pay goes beyond just, you're saying, financial harm. It also goes to their reputation, possible lost revenue, which we can address with excess and surplus insurance and cases of a lot of emotional and family turmoil being dragged through all of this. And the amount of money it takes to go through the entire litigation process with legal fees, depositions, expert witnesses, trial costs, and then after all of that, than to want to go and appeal it. It's going to cost a hell of a lot of money. So it's really in both sides best interest, the plaintiffs and the defendants to settle the claim and avoid the added expense and time as fast as possible. And that's what properly drafted asset protection systems really do. Generally, you know, your insurance carrier will cover most of your litigation expenses if the claim is made against the insurance provider. But then you're working off the assumption that a doctor only has an internal claim for medical malpractice, and that the coverage is inclusive, not exclusive, and that the provider will actually cover 100% of the claim amount. But that's just an unrealistic expectation of, you know, real world litigation. And the statistics and numbers really scare me when I look at this, you know, the AMA recent study, and it shows one out of three doctors. And I think you've hit on this in other literature that you guys put out. So 34% of you, you know, doctors have already been sued. And so the longer you practice, that percent goes to 55% that have actually been sued before the age of 55. And then 48% of those doctors are named personally. And being named personally in a lawsuit is a really big problem, not just naming the insurance. And then 89% of all these claims the doctors feel are frivolous, but then they have to go and fight them anyways. And so when we start breaking down costs, as I mentioned, defense costs can either be inside or outside the limits of your policy. If it's inside the limit, then the cost of defending that claim is actually subtracted from the total amount of the policy coverage that's available. So if, for example, your policy is for $1 million in liability and the defense cost is $150,000, that part subtracted out from what can be paid to cover a claim, along with having to pay your annual premiums. And then, like I was talking about, there's always the business side of this that goes beyond just malpractice. There's billing issues, payroll violations, sexual harassment claims, and others that are internal that aren't covered for malpractice insurance. And then add on the other external issues, like if that doctor owns a property of the practice, then any issues that come from that asset can cause the doctor's assets to be at risk also. And then you also have exceptions and exclusions to every policy. And so one big insurance defense tactic is to not pay claims for what they consider intentional acts. And material misrepresentations are always going to challenge claims. And these misrepresentations can come from the time that you filled out the actual policy application itself. And because of that, the entire policy they're going to argue is now going to be void. Or they'll look at any requirements that you failed to fulfill in the policy agreement that can be used to avoid the policy, like failing to make mandatory disclosures that you didn't think you had to disclose. For example, someone wanted to file a lawsuit against you, and then the lawsuit went away. There was nothing that ever resolved of it. And you just didn't disclose it because nothing ever came about it. That's now going to potentially be used to void your policy agreement. And another good example of this is people don't buy auto insurance because they expect to have serious and costly car accidents. They do it in case they ever have one. Same thing with asset protection. The bottom line is that insurance doesn't prevent lawsuits. It only provides capital to deal with the lawsuits. And most coverage and capital gets eaten up by legal fees before the claim ever gets attended to. But having an asset protection plan in place provides those barriers to entry. And then the stronger plans like exemptions and stronger jurisdictions open up the doors for negotiating at much lower levels, or even better yet, to stop those 89% of the frivolous attacks. Just remember, the real goal is to not get to court. We were talking pre, you know, before we started, Aaron, you know, one of the things that gets lost in this is actual the cost, the value add and a return on investment of asset protection. Because it's not just about malpractice, it's also about your investments and your business operations. And then I think that you'll appreciate this because we are talking. You talk about taxes and finances a lot on your podcast and return on investments are a big deal, but people don't really think of an asset protection system in those eyes. I think cost and value is a great starting point, but numerical cost really is the wrong question that they should be asking. What they should be asking or thinking about is what's the value of the system itself, not just how cheap it is, or more importantly, if the system actually functions to accomplish the objective and the goal that they intend to have with it. And so when we talk about this in a little bit more detail, the upfront cost in relation to value comes down to the fact that upfront costs will always be less if you're proactive rather than when you're under duress or being sued. And working yearly with great trust administrators, I have some of the best ones and one of my trust CFO who I affiliate with, they work as a great check and balance system and auditing your annual taxes and finding missing tax benefits and credits and R and D tax credits, cost segregation studies, if you have investment properties and taking those tax deferrals and all this equals tens of thousands of dollars annually back to you, the client, by using the asset protection system and the team and the members in there to work for you. And at times they're finding 50, 80, $100,000 that go back to the client annually. When the reality is that, like I said, cost always comes down in the form of procrastination. Some of the things that you can get and things that you can do are benefits that you only get by being proactive by tax mitigation strategies, hedging how you invest and from what bucket you're investing from, and reducing costs that way. And so at the end of the day, if you're working efficiently and effectively, you really aren't paying anything but actually receiving a larger return on that upfront protection and annual cost, plus protecting your assets and your livelihood and your legacy, plus picking up missing credits and tax benefits. And so a lot of clients and doctors that have these active businesses and medical malpractice, medical practices, active investments, private equity, real estate, you know, a lot of moving parts. So they can't do all of this management on their own. If they do, it's just going to crumble and completely fail. And all of these assets have tax implications and they all have tax deferral and mitigation opportunities. And they all also have risk and liability that have to be managed. And so that's really what the whole systems that we look at come into play and how you actually compare cost of value to return on investment.

So are you familiar with the concept, it's a medical concept of the number needed to treat. You've got to give a certain number of patients a medication to help one patient. How many people would you say need to meet with an asset protection attorney for one person to actually save money from it?

You mean how many, like who should go and talk to an asset protection attorney?

No, more like if five people meet with an asset protection attorney, one of them's going to end up getting a big benefit out of it. Or does it take 30 people or 50 people to meet with them for one to get a benefit, a huge savings out of it?

