Protecting Your Home from a Lawsuit | Main Street Business Podcast

Welcome everybody to this week's episode of the Main street business podcast with yours truly, Mark Kohler and my amazing co host Matt Sorenson in the house, baby.

Thank you. Excited to be here. Excited to have Mark Kohler back in the studio.

True. I had a scruff going that I was trying to look pretty manly, kind of a George Clooney, Brad Pitt look in it. We had an office vote and it didn't happen.

So I'm, let's be honest, it was kind of more of a Colonel Sanders kind of look.

Said Joe Dirt. Either way, it looked like a carnival. You know, a carny. A carny. But no, I was in Alaska for a week and a bucket list experience. Never been up there. When fishing a remote island, it was pretty amazing. So of course I had to try to grow out my white trash beard. But it, yeah, it didn't turn into a Hollywood look. So anyway, I'm here for those that are watching on YouTube. Great. For those that are listening on the podcast, even better yet, we don't hurt you with our faces made for radio. But if you want to get over to YouTube and watch our podcast, sometimes we use a whiteboard. I don't think we will be today, but we've got. Great topic. Matt, why don't you introduce our topic?

Yeah, we're gonna talk about protecting, number one, probably the number one asset. People want to protect their home. So when I talk about how to protect your home from a lawsuit today, it's something I think a lot of us think about. And for many of us it's the, it's not the number one asset. It's certainly a significant asset. So we're go through the strategies, Mark's got some articles on it and try to break down the things you should know so that you don't lose your home and the equity in it in a lawsuit.

Yeah. And by the way, Louise, can you grab me my Tax and legal Playbook second edition? It's over here across the studio. We're gonna need that. It's sad when I have to go to my own book to reference, but the tax.

Sign of a good book, though. That's a sign of a good book.

It's the Playbook. The Tax and legal playbook, which has several appendices that give you key data on your state. And so I want to give you. Thank you. That's a little, you know, self serving cameo for a tax legal playbook on Amazon and all your booksellers online marketplace. Com. But a couple disclaimers or caveats. This Is not about protecting your home from foreclosure. For some of you that may be facing some desperate situations due to Covid or a business failure, we may cover another show on home foreclosure issues. There's a lot of legislation going on around the country trying to help homeowners, which hurts and sometimes the bankers or rental owner, rental property owners. So it's a very precarious topic, but we're not going there today. We're talking about those of you that have significant or some sort of equity in your home as your primary asset. And if you were in a lawsuit, texting and driving a teenage driver fall asleep at the wheel. Just an random a lawsuit.

The last client I talked to had an old business credit card with a partnership that he personally guaranteed that he'd have creditors chasing him down for years on now starting to look at his assets.

Yeah, and bankruptcy is not usually the option many of us want to turn to. It's not a lot of times the fresh start. People think, oh, I'll just claim bankruptcy, I'll keep my house and start over. No, they're trying to protect creditors too, that you owe and they're going to carve up your assets, which means there's going to be a little equity in your home you might be able to keep. Which we're going to come to. The second caveat or disclaimer is this is very state specific. So we're going to do our best to kind of give you the general concept and then you're going to. And we have a package that we do at our law firm of helping people analyze their asset protection needs. It's very affordable. We'll reference that. So some of you know where to turn if you need some place to go. But I don't know. Matt, any other. Any other disclaimers that sets the tone for this crazy topic?

No, except that Mark and I are lovers, not fighters. You know, so sometimes you do need to get litigation attorneys and it gets nasty on this stuff. But we think we got a lot of strategies here to think about. And I was gonna say before we get in the topic, though, just a little side note here. September 15th, if you're listening to this as it's released, is right around the corner. So for those of you with S Corps and partnerships, this is just a little plug from your, you know, tax advisors here. Get your tax return done. Okay. Got six days from when we're recording this, maybe five days by the time it's up. So get your crap together.

It's Go time. Yeah. And there's no more extensions. Even under the COVID legislation. Many of you think, well, there was extensions. Well, that time's past. So if you have a single member llc, you're. Okay, so let me repeat that. If you have an LLC that owns rental properties, it's owned by you or your wife in combination or your spouse, and it's just a marital llc, and you've never filed a partnership tax return, we call that A Single Member LLC. There's no tax return due on September 15th. You have until October 15th, and you'll report it on your 1040. But for those of you that have a partnership, where the term is. Many of you know about is called a 1065, where you get a K1. Those tax returns. For LLC, the deadline is September 15th, and for S. Corporation owners. Now, if you have an LLC that's taxed as an S corp, that's an escort. So that is also, in fact, the penalty is not the end of the world. But you want to know what this penalty is? It's approximately. And. Well, we'll quote this more in the episodes coming up after the 15th because people are freaking out and don't know what to do. And I've got articles on this as well. But the penalty is approximately $300 per shareholder or per member of the LLC for every calendar month. So if you're late on September 15th and you file on October 5th, there's a penalty for September and a penalty for October, and then the next penalty would kick in November 1st. So it's a quick trigger. And these penalties add up fast. And so they're not as easy to get out of as they used to be, either, because the IRS has tried to give leniency and get people on the same page with September 15th. So be careful.

Yeah. All right, well, let's. Let's get into the topic here about protecting your home from a lawsuit. We've got six strategies in total we're going to cover.

I'm calling an audible. I got eight. I got eight.

Okay. Added to. Since we talked, like 15 minutes ago.

