Asset Protection Strategies - Protecting Assets from Lawsuits & Creditors

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Today on Wealth Office Hours, I cover the most effective asset protection strategies to shield your wealth from lawsuits and creditors, including LLC structures and the layered approaches used by high-net-worth investors.

Strategies we will discuss:

• Insurance Protection
• Equity Stripping
• LLCs (Limited Liability Companies)
• Series LLCs
• Limited Partnerships (LPs)
• Entity & Asset Structuring (The Trifecta Strategy)
• Charging Order Protection Entities (COPEs) 
• Retirement Accounts as Asset Protection Tools
• Domestic Asset Protection Trusts (DAPTs)
• International Asset Protection Trusts

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Transcript

SPEAKER_00 0:10

Let's dive into it. I'm gonna go over 10 different strategies. These are winning strategies that you can implement that will protect your assets from creditors. And all of us are trying to grow and build wealth. We're trying to build a real estate portfolio, an investment portfolio, maximize our retirement accounts, grow our small business into a big business. But how do I protect the assets? Once I start earning income and deploying these in the assets, I don't want to feel exposed. And over my career as a lawyer of 20 plus years, I've talked to so many clients. And once I see clients in their 40s and 50s, their mindset starts shifting how do I protect all this stuff? I've sweated for years building and growing. I don't want to lose it in a lawsuit. And that's what we're going to talk about today is a lot of the common strategies and techniques. Now, asset protection is one of these areas that is fraught with bullshit advice from people that have no idea what they're talking about. Go on to TikTok and search asset protection and you hear the dumbest ideas out there. I'm going to go over real strategies that real lawyers actually recommend. It's interesting when you go to a conference with a lot of other lawyers that represent a lot of people that have built wealth. None of them talk about this BS on TikTok. Why? Because that's exactly what it is. It's nothing more than BS on TikTok. So I'm going to go over real strategies here. This is stuff you can be implementing and stuff you can rely on as a strategy that'll protect you and your assets. All right, and here's the 10 strategies we're going to talk about. I'm going to hit most of these, depending on the time we have today. I want to make sure you understand insurance and how it works, what's covered, what's not. We'll talk about equity stripping. Where is the equity that you have in assets? How can you remove that equity from a creditor standpoint to protect yourself? Talk about the LLCs. Most people are familiar with that. Series LLCs, which is a version of LLC and available in about 20 states. We'll hit limited partnerships just for a second. Then I want to talk about entity and asset structuring. Where are my operations? Where are my assets? We want to make sure that operations do not contain assets. We'll go over how to separate your assets from your operations using our trifecta. We'll also go over charging order protection entities or copes. This is another type of asset protection that you get in certain entities like LLCs. Talk about that. Then we'll hit a couple of trust things, adapt. And then if we have time, we'll hit international trust. There are some questions on that. Or if you have questions on that as you're watching here, let's address that issue as well. But those are the biggest topics I would say in asset protection and strategies you should be thinking about. All right, let's the first thing I want to talk about is when you're building an asset protection strategy, I want you to think of your specific situation. I want to make sure everybody's on the same page with me. If you think of what you have to protect, I want you to think of what wealth do I have: stock portfolio, equity in real estate, a business, whatever it might be, crypto, yeah, wherever your wealth is, the level of asset protection you're going to implement corresponds to the level of wealth you have. I see so many people who build a fortress of asset protection and they have $100,000 of wealth. They have an asset protection structure meant for someone with tens or hundreds of millions of dollars and they have $100,000 that they're trying to protect. $50,000 in their home, maybe $50,000 in a retirement account. And they freaking don't need it. All right. And they were sold it by somebody at a holiday in on a weekend or some BS person on TikTok or some influencer they said that had zero credentials. So they sell them this thing that they don't even need. On the other hand, we'll run across clients. I had a client that had over 100 single-family rentals in one LLC because he didn't want to deal with all the extra bank accounts and all the hassle and yada yada yada. That was not smart. He had a lot of equity in these properties and he was putting all of his eggs into one basket. He had a significant amount of wealth, the tens of millions of dollars. And he put up, I don't know, he put up like a 10-inch fence, okay, around this thing. I don't know. Did that work? Yeah, I don't know. Yeah, I don't know. What's what's what's like a really crappy barrier? That's what he did. Okay. So um we want to get it right. I want to make sure you for the level of assets you have, you have the appropriate amount of protection. So as we think about this, we need to do a little check-in here on the planning process. So, first one I want to point out here is we need to assess the situation of what's happening here. So, what is your situation? Now, any of you are to Boy Scout, this is the first aid merit badge as a Boy Scout. So, Mark and I were talking one day about this, and we just kind of stumbled into this that asset protection planning is like the first aid merit badge. Okay, the first thing we need to do is assess the situation. Let's look at your situation. Where are you exposed? What assets do you have to protect? Because there's a couple things I'm thinking about here. What are the assets I have to protect, but also where's my exposure of where a lawsuit may arise? Because a lot of times I can just put the protection around where the exposure is, and then the assets are immediately, all the assets are protected. So assess situation. Step two, don't be part of the problem. All right. If you're a 13-year-old Boy Scout and you get hurt or something, and someone's coming to your aid, that's some 13-year-old Boy Scout that knows little, maybe they took the first aid marriage, they're not supposed to make the situation worse. This is you. We see so many people who make the situation worse. Okay, and we'll go over some of those examples. I have some in the questions we're going to hit at the second part of the show. And then third, step three, call for help. This is where you should get a licensed professional, someone who knows what they're doing. If you've started accumulating and building wealth, don't be hacking it out on LegalZoom or talking to unlicensed people, whether you're using my law firm or someone other professional, just use someone that actually knows this and has credentials and malpractice insurance. And then four, have a course of action specific to your situation. Your asset protection structure is different than mine. My asset protection structure is different than my partner marks, even though we talked about the same stuff for 20 years, worked in the same law firm, and do two podcasts, we structure differently in our separate um assets and investments. So every structure is going to look a little bit different. Okay. Let's talk about insurance here for a second. Of course, I want you to have insurance. All right. So whether this is car insurance for a car accident or there's insurance for certain instances, or if you're uh owning rental properties, you need to have a landlord policy of insurance. But insurance is not this catch all that's going to save you. And the biggest mistake I see is a lot of clients will come and say, Well, Matt, I don't need any asset protection because I bought an umbrella policy of insurance. And I hear that far too often, sadly, that some insurance person sold them a policy that said, this covers everything. I've given you this umbrella of protection. And isn't that such an awesome name? Whatever marketing person in the insurance industry came up with umbrella insurance, I'm just saying you have you have single-handedly had 100%, 1000% people buy more of this insurance than probably should have. Because what this insurance should be called is excess coverage insurance. Umbrella insurance does not function like an umbrella, as you would think. All it's an umbrella insurance policy does is it says, hey, Matt Sorensen, if you have a landlord policy, if you have an auto insurance policy, if you have a homeowner's insurance policy, and you get a claim on any of those policies that is covered and that is maxed out, that carrier has paid out the max. Only then does the umbrella insurance come in and provide any coverage. Now, most of my clients that have bought umbrella insurance had no idea that's how it worked. They thought the umbrella insurance covers all the stuff in the middle that the auto didn't cover, that the landlord policy didn't cover, or they got denied somewhere. They thought the umbrella was this thing over the top of them protecting them, ensuring the stuff was covered. But that's not what it is. It does not function like an umbrella. Instead, it