California - Protecting Assets - Beyond Umbrella Insurance

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keyfort
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California - Protecting Assets - Beyond Umbrella Insurance

Post by keyfort » Wed Oct 30, 2019 5:22 pm

I'm wondering if there are any experienced, self employed people here who could maybe provide some advice on asset protection, specifically in California.

Umbrella insurance is something which I understand is useful and we will certainly make sure to have it, but I'm wondering about insurance beyond that: e.g. for lawsuits in our professions, specifically in music, i.e. copyrights and things of that nature. I don't believe umbrella insurance covers any of that (not sure how it could) and since California doesn't protect retirement assets from creditors for sole proprietors unlike some other states, I'm wondering what to do about this to make us safer.

What do others do in California to protect their retirement or other assets if they're self employed? Trusts? S Corps? Any advice very welcome. Thank you in advance.

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JamesSFO
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Re: California - Protecting Assets - Beyond Umbrella Insurance

Post by JamesSFO » Wed Oct 30, 2019 5:49 pm

California doesn't protect retirement assets from creditors for sole proprietors unlike some other states
:confused

Can you explain/unpack what you mean by this?

CA professional here, have my business in an LLC + have various insurance for the LLC including specific professional liability insurance.

drawpoker
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Re: California - Protecting Assets - Beyond Umbrella Insurance

Post by drawpoker » Wed Oct 30, 2019 6:00 pm

JamesSFO wrote:
Wed Oct 30, 2019 5:49 pm
California doesn't protect retirement assets from creditors for sole proprietors unlike some other states
:confused

Can you explain/unpack what you mean by this?
Ever heard of a guy named O.J. Simpson? And why he left the Golden State and became a legal resident of the Sunshine State instead?

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keyfort
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Re: California - Protecting Assets - Beyond Umbrella Insurance

Post by keyfort » Wed Oct 30, 2019 7:16 pm

JamesSFO wrote:
Wed Oct 30, 2019 5:49 pm
California doesn't protect retirement assets from creditors for sole proprietors unlike some other states
:confused

Can you explain/unpack what you mean by this?

CA professional here, have my business in an LLC + have various insurance for the LLC including specific professional liability insurance.
Employee retirement plans (e.g. you work for a corporation) are protected by ERISA at the federal level and are protected from bankrupcty as well as from creditors, at the federal level.

Individual 401ks and IRAs are not protected by ERISA in the same way and are only protected from bankruptcy, leaving each state to decide on the law for protection from creditors. California only provides protection up to what it sees fit for the holder's survival. Washington on the other hand for example provides protection for an i401k from creditors without limit. The states vary on their level of protection from creditors for i401ks and IRAs.

This is what I have been told and then fact checked in a few different places so I'm 99.9% sure it's correct.

Therefore in California if you are a sole proprietor and you have an i401k, then you are not protected from creditors on those retirement assets like you are if you live in Washington state. Hence trying to figure out how to protect these and other assets while remaining in California, if that's even possible!

I'm not a lawyer but this is what I've read and been told.

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JoMoney
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Re: California - Protecting Assets - Beyond Umbrella Insurance

Post by JoMoney » Wed Oct 30, 2019 7:28 pm

California does exempt "Private Retirement Plans" from judgements, but only certain types of plans qualify
https://law.onecle.com/california/civil ... 4.115.html
Apparently there are asset protection specialists that promote forming one of these in a way to specifically protect retirement assets that may not otherwise be protected... sometimes in ways that may not hold up or have yet to be contested -
https://www.forbes.com/sites/jayadkisso ... m-fiction/
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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JamesSFO
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Re: California - Protecting Assets - Beyond Umbrella Insurance

Post by JamesSFO » Wed Oct 30, 2019 7:44 pm

OJ Simpson thing misses the point, at the time he did it he was going for the unlimited homestead exemption in FL/TX.

Agree that CA is less protective of some retirement accounts, the OP was a bit ambiguous. My LLC has a full on 401K so I'm less concerned though I do have a Roth IRA...