Generally we're finding, especially when you're talking about high risk professionals like doctors, the focus of who these people, your listeners, are, they're making more, they're investing more. And so they actually almost all of them are going to have a higher return on investment or finding these missing benefits because they're doing more with their money. They're trying to make passive cash flow also. And so we find almost all of our clients are actually getting that benefit that we just talked through because CPAs are passive. So they're not going to be applying aggressive strategies to help maximize value. That's not really what their job is. Some CPAs are better than Others, especially if you go to investment specific CPAs or financial advisors. That's what asset protection firms do and network with are financial institutions for investors, CPAs for investors. So we're more aggressive in finding and auditing all of those missing tax benefits, tax credits, deferrals, opportunities.

I think it's pretty clear you view asset protection, I think, much more broadly than most doctors do.

Well, because I'm an asset protection attorney and I even look at it differently and why I'm one of the top attorneys who do it, because I look at it differently than a lot of other asset protection attorneys do, because I was trained by the best of the best in asset protection. And so we look at it as an overall sweeping need and cycle of your life. You know, insurance have umbrella policies, different versions of insurance, life insurance, an asset protection policy, where does that fit into your life and your investments? And it's also a whole cycle that we have to go through. And we plan revocable living trust and how that all goes into tax mitigation and decreasing taxable estates if possible. So that's what asset protection really is. In the nutshell, it's not just creating something passive like an llc, which may or may not, you know, really has no protection value when it gets challenged because they're easily pierce and say, here you go, good luck. You want to be inside a system that actually can work with you annually.

Now let's look at it a little bit more narrowly, just for a minute. The way most doctors look at it, and I think the way most doctors look at it is they're trying to think of a way that they can keep as much of their assets as possible in the event of an above policy limits judgment. Have you ever had a physician client with an above policy limits malpractice judgment that wasn't reduced to policy limits on appeal?

Yeah, I have, and I just was actually talking to a colleague over the weekend who has another one and a couple other firms in our network that have. And so like I mentioned before, what is the overall goal? The goal really is to not go to court. And so, you know, you want to settle the claim and avoid the added expense and time and disruption to your life as fast as possible. That's efficient and effective planning and that's what setting up good asset protection systems do. So almost all of our clients don't even need to reach that stage of appeals. This is going to cost a lot of money and it's going to take a year or two to even go through that stage. And the asset protection systems get all the parties to the negotiating table very fast or have the claim go away beforehand. And that's the power of a properly drafted asset protection system is proactively planning. And here's some good examples. Look at what happened recently in Wisconsin in 2017. This is a great example of your appeal question. This is also published in Reuters here. An appeals court in Milwaukee ruled that Wisconsin's $750,000 cap on non economic damages and medical malpractice suits was unconstitutional. And so they upheld a jury award of $16.5 million. So that's way above the typical 1 million policy coverage most doctors carry. And this case is where an emergency room doctor and a physician's assistant diagnosed but failed to warn the plaintiff. And then the same thing happened in Florida in 2014 where the Florida Supreme Court struck down a similar damage cap in Macau versus the United States. And like I just said, in our own network, we had a doctor with a one million dollar policy claim with three million, you know, policy limit with a three million dollar malpractice award against him for a nerve damage claim. And this doctor was personally on the hook for over $2 million. And so what saved him was an asset protection system that forced that excess money to settle very fast and very cheap and at a lower rate. And then like I said, right now we have a doctor dealing with an overbilling issue from 20 years ago. And he was just indicted on this. And the doctor has no coverage that extends that far back. And so all his assets, except for the ones that we protected in a California exempt PRP plan, are now at risk.

Now let's talk just very briefly about the costs of asset protection. If I walk into your firm and I tell you I got a business on the side and I've got, you know, 12 different partnerships, I'm a part of that. I'm getting K1s from, for passive income and I'm practicing and, and I've got a house. And you know, what's it going to cost me to engage your firm that first year? What, what kind of expenses should I be looking at laying out to put in a comprehensive asset protection plan? Can you give sort of a range of what that would cost?

Yeah. So like some of the stuff that we're talking about now, we're talking about, you know, like California exemption plans generally that's going to start, you know, 17 to $22,000, just depending on how much needs to get done, how much needs to be protected and how much they want to work with the trust administrator side. And then the annual fee on that would be, you know, 4,500 a year. But then like I said, if you know your listeners go back to the return on investment talk, you know, yeah, you're paying $17,000, $22,000 on the upfront charge, but that's just upfront cost. You're not thinking about then how you're getting all of these tax deferrals and money and auditing coming back to actually pay for that 10 times over. So it's really you're paying for an investment and protection. And then some of the other things that we're going to talk about, for example, offshore planning or asset protection trust, depending on which route you go, domestic ones would be cheaper. You know, you're talking probably, you know, $12,000 domestically for an asset protection domestic trust. If you're going to go offshore, you're going to start getting into the 20 to $30,000 range or offshore or a combination of, called the hybrid bridge trust, which, you know, we'll break down later on. That's about where you're talking about that price range. If you want to go on the lower end side and you just want to do an llc, that's going to be cheaper, but that's maybe protection and generally you're going to look, depending on how many or what you need, $1,200 to $5,000.

Now asset protection law tends to be pretty state specific. You mentioned that you're licensed in a number of states, do work all over the country. Should someone really be looking for someone that's licensed in their state, that does a lot of work in their state? How important is that when it comes to asset protection?

It's really not because asset protection is nationwide. We represent clients all over the place. And it's a good question. A big misconception. There are state specific nuances when it comes to, for example, exemptions and the amounts that can be exempted. But when we get into different levels of protection, all we're doing is looking at jurisdictions, what the client's needs are and then maxing different stronger jurisdictions when it comes to charging orders or LLCs or different types of trusts and then using those. There's about 17 states that have some sort of self settled asset protection spend trip legislation and the client and the attorney living anywhere can pick any state to set these up in, for example, Nevada. But we're also seeing a legal shift and weakening of domestic asset protection trust that I'll break down later on when we get more into jurisdiction selections. And then the same thing goes for LLCs. You're really just looking for charging order strength. And so when we're putting, using the tools that we need, we're looking for the stronger jurisdictions. And because we're not. The only time you have to like, quote, unquote, pass the bar in the sense is when you're going in to represent a client in court and talk and represent them in a legal situation. So if I were to go and represent you in court, I can only go and represent you in court in states I'm actually licensed in, but I can do the asset protection part nationally. And then if you're looking for a good asset protection firm, look for firms that are regional and national because of the network that they have. They're going to be well versed in all of the different exemptions.