functions like excess coverage insurance, which is what it should be called. So just keep in mind if you've bought an umbrella insurance policy, which you can still do. I actually just bought one recently. Um, the cost was reasonable and it was cheaper than me increasing my policy limits on certain policies to just throw a layer of umbrella on top of it. But I knew the value of that was simply as excess insurance, not as covering anything new. So I'll just give you a quick example of why this is important. I had a client, he owned a rental property in an LLC, he had a landlord tenant policy on it. His tenant slipped and fell on the stairway that approached the front door of the house. It had kind of like seven or eight stairs, and then you got to the front door into the into the rental property. Well, he had a handrail on one side of those stairs. He didn't have a handrail on the other side. Those stairs were of a certain width where under code in his area, he should have had two handrails on each side. And I don't know about when the code was updated and when the house was built or anything, but a tenant slipped and fell on his property and he went to his landlord tenant policy and said, Hey, I've got uh, I need you to cover this. There was a hundred, a couple hundred thousand dollars of damages that this from this tenant, now a plaintiff, that they wanted to recoup on. Well, the insurance company said, We're not covering that. The house and the stairs here that was the result of the incident was not up to code. We're denying coverage. So they didn't cover it. Well, if he had umbrella insurance, umbrella's not going to cover it either. But he did have an LLC. So, in that scenario, the only exposure he had was the equity in the LLC or any assets in that specific LLC that own that specific rental property. So keep in mind, insurance can help you. We still want to have it, and particularly if you're getting loans or stuff, you frankly have to have it. The banks will require it. But even still, if you're a cash owner on properties, it still makes sense to have it as long as the cost is reasonable because it will cover many things, but it is not a catch-all. So we want to make sure we have the LLC. The LLC is an absolute bar under state law in every state that they cannot get through the LLC. And we'll get to that here more in a second. All right, second strategy here on asset protection is if you have real estate, stock portfolio, um, crypto portfolio, one thing you can do is rather than let the equity lie on those assets and be available to a plaintiff, you can strip out the equity. So, for example, let's say I have a home that has a $2 million value and I have a $500,000 mortgage. Well, you have $1.5 million of equity on this property. With $1.5 million of equity, I could be subject to an ex to exposure. I could have a plaintiff that would want to get to that equity in that property. So one thing a lot of clients will do, and this could even be your home, this could be an investment property, this could be another asset too, could be a stock portfolio, is they will get a line of credit, a home equity line of credit against the asset. When you get a home equity line of credit, let's say on a home or even a line of credit on an investment property, they will typically put the lien on the property up to the credit limit amount. So let's go back to that $2 million property, $500,000 mortgage. I got a $1.5 million of equity. A bank might lend me a give me a million dollar line of credit on that property because it has $1.5 million of equity. Well, what they'll do is they'll put a $1 million lien in second position after my first position mortgage on the property. Whether I draw on that $1 million or not, they're going to lean it for that because that's the amount of the credit line. So now that from a plaintiff perspective or someone's suing me, trying to get a judgment against me, they're going to see there's not a lot of equity in that property for them to get. So some of this can be a smoke and mirrors thing too. If you're not drawing on that equity, frankly, that that lien doesn't have value, but it does provide a smoke and mirrors approach in terms of is this person worth suing? Where should we go after their assets? So that could be equity stripping, again, um, getting a line of credit against an asset, whether this is a stock portfolio or more commonly, real estate could be your home or an investment property. Let's not let all the equity sit there. You can strip out the equity. Now, if you have strategic ways to use that debt to buy more assets, that's a smart thing to do. We don't want to get over-leveraged, of course. But from an asset protection, if you just look at asset protection on its own, that's actually not a bad thing. That leaves you less exposed from an asset protection standpoint. Just don't take it too far and get over your get too far much in debt, where now that is costing you too much and you could end up jeopardizing some assets. All right, let's talk about the LLC next. LLCs are the universal asset protection tool. And these are probably the easiest things to incorporate and the most common strategy for new investors or investors that have a significant amount of assets. He had like 800 LLCs, and it's a flow chart of like massive, it looks like a crazy person, okay? Um it's this massive flow chart of all these LLCs and bubbles. And um, but it shows that even he is just using a lot of LLCs. He's using that to protect those assets so that if something happens at Trump Hotel versus Mar-a-Lago versus Trump ties, I don't know. He's got the Trump stakes, Trump suits, what else does he have? Crypto, yeah, I don't know, Trump coin, whatever. You know, he's got all these things. Something happens in one of those enterprises, he wants a lawsuit to go to that company and be contained there. If you're a big national company, you know, or these conglomerates out there, they'll all have hundreds of LLCs. All right. Now, if you're a brand new real estate investor or a small business owner, entrepreneur, you might have one LLC. But once you've been doing it for five to 10 years, you're probably gonna have a few more. Um, and your and your trifecta and your diagram structure might start looking like what we have here on the diagram, where we have maybe an S Corp or an LLC taxes in S-corp where your business is operated, but you have an LLC for your rental properties. Maybe you have you're doing a self-directed IRA that includes an LLC and you start accumulating other assets. The important thing to understand here with a LLC is just this is just kind of one-on-one here, is if I own real estate, let's say that I own a rental property, okay, and this could be a business, okay, it doesn't matter what it is, okay. Let's say I have a tenant slip and fall on the rental property and they want to sue the owner of that. Or let's say you have a business, you have a customer dispute or issue, or they you have an employee that gets in a car accident or a contractor or someone related to your business, and you get a liability in the business. All right. Well, what are they gonna do? They're gonna sue the owner of the business. Well, if you own that property, that business personally, they're gonna get to you, which is where your home is. These are these are houses. This is where your checking account, this is your savings, this is your stock portfolio. All right. All this stuff is owning your personal name typically. They can get a garnishment against any bank account in your name, they can get a judgment against any asset or any wages you might get. They can go up to these assets and force the sell of that property. Okay, so if you get a lawsuit against you personally, that's really bad. That's the hardest thing to fix because you need that money, you need income, right? You need to have a personal bank account. This is how you're gonna live in and actually enjoy the wealth you've built. But if instead I have an LLC that owns the property, or an LLC that owns the business, now something happens in that business. That plaintiff is forced to sue the LLC. They're stuck here, they can't come over here. And the same thing with this: something happens on the rental property. They can get at the LLC in any equity that rental property has, but they can't get over to the business, they can't get down to me personally. Okay, so the LLC is called a limited liability company because what happens in that LLC stays in that LLC. It's kind of like Vegas, you know. If something happens there, it's gonna stay contained there. All right. We should use that one, you know. We should make a t-shirt or a mug on that, you know. I was I just walked into that one. Um so so think of the LLC as a way to isolate liability and protect something from infecting everything else that you you're trying to build. Now, this could get more complicated, and we're gonna do that here in a second. Why not? So, um, so the first principle there with the LLC was I'm trying to protect you personally and your personal assets from the liabilities of the business. Okay. That's the first reason someone uses an LLC, and that's frankly, 98% of clients. They're using an LLC because they want to protect their personal assets or their other businesses from the liabilities of this business. Okay. Another way to think of an LLC and how sometimes it's used is well, Matt, I need I want to do actually the opposite. I want to protect the business assets from me personally. Okay. Now, long ago when I would teach asset protection, I used to give the example of Paris Hilton. I don't even