Hi this is Lee Phillips. I’m an attorney. I want to talk to you about a kind of thorny issue
in asset protection that’s the personal residence How do you protect your personal residence? and of course you’d like to protect your
personal residence because you don’t want to be out on the street. Well, I’ve had a lot of people come to me and say okay we know how to do it. What you do is you move the personal residence into an LLC. And the LLC gives a great asset protection we’ve talked about that in other YouTubes but once you move the personal residence from your ownership into the LLC’s ownership, guess what? It’s not your personal residence anymore. You’re living in a commercial piece of property owned by a company and there are a number of issues associated with that. One, your personal residence is one of the dozen or so tax shelters left in the IRS code. You remember, you get to deduct the interest, you live in it two out of five years, tax free when you sell… blah blah blah blah blah. It’s a tax shelter. As soon as you move it to the LLC,
it’s no longer your personal residence. The IRS looks at it as a commercial property. Guess what? The state taxes, you know the property taxes, they are almost three times in many cases on a commercial property as they are
on a residential property. So you just increased your property taxes
by three times, one. Two. The risk associated with a commercial property is a lot higher than the risk
associated with a residential property. So guess what? Your property casualty insurance type stuff just tripled when you’ve moved it from you to the LLC. So I don’t think it’s a good idea. How do you protect it then? Well your first line of defense is to get that
big umbrella policy, insurance policy, you know protect it fire, casualty, all that stuff. That’s actually good as a protection for your personal residence. Do it. Spend the extra $500 and get the deluxe policy It’s worth it. Second. Ownership. Who owns the piece of property, the personal residence? Well, husband and wife own it. Joint tenants. Or tenants by the entirety
if you’re in the right state. But husband and wife own it. Love has nothing to do with property ownership. Just remember that. If the wife is going to be the OBGYN or start the little business or do the real estate deals or whatever it is, she has the risk. He’s a professor at the University,
no
way he’s ever going to get sued. So we’ll move property out of the joint
relationship over into his sole ownership. Now a property is in his
ownership. If she gets sued, she’s the OBGYN, she gets sued, they can’t come get his property. This works really well in a lot of the states if it’s a common law state husband and wife property can be separated. If it’s a community property state
and there are a dozen or so community property states then the husband and
wife are considered one economic unit and community property is another YouTube webinar too – or YouTube video But they’re one economic unit. we can’t separate their property
at least not easily. So common law state, let’s control where the ownership is. A couple of nuances: one I don’t want to just put it in his name I want to put it in his living revocable trust so when he dies she doesn’t have
to probate the house that she’s living in. The trust does not give any asset
protection. That’s another YouTube video. Trusts don’t give asset protection. Everybody thinks, “Oh yeah, my living revocable trust gives me asset protection.” No. It has the word “revocable” in it. So the fact that it’s in the trust doesn’t give it any more asset protection but it makes it so that she doesn’t have to probate the house if he dies. Or when he dies, I guess it isn’t an if. So that’s an important aspect. The other aspect of it is he’s the stay at home husband, he doesn’t work,
he doesn’t make a dime and he takes care of the
kids, that’s fine. She does that in many cases and he does it in less. but how do we claim that his property if she’s making all the money? Well when she gets the $10,000 check for her wage every month she takes that money, puts it in
her account, and then cuts him a check for $9,000 whatever it is
he makes the house payments he pays the taxes he pays the insurance, he does
everything out of the check that she gives him He’s a kept man. And if he has any money left over, fine. It’s his. It’s in his account she doesn’t sign on it. That would be in his trust account. She doesn’t sign on it. But that money is now his. The courts have looked at that and say yep the fact that he’s the stay-at-home, he takes care of the kids he takes care of the house, that has value
and she paid for it. It’s his money, he paid for the house it’s his house. So that eliminates that argument. So we’ve got insurance that we can use,
and we’ve got playing the trick of who owns it and we divide between husband and wife. One more thing. A lot of states have what are called a Homestead Act Two states, Florida and Texas, have 100% homesteads. You can’t take away my house that I have in Florida or
Texas. It’s protected by state laws from all of my creditors, my bankruptcies,
everything I do. Can’t get it. You pay a higher mortgage in those states because
even the mortgage company has a hard time getting it back. Good protection. Most states have a protection of somewhere between $60,000 and $200,000 in homestead protection. Well that still could be a pretty good
deal because yeah, it’s a $400,000 house but I’ve got a $350,000 mortgage on it so I only have to protect, what? $50,000. A $60,000 homestead would protect
that piece of property. It’s not in the state’s best interest to have you and your family out on the street so they give you a little leg up protect your personal residence they usually protect clothing, and that sort of stuff that you might have, personal effects So the homestead, the insurance, and the
who holds it trick are really about the only ways that you can protect your personal residence. This is Lee Phillips I’ve been talking about how to protect a
personal residence.