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My Asset Protection Strategy

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  • My Asset Protection Strategy

    I want to share the details of my Asset Protection Strategy. I welcome constructive comments.

    - First of all, I live in California as it has very little asset protection (for instance no tenants by the entirety) and it's costly for LLCs maintenance. Like everyone else, I have malpractice insurance of $1mil / $3mil. In addition, I also purchased a $3 mil umbrella insurance as extra protection. However, I was told the umbrella insurance company will find every reason not to cover claims as possible (not sure very reliable protection source in real events). That's why I need to do more.

    - At the base, we established Family Revocable Trust (FRT) to avoid probate. This FRT will be a single member of the LLCs.

    - For all rental properties and primary resident, I established California Land Trust (LT) with my wife and I serve as grantors, trustees, and initial beneficiaries. Each California LT is for each house (regardless of which state the house is located). I transfer Grant Deed the title of each house to each LT and record with the owner for example as “1352 Orange Trust” with the county. So our names are not recorded with the public records, thus anonymity. LT is a private document that I keep in my cabinet.

    - I set up one Wyoming series LLC with as many daughter series LLC as many houses. I then transferred the beneficiary of each LT into each daughter series LLC. This way each house is owned by each California LT, and its beneficiary is owned by the Wyoming daughter series LLC. So all properties are separately shielded from each other. One WY Series LLC (with our FRT as single-member and I serve as manager) serves as a holding LLC for all properties.

    - For other investments in RE syndications, I set up another WY LLC (with FRT as a single member, and I serve as manager) and I invested in the name of this LLC.

    - WY LLC: it protects me personally from any risk from tenants (inside risk) and each house is protected from each other in the series LLC. The properties and all investments are protected from me if I personally cause risk (outside risk) as WY LLC has a strong charging protection order even for single-member LLC.

    - For all our income I stored them in multiple “vaults” using high cash value life insurance contracts. I collateral-assigned the cash values (CV) to a bank (Investor Bank) who gave me a business line of credit at a lower interest rate to use for investment, expenses. This serves as a “lien” on the CV so it has strong asset protection. In addition, since it’s a business LOC, the interest I pay is tax-deductible (easier to claim than the interest you pay the life insurance company if you borrow money from the ins directly). California has very little protection on the CV of life ins.

    - I live in California. WY Series LLC serves as holding company for the beneficiary of LT, and the other WY LLC serves as holding for syndication investment. None of them is doing business in California. So I avoid $800 per LLC annually from California.

    - Tax: all pass through to my 1040: all rentals go to Schedule E page 1, all investments with K-1 go to Schedule E page 2.

    - People would not know that I have these WY LLC as they are not reported anywhere. Even lawyers would not be able to search up these WY LLC related to my name.

    - The setup cost is not expensive and maintenance cost annually is also minimal.

    - It appears that I own nothing but control everything.

  • #2
    Unless the plaintiffs attorney requests disclosure of all assets and controlling interests and three years tax returns.
    What is your answer? Discovery takes a different path once collections comes into play. Seek advice from your defense attorney, the one that lost the judgement.


    • #3
      - Tax records: yes it will show I have the rental houses and all those investments in RE syndication, but they are owned by the WY LLCs, not me so the plaintiff attorney cannot "touch" them. I just have "control" over them.
      - Discovery: I have Family Revocable Trust serving as a single member of 2 WY LLCs. All my assets (properties and investments) are protected in the WY LLC as to protect outside risk that I personally cause with charging protection order. If there is risk from a tenant from one of the properties, that risk is shielded in single property as single series LLC (inside risk).
      - Discovery: it will show that we have all these cash values in life insurance contracts as the main holding place of all our cash, but there is a lien on them by a third party bank.
      - My structure is not to create a smoke and mirror. It does provide scalability, privacy, protection, and minimizes cost.
      - In reality, the first thing the plaintiff attorney will do is a search to see what you own first before they would advance further the lawsuit to the stage of discovery. With my structure, the plaintiff attorney would not be able to find out what I own yet. This would help to facilitate the negotiation of a settlement. If you ask any attorney, the purpose of most Asset Protection Strategy is not to avoid payment to the plaintiff if you did something wrong to the plaintiff, but it is to minimize the payment to a reasonable amount with the settlement. The majority of the lawsuits will end up with a settlement.
      Last edited by Klemens; 01-18-2020, 10:19 AM.


      • Tim
        Tim commented
        Editing a comment
        "The majority of the lawsuits will end up with a settlement." For the size of the settlement your are talking about being at risk, I am simply saying any plaintiffs attorney that is capable of handling it would be capable of getting a reasonable approximation. Settlement is normally based upon an estimated cost of litigation, not the assets available.
        Never under estimate the skill of your opponent. Hidden assets are not protection. They do make it more difficult, but not in the event of a major damage suit that your structure seems to be designed.
        The use of cash value life insurance in the "vaults" maybe great. Complexity does not necessarily mean protection. By the way, I am not an attorney and simply observed how a judge can cut through a ton of red tape on a simple request. Looks great on paper though.
        Just saying. Don't bank on my opinion for sure. That's why I suggested consulting with a "defense attorney", rather than the attorney involved in setting it up.Shoot, I would run it by a plaintiff attorney as well. The problem there is now three attorneys know what you are doing. Geez. Good luck, hope you never need it.