know if people know who she is anymore. Is she still famous? She's famous again? Okay, all right. I I have to ask my team here. I'm not up to speed on what the hell's going on in the world. If it's not like a tax or legal thing, I have no idea. Um okay, so Paris Hilton. All right, so the one thing I remember about Paris Hilton was she had a lot of DUIs. Okay, she had a lot of trouble. She was troubled, but she has a lot of wealth. All right. Well, most of her wealth is likely in entities, it's in businesses. Her family's wealthy, they know what to do, they're structuring that. So if Paris Hilton gets in a car accident personally because she's drinking and driving like an idiot, she's gonna get sued. She's gonna have a judgment against her personally. All right. Now, and this could be anybody here, and you know, Paris, if you're listening, this is just an example. Okay, all right. Okay, so she gets a judgment against her. I know she's gonna pop up in the chat. I just know it's gonna happen. Hopefully, Tiger Woods is there. Yeah, that's yeah, yeah. He's all for he's forgiven, you know. I don't know. Um, okay, so I don't know if Jordan's mic was even on for that, but we're having a we're having a side conversation over here. All right, okay. She Paris gets a judgment against her personally. Now, you can use an LLC in Wyoming for something called charging order protection, or this is sometimes called a cope entity, charging order protection entity. The way that works is if someone gets a judgment against you personally, they have to go upstream to the LLC to force the sell of the asset. Now, if I go back here to my diagram, and let's say this is Paris Hill and she gets a judgment. Well, the creditor first is gonna get everything in her personal name, okay? All the Chanel bags and the Mercedes and whatever, you know, all that stuff. That could be sold. Okay. Once they've gone through that, they're still owed money. They might say, Oh, I want to go up to this, and I don't know that she owns hotels, but let's just keep it fun and say that she does. Okay. I want to go up to the Hilton Hotel. There's some Hilton hotel they want to go after or some property that she owns. Well, if she owns it 100% in an LLC, because she's the 100% owner of the LLC, they can force the sale of this asset. So it can be a forced sale, even though an LLC owns it, she doesn't own it. But if she has 100% ownership of the LLC, they can force the sale of the asset. This could be a business too. All right. And this is in every state, for the most part, you're gonna get this situation. Now, if there was multiple partners in an LLC with her, you can't force a sell. But if it's one person that has a judgment against them, or even a married couple where both people have the judgment against them, a creditor can go to any company they own to force the sale. Now, there are a couple of states that are an exception to this. Wyoming would be one. This is where we would have, rather than you owning the, let's say, Florida LLC that owns the Orlando Hilton, okay, we would have you own a Wyoming LLC. The Wyoming LLC owns the property LLC in Florida that owns the that owns this property. Now, if you have a judgment against you personally, they don't sue the go to the Florida LLC. You don't own the Florida LLC, you own a Wyoming LLC. Your Wyoming LLC in turn owns the Florida LLC. So, but Wyoming has something called charging order protection that says even if you 100% own this LLC. LC, any plaintiffs of the owner of the Wyoming LLC stay outside the LLC with what's called a charging order. And they are they're entitled to anything coming out of the LLC, any distribution you're trying to make. So at some point they're gonna get paid, but they cannot force the sale of anything. All right, that's called a cope or charging order protection entity. That is the primary reason people will use Wyoming LLCs. The secondary reason is for privacy. That is a primary reason, I would say the number one asset protection reason people will use a Wyoming LLC. Most states do not give this charging order protection to single member LLCs owned by one person, such that if that one person has a judgment against them, the person is the creditor is stopped from getting into the LLC and forcing any sell of any asset. All right, so that would be the charging order protection entity. I went through a little fast there. We have other podcast episodes and stuff on this. I even have a video on the truth about Wyoming LLCs, reality or BS. Um, if you want to look into that, that kind of sets this up a little bit. Uh there's a little more detail to it as well. All right, let's get to the next structure here, which is the series LLC. So there's a type of LLC. This is particularly popular for real estate investors or people building a portfolio of real estate, where rather than having one LLC that owns five properties, you have one LLC that owns a subseries, and each subseries gets separate liability treatment. So if something happens on property number one that's owned in subseries one, that liability gets contained there. So let me explain why this is important. Let's say, let's not show the slide. Let's say that you have five rental properties in Texas. And let's say that each one of those rental properties has 200,000 of equity, so you got a million dollars of equity. Let's say that there's an issue on property number two. There's some lawsuit that arranges, that happens on property number two, and you get sued. Well, they can't sue you personally. That's nice. So, but they they can sue the LLC and they can get it any equity in the LLC. Well, if I own five properties in the same LLC, they can get it the equity in all five properties. I have a million dollars of equity exposed between those five properties. So it's not a great outcome because I've kind of got all of my eggs in one basket. If something happens on one of the five, all of that, I've got risk of the equity on all five properties. So what I can do instead in 20 states is you can just set up one series LLC. You can set up one series LLC at the state, and that series LLC is enabled is allowed to adopt subseries. These subseries will own a separate property and they get separate liability treatment. Now you have to have a separate bank account and run them like a separate LLC, but they get separate liability treatment. And that's a cost-effective way for someone like in that example who has five properties, that has 200K of equity, or you would set up a series LLC rather than just a regular LLC. Now, Nevada has it, Utah has it, Tennessee. There's we can throw the list in the in the chat here, but there's about 20 different states that have adopted a series LLC. Now, let's say you're in a state like Arizona, where I'm at, where you we don't have a series LLC statute. What you can do there is you'll set up separate LLCs depending on how much equity you have. So let's go back to the same example. Five properties, each has $200,000 of equity. Because there's enough equity in each property, you might say it might be worth it for me to do five separate LLCs. So if something goes wrong on one property, they can only sue that LLC and get that one property that's in that one LLC. Or you might say, I'll do three LLCs, I'll put two in one LLC, two in another, and one in another. And I'll kind of, I won't have all my eggs in one basket, but I'll separate up the liability a little bit. Our rule of thumb generally is once you have 200 to 250,000 of equity between multiple properties, that's when you should start looking at doing separate LLCs for your properties. But let's say you had 10 properties and you do equity stripping on them, they're mortgage to the hilt, they cash flow great, but you don't have much equity. So you got 10 properties with 10,000 of equity for a total of 100 grand of equity. You could just hold that in one LLC. There's not a lot of equity to protect between the properties. No plaintiff's gonna chase after 10,000 of equity in each property. So you could hold those all in one LLC. On the other hand, let's say you had two properties that each had 500,000 of equity between each. You for a million dollars of equity. I wouldn't put those in the same LLC. I would put those each in a separate LLC because there's enough equity there where you want separate liability treatment if something happens on one property. Okay, so there's a little bit of the multi-entity structuring, at least for properties here. Um remember the series LLC for those building a real estate portfolio and having multiple properties that works in many states. Almost half the states now allow for it. That would be the series LLC. All right, next thing I want to talk about. This is making sure that you are treating your operations separate from your assets. You do not want to have your assets in the same entity where you operate. I run across a lot of contractors who make this mistake. We've we've ran across so many clients who just screw this up. What they're doing is they'll have an LLC or even maybe an S corporation, and that's where they do business. They're servicing customers. Let's take the general contractor, all right? They're providing construction services, they're getting hired for a fee agreement, right? They have their construction agreement, they're getting paid for their services, and they're making ordinary income. It's great, it's going through their construction company. But then they're like, hmm, I'm gonna go buy to a spec property. I'm gonna go build a uh a home or a uh retail uh office or whatever it is. Okay, they're a multifamily, I don't care. They're