Yeah, I know, I know. But you're going to like these. You're going to like these. Okay, I'm going to bookend it. I'm going to put one at the first of the list and one at the end. So we have our core six.

Okay.

Which I talked about a lot in my book. Matt and I lecture about this around the country. But then on the front end and on the back end, we're going to add I want to add two more. The first one, Matt, for you business owners, one of your biggest liabilities is something happening in your business. And so you set up an llc, you set up a corporation, you have a rental property, you set up an llc. And if anything happens at that rental or in your business, you're expecting your S Corp or LLC to protect you or your biggest asset, which is your home, Right? So you got this. It's kind of two steps away. But sometimes instead of protecting your home, you need to say, how can I protect the risk? And that's an entity. Well, one of the most affordable and simplest things to do to get entity protection for your home is to do your annual maintenance minutes. Make sure you have a corporate book. Make sure you have the proper registration completed at the state. You're in good standing. And Matt, that brings us to. Baby. Huh? You like my number one?

Yeah, yeah, that's good.

I sent it for you, baby. Hit it away.

I like it. Well, let me say that an entity in and of itself is the best thing for those that have rental real estate or businesses, because what is the biggest risk you have of a lawsuit? It's probably in your business or in your rental properties. And some businesses are more risky than others, of course. And so the first thing is let's get the risk away from me to begin with. So it can't even attach to me personally or let alone get down to my home. And by having an LLC that owns your rental, let's say, or your rentals, they can sue the llc, but they can't go after you personally, which means they can't get to your home. Same thing for your business. If it's in an LLC or an S Corp or other, or C Corp, whatever it may be, they all have the corporate veil, so they are forced to sue the company. They can't come down to you personally, so that's going to minimize risk in the first place. That could even attach to you personally. I think that is an awesome number one.

And on this note, and we've written about this, there is lawsuit out of law after lawsuit out there, people. That one sheet of paper, an online service, one known as LegalZoom being the biggest one sheet of paper does not get you an LLC that's a part of an LLC. And when you go to court and show up with that one piece of paper, if many of you could find it, which I know you're probably not able to, that's not going to help you. That's not going to help you. A Lot of people are scrambling before they're going into battle at court to get on their vest and their helmet and all this stuff and put together their minutes, and it's a wreck. And they're not prepared because they haven't been maintaining their entity. Now, Legal Zoom's great. I'm not trying to take a shot at Legal Zoom. If you check all the boxes and when you set up an entity at Legal Zoom, you're going to get all the pieces and parts you need. And it's not as cheap as their advertisement is because there's all these pieces and parts you need. And so we've got a service that's cheaper than LegalZoom. If you need that paralegal setup. Cool. But once a year, here's where we're going with this. Once a year, we do a cleanup special. We literally have two paralegals that all they do is just do cleanups. People call up and go, I got this entity I set up three years ago. I don't know what to do. And so we hand them over to Susan and Christy and they say, all right, let's get this thing dialed in. They check the status of the state. They do new bylaws. They do a due corporate book. We change your address with the irs. You may want some privacy implemented. We have a mail forwarding service, a registered agent service, very affordable, and that specials this month. Matt, what am I missing on the special? I mean, it's.

No, I mean, I think the other thing is people miss, you know, they miss the operating agreements. They miss doing their bylaws. They file it wrong at the state. They got the piece of paper approved, but they did it wrong for what they're actually trying to do. And so we're going to look at that as we go through and clean it up. And that's part of special. It's 495 regularly, 600 bucks. So it's a good time to save on that. But that is for those of you that have set up entities for your rentals, your business. It's a good thing to test it and make sure it's actually going to work. And that's what we do the cleanup special for.

Yeah. If you want to get that special, you go to kkoslawyers.com KK O S as in Sam or Sorensen lawyers. L A W Y E R S dot com. I think it's right down there in the banner. For those watching YouTube. That'll be in the information below on your itunes. Information below. Click on that One of the first banners up there is our monthly special and you can upload documents, get the service paid for and off to the races. And like I said, it includes all the pieces and parts. If you need to update your information with the state, the irs, the books, and if you did one sheet of paper yourself at the state, then this is it's time now to get all the parts and pieces done and very affordable. So check into it now. Why this is not a self serving. It really seems like it, but it's not. We when you want to protect your home, you want to put up barriers. And one of the first barriers is making sure that that entity for your business or rentals is effective and it's doing its job. Now on that note, let's turn now to the home. We do not recommend you ever put your home in an llc. Does not make sense. Does not make sense, doesn't work. It's not a business asset, it's not an investment asset. It's your personal residence, an llc. We've rarely ever, ever seen an LLC provide any sort of asset protection in that scenario. Now I'm not talking about a cabin or a second home or a beach house. I'm talking about your primary home that you live in. An LLC just doesn't work.

Yeah, sometimes people do it for privacy purposes in certain states, but generally it's not going to work. And there's some sell of home exemption issues unless it's single member and disregarded, but so it gets wanky but wonky I should say. And so but we'll talk about some. Maybe you use a trust. We'll get to that. So do you want to rattle off the strategies and let's hit them one by one. You want to give a roadmap of where we're going here?