...overall, the big wins are forming an LLC (one layer of difficulty in coming directly at you though it is limited if you are the only person in the business) and then adding in professional liability insurance...

drawpoker
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Re: California - Protecting Assets - Beyond Umbrella Insurance

Post by drawpoker » Wed Oct 30, 2019 8:19 pm

From Wetherington Hamilton:

"Florida has some of the most broadly worded protections available to debtors wishing to shelter their assets from creditor attachment. With these protections, Simpson and others facing pressure from creditors often move to Florida to ensure their assets are judgment proof.
In addition to the homestead exemption, pensions and other 401k interests are completely exempt from attachment. Thus, if you have a 401k with 2 million in it, except in certain circumstances, a creditor cannot attach this money to pay that 100,000 judgment. This also applies to cash value of life insurance policies."

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keyfort
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Re: California - Protecting Assets - Beyond Umbrella Insurance

Post by keyfort » Wed Oct 30, 2019 10:20 pm

JoMoney wrote:
Wed Oct 30, 2019 7:28 pm
California does exempt "Private Retirement Plans" from judgements, but only certain types of plans qualify
https://law.onecle.com/california/civil ... 4.115.html
Apparently there are asset protection specialists that promote forming one of these in a way to specifically protect retirement assets that may not otherwise be protected... sometimes in ways that may not hold up or have yet to be contested -
https://www.forbes.com/sites/jayadkisso ... m-fiction/
Thanks. The yet to be contested bit raises my eyebrows.

It's not like ERISA plans where the federal government just states they're protected, which is of course the kind of level I'm looking for..

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keyfort
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Re: California - Protecting Assets - Beyond Umbrella Insurance

Post by keyfort » Wed Oct 30, 2019 10:21 pm

JamesSFO wrote:
Wed Oct 30, 2019 7:44 pm
OJ Simpson thing misses the point, at the time he did it he was going for the unlimited homestead exemption in FL/TX.

Agree that CA is less protective of some retirement accounts, the OP was a bit ambiguous. My LLC has a full on 401K so I'm less concerned though I do have a Roth IRA...

...overall, the big wins are forming an LLC (one layer of difficulty in coming directly at you though it is limited if you are the only person in the business) and then adding in professional liability insurance...
Not sure how I can form an LLC with multiple employees as I don't think income is at a high enough level for that.

So an LLC with just one owner/employee (me) doesn't work as well?

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unclescrooge
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Re: California - Protecting Assets - Beyond Umbrella Insurance

Post by unclescrooge » Thu Oct 31, 2019 7:06 am

drawpoker wrote:
Wed Oct 30, 2019 8:19 pm
From Wetherington Hamilton:

"Florida has some of the most broadly worded protections available to debtors wishing to shelter their assets from creditor attachment. With these protections, Simpson and others facing pressure from creditors often move to Florida to ensure their assets are judgment proof.
In addition to the homestead exemption, pensions and other 401k interests are completely exempt from attachment. Thus, if you have a 401k with 2 million in it, except in certain circumstances, a creditor cannot attach this money to pay that 100,000 judgment. This also applies to cash value of life insurance policies."
But if you have income that can satisfy the judgement, the creditor can ask the judge to garnish your wages.

This makes most asset protection useless for most high income individuals unless their assets are well beyond the limits of liability coverage policies.

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JamesSFO
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Re: California - Protecting Assets - Beyond Umbrella Insurance

Post by JamesSFO » Thu Oct 31, 2019 9:27 am

keyfort wrote:
Wed Oct 30, 2019 10:21 pm
So an LLC with just one owner/employee (me) doesn't work as well?
LLC with one owner works. And you can get a "full" 401(K) offering for it AFAIK. The issue is that the general LLC liability shield helps in some cases but not others.

Example 1: LLC misuses copyrights unintentionally. In all likelihood hard to pierce the corporate veil and LLC is all they can get

Example 2: You driving for LLC hit and injure someone. In all likelihood you can be directly sued.

Make sense?