gonna go build something that that's their deal. They do it in their same entity. Do not do that. This is now an asset. Instead, what they should do is they would have a separate LLC. Okay, and this could work in many for many different people. I just want to, I'm just using the principle here with the contractor. Okay, so what we're doing, we're gonna do a trifecta here. You have your LLC, probably taxed as an S-corp, that is doing the business, it's making money. This is you down here. You own this, and you have your trust. Now you've got that property though that you're building. That's your deal. It's not your customers. You own this. This is an asset. This should not be owned over here. Let's own it here. It's gonna be a separate entity. You might be doing the services here, you might be paying for that back to here. That's fine. I don't care, that's great. But we want this to be an asset. Okay. This is this will have equity in it. There's other tax reasons you want to separate this out, anyways, but just for asset protection for purposes of today, we want to separate these things. So make sure you're keeping your assets separate from your operations. Let's say you're someone who, let's say you're a dentist. Let's go over that example, okay? LLC taxes an S-corp, or let's say you're an S-corp. Okay, this is the dental practice, and you're drilling and billing over here. Okay, and then you happen to buy the office building that the dental practice works out of. Well, you that same entity that you operate out of and you're doing dental work out of, is not the same entity you're gonna own the building that you do business out of. You will have a separate LLC for that, okay? You can own both of them. Okay, this is you down here. I'm I'm fine with you owning both of those, but they're not owned in a separate company. This is an asset, the real estate. This will appreciate over time. It might even have some cash flow. You're gonna pay rent here. Okay, we're gonna have rental income coming over here. This might cash flow a little bit. There's gonna be appreciation over here. All right, so we want to separate these things. The dental practice, if something happens there, that liability will get contained there. We don't want them to get the building and that long-term asset that you're building wealth in. Or any other assets, frankly, you might hear have over here on the asset side. Okay, another item I want to talk about. Let's just look at the trifecta again for a moment. Let's look right here. All those retirement accounts. I always talk about the benefits of retirement accounts, and I talk about tax advantage growth, tax-free growth with the Roth IRA. There's actually an asset protection benefit to retirement accounts. You can file bankruptcy and keep your 401k. You can file bankruptcy and keep your Roth IRA. So the asset protection benefits of a retirement account is something on top of all the tax benefits that we get. So I don't need an entity necessarily for my retirement accounts. If there's a judgment against Matt Sornson, they're not getting into my traditional IRA, my 401k, my Roth IRA. Those are protected from creditors. Even in states like California that love plaintiffs and that don't have great laws protecting people's assets. Even your Roth IRA there is going to be protected. Now, they have a weird rule, of course, they always do have a California caveat, but it is very rare that you will see even a Roth IRA or an IRA account be subject to a creditor in California. Because that because the way the rule works there is they say the IRA accounts are protected up to the creditor, up to the amounts that the owner would need to use that amount for themselves and their beneficiaries, which is it takes about two and a half million dollars in a retirement account to say I there's enough here, especially if you're trying to cover a spouse or any other dependents that you might have. So uh, and then for 401ks, by the way, under ERISA, it is an automatic bar, unlimited amount. A plaintiff cannot get into your retirement accounts. So we've already got asset protection there, liability producing things like a rental property, because there's a tenant, we're gonna have an LLC. They can't get over here, they can't get down here, they're not gonna get to my home, they can't come over here to my business, they're stuck, okay? Stopped. Same thing over here. My operational business, prestige worldwide. I'm throwing the best Catalina wine mixer party ever, and something happens there. All right. There could be a lawsuit for the shenanigans that happen there. But it's a great cash-flowing business. Something happened there, they're gonna have to sue that LLC or this S corporation, whatever it is. I get liability protection in a corporation just the same. They can't come over to my retirement accounts, they can't come over to my rental property, own and separate. That liability is contained in that entity. All right. So as you start seeing the trifecta is dynamic in that it's doing good tax planning. We're we're putting these assets in the right place from a tax planning standpoint in the right type of entity. We're also getting them in the right type of entity for asset protection, and we're trying to isolate risks. So if the one bad thing happens that's catastrophic, it doesn't take the whole structure down. It doesn't blow all of the wealth that you spent years and decades trying to build. It could affect that one thing where that liability arose, but it doesn't infect everything else that you have in your life. All right. So that would be how the trifecta works. Okay, last thing here, and I don't have much time for this, but I just want to note it. There are a number of states, about 10 to 15, that have something called a domestic asset protection trust. Um, we do have some other content on this. The attorneys of my law firm, KQS lawyers, can help advise on this if this is something for you. But a domestic asset protection trust is a trust where you put all of your assets or the ones you choose, and if something happens to you or you get a judgment against you, a plaintiff is barred from going into the assets in that trust. It's called a domestic asset protection trust. The reason I mention this is I think this is far superior, and this is used far more commonly now than our international trusts. Many people here, and this is the stuff you might see on the internet, is you should set up a trust in the Cook Islands or in the Caymans or in Nevis or some exotic place like that, because those, the trust and the assets in that trust are outside the jurisdiction of the United States. Okay. And just put all your assets in there. The hassle with having a foreign trust, the tax reporting, the F-bar requirements, you have to report these assets held offshore is significant. You better have a very competent tax and accounting team that's handling this on your tax return and doing the appropriate reporting. This will cost you at least tens of thousands of dollars and maybe six figures to implement and properly maintain. So these international trusts are very expensive, and frankly, the benefits to them and the hype that you will hear about them is usually overstated. I'm just telling you, from ultra high net worth people that I run into, that I talk to, that I have exposure to their structures, that I've advised over the years, that they've had the biggest law firms in the world work on them. They are not doing that. I know they tell you on TikTok, this is what the ultra wealthy are doing. They are not. Some of them are, and you'll hear about it in the headlines, and some of them get exposed on it because frankly, a lot of them are committing tax fraud as they've done that. That's where you've been hearing the news. But these international trusts are not the end all be all. We do not go there with 99.9% of our clients. We've had a few do them over the years. They get referred somewhere else. It's not where we want to be. So, but we think there's a lot of structures that you can do that are right in the U.S. law, that is in the code. You're protected with your retirement accounts. You can use LLCs in all 50 states. We can get the charging order protection if we want it. 20 plus states have this series LLC. We can structure things properly to isolate liabilities so everything's not exposed. There's just a lot of good planning you should be doing after you've done all that. Then maybe start thinking about even a domestic asset protection trust and then some of these other trust structures. So that would be the winning strategies you should know and be implementing in your asset protection plan. And I will say there is a whole other component to this of privacy protection. That's different than asset protection. That's on top of asset protection that you can be implementing. If you're someone that cares about privacy, you don't want people to know what assets you own. That's a whole nother layer of planning. But we do have something called an asset protection and privacy console at my law firm KKOS Lawyers. Not to meant to be a, you know, salesie here, but I we do have that actually. I just thought about it. So uh if you want that, get to my law firm at KKOS Lawyers, ask for the asset protection and privacy console. It is a strategy we're helping clients with who want to focus on asset protection and make sure that their assets are protected for any liabilities they perceive may happen or that could happen in the future. Okay. Jordan, I went on a tirade there. You got rolling. We got some questions. All right. We live questions get prioritized.