We should, we should because I think that'd be helpful. Yeah. Because some people are like oh my gosh, just tell me the six or eight that you came up with and yeah, so we know where we're going here. One is maintaining your business entities to limit risk for your home. Number two, umbrella insurance. The reality there's pros and cons to umbrella. It's not bad, but you need to go in with your eyes wide open. Number three, the homestead exemption. What does that mean? How do you, what's it mean for you in your state tenancy by the entirety? Man, I didn't even, I didn't learn about that until I was a lawyer at least five years. I mean it's a really weird law that you don't even learn in law school and many of you are going to love it. You want to learn about that tenancy by the entirety. Number five, equity stripping. Number six, the domestic asset Protection trust or DAPT D A P T. Put in the home in your spouse's name. For those of you that think you're never going to get divorced, then number eight, irrevocable trust. And we're going to throw in the land trust conversation at that point too, because a lot of people think a land trust gives asset protection. It does not. And with these, these issues of asset protection, these eight topics, we're not talking about privacy. I love privacy. We love to create camouflage, but camouflage is not a bulletproof vest. And a bulletproof vest doesn't prevent an armor piercing bullet from getting you. They're not fail safe in every situation. But these strategies are like the vest where privacy is like camouflage. And that's another show price. Those are.

Let's. Okay, we hit the entity to protect your you against business risks or investment property risk. Let's talk about umbrella insurance. All right. Umbrella insurance is. This, I think is a misconception. Right. I think of an umbrella over my head protecting water or like, you know, these liabilities from falling on top of me and it's just gonna go to the side. It's not what umbrella insurance is. It's the worst word. It should just be called excess insurance. Because what umbrella insurance is, and you can buy it, it can be good and affordable. We're not against it. Yeah. I'm just saying. Let's see, by a million dollar umbrella insurance policy. Well, what does that cover? That covers only the things that you already have insurance for. So like if you have a rental property policy, it'll stack on top of that. If you have a homeowner's policy, it'll stack on top of that. If you have a car insurance, auto insurance policy and you're worried about the texting and driving lawsuit, it's going to stack on top of that. So it only adds more insurance to insurance you already have. It doesn't cover new things. And that's one thing you got to go on eyes wide open to. Umbrella insurance is only buying by getting umbrella. I'm basically, you get a million bucks, I'm throwing another million of coverage on top of only the policies I already have.

Yeah. And what's another misconception is that, well, if my homeowners doesn't cover me, my umbrella will. No, the umbrella right off the bat in all the policy says we Cover in excess of what your primary insurance coverage didn't cover due to policy limits. Now if they say, well, we don't cover mold, well, the umbrella insurance has said, well, we don't cover mold either, then we only cover the excess liability amounts, not the excess causes of action the other insurance didn't. And this is, I hate to say this, I know you Californians, I lived in California for eight years and then I, I could spend my money more wisely visiting California and save on taxes and cost of living. And I love my Californians. But you think that, oh, I can avoid this $800 minimum tax and I can just avoid the franchise tax or the excise tax in certain states by just getting umbrella insurance. No, no, it does not replace an entity. I just, I don't know how better to explain it. Lastly, it's cheap. Does that give you any indication? And if you go out and research this and the insurance companies do such a good job of burying this fact out there because they don't want you to know this. Umbrella insurance only pays out 1% or less of the time. There's a, there's a cause of action, 1% or less. It's cheap. And that's why.

So, and keep this in mind about umbrella insurance too is, I mean, let's say the cost is 60 bucks a month.

Okay. Which is high. Really?

Let's say it's 50. Okay, well that's 600 bucks a year you're paying and you're paying that every year. You know, so the cost of the insurance, I think sometimes people think, well, it's just this much.

Yeah.

Per month. Okay. So be careful on the cost of it. Now, can you add it for cheaper? Possibly, but usually that means it's not covering more policies, you know, so if I'm, if I've got business policies and investment property policy, landlord policies, I got a good homeowner's policy and I got auto and lots of cars. Like your umbrella is not going to be, it's not going to be less than 50 bucks. Like it's. But if you've got small, a smaller set of asset and a smaller set of insurance policies, it could be really cheap. But it's only stacking on top of those one or two policies you have.

The last example I'd say is when you go to Vegas, remember the house always wins in the end. That's why Vegas is so gorgeous and flamboyant and billion dollar hotels, insurance companies will win this gamble. They will. Now, do I carry an umbrella policy? Yep. I do. Not saying it's bad. I'm just saying don't think it's the get all end all and you can skip everything else. Okay, now one other important point. We did a whole podcast just on umbrella insurance and brought on an insurance agent. Every one of these eight topics we could spend a whole show on, and I think we haven't many times. So we're going to burn through this. Let's go to number three, homestead exemption. What do you want to say about it, Matt? And then I'll.

So let me explain. Homestead exemption in general is this is a law that's state by state. So there's 50 different answers to how this is going to work in your state. But essentially it's a lot that's designed to say, hey, we want to protect the equity in people's homes from a creditor. And so even if you've, excuse me, even if you've got a lawsuit and someone chasing you down personally, we don't want them to take a certain amount of equity in your home. In some states that might be they protect 50,000. In some states they might protect 100 or 200,000. It depends on whether you're married or single. In many instances. In some instances it might be a totally unlimited homestead exemption. And so in those instances, if you have a lawsuit against you, you can rely on the homestead exemption in your state to protect a certain amount of equity. Now, let's say I'm in a state that has $100,000 homestead exemption, but I have $400,000 of equity in my home. Well, the creditor could force foreclosure and take my home. And I would get that 100,000 out, but then they would take the 300,000 that was in excess of, you know, the what the homestead exemption was. Now, some states make you file a homestead exemption to put it on record on your, on your recorder, at the recorder's office on title to your property. Some states it's not required. That's why Mark J. Kohler has a book with an appendix and Tax Legal Playbook that breaks down the different states on the amounts and whether you need to file or not. We also do this as part of our asset protection analysis package. If you want an asset protection analysis, we'll break this down for your state. So you know what to do.

