where to put cash out refi?

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Elysium
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Re: where to put cash out refi?

Post by Elysium » Fri Dec 18, 2015 8:45 am

The main unanswered question here is exactly what kind of multi million dollar judgement is OP worried about?

Typical scenarios like an auto accident or someone getting injured on the property doesn't run into multi-million dollar judgements unless there is also gross and wilful negligence or fraud involved. An umbrella should cover for "normal" situations. The fact OP is not forthcoming and then goes on to insult anyone who questions the wisdom behind LCC seems to indicate there is more to this, or could simply be a troll.

It is very clear OP is not interested in any of the answers, just seems to enjoy the response.

I think a wise person said steer clear earlier. Best.

pivoprussia
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Re: where to put cash out refi?

Post by pivoprussia » Fri Dec 18, 2015 9:57 am

Dieharder - I'm interested in an answer to my question. See OP for actual question. Note: the question was not if this is a good strategy. It is where to now put this money.

Ogrehead - read my post. I wrote MUTI-MEMBER LLC numerous times. The very first link I included explains its role. And, for the record, I never used the word ignorant. I simply think most here don't understand the concept known as equity stripping. Perhaps this link will help but no need to bash me because you are not familiar with this:

http://www.investopedia.com/articles/mo ... assets.asp

Lafder
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Re: where to put cash out refi?

Post by Lafder » Fri Dec 18, 2015 10:00 am

With cash to invest in the low to high 6 figures, you can find FDIC insured CDs at above 2% guaranteed returns.

http://www.nerdwallet.com/rates/cds/best-cd-rates/

I understand your frustration that folks are attacking your plan rather than answering your question of what are secure ways to invest 6 figures, assuming you have the cash to invest.

I am still having a hard time seeing how one can take their personal cash assets and relabel it as an LLC that protects it from lawsuits. And I did read the links you sent as well as read online with a google search. I realize a google search is not the same as a law degree :)

My experience with this site is that it is a good idea to dig deeper if there seems to be a consensus that does not agree with what I thought to be true.

I am truly interested in hearing more about how the LLC protects you since I do not understand it.

My parents did put all of their rental properties into separate LLCs for a similar reason. As I understand it though, that would be to protect from a lawsuit due to an injury or circumstance at one property, to limit the potential lawsuit to just that asset. But if someone is suing you personally, they could go after all LLCs that you are really the owner of.

And to make it a multi member LLC, don't you need to give some ownership of assets to the other members to make it work?

I was not aware you could make an LLC that is simply the owner in title of stock and bond accounts. What is the LLC called (Not your specific LLC name), but what exactly is the nature of the business?

If it is correct that one can simply retitle assets as owned by an LLC that you have control of, why have so many high net worth people at risk of being sued never heard of this? Your post has gotten 1118 views as of now. The majority of folks on this site have relatively high networths. So as a guesstimate, at least 100's of educated informed folks here do not understand, and /or have never heard of your (attoney's) proposed method of protecting assets. That should make you take a step back and dig deeper into understanding what is being proposed. I know you said you will get a second opinion. Please do let us know what they say. I am genuinely curious as I would love a more guaranteed way to protect my own net worth, that I have also worked very hard to accumulate :)

lafder

Lafder
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Re: where to put cash out refi?

Post by Lafder » Fri Dec 18, 2015 10:11 am

pivoprussia,
The article you posted a link to while I was writing my reply above lists getting a HELOC and NOT taking out the money as an option. That was brought up by another member above. See this section:

"Using HELOCs
Now, the most common way to reduce the probability of attachment is by borrowing against the asset and giving another party a lien for the debt obligation. The most common form of borrowing is the home equity line of credit (HELOC). With a HELOC, the lender is given a lien against the equity of the property, which serves as collateral for the loan. Even an unfunded equity loan will significantly reduce one's equity "on the books" without creating any significant risk for the borrower. Most equity lines of credit do not charge a fee for not using the funds, and are very cheap (if not free) to set up. HELOCs make it much more difficult and costly for a creditor to get at the actual equity in a property and will often deter creditors from initiating legal proceedings, without affecting the cash flow of the borrower.

Placing an unfunded HELOC on a property is the first line of defense for any property, which also provides a source of funds that can be used for emergencies or other unexpected financial obligations. If it remains unfunded, the HELOC will not add any financial risk in the form of required interest and principal repayments. Since creditors cannot tell how much is actually owed to the bank, this strategy can be effective in discouraging a party from going after the property, but is less effective if the creditor does decide to go to court."