SPEAKER_01 37:28

And we're doing numbers today. So we and we only have one loan question. So, guys, ask questions because we're going to prioritize all the live questions.

SPEAKER_00 37:37

We have I have 20 specific asset protection questions we pulled from my videos already. I can take the rest of the time.

SPEAKER_01 37:44

So we have a self-directed uh question actually, and this is from Jorge Garcia, 5645. Can a self-directed solo 401k acquire a property subject to an existing loan without violating the non-recourse debt requirements?

SPEAKER_00 38:00

Yes, it can. So you can do that, just don't guarantee that debt. All right. So the LLC, if you have a solo K that owns an LLC or the solo K itself, can you know agree to pay back this on a seller finance note or the subject to look in that agreement, you're gonna say, I'll agree to pay the debt that's existing on the property. But you're not gonna, as the owner of the solo 401k, you're not gonna guarantee that. All right. If you guarantee that, that's when you run into this extension of credit primitive transaction with your self-directed 401k or IRA. But absolutely, you can acquire property on seller financing, subject to. Um, and that frankly, it is non-recourse unless you go and guarantee it. So if you personally take the next step to say, I'll guarantee it, then you run into an issue. And I there's a case called Peak and Fleck versus Commissioner. It's in my book. It was about guy, two guys who used their Roth IRAs into an entity. That entity went and bought an existing small business, and the seller financed the business, that that purchase of the business to these guys' Roth IRAs. They guaranteed the payback on behalf of their Roth IRAs. Well, these guys, that business grew, they sold the business, they each got over a million dollar profit into their Roth IRA that was totally tax-free, but they got audited. And in the audit, they discovered that they had guaranteed the debt that their retirement accounts, the self-directed retirement accounts, made in the acquisition, and it blew up their Roth IRAs. They had to they were distributed, and their transaction was now subject to tax. So um they could have done the seller financing. That was fine. You could have, you can do subject to, just don't take the next step and personally guarantee it.

unknown 39:42

Right.

SPEAKER_00 39:42

Let's hit some prep questions. All right. Okay, this came in from Michael Anderson. Michael asked, if I already have an LLC, but I've been mixing some personal and business expenses, does that completely kill my asset protection? This is a great question. When you have an LLC, you need to treat the LLC like a separate business if you want it to have separate liability treatment. If you treat the LLC like your personal bank account and you're paying your personal bills out of the LLC and you're going to the grocery store with it, a court is not going to treat the LLC as separate. They're going to say, this is the alter ego of you personally. You personally own the LLC, you personally use it for your personal bank account. We are going to not respect the LLC and we're going to let a creditor blow through it and get to your personal assets. So I don't know that it has killed your asset protection. What I would say is clean it up and never do that again moving forward. If you do have a lawsuit, it is possible a plaintiff could go to that LLC and say, you did not respect the LLC. We want to pierce the corporate veil and get straight to the owner of the LLC. One of the ways they can do that is if you use that LLC for all of your personal things. Now, if it's a personal thing here and there and the business reimbursed you back personally, it's clear up clean on the books, that's not a problem. That happens all the time. It's this ongoing, recurring personal use of that bank account where you're going to have issues from an asset protection standpoint.

SPEAKER_01 41:09

All right, live question. Okay. From Jonathan Latham2223. Thanks again, Matt. Love seeing the LLC structure for rental properties. Explain again how a rental house in my personal name can move to an LLC. Does the LLC then own the mortgage?