Yeah, and this is so good. I'm trying to compare some states to get some interesting facts out there. So let's just do a few examples here. So I've got a table. This is Appendix C A. Yeah, Appendix A in the back of the tax and legal playbook. Spent a lot of money to make sure this was updated. They don't change a lot in these laws, but I put a disclaimer here. Always confirm if there's been a law change in this area. But in some states, it's just automatic. Let's do an easy one. So let's go to the best of the best, Texas. And I'm going to throw out Florida. Yeah, Florida is unlimited. And this is the O.J. simpson law. And it used to be automatic. You buy a home in Florida, no one can ever get it in a lawsuit. And that's what O.J. simpson did. It was such an. There was such an outcry of the fact that OJ Was able to protect the equity in his home in California and buy this palatial home down in southern Florida that they changed it. It's no longer automatic. You have to file for it and have lived in Florida for a certain amount of time. So just because you live in Florida, your home is not automatically protected. You've got to file something. Now, Texas, ironically, why O.J. did not move to Texas, I do not know. But it is automatic and it's unlimited. So Texas, your home is protected in any type of lawsuit? Well, there's only a few states that are like that. Iowa, Oklahoma, Texas, Florida, and a couple others. But the other states, it can be really chintzy. Let's go Maryland. Matt lived in Maryland for a while. The automatic exemption is. No, no automatic exemption. It's only 22 grand. What a joke, right? Montana, 250 grand. Nebraska, 60 grand. It's all over the board now. We're gonna come to tenancy by the entirety. And where the state may give you a crappy homestead exemption, they may give you tenancy by the entirety. So hang on to that thought. You're not screwed if you're in what you know in Maryland. But there may be another option for you. But we're going to go through that, and I'll explain this, but you have to know how much it is in your state. Now, another way to say this is if you even claim bankruptcy or there was some huge lawsuit at the end of it. It's like they're throwing you a chip at the poker table. I don't know what is with gambling in my examples. Today I was auctioned Ocean's Thirteen. You know, I've already referenced Brad Pitt and George Clooney. George Clooney. And so I don't know. I might. But you're leaving the table and they throw you a chip. Okay, so that is what the homestead exemption is. When the lawsuit dust settles, they're going to say, well, here's a few money, a certain amount of money. Cause we don't want you to be entirely homeless. Take this money and see if you can go rent something or buy a new house. Now in Texas and Florida and Oklahoma and Iowa, they say keep your house, dammit. That's the way we operate. But in other states they're like, here's your 20 grand or 50 grand or 100 grand and all the rest of the equity goes to your creditor. Yep.

Yeah. And keep in mind, if you're thinking, oh, I've got a rental property in Texas, well, this is, we're talking about your home. This is your residence. Okay. Keep in mind the homestead exemption does not apply to your second homes or, or investment properties, only property that is your residence.

Good comment, Matt. I don't make that comment a lot. That's very important. A lot of people, oh, I got the homestead exemption on my 10 rentals. No. Yeah, it's only on your primary. Okay, now let me explain, let me take a stab at this. Tenancy by the entirety. Why it's called tenants by the entirety or tenancy by the entirety. So I'm married. Okay. Some of you that are single, this does not apply. So I'm sorry, I've just got to say that. So if you're married, what this law says is it's not fair that my wife Jennifer can lose the house to Mark Kohler being an idiot. So if your spouse does something, texting and driving, let's say something I'm really working on not doing. So if I'm texting and driving and plow through a crosswalk and kill a family of five, they're going to sue me and probably exceed the liability of any insurance I have and it's going to not be good and they're going to look at equity and of my assets also in most states now, texting and driving fatalities are voluntary or involuntary manslaughter equivalent to drunk driving.

Bad.

Scary. They are being prosecuted. You're going to jail. It's such a bad thing to do. So anyway, they're going to come after the home. Well, in the estate that has tenants by the entirety, it says you and your spouse are tenants by the entirety. You own this home entirely together. And so it's not fair that one of the tenants that gets into a lawsuit causes the other tenant to lose the home. That's why they named it this, I don't know what the hell I got. I think I could have come up with something better. But anyway, certain states say even after divorce or death will protect the home, but the full bar jurisdiction. Interesting. And there's a list of about 15 here in the back of my book. Maryland. See, Maryland's in there.

Yeah, see, there you go. I'm just going to bring that up because I pulled it up and there's actually. There's over 20 states, I think, that have tenancy by the entirety now. And it's actually something that's growing over the years. We're seeing more and more states add tenancy by the entirety. I would say back when we started talking about this, it was maybe 10, 12. So more and more states are adding this type of ownership. And it is reserved though for spouses though, Right. It's only for married couples too. So it's unique for a married couple.

And this is why Matt and I even five to ten years ago when we were talking about same sex couples and they were not recognized under marital law. For states, tendency by the entirety did not apply until that law was on the books that a couple, same sex couple is now qualified under this law. Now what's interesting in some states is married Hawaii, you have to put on the deed if you have a trust, you have to have specific language that says my home is owned, tenants by the entirety in my trust. And so you may say, well, it's automatic, then I'm good. Well, in some states it's got to be on the title that you're claiming it. So it's really easy to do, doesn't cost anything. But if you have a revocable living trust and you want tenancy by the entirety in Hawaii, which has a crappy homestead exemption of 30 grand, I don't think you could buy a shack anywhere in Hawaii for 30 grand, literally. But so lots of equity in home sitting over there. Tenancy by the entirety, you're protected, but it's got to be on the deed. And so again, this is where an analysis is important for your situation, your equity, your marital situation, your state. So you can go, oh, okay, I'm good or I'm not good, you know, you want to know. So yeah, all right, all right. Tendency by the entirety, you got maintain your company umbrella insurance, homestead, tenancy by the entirety. Matt, explain equity stripping. And whenever we can use the word stripping in a show, you know, we're. I know, yeah, we're going to take that.