Keep in mind Bogleheads is a financial site and most folks here go to great lengths to optimize money, and that often involves eliminating debt. So your proposal is rather opposite and folks are reacting to that in addition to not understanding the why of it. I have not seen you mention the financial effect of a high 6 figure mortgage on your finances. That will be a large monthly expense you do not currently have. How are you planning for that in your overall financial picture ? If you do not have the mortgage, you could be investing that payment instead.

The above description of a HELOC from the article you referenced could be a compromise of having the lien on your home without the expense of a mortgage payment unless you take the money out.

lafder

pivoprussia
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Re: where to put cash out refi?

Post by pivoprussia » Fri Dec 18, 2015 10:16 am

Thanks for your post, Lafder.

Research family LLCs. That should help. If you are serious about asset protection, there are no free lunches. If you are HNW, you should review your individual situation with an estate planning attorney. There are no guarantees anything will work 100%, so multiple layers is the key. You just want to be a hard target. Ask any plaintiff's attorney.

Despite the comments, I do not have some evil enterprise I am protecting. Just the assets my family has earned. I have no idea if a judgement could ever exceed my umbrella. Yes, it is unlikely, but if it did it could be catastrophic. I am proactive.

I understand in most states your home is a protected asset, like Florida for example. It is not in mine, thus the concern.

No offense to the good folks on BH, but I am going to trust an estate planning attorney over what they think. I did not post to argue the
merits of equity stripping and LLCs here. That is best left for a legal forum, but alas that is what most posters insisted upon.

I respect this board very much. I have been coming here for years, before I "joined". Great financial advice. But, I also am no idiot. I did not get
where I am in life by making "stupid" decisions. I am done with the post. If you care to continue, please feel free to PM. Thanks for your input.


***yes, absolutely about the HELOC. That is what I wanted to do initially. But apparently pulling the funds AFTER the event has happened can be viewed as a fraudulent transfer and can be undone by a good attorney.
https://en.wikipedia.org/wiki/Fraudulent_conveyance

And here is one that explains the benefits of family LLCs. Frankly, it not complicated or expensive. You equity strip and place assets in the LLC.
Not so convoluted after all, eh?
http://www.tomboumanlaw.com/family-llcs.html

itstoomuch
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Re: where to put cash out refi?

Post by itstoomuch » Fri Dec 18, 2015 10:59 am

Ultimately, this is Insurance against assets. How much OP pays in premiums will depend how the funds are used (savings, investments, debt consolidations, collateral, credit score improvement, etc)

Secondary, the asset is monetized.

Related topics: reverse mortgages, Helocs, collateral, options, insurance, and annuities.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

itstoomuch
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Re: where to put cash out refi?

Post by itstoomuch » Fri Dec 18, 2015 11:17 am

Lafder wrote:pivoprussia,
...snip

Keep in mind Bogleheads is a financial site and most folks here go to great lengths to optimize money, and that often involves eliminating debt. So your proposal is rather opposite and folks are reacting to that in addition to not understanding the why of it. I have not seen you mention the financial effect of a high 6 figure mortgage on your finances. That will be a large monthly expense you do not currently have. How are you planning for that in your overall financial picture ? If you do not have the mortgage, you could be investing that payment instead.

lafder
Yes, BH are often very good in optimizing but not necessarily good at protecting, other than AA. :annoyed Kinda boggles me :oops:

The Big winners in the Housing/Credit Bubble are those who had nothing to lose and those who protected their play. The Big Short,, coming to your favorite theater soon.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

bberris
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Re: where to put cash out refi?

Post by bberris » Fri Dec 18, 2015 12:32 pm

pivoprussia wrote:Agreed. . .free advice is, well, free. I just know there are some savvy financial folks on here. Thought I'd take a shot.

I will run it by a 2nd attorney.

I think what you all are missing is the equity in the house is now exposed. The funds would go into an account that is PROTECTED.
Multi-partner LLCs are good vehicles for asset protection. It would be very difficult and costly for an attorney to try to break the LLC.
Remember, timing is the issue. We have no pending issues so if I do it now,
there can be no claim of fraudulent transfer. If I wait until an issue arises, then the claim can be made.

And, no, not 10s of millions, but enough to be a target. A good and bad problem. I'm not complaining.
Seriously? If you lose a judgment, they would just take your llc share. The LLC protects you from judgments against the LLC, not against judgments against your person.

mptfan
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Re: where to put cash out refi?