Now, speaking of, you know, identifying a talented asset protection attorney, I mean, what do you really look for there? I mean, who are the good guys in the field? Who are the bad guys in the field? I mean, you probably don't feel comfortable naming the bad guys unless we end up with some libel issues here. But can you name a few of the good guys and why you think they're the good guys in the field?

Yeah, I mean, there's. There's me, there's Loudmill and Lodmil. I really like working with Verdun. Jeffrey Verdon out of California, a great guy. Cunningham Law Firm is a great firm. So there's an Asset Protection Council. They're the oldest firm in the nation that's 113 years in existence. Like, these are the top guys in the field. And, you know, we all work together, know each other. I think, like the best litmus test for client, you know, your listeners when they're thinking about, you know, how to. Because you should vet a firm and talk to more than just one and kind of get a feel for them and what, you know, before you hire somebody. So I think some of the questions I would ask when vetting them would be, you know, is this the bulk of your practice or just part of it? You know, are you just dabbling in it? And, you know, I'm a traditional estate planning attorney, and I maybe, you know, set one of these two up a year. So they're not going to really know how to set up an asset protection plan. They're just traditional estate planning attorneys. What percentage of their time is spent with asset protection? Basically? How many clients do they do this specific type of planning for? Has it been challenged and what Are the results have been. Can they send you existing case law? Do they do an asset assessment and diagnostic for you? That's a big one. A problem with some of these firms is they are just trying to stuff everybody into. Everybody can use an LLC or everybody in the world can use this, and they're not assessing the actual clients needs through a diagnostic and doing any detailed work on them. They're just basically throwing everybody into one bucket. Do they work nationally? We kind of talked about that before. If so, that's good just because of the depth of work that other firms in the network that they can pull from. What's the network like? Do they work with trust administrators and financial advisors and CPAs who all focus on investments? Can they provide professional recommendations? What kind of ongoing support and education do they provide to the clients themselves? Or are they just saying, here's the system, goodbye, good luck, try not to screw it up on your own, don't come back. What you should be looking for is a person with a vast network who does this as a primary area of law and then making the client an ongoing member of their family.

Now you have a framework you like to use. When you're looking at asset protection principles that we talked about before we got on the podcast today, you know, exemptions and then jurisdictions, LLCs and charging orders and family limited partnerships. Can you explain a little bit about the framework you like to use and why you like it?

Oh yeah. My framework is everybody starts, I don't care who you are. You know, sometimes I had one client that's like, I don't want to fill out a diagnostic. I want to get on the phone with you immediately and talk. And like the framework starts with you go on our website and you fill out the exemption diagnostic. Because this is going to go in and break down all the exemptions and they fit state by state. So it doesn't matter what state you're in. And it uses an analytics and metrics to actually break down what we need to do. So when I get this diagnostic report to me, it breaks down your entire financial life and then we review it with the client. So it starts there and then we look at what exemptions can we max out and then what's left over. Some states have great exemptions, some states have horrible exemptions, some fall in the middle. And then if they can't do anything through exemptions, then we go into advanced asset protection, which are different versions of trust. Or sometimes they can, let's say this person's worth $10 million and I can only exempt 4 million of it. That means I now have $6 million that I still have to do something with. So I have excess planning that I have to do. And so we just work through the client on those steps. And we always have to know, are you being sued or do you have a reasonable expectation that you're going to be sued right now? So because this is really proactive planning, courts don't really favor you coming in knowing you're going to be sued because then we have to really go through fraud and fraudulent transfer arguments and then the cost is just going to be a lot more like there'll be things that we can do. But you know, it's better to pay 5 cents on the dollar than 75 cents on the dollar if you're coming in when your hair is on fire. And so to break down, I guess, you know, some of these tools we can start with exemptions. I love exemptions. And exemption planning is one of the main staples besides jurisdiction selection, but it's also one of the least understood. And there's a few reasons we start with exemption planning. First, it's a state given legal right, so you always want to claim and max those out first. Second, you're starting to see the weakening of out of state asset protection trust nationally. For example, we have a California case in this Kilker vs Stillman came down in 2012, and they completely disregarded the Nevada Asset Protection Trust for a California residential. So we're starting to see this more and more now nationally. And so we prefer to start with your state and federal exemptions, max those out and move on to using the strongest jurisdictions possible when we set up asset protection trusts, which we'll get into afterwards. But to break down a few examples of exemptions, first, exempt, like I said, they'll vary state by state. And a few good examples are Florida homestead exemptions. And I think it's just an easier concept to start with homestead, because people have heard the word before. And so in Florida, your home, regardless of its value, is going to be absolutely protected from creditors so long as it's contained within one fourth of an acre. Same with Texas, but for any size. And so that's a basic understanding of an exemption. And I'm sure you have a high percentage of California listeners and doctors. And I want to break down the specific California exemption because California is rated the number one litigious household for like five years running. And there's not really many asset protection benefits in California that they have, except for this. California is the only state to Grant full exemption protection for any asset that qualifies for being placed in a private retirement plan. And this was codified under CCP section 704.115 way back in the 70s. So it's been around for a while. You know, it's been around for over four years with very, very strong case law from the ninth Circuit during that time. And so when you talk about adding value just within exemption planning, over the last 24 months we've been able to, through the trust administrators trust CFO and working with good trust administrators, protect over $600 million in assets and save over 45 million in taxes. So that goes part, you know, part in hand to the add value that we were talking about earlier. And then one of the nice things about exemption planning is that once that asset is qualified as exempt, nothing crazy or elaborate needs to be done to protect it. It's exempt. And because these plans are tax neutral, you can invest in anything you want. They're not limited like ARESA plans. We can protect a lot like cash, real estate, portfolios, life insurance, private equity, your corporate stocks, your LLC membership interest. And then these plans aren't limited like a recent government plans because they're state created, not federal government related. They were created before the government even created ARISA plans. They actually copied these California plans to and piggyback off of them. And so what this means is that there's no 59.5 age limit for distributions then the other beautiful thing for exemption planning is that you can actually protect the future value of an asset. And so what this means is that a lot of businesses that you start or you're investing in or real estate, they all have future value. We can actually protect the values that haven't been earned yet by using them. But like you said, you know, the cost of it is a higher end protection. And we, you know it's going to start around $17,000. Can go between 17 to $22,000 going.