We need to make sure that's in the show description. We're going to get much more views on YouTube for this episode. We throw that in there just a little. Just a little, you know, tricks of the trade, equity stripping. So this is basically a method of taking out the equity in your home so that you don't have equity. Right? So we could get a home equity line of credit from a bank. You could obviously strip equity out entirely and spend it on something. But one of the things I like the most and I think is the. Probably the most valid in this equity stripping strategy, is simply a home equity line of credit from the bank, which is something that the bank's going to throw a lien on your property. Let's say you have a property worth 600,000. Your first mortgage is at 250,000. Now you're like, man, I've got a lot of equity in this. I've got 350,000 of equity left. Maybe a bank will give me a home equity line of credit for 250of that. Let's say. Well, the bank's going to. If they give you that line of credit, which generally they will, if you have that much equity and you don't have crappy credit, they are going to throw a lien for 350 on your property. So whether you draw on the line of credit or not, they're going to throw a lien on there. And the nice thing about that is it makes you look very unappetizing to a plaintiff's lawyer seeking to chase you down because they don't know whether you've drawn on the line of credit or not, at least at the initial stages. Now, if you get into a tricky situation or some liability, you may be able to draw on the line of credit if needed, because, frankly, if you know you got a business in trouble or whatever it may be, you've got some liability coming out, you might need some of that equity. So that's the probably the purest method of equity stripping, is simply a home equity line of credit from the bank.

Hey, I like it. And I want to get. I want to play off Matt's example here. And ironically, it might be an Idaho example. Well, but in Matt's example, the home was worth 600. The first mortgage was 250. So if Wells Fargo is your first mortgage and you get in any sort of lawsuit, Wells Fargo is going to stand there, go, whoa, whoa, whoa, whoa. We get. We're first in line. We get our 250. So if you're going to sell this house to Pay this family of five that you plowed through on a crosswalk. We want our 251st and they get it. That's the law. So first, first position, they get their money. If you got a second line of credit from, say, B of A for. In Matt's example, I think you said 200, so that leaves 250. When you said 250.

250, yeah.

Okay. Okay, that gives. That's good. So that leaves 100 grand in equity. Now, again, B of A is going to be first in line or second in line after Wells Fargo and go, hey, if you're going to sell this home, we get any of that home equity line that they've drawn on. And so any litigator or a plaintiff is going to first look at what's on record for your home. They're going to go to Zillow, they're going to look at what's this home roughly worth. Then they're going to look at the liens on the property with a quick title pull, and the lawyer's going to go, nah, their equity sucked out through these liens, it's not worth going after the home. That's the strategy. And then if you're smart, you're going to use that second mortgage to go invest it and create a cash flow of 10% or 15%, buying additional rental properties which exceeds maybe your home equity line interest rate of 3% or 4%. Now you're making money on your equity and protecting your home at the same time. Okay, now, sorry, man, I guess that was one of my points. But then we've got this hundred grand of equity. Well, you go, well, someone still may want that hundred grand. Well, think about it. If I'm going to force Mark Kohler to sell his home to pay that family of five, there's going to be closing costs, realtor fees, it's not going to be cheap. There's going to be lawyers involved because I'm not going to cooperate. I'm not going to do for sale by owner. On my sign, I'm going to freaking say, you want to sell my home? You freaking go at it. So they're going to spend at least 10% with realtor and closing costs, I think is fair to say, with all the lawsuit crap going on. So on a $600,000 home, there's going to be 60 grand in closing costs. Let's say now the real equity is 40. Then if I'm in. I was going to say Idaho had 100 grand of equity, but there's A bunch of states that have 30 to 40,000. Louisiana, Michigan, Missouri, the list goes on and on. Alabama, all of these that are kind of in this 20 to $50,000 range of home homestead exemption. A lawyer's not going to chase that down because they're going to get nothing by the time they pay the realtor, give you your homestead exemption. Pay the first of wells, pay the second to B of A, there's nothing left. Therefore, you have protected your home. That's the theory.

There you go. Now, one thing that's a little gray area, I'll say is those people will say, what if I just get a friendly lien? Why don't I have one of my own companies? I'll take a loan out personally to my own company, which I really won't. But I'm going to put some paperwork together and throw a lien on title so it looks like I've got a lien that can be some smoke and mirrors, granted. But it's also something that's going to blow through really fast if you're really in a lawsuit and litigation.

Yeah. And the key word is the big D. And I don't mean divorce or depreciation. I mean discovery. And when a lawyer's pissed.

What do you mean? Jesus. This is rated E for everyone.

Yeah, yeah. This is big D. And so this is Matt Damon and Rainmaker. You know, his goal is to find out all the bad information he could on that insurance company. I think it was great benefits. Boy.

That's right, man.

I'm calling it out today.

Yeah, great.

So. And if any. I made my kids watch Rainmaker. They were home for a little summer break, and I was like, we're watching Rainmaker tonight. Like, great one. They were all glued to his.