Post by mptfan » Fri Dec 18, 2015 5:21 pm

pivoprussia wrote:HI Bogleheads-

So my attorney has advised us to do a cash out refi on our paid-off house.
I would get a different attorney.

boglerdude
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Re: where to put cash out refi?

Post by boglerdude » Fri Dec 18, 2015 6:26 pm

Dieharder wrote:what kind of multi million dollar judgement is OP worried about?
Typical scenarios like an auto accident or someone getting injured on the property doesn't run into multi-million dollar judgements unless there is also gross and wilful negligence or fraud involved.
A recent example, $18MM suit for a multi-vehicle collision
http://www.vcpost.com/articles/87756/20 ... -crash.htm

So, what legal arrangements like LLCs etc will help here :)

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unclescrooge
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Re: where to put cash out refi?

Post by unclescrooge » Fri Dec 18, 2015 7:18 pm

boglerdude wrote:
Dieharder wrote:what kind of multi million dollar judgement is OP worried about?
Typical scenarios like an auto accident or someone getting injured on the property doesn't run into multi-million dollar judgements unless there is also gross and wilful negligence or fraud involved.
A recent example, $18MM suit for a multi-vehicle collision
http://www.vcpost.com/articles/87756/20 ... -crash.htm

So, what legal arrangements like LLCs etc will help here :)
Facing a lawsuit is not the same as having to payout.

The estate of the deceased can typically come after you in a wrongful death suit for the lifetime earnings of the deceased. My understanding is that punitive damages are not assessed unless you are invovled in fraud, theft or wilful negligence.
So unless you happen to run over Elon Musk, your chance of being in a situation where an umbrella policy won't be adequate is low.

But, if you are paranoid about this sort of stuff, by all means go out and spend thousands of dollars trying to hide your assets. This only acts as a deterrent against ambulance chasing attorneys, who mostly work on contingency.

If you really screwed someone over, and they are willing to pay attorneys fees, this whole LLC thing breaks down. You will be deposed and they will ask you about your assets. Of couse, you can always lie about them and hopefully you won't get caught for perjury. If not, they'll just attach the judgement to your share of the LLC or whatever else you own, or have a beneficial interest in (trust assets included).

The only way to truly get something out of your name is to have an irrevocable trust, with some else as the beneficiary. Of course, if the beneficiary gets sued, you might end up losing "your" asset anyway.

mptfan
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Re: where to put cash out refi?

Post by mptfan » Sun Dec 20, 2015 9:18 am

boglerdude wrote:
Dieharder wrote:what kind of multi million dollar judgement is OP worried about?
Typical scenarios like an auto accident or someone getting injured on the property doesn't run into multi-million dollar judgements unless there is also gross and wilful negligence or fraud involved.
A recent example, $18MM suit for a multi-vehicle collision
http://www.vcpost.com/articles/87756/20 ... -crash.htm

So, what legal arrangements like LLCs etc will help here :)
I'm sorry but you do not understand how lawsuits work. "Facing a lawsuit" where someone is seeking $18 million is entirely different than having a judgment entered against you for $18 million. Anyone can sue anyone for any amount, but that does not mean that the person suing will a) win, or b) get a judgment for anywhere near the amount that they are seeking, or c) be able to actually collect the judgment.

Elysium
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Re: where to put cash out refi?

Post by Elysium » Sun Dec 20, 2015 10:28 am

mptfan wrote:
boglerdude wrote:
Dieharder wrote:what kind of multi million dollar judgement is OP worried about?
Typical scenarios like an auto accident or someone getting injured on the property doesn't run into multi-million dollar judgements unless there is also gross and wilful negligence or fraud involved.
A recent example, $18MM suit for a multi-vehicle collision
http://www.vcpost.com/articles/87756/20 ... -crash.htm

So, what legal arrangements like LLCs etc will help here :)
I'm sorry but you do not understand how lawsuits work. "Facing a lawsuit" where someone is seeking $18 million is entirely different than having a judgment entered against you for $18 million. Anyone can sue anyone for any amount, but that does not mean that the person suing will a) win, or b) get a judgment for anywhere near the amount that they are seeking, or c) be able to actually collect the judgment.
Exactly. I am not convinced about someone getting a judgement that runs in millions of dollars without also having the sued party commit fraud or outright negligence. Justice system is setup to protect both parties. Given OP's home is worth only 1 mil or so, equity stripping sounds unnecessary. I am sure there are many Bogleheads whose homes are also worth that much and getting along just fine with an umbrella policy.

boglerdude
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Re: where to put cash out refi?