Are there other states besides California which offer those? I say non qualified, I know some of it is qualified. But these special retirement plans that people use for asset protection, are there other states that offer that or are they primarily just your standard ERASA and IRA plans?

It's just, you know, basically ARISA plans, are those going to be exempt IRA ones? They're just going to be state by state. You know, they're not going to be fully exempt. But this is really just a California specific. You know, it's a great thing about California is they were thinking ahead in the 70s to protect retirement assets. But it's the only state that created that private retirement plan. Full exemption. And then when we go, you know, break down the next stage of it, you know, if you want to move into that jurisdiction. And what is all this confusion about domestic trust, offshore trusts?

Well, before we move into that, let's just finish up exemption a little bit. I think I've got a good grasp on it, but I'll bet there are a lot of listeners that don't quite understand what you're referring to when you talk about exemptions. I mean, in general, most states will exempt your qualified retirement plans, both ARISA plans and IRAs. And what that means essentially is that even in the event of a huge judgment against you, they essentially can't touch those assets. Depending on the state law, as well as some protections for cash value life insurance, some protections for annuities. You mentioned the homestead one. You know, I know some states have some really wacky laws. Like I think Texas will protect 120 fowl and 12 head of cattle and a couple of firearms or something. What else is there that's included in exemptions?

So then you got some exemptions out of, you know, like HSA funds, 529 funds. And then that's just going to come down to, you know, are those deemed property or not? And so you kind of went through a good list on there. The only one that I would say just be cautious on is you mentioned IRAs. They're not fully exempt. So you just got to be cautious on thinking, you know, your, your IRA is going to be fully exempt. Government or visa retirement plans, like your 401k are 100%. You know, that's great, max it out. But IRAs are limited and they're only partially limited for bankruptcy. And different states will treat IRA exemptions differently. Same for life insurance. So some have significant protections, others not as much and some not at all. And that aren't fully exempted will be subject to cover for an over policy claim or a claim that's not going to be fully covered by your insurance provider.

What about 529s and HSAs? Do they get exemption protection in any.

States with the 529 funds, they'll have some protection built in. They're exempted under the Global Education Code. At the end of the day, the protection comes from the fact that those funds are not for the benefit of the parents, but the child. So the parents don't own those funds themselves. They're not the beneficiary of it, the children are. So that's how that kind of breaks down.

Even though technically the parents are the owners. I mean, they could take the money out and pay the penalties and spend it on a sailboat with the 529.

Yeah, it's just protected under the Global Education Code. And so the argument would be. That's the argument, you know, if someone were to make a claim for 529 funds is, well, it's not for the benefit of the parents. You know, it's in the trust. It's not for the benefit of the parents, it's for the benefit of the child. And then it's going to be, well, can the parents access it or not? So they'll offer some protection. But like I said, it's not fully exempted protection.

It doesn't sound like there's a lot of case law on 529s. As I've looked it up. I'm not sure anybody really knows if that protection is going to stand up, do they?

No, I think, like I said, it just, it's going to come down to the courts, you know, the court when getting challenged and where it falls in line of there. But you're right.

How about an hsa?

Yeah, hsas. So it's his own trust, so it can't be placed in another trust. You know, these HSAs are similar to ESA plans, but HSAs will vary state by state. Again, it's going to be is the fund going to be considered property or not? And the exemption status is going to be determining on the state if you do, you know, like for example, if you declare bankruptcy and the 8th Circuit Court just came down and said, no, they're not exempt and will be deemed property and bankruptcy. So it's just going to be state by state, circuit by circuit decision on do they deem these property or not? Some will say yes, some will say no, some will say to a certain limit.

But it doesn't sound like it's looking good if the circuit courts are starting to strike it down.

Exactly.

All right, let's move on and let's talk about jurisdictions a little bit, particularly with regards to trusts. You've mentioned asset protection trusts. I think there's 17 states that have some form of that, as well as offshore trusts and portable trusts which are moved offshore in the event that's needed. Can you talk a little bit about jurisdiction and those trusts and their pros and cons for.