    • #4
      I am not just hiding my assets. They are protected in sound structures as the law allows. The structure I had is pretty simple, not complex at all. The plaintiff attorney may know that I setup asset protection strategy, they just don’t know exactly what I have. Even better if they know that I have proactively setup structures to protect all my assets. I am not concerned about the plaintiff attorneys finding out because even they find out they cannot touch my assets as they are protected. Thanks Tim for your input.


      • #5
        That sounds pretty complicated.

        What I have done is put all of our accounts and assets over $50k in a joint marital trust. In our state, that is as close to bulletproof as you can get.


        • #6
          I don't know much about this but I do know a revocable trust offers little to no asset protection. With all the layers you've built in maybe you have better protection, and I look forward to hearing expert opinions.

          From experience of colleagues I assume you have good protection for each rental property by owning them in an LLC and not yourself directly (which seems like a no brainer to me). I also know from colleagues who have experienced litigation (one from a non-medical liability issue and one from malpractice suit) that you aren't as smart as you think you are. A creditor will find everything you own in any way shape or form regardless of the entities through which you own or control it; the only question is whether they can get it.


          • #7
            It seems like you’re satisfied with your asset protection structure. I’m not sure a forum catering primarily to healthcare professionals will be a great source for constructive criticism. I don’t even pretend to be able to poke holes in your plan.


            • #8
              The issue here is whether a judge in CA would disregard the WY trusts and conclude that you own the properties. Judges have been known to do that when they consider the assets protection plans to be abusive.

              CA could conclude that the WY law was against CA public policy.

              Of course, if your plans were not abusive, if you kept enough assets directly under your control to satisfy any reasonably anticipated liability and you did not create a situation where you appeared to own nothing, then this would not come up.


              • #9
                Asset Protection plan has a lot to do with state law. Unfortunately California where I live does not have lot of asset protection (as joint marital trust) and it’s expensive to have many LLCs for many rental properties. I setup this as an investor living in California to minimize the cost with good protection.

                I agree that revocable trust has no asset protection. That’s why I have the properties in LT that has beneficiary owned by WY LLC for asset protection. I agree that skillful attorney or in a discovery state they will find out everything, but they cannot touch those assets.

                I learned this concept from the lawyer Clint Coons from Anderson Advisor from many of his YouTube videos.

                I am curious to hear from the experts opinions in here.


                • #10
                  experts ain’t here


                  • #11
                    If I was concerned about asset protection, I don't think I would post everything on a forum using my first name as my screen name, especially if it isn't a common name, along with my specialty and state. I'm not a skillful attorney but I can certainly put two and two together...

                    I could be wrong, though.


                    • #12
                      Cash value life insurance for all of your income........


                    • #13
                      First - Welcome! WCI Forums tends to run Boglehead mentality -- so expertise in layered asset protection of owned RE will be limited here.

                      Are these owned RE in CA itself? Despite a WY LLC, if it's holding directly properties in CA you're due the LLC fee. Some crazy examples even as a CA Member of the LLC, one may be exposed to business conduct within CA (which I question that, but that's what I've read in some LLC examples).

                      I take asset 'protection' to be more 'exposure' protection. Much like The Club for cars, these vehicles are deterrents to pursue and move on to a juicier target. But if you use The Club on a Ferrari, probably not going to deter a professional thief.

                      Do you directly manage your owned RE or have children that's prone to excess or don't practice stealth wealth - all these probably are higher risk exposures than assets not in your name strategy.


                      • #14
                        “This means that you shouldn’t believe those who heavily advertise the use of a Wyoming LLC for asset protection purposes, because if you are sued in a state outside of Wyoming, the court will probably use their own law and you won’t get the benefits of a Wyoming LLC.”

                        My google law degree found the above in 30 seconds. My google MD sucks too. On YouTube, I found this. You get what you pay for. DIY can help, or not. The results can be entertaining. Enjoy, The Walls Come Tumbling Down


                        • #15
                          WY LLC do not own the properties directly. They hold the beneficiary of the California Land Trusts that own the properties (regardless of the property location). WY LLC serves as holding company, not owing the properties, thus avoiding CA fee.

                          All income in cash value life ins contracts are safer than in saving or checking accounts of commercial bank. The dividend and interest earned are more than regular saving account or CD and can be accessed anytime (liquid) tax-free with never decrease in amount. And they are asset protected as in my strategy. In addition, it gives my family protection with multiple amount as death benefits if I die early.