Post by boglerdude » Mon Dec 21, 2015 12:27 am

If you're found to be at fault for a fatal car accident with a 30yo who earned 100k/year, that's (potentially) a $3MM judgement for lost wages (assuming working age 30-60). So they collect your (for example) $2MM umbrella policy and all your assets.

Or is that not how it works :)

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TNL
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Re: where to put cash out refi?

Post by TNL » Mon Dec 21, 2015 12:52 pm

boglerdude wrote:If you're found to be at fault for a fatal car accident with a 30yo who earned 100k/year, that's #potentially# a $3MM judgement for lost wages #assuming working age 30-60#. So they collect your #for example# $2MM umbrella policy and all your assets.

Or is that not how it works :#
If you have a $2 million umbrella policy, plus your underlying max limits #usually $500K these days# which are in play, you can be damn sure that the insurance defense attorneys/hired guns that your insurer hires to defend that policy will be able to throw enough wrenches in the plaintiff's case #disputed liability, disputed damages# so that there is at least some comparative liability on the decedent, reducing your overall exposure, which would essentially force plaintiff settle for policy limits of the umbrella. That's why they are called insurance defense attorneys, and if they can't do that, they are not good at their jobs and they should find a new line of work. This is, of course, unless you were drunk or high, in which case, you have bigger problems than losing all your assets; your biggest problem is prison for the next 10 years.

Many states have also enacted tort reform, which caps damage awards, caps liability, reduces or limits punitive awards altogether, or eliminates joint and several liability.

You rarely see judgments of this size against an individual, and NEVER in any jurisdiction that I've lived in; against corporate defendants or on bad faith suits against insurers, they are more common.

Despite the plaintiff's attorneys depicted in movies and on TV, most plaintiff's attorneys are essentially lazy and want to collect as much as they can in settlements and avoid trials as much as possible.

Also, a 30 year old who earns 100K a year or $3 million over a life time -- the proper measure of damages isn't $3 million, you have to back out the taxes and the cost it would be for them to support themselves. And then you have to discount that to present value. It's actually very hard to board more than about $2 million in damages on most wrongful death cases, at least in my neck of the woods.

mptfan
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Re: where to put cash out refi?

Post by mptfan » Wed Dec 23, 2015 6:11 pm

boglerdude wrote:If you're found to be at fault for a fatal car accident with a 30yo who earned 100k/year, that's (potentially) a $3MM judgement for lost wages (assuming working age 30-60). So they collect your (for example) $2MM umbrella policy and all your assets.

Or is that not how it works :)
No, that is not how it works. You need to account for taxes and familiarize yourself with the present value of future income streams and discount factors.
Last edited by mptfan on Wed Dec 23, 2015 6:19 pm, edited 1 time in total.

mptfan
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Re: where to put cash out refi?

Post by mptfan » Wed Dec 23, 2015 6:13 pm

TNL wrote: Despite the plaintiff's attorneys depicted in movies and on TV, most plaintiff's attorneys are essentially lazy and want to collect as much as they can in settlements and avoid trials as much as possible.
Exactly. Except I would not call it laziness, I would call it rational economic analysis. It is rational to want to collect the most amount of money possible with the least amount of effort. There is so much work and risk involved with collecting from individual defendants with the real possibility of collecting little or nothing, that most, if not all cases, in my experience, involve settlements within the limits of the available insurance. I have personally been involved with hundreds of personal injury lawsuits as a civil litigation attorney, on both sides, and I can only recall one case in my entire career where an individual person paid money out of their own pocket towards a settlement or a judgment, over and above the available insurance limits.

This is an area in which people offer opinions about worst case scenarios while not having any first hand knowledge of how the civil legal system works.

boglerdude
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Re: where to put cash out refi?

Post by boglerdude » Sun Dec 27, 2015 12:43 am

mptfan wrote: I have personally been involved with hundreds of personal injury lawsuits as a civil litigation attorney, on both sides, and I can only recall one case in my entire career where an individual person paid money out of their own pocket towards a settlement or a judgment
Because everyone had enough insurance to cover the actual damages?

If someone has $100k liability, does 500k in damage, and has a 1MM house and 1MM in stocks, why wouldnt they be pursued?

joebh
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Re: where to put cash out refi?

Post by joebh » Sun Dec 27, 2015 11:27 am

pivoprussia wrote:So my attorney has advised us to do a cash out refi on our paid-off house.

So where to put them cash?
You might consider using some of the cash to pay another attorney to check this advice. Seems very odd to me that an attorney would suggest a refi without suggesting a target for the cash.

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