Yeah, definitely. After maxing out exemptions, picking a jurisdiction to set your protection system up is really the next big issue, no matter what state you live in, especially if you have equity to protect, what jurisdiction means is that the laws and the rules that govern you and trust and business entities are going to be different from one jurisdiction to another, for example, one state to another, one country to another. And so you have two options when you pick a jurisdiction. You can establish them domestically in the U.S. for example, like in Nevada, or you can set them up offshore in another country like the Cook Islands. I personally prefer the power of going offshore if and when it's needed. And it's simply because it's the best home court advantage and makes lawsuits go away very fast or quickly resolve them for pennies on the dollar, even against super creditors like the IRS and the SEC who can just, you know, create money and come after you forever. And so the power of the foreign offshore trust like the Cook Islands is that it has statutory non recognition of any other jurisdictional court orders. And so what this means is that your US Judgment is worthless in the Cook Islands. The foreign trustee would just tell them to go pound sand, we don't care. They would have to start the case all over from scratch. In the Cook Islands, facing the highest legal standard in the world, the murder standard, which is beyond a reasonable doubt, the plaintiffs have to front the court costs and fly in a judge from New Zealand. And if they lose, they pay. And so when you have to prove a civil case by the murder standard, they're most likely going to lose. And then the statute of limitations is only one year. So by the time they even realize they have to see you in the Cocoa Islands, most likely that statute's already run, so they missed their chance to swing the back. But there's pros and cons to everything. If you're purely foreign, meaning offshore, for example, in the Cook Islands, yeah, that's going to be very effective. I mean, five out of five stars, you're not going to beat statutory non recognition. But on the other three factors that we look at, control, cost of compliance, it falls a little short. And so for a foreign asset protection trust to work, you have to be out of control and subject to a foreign trustee. The annual maintenance costs are going to be higher. And if you're purely foreign, you now have a lot more IRS reporting and asset disclosures to file every year, like IRS forms, 3520s and 30 by 20 as. But we really only do have about 5% of our clients that ever need to go purely foreign. For most people, it's just going to be overkill and now if we're going to compare this and break this down to purely domestic asset protection trusts, you know, stateside US based purely domestic asset protection trusts will be less expensive, so they'll be easier on cost and maintenance fees, but they fail on effectiveness and control. Now you still have to give up control to a trustee and then they fail because of the foundation of assets, they protection. And the foundation is to not recognize another jurisdictional court orders. But the hallmark of the U.S. legal system is the U.S. constitution. And in the U.S. constitution we have the full faith and credit clause, meaning every state has to give the full faith and credit to the judicial proceedings and court orders of every other state. You just can't run and ignore judgments in the US which is, you know, how our whole system is set up. It's a good thing. And like I said, you know, we're seeing a pattern of domestic asset protection trust being pierced. And we have just a few recent high profile claims cases where this has happened. In Ray Hubbard in 2013, Dill vs Dale 2015, Taney 1 vs Wacker 2018, all these were good facts, but the court just completely disregarded the jurisdictional selection for the trust, which in the if you can't protect your assets, then that's not asset protection. So that's not good. So then your listeners or the client is weighing the options. All right, what do I do? Which do I pick? Power of offshore, you know, cost maintenance of domestic. And if you don't need to go purely foreign, then I say neither. We use in what's called the Bridge Trust. And it's a hybrid of a domestic and a foreign asset protection trust. And so we're combining the best of both. And this was created 30 years ago by my affiliate Doug Lodmil. And we use the word bridge just to demonstrate how we're using a foreign trust and connecting two countries together. And then we just cross the bridge to the safety of the Cook Islands if and when you ever are under attack and need to, and then when the attack is over, they move back to the US and so for those of you who like me, really like to geek out on things, the Bridge Trust is a grantor trust. And so what this means is that you're the creator of the trust and so you're retaining some of the powers for it. And then like all asset protection trust, that's a self settled spendthrift trust. So what this means is that they are self settled, meaning by you for yourself as your own beneficiary. And then this is now where the win win really comes in and the value add. For the purpose of IRS reporting and disclosures, your bridge trust is actually considered domestic, not foreign. And this is because it's specifically drafted to meet a two part test under USC section 7701, referring to the court test and the control test. And so why we care about this is for tax purposes. What this means is none of the foreign IRS filings or asset disclosures of any kind and is cheaper on cost and annual maintenance. But for protection purposes, you also now have the strength and power of the Cook Islands in your back pocket when you need it. So this is the power of foreign Asset Protection Trust or the hybrid option with statutory non recognition combined with the extreme statutory hurdles and the difficulties to sue somebody in the Cook Islands versus anything domestically. The purely domestic version only has half the formula. But the Asset Protection Trust, for them to work, you need to have both options. You know, you need the offshore component if you really want to be protected. But again, it's a higher level of protection. And you know, you were talking about cost before, so it's going to be about a $30,000 startup cost for that.

So is a domestic asset protection trust by itself, is that even worthwhile? You talk about all these trusts being pierced, is it not even worth doing?

My view of it now is it's becoming weaker. So if you want to use it more as a higher level of protection than versus like an llc, then yeah, go ahead and use it. You're going to get more protection than an LLC from it. But if protection is really, really a concern for you, and you really want to know that you're safe and secure, then go offshore, go and use a hybrid. Unless you're under, you know, you know you're about to be going under fire, then you go offshore immediately. But that's just going to be a determination of, you know, the person who's making a decision and where they fall on that line of that. I personally would recommend the hybrid just because I always like to have, you know, the big red button that works at the end of the day if and when I ever need it, especially if I'm big, I'm visible, I have moving parts, I can get sued from a lot of different areas. The more I have, the more I would be concerned about. So for me personally, I would want a stronger protection.

Now, is it complicated at all? For example, if I want to put my business, the White Coat Investor LLC in this hybrid trust, is that even possible to do something like that? Or are you basically limited to cash and more traditional investments. What can be put in that trust?

I guess you can put all your assets into it. Obviously a house isn't going to be portable. I can't physically put a house into it. So the first way that it works, you can protect corporate shares, all your value out of your business interest that you own. But what happens is first it's used as the ultimate negotiating settlement tactic to where if someone were to want to sue you, you just say, well, we don't hide the ball here. We have our foreign offshore, you know, component to our trust. Even if you were to get, you know, a massive judgment, you get nothing. You know, good luck exercising it. Let's make a deal right now for pennies on the dollar. And that's how we settle these to go away. That's the strength of it. If by chance all hell broke loose and you couldn't settle the claim and you had a judgment exercise against you, by that point, triggering events would already transition the assets to the Cook island trustees and they would be managing it. And then if we would have to, at the end of the day, we would just equity strip everything of value and then protect. Because at the end of the day, that's what pays your bills. You gotta get access to cash. And so that's what the end of the day, if all hell broke loose, which is really doesn't happen, you would transfer the value out and equity strip what you have. So that way you have access to live and continue your life how you're living it now.

A lot of my listeners may not be familiar with the term equity strip as I've seen it used. It basically means borrowing against anything that isn't exempt and taking the money out of it and putting it into something that is exempt. Is that the way you use the term equity strip?

Yeah, that's a great, great way to, you know, break it down. Yeah.

Okay, so let's take a kind of typical doctor. Let's say you got a doctor and he's got a million dollar Visa plan. He's got a house that may be only $100,000 of his, $400,000 in home equity is exempt, and he's got a half million dollar or $1 million taxable investment account invested in mutual funds. Is he a candidate for a domestic or an overseas asset protection trust? Or really the cost of that just not worth protecting that small of an amount of unprotected assets.