SPEAKER_00 41:24

Okay, great question. So when you deed the property out of your personal name to the LLC, you are not doing anything with the mortgage. The lien is still staying on the property and you are still the borrower of the mortgage. The banks, frankly, don't care. In most mortgage documents, there is something called the due on sale clause. The due on sale clause says in the event that the ownership of this property title transfers out of the name of the borrower, the loan is due and you must pay off the note. And that makes sense. If I'm going to sell a property and I'm going to transfer it to Jordan, the bank is like, well, not until you pay off our loan. Okay, so that makes sense. Okay, they're gonna force. But if it's going to my own LLC, the banks really don't care. I'm still the borrower, I'm still in control of the LLC. As long as the payments are still made, for us of transferring 10,000 plus properties to LLCs, I've seen the bank care about the do-on-sell clause two or three times. And those are both instances. One of them was an instance where the person called the bank and asked and said, I did this, was this okay? And the bank didn't like it. The other one was they stopped paying the mortgage and they were in default. And then in addition to saying you need to pay us, you're in default, they said, Oh, and you transfer the property. What how come it's in an LLC? You need to pay us. So for the most part, and even for my own properties that I've had I've personally acquired and put a mortgage on personally, I've just transferred them to my LLC. The bank hasn't cared. Thousands of clients we've done it for. The banks don't care. All right. So now from a tax and accounting standpoint, it works all the same. It's in the LLC. I own the LLC. Frankly, it's all going on to my tax 1040, anyways. Um, the LLC is there for asset protection. So you don't need to worry about the interest expense or anything like that, whether I'm renting it um out of my personal name or I'm renting it for my LLC, the tax reporting is not going to change at all either. So great question. Don't get dissuaded on that. Um, I know some people raise that as an issue and we'll see that every once in a while. It's always like title companies, for example, because title companies think they're the police force for mortgage companies, because the mortgage companies, you know, give them business. Um, but I'm just saying the banks do not execute on the do on sale clause. They just want the mortgage to be paid. They do not care. But they will not give you a green light either and give you some authorization. All right. They can't do that. That they gotta that's like up the food chain of people higher than you'll ever get to talk to on the phone of allowing for that. Correct. Let's go back to prep questions. All right. Sarah Jenkins asked, How many rental properties is too many to keep in one LLC before you should start separating them out? Great question. This would go back to the amount of equity you have. It's not how many properties you have, it's how much equity do you have between multiple properties. So again, let's look at someone with five properties. If you have 10,000 of equity between five properties, that's only a total of 50 grand. I would put all five of those properties into one LLC. If something happens on one of those properties, they can sue the LLC, and all that 50 grand between the five properties is at risk, but they can't come down to me personally or get to any of my other assets. So the LLC is doing its job there. But if I have five properties, each with 200,000 of equity for a million dollars of equity, I'm not going to put all five of those properties in one LLC because now they can sue the LLC. And now I've got a million of equity at risk, where I could separate those properties out between multiple LLCs, let's say five in that example. And now if something happened on property number two, they're forced to sue LLC number two, and they could only get at the equity in that property. The other four properties and the 800,000 of equity in the example there will be protected. All right, next question was from David Clark. I'm just going to go speed round here until you interrupt me, Story. Okay, I'm going speed round here. Okay, so David Clark says, is it worth setting up a Wyoming or a Delaware holding company for asset protection, or is that overkill for most investors? Great question. It's overkill for most investors. If you have over a million dollars of net worth, it is worth looking at. But until you're at least at a million dollars of net worth in your real estate portfolio or other investment portfolio, I do not think it makes sense to use this holding company strategy. It is sold to brand new investors who, frankly, don't have much net worth. They don't even have one property yet. So we do not like this strategy for everyone. I think it is overkill. But if you go back before, if you're looking for some type of charging order protection or privacy, that's when we use Wyoming LLC. Delaware is kind of going out of favor, I will say this. If you remember Elon Musk and Tesla, he had his lawsuits in Delaware courts. They have moved to Texas. There's a lot of big companies that do not want to be in Delaware anymore. Delaware used to be a place where a lot of companies like to domicile because they had favorable shareholder laws for owners of the business that got to protect them as owners from outside lawsuits. And that was one reason people went to Delaware. That's no longer the case. The courts have changed there. And so people don't really go to Delaware anymore. We don't really see people going to Delaware. You see a lot of old companies, institutions, and lawyers recommending. But frankly, if you're looking for a holding company state or a state for privacy, Wyoming is more your bet, but not for everybody. That's for people that have multiple millions, at least a million, and generally multi-millions of net worth before you consider it. All right, question was from Jason Realter says if I personally guarantee a loan on a property owned by my LLC, does that basically defeat asset protection? No, it does not. That's okay. In a business, owners of business or officers of business oftentimes have to guarantee certain performance, whether this is a contract, a line of credit, a loan to buy a business, to buy a piece of real estate. That does not blow the asset protection. This is clearly an asset meant for the LLC or the entity. You simply making a personal guarantee of it as an owner or officer of the business is not going to violate that. So I wouldn't stress about that. You still are going to have your asset protection intact. Emily Turner7 said, How should I think about LLCs versus insurance? Do I need both, or can good insurance replace having multiple entities? All right, this is a great question. Insurance is not meant to be a replacement for an LLC, and an LLC is not meant to be a replacement for insurance. A well-coordinated and balanced asset protection plan will have both. If this is insurance for a rental property, make sure it's a landlord-tenant insurance policy, but you should also have an LLC. Remember, insurance doesn't cover everything. One thing insurance companies love to do is deny coverage. That's how they make more money. They lose money when they cover things and they only cover things if they absolutely have to. If you read an insurance policy, you will see about four paragraphs of what's covered and four pages of what is excluded. Hence, you will still need an you will hence you will still need an LLC. You still see lots of clients who will use LLCs. Um, I'm using LLCs. Even if you have great insurance with the best insurance company in the world, I'm gonna use an LLC every dang time to make sure that I'm protected. I've seen many clients for their rental properties who have had coverage denied. And thank goodness they had an LLC to rely on to protect them. All right, Brian Lopez asked, if I elect S-corp status for my LLC, does that change anything from an asset protection standpoint or is that purely tax? Great question, that's purely tax. As far as asset protection laws, it's still an LLC, or it's still a corporation, frankly. S-election or S-corporation tax treatment is something at the IRS and tax level from a creditor standpoint and from an asset protection standpoint and from a state standpoint of your entity, it's still just an LLC. Katie Writes, that's that that's the that's the uh I just walked right into that one, Katie. Okay. At Katie Writes, what are the most common mistakes you see that cause someone to pierce the corporate veil and lose their protection? Well, we had that question a little bit earlier about someone mixing personal expenses with business expenses in their LLC. That is the first way you're gonna blow asset protection. If you are using the LLC or your business entity for personal purposes, that is gonna pierce the corporate veil. You need to get into good bookkeeping practices and good corporate practices. If you have personal expenses, those should be born in your personal bank account. Transfer the money from the business account to your personal account, bank at the same bank, make it easy on yourself, and then expend those personal expenses out of your personal account. The only income and expenses going into that business entity, your LLC or corporation, should be the business income and expenses. If you do that, it is easy to say in court, I am entitled to separate liability treatment because I've treated this entity as a separate entity. Hence, I should get separate liability treatment. If you treat this as a sometimes it's personal, sometimes it's business, it's going to be hard to expect the courts to treat the business entity as being separate from your personal assets. So make sure you're treating it separate. That'd be the number one mistake that I see people make. I would say the second mistake, by the way, is people who don't keep their LLC up to date and active. So make sure that you're keeping your LLC up to date, you're renewing it every year in your state and keeping it active. Uh, we have a sister company, Main Street Business Services, that does your renewals with a company compliance service. We automatically keep it up to date in that business. So you can get the Main Street Business Services. They do that for many of our law firm clients at Kik Yoast Lawyers. So those would be the two things: mixing business and personal and not keeping the LLC active.

SPEAKER_01 51:29

Okay, we got a live question from uh JC Sastack, 6272. What about a small private plane and an LLC not in a business?