Who's John Boyd? Who's the insurance company lawyer? Is it John Boyd?

Yes, yes. Yeah, he's nasty.

Yeah, he's kind of a dick. He's kind of.

No, he's not cool. And so you're rooting for Matt Damon in this show, and this is really early years of Matt Damon, before Jason Bourne and all this. But anyway, it's a great show. And in the show, he's trying to get all the dirt he could, and he's got Danny DeVito diving into garbage binsters. Yeah, yeah, Dumpsters. Looking for info. Well, that's what a lawyer's gonna do if you're in a big lawsuit and you've leaned your home with one of your shell companies. Okay, okay, cool. On the face of it, they might turn and Run. A bad lawyer might get tricked. And that's what you're doing. You're playing. You're fighting fire with fire.

And there are bad lawyers out there. We all know this.

Yeah, there are. And John Boyd, though, he'd be nasty, and he'd have his team of lawyers go, well, let's really look into that loan. Let's see if there's money that cans. Is it. You know, what's this loan all about? And then in discovery, you have to provide. Provide that support. And you wouldn't. You wouldn't be able to. But it's cheap. I like what you said, Matt. It's smoke and mirrors. Nothing wrong with it. I have clients to do it all the time.

I'm just saying, some clients, like. So if I do this, I'm good, right?

No, no.

Like, I'm like. They want me, like, stamp it approved or something. I'm like, no, that's not gonna work. Smoke and mirrors. But, you know, when the rubber hits the road, that's not a great strategy. So that is, you know, where you're. Where you try to do the lien yourself on your own property. Okay, the DAPT. Let's hit the next one. DAPT. Domestic Asset Protection Trust. This up. There's about 17 states right now that have a domestic asset protection trust, which is pretty cool. And this is a trust essentially designed where you can put your home into it and immediately protect the equity. So once I put the home in the trust, as long as I don't have a lawsuit pending at that moment.

Okay.

Some people come to us and they want to do asset protection planning, but they've already got a lawsuit against them. All this planning we're talking about here doesn't work.

No.

Okay. Asset protection planning, what we're talking about here with your home is proactive before you have a lawsuit or liability. So as long as you put the property, your home, in the domestic asset protection trust, which is a special trust allowed in these 17 states, we've been setting them up for years. For clients, you have, in most states, an unlimited protection against the equity in your home. They can't foreclose on it. A creditor can't come after it is 100% protected from your liabilities.

I love it. I got to tell. I'll read off these 17 states here. This is in chapter 21 of the Tax and legal playbook, a whole chapter titled Cutting edge Asset protection strategies. And the DAPT is in here. I have a chapter just on protecting your home. And I cross reference to the dapt. This is not one of these crazy irrevocable trusts that we're going to come to in a minute. It's not a land trust. This is literally on the books. This very unique called dapt. Okay, But I got a good story. I don't know if you remember me telling the story. It's been a long time. This is about 15 years ago. So there's this couple down in St. George, Utah, Southern Utah. It's about a half hour to the border of Nevada. It's a great town because you can blaze down to Vegas on the weekends and a lot of fun. Anyway, this couple had a furniture store there and he would sell furniture down to their location in Nevada to people in Nevada as well as in Utah. Well, one day he was down doing a delivery, this and that. And, um, it was kind of a bummer. He rear ended this car. And this is down in Vegas. And this, this old guy jumps out of his car and it just, he snapped. I mean, I don't know what movie to reference that I'm thinking about, but yeah, I mean, this guy just snapped. It was like the thing in the day that this guy lost it. So he came over, ran back to this guy's truck. And it wasn't a large delivery truck, it was something a little smaller. But he gets up there and he starts trying to punch him through the window. Before he could even get out of his truck. I mean, this guy went ballistic. And my client is like, whoa. Rolls up, the moon calms him down, goes, I've got insurance, bud, I'll take care of you. It's all good. And gets out of the truck and starts exchanging information. They call the police, the police are on their way and he says something and this guy loses it again, starts swinging. Now my client, he's a middle aged man, but fairly husky. He's strong and he's like just trying to defend himself. Probably little Krav maga, you know, he's doing the right moves, throws this guy to the ground. Doesn't punch him, just throws him to the ground, breaks his hip. Now this guy is over age 65. When you assault someone in Nevada over age 65, it's a felony. Cops show up, he's on the ground pointing at our client, going, this man assaulted me. He, he broke my hip, he pushed me down. He, he was, you know, he hit me. He da da da. He said, she said. He gets cuffed and stuffed, Taken down to the police station, booked for a felony. It was a fender bender out of Control. He came to my office. He's talking to me at Mark. What do I do? We've got to protect our assets. Within two weeks, the guy filed a million dollar personal injury claim. They had equity in their home. They had all this stuff, no planning at all. They were trying to hide money in mattresses and everywhere. And I was like, don't tell me. Because once the cause of action occurs, not the lawsuit, once the cause of action occurs, you can't move money. It's not fair. I mean, if you push my mom down and broke her hip, I'm going to go after you and you can't move money. That's not fair. But they were trying to scramble and it was just a really, really sad and tragic story.

Yeah.

Happens. It's. It's just crappy. But.