His ERASA plan is already exempt, so he's good there. It's a matter of what I Would look at also what is his long term goals, you know, like does he want to keep investing? Like what is he going to be investing in? He doesn't have that much equity at that moment to say it's really worth it. Because we really look at, you know, net worth, 2.5 million to go, which is, you know, minus your liability. And so his house wouldn't equal to that level yet. It would then look at what is the value of your business and then maybe that is, you know, the liability of that and where you can get sued from there. So we would just look at the overall picture. So I would say a starting point would be, you know, look at where are you getting your, your risk from all of your different buckets. What's the equity of that number, what's at risk. And then when you start getting into that million dollar corner that you're rounding, that's when you start need to start thinking about these higher level of protections. Yeah.

All right, let's move on a little bit. Let's talk about limited liability companies, LLCs and charging orders and the kind of protection you can get from those and how it varies by state.

Yeah, so the LLC or limited liability company is a good entry point to establish some basic level of protection. And if you're trying to protect just a few assets and money is limited, it's a great place to start, it's affordable and you'll get some limited personal liability out of it, provided is protection element isn't pierced like the veil isn't pierced, which would mean you're being held personally liable. And then depending on the state and the jurisdiction, you can either have strong charging orders or horrible ones. But that's state specific. And so what a charging order is referring to is how much a creditor can collect from you, the member owner of the llc. And that's why we look for stronger jurisdictions when you set up LLCs with better charging orders. You know, like Nevada has a good state. Delaware, Wyoming, Texas, Arizona have strong charging owner protections. California, horrible, you know, Oregon, horrible. And so if you're thinking of the LLC option, I would say use 2:1 as an asset holding company, especially if you're investing in real estate, and then a second as an operating company to do all the contracting and operating out of. But also remember, it's still just maybe protection and use more as a deterrent. That's how these play out. Generally it's easy to make a piercing the corporate veil argument just with how money is managed in their accounting. Nobody's perfect. Most People start commingling personal business accounts with their, you know, business accounts with their personal accounts. And so the LLCs then are going to be argued to be extensions of the person, the veil pierce, and then access to those funds to pay damages. And then I think the other part of your question comes down to inside versus outside liability. And it's a good concept just to understand. Inside liability is liability that comes from inside the business, from your business activities, like having an investment property inside an llc and then somebody gets hurt or the house burns down and there's a, you know, there's a party and somebody gets drunk and drives and kills somebody. The creditor's claim is limited to what's inside the business. Now, if you only have one property in one llc, that's fine. But what if you have four properties in one LLC and that LLC gets sued, all those houses are now on the line for that collect on that damage. Outside liability is liability that comes from outside the business, from your personal life. You know, like you hitting somebody while you're driving a car. If it's set up correctly, yeah. Your business entities or your LLCs can protect you from both. But you just need to remember that you can't protect an asset 100% because you always have the capacity for one of those assets to self explode. And so if that asset explodes, you can't protect, you know, you can't protect that asset. You got to move it away. But what you want to do is protect the rest of the assets that are there from the exploding asset.

So as a general rule, are LLCs better for internal or external liability?

You can set them up to protect for both. But I think as a general rule, what I like to do is limit how much equity you put in to a single llc. You know, for example, like we try to limit to, I would say, you know, 250, $500,000 per LLC. But in some states that's just unrealistic. For example, California, good luck buying a house for like under a million dollars. So that general rule doesn't work. So you might have, you know, two properties in an llc, but you just want to split up the equity and what somebody has access to in the LLCs, just so that it can't bleed into other assets that you put into it.

But in general, if somebody slips and falls in my rental property, successfully sues me and I lose the rental property, is that protection that they can't come after my personal assets pretty strong, or is it relatively easily pierced? If they can show that one time I Use the business account to buy groceries.

That's why I say LLCs are good starting points if you don't have the money to go into something more protected. But there may be protection, you know, like, what is the first, you know, letter of the first word there? Limited. So they only. They tell you what it is. This is limited personal liability. And piercing the corporate veil is very easy to make. I did this a lot as a trial lawyer, so and so. And it all just comes down to simple things as accounting errors or, you know, mismanaging the business and using it as, you know, an extension of yourself.

Let's talk for a minute about family limited partnerships and their role in. In asset protection. I mean, there's obviously a huge role for them in estate planning. But can you describe their use and role in asset protection?

Yeah, they're like LLCs and they have some charging order protection. And I like them better than LLCs because they have a very distinct delineation between the managing partner, called the general partner, and the minority partner, who doesn't. We like having both a general partner interest and the majority limited partner interest. And we use what's called an Arizona Asset management limited partnership as the starting point for clients as the holding company. And then later on we add the bridge trust if and when they need it. And it's for the actual asset protection component of it. You know, it's really a combination of the two together that you want to capitalize on. So an AMLP is a family limited partnership, but when they're drafted for asset protection purposes, they're called an amlp. It's your holding company. And the way it works is that the LLCs are owned, so you can create separate LLCs if you want. And those LLCs would be owned by an AMLP along with, you know, you can put cash, stocks, bonds, whatever, you know, safe assets you want in there. The way ownership and control gets set up is that the general partner of the amlp, which can be you, or a Wyoming LLC if you want privacy, is the managing partner that now gives you control and privacy. The minority limited partner is then going to be the bridge trust or domestic trust as the asset protection trust. And this is where the asset protection connection comes in. So you want both components of them there. And that's why we like The AMLP over LLCs is because of the delineation.

We're starting to get a little bit shorter on time. I've got a few quicker questions I'd like to hit on, though, that I get a lot from doctors how much malpractice insurance should a doctor carry?

Yeah, I think they should have as much as they feel comfortable. You know, I'm not going to give like a dollar amount and I'm not going to give legal advice on how much, you know, they think and say, oh, listen to this podcast. And Brian told me to have that. So I'm not trying to say, you know, a numerical number there, but I think they should carry as much as they legally are required or that covers their specialty. You know, different specialties are going to have higher risk. A lot of doctors carry $1 million, but that might not be enough, especially nowadays, especially as you adjust for inflation and malpractice awards have risen and very few doctors have the resources to come up with them out of pocket. Especially if it's going to be an above policy claim or the policy, you know, the coverage isn't going to be paid fully. And look to possible excess and surplus claims of liability. If your policyholder, you know, your insurance policyholder, won't cover a specific part of your practice and even look to umbrella policy insurances. And if you are also investing in money, you know, investments and businesses, I then add the component of asset protection into it also.