SPEAKER_00 51:38

Okay, I like that. I like having a small private plane and an LLC and not in your operating business. So let's say that you have an operating business and you may use the plane sometimes. And maybe that plane's leased out to other people as well, but you might use the plane as well. Well, there's a couple things I want you to think about. One, you might have equity in that plane. Okay, there might be value in that plane. So if something happens in your business, I don't want the value, the equity in that small plane to be at risk. So, in some ways, the plane itself is an asset. So I like keeping it separate for that purpose. The other thing about a plane is the plane could be a liability if the plane crashes. I'm a lawyer that represented people that have died in a plane crash accident, and we sued the people that operated the plane. It was held in an LLC. Okay, and so it all got resolved fine, everything. But in that LLC, that's that something can happen with the plane where, heaven forbid, there's not an accident, but it happens every once in a while. And so now that that plane isn't not an asset, it's actually a liability. And I don't want it to infect the business that I'm also operating out of. So definitely a plane. I would see that as a separate asset for anything to protect from the business itself and to protect the business from the plane as well. All right, next question. This one was from Mark Invests. He said, if I'm using an IR LLC structure, does that LLC provide the same level of liability protection as a normal LLC? Yes, it does. Okay, the IRLC structure is still an LLC at the state level. So if something happens in that IRLC, it owns a rental property, they're forced to sue the LLC, they can't come down to you personally. At Tony Builds Act, if I go into a deal with a partner in LLC, how do I protect myself from something they do wrong in the business? This is a great question, Tony. The LLC does protect you, and this is a reason you should have an LLC in a partnership. Let's say that you, Tony, are operating with somebody else in a business, and this partner, and it's just you two, you didn't set up an LLC or an entity, and this partner does something dumb. Well, guess what? Under law, you are general partners, and you are responsible for their acts, and your liabilities are exposed to their acts. So if they do something dumb, you personally can be brought in and your assets are now at risk. So be careful going into business with anyone without having an LLC or entity structure. We love the LLC for partnerships. So in fact, the LLC is what protects you in a partnership. Now, if something happens in the LLC, your partner does something dumb or makes a mistake, plaintiff, creditor, whoever it may be, customer, they're forced to sue that LLC. You guys were conducting business from the LLC. Your partner, they were doing it for the LLC. They can't go sue you personally. Your personal assets aren't at risk. So definitely in the partnership scenario, using an LLC is super helpful and ensures that your assets get protected. All right. Last question here that we'll do. Thank you everybody for asking your questions. Make sure you get your questions in, by the way. Come live. I always take priority in any live questions, but drop them on any of the videos if you have questions. Maybe you're someone that's shy. And I've and maybe I'm just gonna do a live and hit all of these, or maybe I'll stay for an extra 15 minutes and just fire around it. I don't know. Um, what do you think? Let's do it. All right, I'm just gonna go fast. Okay, we're not gonna take any more live questions. I'm gonna try to get through all these questions, um, just for fun. All right. All right, Lauren Mills asks, can I run my operating business and hold rental properties in the same LLC, or is that a bad idea from a liability standpoint? Bad idea, Lauren. Okay, we do not want to have operations and assets in the same entity. If something happens in the operations of the business and you've got assets in there, all of the assets are at risk. If it's just one LLC, everything's at risk. You are totally exposed. Never keep assets in an operational business. In fact, if you have an operational business that's cash flowing and you're accumulating cash, get that cash out of the business bank account. Don't leave it there. Get it down to you personally as the owner and over to an investment LLC where you have assets and let's start building assets. That's the whole reason we use the trifecta. We want to separate your operations where you have liabilities from your assets. All right, so we will have two separate entities for those things. Now, some people aren't don't have an accumulated assets or it's just money in a retirement account. You may not have an LLC in the mix, but you have an operational business. Cool. Will I start buying rental properties or other assets? We want to hold those in a separate asset entity. So great question. Keep it separate. Atnik Travels asked, if I live in California but own rentals in another state, where should my LLC actually be formed? Great question. You should set up the LLC in the state where you own the rental properties. So, for example, if you have a rental property in Missouri, you would have a Missouri LLC. Now, even though you live in California, the state of California, by the way, has something called a franchise tax. This is only for Californians. What California says is if you have an LLC in any state and you are deemed to do business in our state, the state of California, you have to pay an annual fee of $800. It's the annual franchise tax. It's actually the minimum tax do you pay the state of California. And I know this is a reason a lot of Californians hate LLCs, is this annual minimum tax that the state assesses. Well, sadly, they will assess it even on your Missouri LLC that owns a Missouri rental property with a Missouri property manager. If you look at the franchise tax board guidance, they literally have this example that says if you are in the state of California and you are manager of a Missouri LLC and you call up your property manager in Missouri to talk about your property in Missouri, you have just conducted business in the state of California because you were actually sitting in the state of California when you made that phone call. So that's business in the state of California. This Missouri LLC must pay an $800 franchise tax to the state of Missouri. They have gone so freaking far in California to say if you are literally sitting on the toilet thinking about your rental property in Missouri, you have just done business in the state of California. Okay. That was a little joke there. I was pausing for some laughs. Okay, there we go. All right, I was pausing for some laughs there. Had to ask for it. I guess it probably wasn't funny. You know, you have to ask for it or like didn't didn't hit. All right. So um so, but I don't care where you are. Okay, I'm in Arizona. I've owned rental properties in Indiana, in Utah, in many other states. I have set I own an LLC in those states. All right. Even though I can just do an Arizona LC, we want to set up an LLC in the state where the property is located. Now you could have, let's say you have a Texas LLC, and the next property you buy is in Oklahoma, and there's just two properties, there's maybe 50K of equity between each. You can just have that Texas LLC registered foreign into Oklahoma. It's the same LLC, but it's registered in two states. So sometimes you could do that option as well. Just get the existing LLC you're already using registered into another state. All right, Amanda K89 asks, if I'm just starting out and only have one rental, what's the simplest structure that gives me solid protection? I would just say do one LLC. Keep it simple, do one LLC in the state where that rental property is located. Make sure you have a landlord tenant policy on that rental property. This is going to keep it protected. This is going to keep you personally protected from any liability that could happen with the tenant or anything on the property. So all of your other assets get protected. And it's not that expensive to just do one LLC. What you can do an LLC with our lawyers that includes consultation with the lawyer for $1,200. All right. You have your state filing fee, but it's relatively inexpensive. If you think of owning this property for 10 years, we're talking less than $100 a year in costs here, or around a little over $100 a year in costs here. So relatively expensive to ensure that you have asset protection to protect you. All right. Castle official asked, can you please tell if I will have asset protection if I register as a foreign entity in New York while actually incorporated in Delaware? Yes, you would. All right. You no matter where the state is set up, if you're doing business in New York, and let's say you do the Delaware corporation, but you're actually conducting business in New York and you register it into New York, you will get asset protection if something happens in New York. One thing that's a little tricky is if I'm using an LLC and a liability happens in a state where I have not registered that LLC or corporation, it is not certain you can guarantee that you will get liability in that state. Now, I've actually written an article on this, it's on the MattSorzon.com site about liability and foreign registration of your entities. I kind of go through a number of different states in that. We might be able to share that here. But as a general rule of thumb, and for how you ask the Castle official, yes, you will get asset protection if you do the foreign registration into a state and a liability arises in that state. Okay, Sean Duff 1 asks, if I haven't taken minutes for my board minutes for LLC in two years, do I still have asset protection? Probably. But what else is going on? Is there uh have you been using that LLC for personal