Yeah. And that's called. What's that called? A fraudulent conveyance. Just, you know, or fraudulent transfer. When you have a liability, it's already arose. Like St. Mark says, Cause of action, you know, that's like right when the person's pushed and injured that. That arose. Or think of it like a payment you didn't make on a loan, you know, or a credit card or something that's defaulted and someone's chasing you down. It's not when they come sue you, it's when you incurred that liability. So you want to be making sure you're protecting yourself before those things happen. So that's why I want to be

proactive about it and see what's interesting in Utah. I just looked this up. The homestead exemption is not automatic. You have to file for it. They can't file for the exemption after the cause of action occurred. So that was blown. It was such a bummer.

Okay.

Oh, go ahead.

I was just saying on the dap. One other thing I would note is this is an actual trust document that you have drafted by a lawyer. We do them in the law firm. You have a separate trustee on it. They're a little bit trickier than your regular trust for like your revocable living trust. Those are more straightforward. This is a little more unique of a trust. And then you need to put the property in it. So you actually got to deed the property into the name of the trust. So there's a couple of parts involved there. Trust, document a trustee and deed the property into it.

Yeah. And I don't want many of you. Oh, well, I'm not rich enough for that. First of all, do your asset protection analysis with your attorney that you trust. Have them go through the homestead. The Tenancy by the entirety, equity stripping, you know, blah, blah, blah. And if you're in one of these 17 states, I'm going to read them off here in two seconds. You may say, I'm going to do the debt. You're going to be out a couple grand. And annual fees might be three to five hundred dollars because you have to pay this trustee fee. We really like them for your home, but not for businesses. They get to be really clunky. And it goes on top of your revocable living trust. So it's going to tie to your regular estate plan. It's this extra layer between your trust, your revocable living trust and your home. That's it. And so normally we don't recommend this for clients unless they've got 500 grand of equity or more or major risk or crappy homestead. And this is where California just bites

because of course they don't have a DAP.

Yeah, there's no DAPT. The homestead exemption is nominal. We're looking at 100 to 175,000, and that's if you're older over age 65. There's no tenancy by the entirety in California. I had a phone call yesterday from a California client. Go, how do I protect my home in California? And I go equity stripping. That's it. Well, I was taught I need to pay off my home. I'm a Dave Ramsey caller. I'm going to pay off my home. Well, you pay off your home, it's a target.

Yeah, yeah, it's a great strategy, financial planning strategy. But the other thing you do, of course, is you have the entities. You protect yourself where you have risk, so you don't get a liability coming down and attaching to you personally, too. So, you know, depending on everybody's situation. Do you have businesses or rentals?

Here's the 17.

All right, Brad.

Alaska, Delaware, Hawaii, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia, Wyoming. And keep in mind, not all the DAPs are created equally. Sometimes the asset has to stay in the DAP for a certain amount of time before it becomes vested, if you will. It's like, kind of like when you work at a job for 2 years, your 401k becomes vested. Same kind of concept. But anyway, this is again in the book, chapter 21. Okay, so that brings us to putting property in your spouse's name. Mmm. I got risk. Oh, and I love my wife, or I love my husband. I'll let them own my asset. What do you think?

Risky Dangerous, but possible. Okay, so here's a couple things to think about when you, you may. Let's give a couple examples. In some relationships, one person in the relationship may have a job, profession, business, separate from the other spouse. That is high risk. And I think that's the category where this works is where we try to get that person's name off of title to the home, which is that the residence here, so that there isn't any liability that can attach. Because if a judgment goes against Sally Smith, and Sally Smith's the one that, you know, has a high risk job or profession, and Sally's husband, John Smith is like, doesn't have that high risk of a job. Well, if John Smith's only one on title, they can only sue Sally Smith and go after Sally Smith's assets. She's not on title to the property. And so in that instance, you know, we've essentially protected the property from lawsuit. Now there are attorneys who can make an argument to say, well, this is really a marital asset, because in this state where you're located, you know, this is community property, or what's the other one? Joint property state. And as a result, you actually own 50% of this thing, even if you're not on title, which is, by the way, what happens under divorce laws too. Now, if you really want a plan, you could say, no, we have a prenuptial agreement or a post nuptial agreement that separated the property out and said, this property isn't Sally Smith's, this is John Smith's. And we, And I don't have any claim or rights to this in the marriage. And you could do that. But again, this is where you start making. You're making a good asset protection decision, perhaps, and limiting the exposure to the property. But you may be doing something you wouldn't otherwise do from a marital standpoint if the marriage does end up having any issues.

So, yeah, I, it's tricky. You know, when I was fighting for the MMA in college, you know, it was a lot of risk. And so I, yeah, I, you know, we moved all the athletes. Yeah, it was just the right thing to do. That's what, you know, my Mickey in the corner said to do. So I did it. But anyway, yeah, but this is, you know, now some say, well, I'm married now, it's too late. Nope, you can do a post nuptial agreement. This was abroad and Madonna back in the day, they did a postnup and they get divorced. And abroad said, well, I didn't want any money. It's all good. And then of course he filed. And so he tried to plow through the postnup. But the post nuptial agreement is basically saying, these are my assets. These are your assets. And there's a separate written document that's attorney reviewed by both parties and then the deed follows. And you can't do this after the cause of action. See, this is what this furniture store owner wanted to do. He said, let's move the home into my wife's name. It was too late. I can't move it now. It's over. Gone. And then like Matt said, oh my gosh, how many stories. I mean movie after movie too. Well, I'll put all the assets in my husband or wife's name. And then there's a divorce. You do this and there's a divorce. You kiss that ass.

Or those assets disappear, they're sold, the money gets moved. You don't know where it's at now.