Now, a lot of times when I've talked to malpractice attorneys, both defense and plaintiffs, they've told me, carry what everybody else in your specialty and in your area carries. You know, for example, in emergency medicine in Utah, Most people carry 1 million, 3 million policies. Do you think that's good advice or do you think people really need to seek out and maybe buy more? Does that just make them, you know, fat pockets and bigger targets?

I just think that it matches their concern risk, you know, more, you know, you can say, I have the bare minimum. I would say look at your specialty and the likelihood of what's going on in there and carry that amount. And then I would also say look for an umbrella policy. Read the fine print of your coverage and know what parts of your practice may not even be covered. And then consider excess and surplus liability. Or if you're concerned about their likelihood of me being sued is a lot, and then I'm going to have a, you know, damage to my reputation and possibly my earning capacity. Excess and surplus claims can come in to cover that back source of lost revenue and income right there. So that's just as an assessment of what they need to do. Right? You know, that would be my recommendation.

Now, when you're saying umbrella, are you talking about a professional umbrella policy or are you talking about A personal umbrella policy because they essentially always exclude malpractice claims from any sort of coverage.

No, I would say look at excess and surplus claims and then. But you also have to remember there's multiple components to all of these people's lives are also investing. And so you also then want to protect yourself. It's not just malpractice that can come and bite them in the butt. There's also business issues that they can get sued from. We went over those. And then there's investments that they're making that they can get sued from. But the umbrella policies would cover them on those business ends and their investment ends as well, to a certain point. But there's weaknesses in insurance also because they're always going to try to wiggle out of paying claims. But in the realm of asset protection, you want to have as many moats and buckets and protections to protect yourself and your castle and your legacy as you can. You want to have max out all your protection. It just depends on where that client lies and the, you know, the cost, the need, the risk, the liability and everything they're doing in their life.

Okay, how about a personal umbrella policy? Do you have an amount that you recommend people carry? Is there, should it be tied in any way to your net worth? How do you decide how much to carry as a personal umbrella policy?

Yeah, I think a good, good way to look at it is have as much and above, beyond the amount of, you know, the traditional limits of your personal home and your auto policies. You know, each area of your life is going to have a different level of risk. So the idea is as you're more successful making more, investing more, you should be creating more of these layers around you. So they have to assess what the amount of that is, what's not covered, and then go from there. And so it's just going to be an assessment from there. So I don't want to give them a dollar amount because I don't want someone to say, go and get this, you know, amount covered. But I just think that they should get and pay for as much as they can afford. I always think more protection is better, especially if you know you can afford it and then make sure you have the coverage above and beyond those limits of your personal home and your auto, you know, for example, your auto policies. That way you're covered, you know, beyond limited claims.

I mean, that's pretty vague. It's hard to use that advice to do anything with, you know, I mean, I mean, most of us have raised our auto and home policies to $300,000 and stacked an umbrella policy of one or two or five million dollars on top. But none of us have any idea if 1 million or 5 million is the right amount.

And I can't tell. That's, that's a personal decision on that. All I can say is look at what your, your, your risk is and what's not covered and what you think is going on in each individual area. And then if you feel like you need to have excess coverage on that, then, you know, then get that amount. But I can't sit there and say as a standard general rule, you should go and get $2 million umbrella policy because everybody's different.

Yeah. Let's talk a little bit about tenants by the entirety titling. Does it really work? Does it work for both real estate and for bank and brokerage accounts that are titled that way when it, when the excrement hits the ventilatory service?

Yeah, it's a good question. And the question comes down to does a creditor of one spouse have rights against tenants by the entity of the property? And the answer is going to be that's going to be a state by state assessment. When you're getting sued, some of those states will have good homestead rights. So that's great. But the issue and problem is what happens if one of the parties or spouses is sued? What happens? Cash flow stops, revenue stops. It's tied up and the property can have a lien placed on it. So that's why you need to protect your assets properly. And this only partially works if you're talking about individual debt, not joint debt or joint credit. So if the majority of states that allow tenants this type of tenancy, including like Michigan and Florida, and you have a husband and a wife, they have to act together to transfer or partition or encumber the property. And so a creditor of one of those spouses doesn't have to have an attachable interest in that tenancy. On the other hand, here in the minority of states, so there's always. It works this way in one area and this way in another. So in the minority of states that don't do this, either spouse can act alone to affect the property, like mortgages, partitioning and selling. And so tenancy by the entirety is treated the same as the other forms of joint ownership. And a creditor of one spouse can attach to the extent of the debtor spouse the interest in the property. This then is going to allow a creditor to force sell or partition a property. So it comes down to Great. I'm not being sued and I have my ownership interest, but my wife's being sued and she has hers. My ownership interest might not be taken away from me, but she can still encumber of the property and cause an effect on the property and tie it up. And then there's also special creditor situations that could still have an attachable interest even in tenancy by the entity properties. So even in states where the spouses must act together, the US Supreme Court's decided that property held as tenants in this way are always going to be subject to federal tax liens against one spouse, no matter what the underlying state law is. The rule has been extended even to criminal fines and forfeitures. Federal tax liens always trump state law. And this is just goes through the Jerry and Kraft principle from Dery versus United States. And so at the end of the day, look at it through the eyes of business. You know, if you have clouded title and the revenue and cash flow, did it really do anything for you?

Yeah. All right, let's talk about future earnings. For example, a doctor's cleaned out, right? They're sued above policy limits, they lose everything that isn't exempt. Is it possible and how often does it occur that their future earnings are at risk in that sort of a judgment?

Future earnings can come into adjustments that play especially if they don't have the money presently to pay off. Then those future earnings can be garnished for a claim. It's just like in any type of lawsuit for damages.

And is there any way to protect that?

In certain areas there are. For like California, you can protect future value through PRPs plans that we talked about with exemptions and assets and on business interest. But if you've already maxed out all those areas, like your earning of your paycheck can be garnished.

All right, we better wrap up here soon. But you've got the year of. By the time this is listened to in a month, probably 20 or 30,000 high income professionals, mostly doctors. What else would you like to tell them about asset protection that we haven't yet talked about?

