LLCs Can Protect You From Issues That Insurance Refuses To Acknowledge

LLCs Can Protect You From Issues That Insurance Refuses to Acknowledge

[00:08] The truth is is there's a lot of that information when it comes to real estate investing and how to protect your assets, whether it's Joe Lucky, the keyboard warrior from an internet form or your CPA or the worst case scenario, a general practitioner that thinks he has a clue about what it means to be a real estate investor. If they tell you that all you needed shirt is insurance, they are wrong and Sherman's protects you from different types of claims than an LLC does. Let's take for example a case that I had a client a, it wasn't a slip and fall on her front porch. It wasn't that a, you know, somebody had a simple case of negligence and the management of the property. Well those would be things that insurance would cover and hurricanes is that she remodeled the house and she replaced the plumbing underneath the house.

[01:02] The buyers asked her in an email, what plumbing underneath the house did you replace? And her response was all of the plumbing in the house had been replaced. Come to find out three months later after the sale that there was a leak. In the plumbing resulting in tens of thousands of dollars to damage because the buyers at that point, we're out of town. Well, what do you think happened? Well, a loss of habit because the buyers were saying that your email was intentionally fraudulent. When you told us that all of the plumbing in the house had been replaced. This isn't a case of a seller who was intentionally misleading a buyer. This is a case that happens with almost all losses. It's a misunderstanding. You don't have to be a bad person to get sued. All you have to have is a misunderstanding. Luckily for my client, Jen, a proper asset protection strategy in place with a series of little seat that allowed us to negotiate the very advantageous resolution to the case. In fact, that particular case, we were able to get completely drunk. My name is Scott Smith. I'm an asset protection attorney specializing in real estate company structures. I protect my clients and make them judgment and I'd like to help.

[02:32] If you thought this content was good, you have to go see the bigger pockets podcast that I did. It was the top 10 things every real estate investor has to know about asset protection, and you can go listen to it right here.

The Benefits of Homestead Exemptions

If your state has homestead protections, never put it into an LLC. But you may put it into a trust for estate planning purposes. Every state that has homestead protections will allow a different amount for what they consider to be the exemption -- that means the amount that people can’t come after or you’re out.

Now consider the amount of homestead. If your homestead exemption is here (high) and your house is here (low), well it makes sense to pay off your entire house because we know all of that money is going to be protected from a lawsuit because the exemption tells us that nobody can get to it. If your house value is here (high) and your homestead is here (low) then what we want to do is create a lien against the property to cover that gap so it makes it look like the property is more encumbered than it might otherwise be.

We talked about that in another video about the ways we might cover that property, whether using a home equity line of credit and another bank loan or establishing our own mortgage company to be able to loan against that.

So always know what your homestead protections are, never transfer them to LLC, but you may do so to a trust for estate lending purposes.

Is an IRA Custodian Worth It?

Every IRA is required to have a custodian, and not all custodians are made equal. Especially if you're going to have a custodian that's going to invest on your behalf. Think about it, a custodian is the person that you have to have be responsive to any particular deal you're going to get into.

So to make sure that you don't miss out on a particular opportunity. And you're gonna want somebody that's going to ensure that you're investing in an asset class that's not disqualified. Or through some type of investment that's disqualified because it's with a disqualified person, or some other type of circumstance that's in violation of the rules.

Now you might not need a custodian that's all that great if you have a self-directed IRA, and you're willing to take on all of those responsibilities yourself.

Or if you have an attorney that you're working with and making a deal happen, that's familiar with those IRA rules.

Always keep this in mind whenever you are working with your IRA custodian that you pay for what you get. And if you're not gonna pay for it, make sure that you know what you're gonna do.

Or that you have another attorney that's looking over your shoulder to make sure that every deal is gonna be in compliance.

My name is Scott Smith, I'm an asset protection attorney. I'm a real estate investor myself, and I wanna help you.

Maintain Title insurance During a Property Transfer

Any time you transfer property you must consider the title insurance implications. Title insurance will generally be invalidated upon the transfer of the property. However, title insurance isn't invalidated if you transfer the property to a wholly owned LLC. That is, an LLC that's completely owned by you, the person that also owned the property. You also won't invalidate it if you add your spouse to title, for example. That'd be a transfer, but in that circumstance they're not going to invalidate it. You also can transfer the property to an intervivos trust where you are the settlor of that trust. This is the type of strategy that we'll be using with, inside of our anonymity land trusts when we start transferring property. My name is Scott Smith. I'm an asset protection attorney, I'm a real estate investor and I wanna help you.

How To Maintain Title Insurance During a Property Transfer