- Hi, Clint Coons here with
Anderson Business Advisors. And in this video, we're gonna discuss how to protect your personal residence. All right, let's get started. (rock music) Okay, so here's the deal. I get this question all the time. "Clint, how do I protect
my personal residence from creditors if I get sued?" Well, you have to be strategic about it. It's not like how we structure general real estate investments, okay, when we get complicated
with corporations, LLCs, holding LLCs and moving things around and partnerships involved. That doesn't work for
your personal residence. Because with a personal residence, we have to be sensitive to certain things. Number one, homestead exemption. Now what is a homestead exemption? Well, every state provides
some level of equity that a creditor couldn't take from you. If you lived in Florida and you had a personal residence in Florida, here's my property and
I had $800,000 in equity and someone came after me and
they get a judgment against me for a million bucks, they
can't touch that property. And that's why O.J. still lives in Florida because they can't take
his house from him. Now if he sells his house
and he converts the equity in his property to cash, well,
that's a different story. Now some states don't give you this unlimited homestead exemption. They may say, "Well, you
could hae $800,000 equity, but you only get 10K." That is, if a creditor
goes after this asset and they sell it at auction, you get 10K, creditors get $790,000. And you just look at
that and you're going, "Well, that's not fair. They can take my house from me. I want some protection." I get it. So what do we do? Well, one way to protect
your personal residence, I tell people, is to
understand where that lawsuit's typically gonna arise from. A residence is gonna be put at risk because of something
that we do personally. So you're out there and you're involved let's say in a car accident. You own this house. So somebody is going to sue you. They're not suing your house. They're going after your house
'cause they get a judgment against you for $1 million and
they wanna collect on this, so then they're gonna go after an asset that appears in your name. And so when a creditor's
now looking to collect, they're trying to figure out, what real estate is your name attached to? And sometimes they don't even try to take the house from you. All they do is record the
judgment in the county where your property's located, and the judgment now attaches
to your personal residence. So if you try to refi or sell, they know they're gonna get paid. Worst yet, many of
those judgment will grow at 10% statutory rates of interest. I mean, that's a great
investment for somebody. Just keep that judgment on an individual, and as they're paying their mortgage down, you're building more
equity for your creditors. So that's an issue, and how do we go about protect that then? Well, the first thing is,
we wanna get the property out of your name. So what I like to do is create a land trust here, land trust, and use a nominee trustee. Remember, in some of my other videos, I talk about using a Wyoming
LLC as a trustee over here? Why am I gonna do this? Because when I take my
property and I deed it out of my name into this type of structure, let's say the name of this LLC is D-10 LLC. So and the name of this
trust is Green Thumb Trust. So title now would read as follows, D-10 LLC Trustee of Green Thumb Trust. Right, I just truncated that down there. So that's how title's gonna read. It used to be in my name, Clint, but now it's no longer in my name. Now it's in the name of a trustee
in the name of this trust. So if I was sued personally and a creditor obtains
a judgment against me and they take that
judgment and they record it in the county where they think I reside, what's gonna happen is, that judgment will
attach to any real estate my name appears on. You see what I just did, though? I took the property out of my name, put it into this trust, so that property no
longer appears in my name. So that judgment doesn't stick to it. So what does that do for Clint? Well, it gives me the ability, then, to sell that property
and not have a portion of those proceeds taken out of escrow and paid to my creditor. All the proceeds would come to the trust, so I would have free access to 'em. If I can find a lender who's willing to refinance the property
in the name of the trust, I can refinance that property without having to pay that creditor off. So the land trust gets the
property out of your name, puts it in a vehicle that you're
no longer associated with, so judgments don't attach. So that's the first step in protecting your personal residence,
move it out of your name. If you live in an unlimited
homestead exemption state, I wouldn't, I would
still use this strategy. Why? Because when you sell that property, if you wanna move to another one, you live in say Florida, the problem is, once that becomes cash,
if they find out about it, they can go and garnish your
account and get that cash 'cause it's in your personal name. So we wanna always keep it
out of our personal name. So the second step in
this overall structure is you could take your beneficial interest in the land trust if you so desire and create a second LLC down here. This is gonna be a disregarded LLC. What do I mean by that? A disregarded LLC does
not file a tax return. I'll typically set this up in Wyoming. So now I'll take my land trust and have my land trust
held by the Wyoming LLC, just like that. So I've got a different LLC as a trustee, the beneficial interest is
this other LLC over here. Now does anybody know about this? No one knows about it
because it's all private. None of, all the transfers
with the trust itself, this does not hit a public record because it's not recorded anywhere. The only two entities that
are recorded are these two. The only one that the
public's gonna see is this one because it's tied to the
property as a trustee. They don't know about this one down here. Why would you do that? Well, you're gonna be the member of that limited liability company. And in a lawsuit, if somebody
gets a judgment against you, one of the things they may do is bring you into a debtor's exam,
supplemental proceedings, and they're gonna ask you, "What do you own? Do you own a personal residence?" Well, in this example here,
how would I answer that? How would you answer that? Do you own a personal residence? If you're saying yes,
look at the diagram here. The personal residence, the
house, is owned by what? The trust. It's not owned by you. So if they ask me, "Do
you own a residence?" my answer is, "No, I do not
own a personal residence." "Where do you live?" "I live in a property located here." "Do you own that?" "No." "Do you have any ownership
interest indirectly in it?" Well, the answer to that is no. Well, you have to probably say yes. "Well, how is it held?" "Well, it's held through a
limited liability company." Oh, so now they start unraveling. They find out that you have an LLC. So now what they need to do is this. They need to figure out
a way to break the LLC in order to get to your property. Now is this scenario here bulletproof? Not quite, because the
argument they could use to break the LLC is that your
LLC is a business entity. It holds an asset that you're living in, you're not paying rent,
so you're not treating it as a business activity. Therefore, it lacks substance. And that's a legitimate argument. But how many creditors are
willing to spend the time and the money to go through that process? How 'bout if you could offer 'em this? "Listen, you can try to fight this and I'm gonna fight you the
entire way going against it, or we could settle. Take my policy limits,
maybe I'll agree to give you a little bit more and we
go our separate ways." So what this is doing is putting some of the bargaining power
back into your hands. That prior to that, when
you have all the assets in your own name, it didn't exist. Now if you wanna take it one step further or not use this and use
one other technique, then you could always
utilize what's called a friendly lien. Okay, or you get an equity line of credit against your house. You go to the bank and have 'em file and equity line of credit, get a HELOC. There's two ways to do this, get a HELOC on your
property or friendly lien. And all that's doing is taking the equity out of the property. So if somebody does look at the property, they see that you've got this house and the fair market value
of the house is $900,000, but you have debt on it of 900K. So there's no equity. So even if you wanted
to go after my house, you would never get paid. So it's not even worth your time. Again, take my policy limits and go away. So it gives you bargaining position. If you're not familiar with
the friendly lien strategy, check out my zero-loss
real estate strategy on my channel where I talk about how you can take real estate and make it seem extremely
unattractive to a creditor, and that's why I call
it my zero-loss strategy where I discuss it in-depth. But this is how I typically strategize for protecting personal residences. (upbeat music)