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keyfort
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Re: California - Protecting Assets - Beyond Umbrella Insurance

Post by keyfort » Thu Oct 31, 2019 11:50 am

JamesSFO wrote:
Thu Oct 31, 2019 9:27 am
keyfort wrote:
Wed Oct 30, 2019 10:21 pm
So an LLC with just one owner/employee (me) doesn't work as well?
LLC with one owner works. And you can get a "full" 401(K) offering for it AFAIK. The issue is that the general LLC liability shield helps in some cases but not others.

Example 1: LLC misuses copyrights unintentionally. In all likelihood hard to pierce the corporate veil and LLC is all they can get

Example 2: You driving for LLC hit and injure someone. In all likelihood you can be directly sued.

Make sense?
Yep, I do see what you mean, except that from my reading around it seems that if the infringement is music copyright, whether unintentional or not, then even with an LLC the infringer can be pursued personally. I'm not sure if this is true but I wouldn't be surprised, since the writer of a music piece is probably not able to be listed only as an LLC.. or something.

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keyfort
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Re: California - Protecting Assets - Beyond Umbrella Insurance

Post by keyfort » Thu Oct 31, 2019 11:52 am

In summary, now that I've looked into this, I think in California the best bet for me would be:

- The usual home and auto etc insurance

- Umbrella insurance for everything else except...

- Professional Liability (Errors and Omissions) insurance for copyrights

Maybe with these and a high enough policy coverage, I'd be covered for almost all cases?

mervinj7
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Re: California - Protecting Assets - Beyond Umbrella Insurance

Post by mervinj7 » Thu Oct 31, 2019 12:12 pm

keyfort wrote:
Thu Oct 31, 2019 11:52 am
Maybe with these and a high enough policy coverage, I'd be covered for almost all cases?
Living trust to avoid probate (for the worst case scenario, obviously)?

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JamesSFO
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Re: California - Protecting Assets - Beyond Umbrella Insurance

Post by JamesSFO » Fri Nov 01, 2019 1:18 pm

keyfort wrote:
Thu Oct 31, 2019 11:52 am
In summary, now that I've looked into this, I think in California the best bet for me would be:

- The usual home and auto etc insurance

- Umbrella insurance for everything else except...

- Professional Liability (Errors and Omissions) insurance for copyrights

Maybe with these and a high enough policy coverage, I'd be covered for almost all cases?
That's more or less how I've lived my life. Other choices include picking your clients carefully.

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keyfort
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Re: California - Protecting Assets - Beyond Umbrella Insurance

Post by keyfort » Fri Nov 01, 2019 10:17 pm

mervinj7 wrote:
Thu Oct 31, 2019 12:12 pm
keyfort wrote:
Thu Oct 31, 2019 11:52 am
Maybe with these and a high enough policy coverage, I'd be covered for almost all cases?
Living trust to avoid probate (for the worst case scenario, obviously)?
Is it really as easy as that?! Just a living trust and not have to pay probate taxes? Is that right?

SrGrumpy
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Re: California - Protecting Assets - Beyond Umbrella Insurance

Post by SrGrumpy » Fri Nov 01, 2019 11:19 pm

Don't do anything until @bsteiner signs off on it.

mervinj7
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Re: California - Protecting Assets - Beyond Umbrella Insurance

Post by mervinj7 » Mon Nov 04, 2019 11:24 am

keyfort wrote:
Fri Nov 01, 2019 10:17 pm
mervinj7 wrote:
Thu Oct 31, 2019 12:12 pm
keyfort wrote:
Thu Oct 31, 2019 11:52 am
Maybe with these and a high enough policy coverage, I'd be covered for almost all cases?
Living trust to avoid probate (for the worst case scenario, obviously)?
Is it really as easy as that?! Just a living trust and not have to pay probate taxes? Is that right?
I'm not a lawyer but that's how I understood it. My wife's employer had a Hyatt Legal Plan benefit, so that greatly reduced the costs for us.

https://www.latimes.com/business/la-fi- ... story.html
Living trusts allow estates to avoid probate, the court process that otherwise oversees the paying of creditors and distribution of someone’s assets.

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