expenses? What's the liability that happens in the LLC that causes this issue where they may try to get through the LLC to get to your personal assets? Minutes aren't required in LLC. They're actually required in a corporation, but they're not required in LLC. But they're kind of like this affirmative defense to be like, I treat this like a separate company. Here's my minutes. Here's how I don't use this for personal expenses. Kind of like case closed, you're not coming after me personally. That's why we do minutes in an LLC. There's some other reasons why we do them. You can hit certain tax issues that should arise in there, an accountable plan and things like that to help you unlock some expenses. But from an asset protection standpoint, it's not that you have lost it for two years. You probably still have it. But if you want certainty about it and you want like this affirmative defense to fill certain, that's why we're doing minutes. All right. At Chris Dawson asks, if I already have an LLC, does adding an umbrella insurance policy actually make a big difference or is that redundant? All right. So I just mentioned that I actually added an umbrella policy recently. Okay, this was an additional $5 million of protection for around a thousand bucks. It was worth it. I thought that was worth it for me. Now I know that that umbrella insurance does not protect anything that I don't have an existing policy of insurance for, and only after those policies are exceeded. I frankly went back and forth on it because I've crapped on umbrella insurance for so long. So, but I decided, all right, I'm gonna go for it. I have probably 20 LLCs. I barely just added an umbrella policy. So if that gives you an idea, um, maybe that'll help. So I it depends on the cost of the umbrella, too. If the umbrella is like, it should definitely be less than a thousand bucks. If you're paying more than a thousand, I want to know what's going on. So uh so let's look at your assets and whether it's worth adding the umbrella insurance policy. I think the LLC is a definite yes. The umbrella is like a maybe. And and one thing I think that's that's that's to look at, and this is kind of what's part of my own analysis was what would it cost me to get an additional 1 million, three, five million of coverage on my auto, on my landlord tenant policies, all these other policies where the umbrella came on top, it was more expensive to increase the policy limits on those policies than it was to add the umbrella on top. So sometimes though, and in fact, many times I have seen the exact opposite is the liability risk that the the client has is maybe on their rental properties. And it's cheaper to just increase the policy limit on that policy or or these different policies that could be involved here than it is adding the umbrella. So it all depends on your situation. I think if you've got a lot more going on, that's where the umbrella can be cheaper to add on on a layer than increasing policy limits on all these different policies you might have. All right. I said I was gonna go fast. Let me try to speed it up here. Um we have four more. Okay, at Natalie Home, at Natalie Homes asked, at what price does having too much equity in one property make it risky to keep it in a single LLC? That price is gonna be 200 to 250,000 of equity. That's generally where we're gonna recommend separating out properties into separate LLCs. So let's go through another example here. Let's say you have two properties, each property has 20,000 of equity. I'm gonna keep that in one LLC. There's no reason to have two separate LLCs. Something happens on property number one, property two always got 20,000 of equity that's now at risk. It's not a big deal. But let's say you have two properties in one LLC and each of them has half a million of equity. We now have a million of equity. I've got one property in here that had nothing to do with the lawsuit and five million of equity now at risk. Where if I kept it in a separate LLC, the plaintiff would not be able to touch that second property and that second $500,000. So it depends on your situation, how much equity you have. Generally as a rule of thumb, $2250K of equity between multiple properties. That's when we start looking at separating out and doing separate entities for separate properties. Kevin Builds 33 asks If I set up my LLC myself online, what are the biggest things I might be missing from an asset protection standpoint? The biggest thing you're probably missing is an operating agreement. And maybe you set up the LLC wrong online. By doing like member managed instead of manager managed. Did you claim the LLC and limited liability protection and the articles properly? Is that in the operating agreement? Um, I'd say probably the biggest thing is going to be the operating agreement, though, that we will see. A lot of clients come to us and they do they do what we call a cleanup. They kind of hacked it out on their own, or their brother-in-law, who's a lawyer that does divorces, tried to do it and they didn't know what the heck they were doing, and it's all jacked up. So we call this a cleanup in my law firm where we go and we fix the LLC and set it up properly, amend anything if we need to at the state, but then add all the other documents you should have. You're gonna need an operating agreement. You should have a set of minutes for it. I just set up a new bank account for an LLC and they wouldn't, they wouldn't proceed until I uploaded the operating agreement. I was like, ugh, I gave you the articles and tax ID. I had the operating agreement. I just didn't attach it when I sent them to open up the bank account. So you're gonna need it just for a lot of other things too to operate the business. So don't think that one piece of paper for the state from the state, where you did it online with the state is enough. You're gonna need an EIN or a tax ID to actually operate this business. Any business or party that you're working for is gonna expect you to have this. The IRS expects you to have this. This should not be going on your social security number. This should be on a separate, you should have a separate EIN for this. All right, next question, Olivia Martin. We're getting there, guys. Thanks for hanging in. Any that are still on, I appreciate you being on. I I just people are hanging in there. Okay, I just wanted to get to these questions. These are all great questions. So I'm like, I'm gonna answer them. Okay, Olivia Martin asks, how important is it to have a completely separate bank account and bookkeeping for each LLC? What happens if you don't? Um, it's really important. This is, you know, we're doing all the work and the cost to set up the LLC. We got to treat it like a separate entity if we want separate liability treatment when a lawsuit arises. If you have you don't have separate bank accounts, and let's say you have five LLCs and you're working out of one LLC bank account, how do you expect a court to treat those five LLCs separate? Or maybe it's your personal bank account, you're still paying all the business bills out of, and you're not using the business account to pay the business expenses. It is very hard for a court to say, I'm gonna treat this like a separate entity, separate liability treatment. So this is something called piercing the corporate veil, with which a good plaintiff or a plaintiff's lawyer who's suing your LLC and wants to get to you personally, because that's where all the money at, or into your other entities because that's where all the money's at, is gonna try and blow through this LLC. And as the easiest case you will give them is if you do not keep the bank account separate and you're paying money out of one LLC that has nothing to do with it, or you're paying personal expenses out of an LLC, that is where you're gonna blow your separate liability treatment. All right, last question goes to Danielle Invest, who says, as you start scaling and adding more deals, how often should you revisit your LLC structure to make sure you're still properly protected? Great question. I would say once a year. Um, I probably look at my own trifecta, which is my own diagram and entities once a year. I update it as I'm adding stuff. Many of our clients in my law firm, KQS lawyers, will do an annual consult with their lawyer to go through their trifecta, making sure that they're fine-tuning things, taking advantage of tax strategies, things are structured properly, they're getting rid of stuff that they don't need, restructuring as things are needed. Sometimes the laws change, and we're updating you, of course, on those things. But having a look at it once a year is, I think, sufficient to make sure that things are updated. Now, you might be someone that has a big business that's operating a lot, and you might need to be checking with your lawyer every month. You might have a general counsel in your business, you might be someone that maybe needs it every three years. Everybody is different here, but I would say, as a general rule of thumb, for most of our clients, once a year is a good regular check-in with your lawyer for your tax and legal strategies, which could include your entities, your LLC structuring for asset protection and tax minimization. All right. Well, we got there. All 20 questions that came in. Thank you for all the live questions. Remember, Wealth Office Hours Live is every Thursday at 4 o'clock Pacific time. Make sure you're subscribed to the channel and make sure you're turn on notifications so you'll get reminded when we actually go live. Also, get over to my website, mattsawensen.com. I have a newsletter there where you can stay tuned if you missed any of these lives. We are putting those into the newsletter. You'll get updates on other lives. I'm writing an article once a week as well on wealth building topics. So you can check that out over at mattsawensen.com. Thanks for being on. We'll see you next time.