Gone. It's gone. So you got to be really, really careful. Which brings us to number eight. So someone's going to try and sell you, possibly on a very advanced complex, spendthrift, self settled, irrevocable trust. And they're going to throw around sexy names, complex terms and say this trust, no one can touch your asset. And they are going to charge anywhere from 5 to 10 to 15 to $20,000. Seen it all. I've even seen the highest $35,000. And they value bill based on how wealthy the client is. And they're gonna say this trust is amazing. No one can touch it. And you know what? A lot of times I'd agree. Yep, sure. But now you don't. You're not the trustee anymore. It's not a dapt. There's a. Oh, but there's a trust protector and there's this and that. You're probably gonna be filing a separate tax return. The consequences of an irrevocable transfer to an irrevocable trust. And then. Don't get me started. They're gonna maybe say go offshore. Now, if you're worth millions and millions and millions of dollars and you can afford the best of the best attorneys and you don't care that annual fees might be in thousands or and this, this is chump change for you. Great. That's what the super rich do. But they'll try to sell it to my dentist or my chiropractor or my local broker and oversell people that really don't need this. Just be careful. That's my.

Remember what you're giving up too. You're giving up the sale of home exemption. You're giving up not going to get that anymore, which is huge tax strategy. You know, you probably, you know the mortgage interest you might be giving up as a personal residence if you're taking that. So there's a lot of tax downsides to doing that. You, by the way, you retain all those tax benefits in adapt. You can still treat it as your personal residence on your personal tax return and sell home exemption when using adapt, but you cannot. Is that true, Mark?

Yeah. Right? Yeah, yeah, yeah.

So a lot of baggage with those. That's why we don't do them. We don't recommend them, we don't see them as a good fit for our clients and we think that they're, they're too much damage for the asset protection you're getting.

Yeah. And I want to say this, it's all relative to your net worth and income. You're making enough money and you've got a huge enough net worth. I think they're great. Absolutely. My problem is they're sold to the people that really can't afford them in the long run. They don't need it.

And that's the net worth. Would you say it's like a 10 million plus? We're not talking like a million dollar net worth.

Where would you put it at? I would at least say 5 million or more. And we've got to talk about where the asset is. Is it buried in equity and rental property? Is it really in a home now? Let's say it's a second home.

You adapt instead. Are you in ADAPT state?

Yeah, true. And here's the thing too. If you're saying it's a second home, it's a farm, it's a ranch. Now let's say Kevin Costner in Yellowstone. Did you notice in season two, what did he do? He dropped it in an irrevocable trip trust. Remember his daughter did that. His brother was this, he came back and he's like, what are you doing? I want it out of the trust. And she's so mean to him. But anyway, if you're a Yellowstone fan, that's what she was doing in the Yellowstone show, which is great. Amazing reviews. That's what was going on. And so when you've got a big enough asset and you want to keep it in the family for many, many years, I'm all ears. Let's talk about it. But you don't do this with your freaking home, the one that you're going to live in and Die in and possibly sell and upgrade or whatever. That's not where you do this. So.

Yeah, anyway, okay, I think we hit the list. Boom. Nailed them all.

Yeah, maybe there's unique ones out there.

One thing not to do also is the land trust. Just keep that in mind. The land trust is this trust that sold. We don't recommend it for our clients except for special subject to situations. It's not an asset protection strategy.

Privacy, maybe.

Yeah, maybe some privacy. Many states don't even have a land trust statute. Most don't. So it's basically just functioning like a revocable living trust. So just be careful with the, with the land trusts and make sure you understand they are not an asset protection tool. Maybe privacy, but they are definitely not an asset protection tool. If you have a liability and it's in a land trust, you have a lawsuit and you are the beneficiary of that land trust, meaning you own it and get to use the home. They're blowing right into the land trust like it's not even there.

Now, for those that want a summary of this, one of the best places to go is to watch this on YouTube because our video producer, Corey White over here, he will put that list of these eight items there on the video at the end so that you can see those and get a note and a link to the book, a link to the law firm if you want to do that asset protection review. They start 1,500 bucks. We do an asset protection review for $1,500. Your estate plan, 1,500 bucks. So we try to keep it affordable for the average. That may not sound affordable to you, but. But get out there and start shopping for cheap. We are cheap.

We do a report too. So you get a written report with the asset protection review.

Yeah. Yeah. One other side note too. I'm finishing up the back to school special right now. And that is 70% off all my education, my books. You get a backpack and the workbooks, access to my tax and legal library of videos, which is lifetime access. It's pretty freaking awesome. And it's like 250 bucks tax write off for your business. And if you want that, get over to markjkohler.com markjkohler.com or call the office and talk to Allison. Talk to Allison and she can hook you up if the. I'm sure we'll provide the special for a listener of the show for a week or so, but if you're calling a month or two after this, you'll have to wait till we do our Black Monday or Cyber Monday. I should say Black Friday, Cyber Monday or Christmas Special. But anyway, get over there if you want the videos and the books. Lots of helpful education@markjkuller.com Matt, any final words of wisdom for our listeners? No.

Thanks for tuning in. Been a pleasure here on Main Street Business Podcast. I think we're gonna be doing an open forum next week.

Yes.

So submit your questions. You can go to mainstreetbusiness.com to submit your questions online. Actually, we will be reading them off. You can also email them, but we prefer them to go through the new site mainstreetbusiness.com we're trying to get a better way to organize them. We can't tell you how many questions we get by email, which we love because that's the point of it.

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Thanks. See you next week.