Yeah, I would just say be proactive. You know, everybody will assume that you, a doctor, has money in deep pockets, even if you don't. Even if you're just coming out of med school and starting out. Like I said before, cost is a byproduct of procrastination. You can pay 5 cents now on a dollar now or 75 cents on the dollar later on if you wait. What you can do is proactively Plan and set up installations and protection from frivolous lawsuits by forming and implementing a protection plan. And this helps deter litigation before it even gets started, like that's the point of it, or places you, places you in a position of strength to settle cases for pennies on the dollar. And it's not just for medical malpractice, but also all the other areas of your life, like your business investments, your real estate investments, whatever that you're doing on the side that also has liability. Understand what's causing you to have a false sense of security, have the small things in place, have insurance know its limits, have enough coverage and extra so that you know that you can sleep well at night. And as you start investing, having a California PRP exemption plan for doctors or a strong, properly set up asset protection trust, it's safer, less costly in the long run, is more powerful, and has proven case law and track records, even in the worst case scenarios. So with a properly structured plan, any excess amount of any judgment that you're worried about or any amount that's not covered would likely not come from your personal assets. So just at the end of the day, be proactive, be prepared, and plan before you're under a threat, before you're under attack, so you have that peace of mind and you can sleep better at night.

All right, Brian T. Bradley, thank you so much for coming on to the White Coat Investor podcast. We appreciate your time.

Oh, thanks, Doctor, for having me on. And, you know, I think we covered a lot, so they might have to listen to this a few times. And I really had a great time Talking to you, Dr. Jim, thank you.

All right, I hope you enjoyed that interview. It's interesting. You can always know when you're talking to an attorney, it's a little bit hard to pin them down on stuff, isn't it? You ask specific questions and sometimes you get specific answers and sometimes you don't. Clearly, asset protection, more than many parts of law. The answer is, it depends. You know, as he mentioned early on in it, there's really no 100% sure protection available in asset protection. That's why I think it's really important that you start at the basics. The first line of defense in any sort of liability situation is insurance, professional insurance, you know, malpractice and personal insurance, your, you know, auto and homeowner's policy, renters policy with an umbrella stacked on top of it. That's your first line of defense. And then of course, you know, you want to reduce liabilities as much as you can. You Want to treat your patients nicely and practice good medicine and, you know, maybe not have a Rottweiler and maybe not have a trampoline or a pool on your property, those sorts of things. You know, not let your teenage kid drive. You know, there's all these things that we have to weigh all the time whether we're going to take on that liability or not. But that's really the first couple of steps of asset protection. Above and beyond that, you'd certainly want to know your state's laws and what's exempt in your state. In some states, all your retirement accounts are exempt, and that's a great reason to max out your retirement accounts. If you can max them out, then you know, at least in the event of some huge judgment and you haven't declared bankruptcy, that you're going to be able to keep that much money. Maybe you don't get to keep your house, you know, if there's not a strong homestead law in your state, maybe you don't get to keep your taxable accounts and your investment properties and that sort of thing, but at least you'll have what's in those retirement accounts. Same thing in some states with cash value, life insurance and annuities, those sorts of things. You just need to know your state laws. If you have toxic assets like a rental property, you probably want to put them in an llc. Yes, there's a little bit of a cost there, but it's almost nothing. I mean, the White Coat Investor LLC was formed for $70 in Utah. It's a lot more in California. If you go to California, it's like 800 bucks a year, I think. But in Utah, it's $15 a year, $70 to form it, $15 a year to maintain an LLC. It's just not expensive. And if it gives you any protection at all, it's probably worthwhile. And then if you want to go above and beyond that and start making trusts, overseas trusts and domestic trusts and these portable or bridge trusts that can be moved overseas, and family limited partnerships. Well, now you're talking about spending tens of thousands of dollars. And I think at that point you've got to ask yourself, how much protection do I need is this really significant risk for me? You know, there's certainly a little bit of value there in letting you sleep at night, but how much real value is there if your risk of an above policy limits judgment, either personal or professional, is so low and only you can really weigh that out. You know, it's interesting when he talks about the cost of value he starts talking about these other values that they provide, these estate planning values and these tax saving strategies. Well, you can do that without setting up the trust. You know, I mean, in California they've got this California retirement plan which can be both qualified and non qualified. There's a blog post on that on the website if you want to read more. But in that case, obviously the qualified aspect of it would save you some taxes, but the non qualified is not going to save you much in taxes. It's pretty much a pretty pure asset protection play. And then it's also hard to put a value on the benefit of being able to deter a lawsuit or to force a settlement, right? I mean, part of asset protection isn't necessarily to protect your assets in the event that there is a judgment. It's to keep people from realizing that you have those assets in the first place and then to kind of force them to take a settlement. To take a policy limits judgment rather than going above and beyond that. And it's really hard to put a value on that too. And so unfortunately, I think the listener is left with a pretty vague understanding of what they really need to do. And it's really hard to give you a nuts and bolts how to guide to asset protection. But certainly as your financial life becomes more complicated, as you become more wealthy, as you take on more risks with more businesses and investments and you know, a riskier practice, that sort of thing, it may behoove you to find an asset protection attorney and maybe spend some money with them. The White Coat Investor is proud to introduce our no Hype Real Estate Investing course which will provide the framework for developing further knowledge and experience as you progress in your real estate investing career. We call it an introductory course because there's always more to learn. But this is no short, superficial course. There are over 200 lectures and videos adding up to more than 27 hours of content by over 15 different instructors. We think it just might be the best real estate course on the planet. Continue your wealth building journey today with the no Hype Real Estate Investing course@whitecoatinvestor.com courses. You can do this and the White Coat Investor can help. Thanks for telling your colleagues and trainees about this podcast and for leaving us a five star review to help spread the word. Head up, shoulders back. You've got this and we can help. See you next time on the White Coat Investor podcast. My dad, your host, Dr. Dalle, is a practicing emergency physician, blogger, author and podcaster. He is not a licensed accountant, attorney or financial advisor. So this podcast is for your entertainment and information only and should not be considered official personalized financial advice.