Asset Protection Strategy Advice

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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Cheego
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Asset Protection Strategy Advice

Post by Cheego » Tue Sep 12, 2017 8:20 pm

It's been brought to my attention by my financial planner that I should consider hiring an asset protection attorney. The cost to implement the strategy is said to cost $3000 to $5500 with annual maintenance fees being extra.

I don't understand why a normal schmoe can't learn to protect his/her own assets. I'm open to suggestions for DIY asset protection... books, websites, etc. I'm willing to put in the effort to make this happen but I just can't toss money into the hands of an attorney simply to get a cookie cutter "plan" that could be had for far less.

His primary advice was to avoid both domestic and foreign trusts. It didn't take much online reading to see why he made this recommendation.

To be clear, any asset protection would be in conjunction with our existing umbrella policy.
Last edited by Cheego on Sun Oct 15, 2017 9:39 am, edited 2 times in total.

ResearchMed
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Re: Asset Protection Strategy Advice

Post by ResearchMed » Tue Sep 12, 2017 8:25 pm

Cheego wrote:
Tue Sep 12, 2017 8:20 pm
It's been brought to my attention by my financial planner that I should consider hiring an asset protection attorney. The cost to implement the strategy is said to cost $3000 to $5500 with annual maintenance fees being extra. My assets are about $1.5m not including my home or 401K.

I don't understand why a normal schmoe can't learn to protect his/her own assets. I'm open to suggestions for DIY asset protection... books, websites, etc. I'm willing to put in the effort to make this happen but I just can't toss money into the hands of an attorney simply to get a cookie cutter "plan" that could be had for far less.

His primary advice was to avoid both domestic and foreign trust funds. It didn't take much online reading to see why he made this recommendation.

To be clear, any asset protection would be in conjunction with our existing umbrella policy.
Did this 'planner' explain what risks she/he had in mind that wouldn't be covered by other protections (including an Umbrella policy)?
Do you have a particularly risky job?

RM
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Gill
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Re: Asset Protection Strategy Advice

Post by Gill » Tue Sep 12, 2017 8:42 pm

This seems like completely bad and ill conceived advice. Sounds like he is trying to send business to an attorney friend. Asset protection strategies of this type are usually designed for clients with at least eight figures. Get a good umbrella policy for $3 million or so and ignore that advice.
Gill

Cheego
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Re: Asset Protection Strategy Advice

Post by Cheego » Tue Sep 12, 2017 9:17 pm

Not long ago, I was on the wrong end of a law suit for something I didn't do. Though a judgement against us was a small concern, the bigger issue was the cost of the defense counsel which was finally tallied at 74 hours.

Our CFP is one of the good guys out there and has always been super helpful. A good Christian guy who walks the walk. The asset protection suggestion was largely about removing the target from our backs. His concern was our exposure level. Suing someone without assets is pointless. There are ways to reduce the appearance of ownership. For example, he mentioned getting a HELOC on our home (though not using it) just to show an encumbrance on the property (we have no mortgage). I think this a great idea considering that opening a HELOC with our bank is essentially free. Plaintiff counsel will look at your assets (they can know more about your financial status than you'd think) to decide if you are even worth suing.

So those are the types of strategies I'm looking for.
Our CFP is not an attorney and he didn't recommend one so I doubt his motivation is misguided.

MikeG62
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Re: Asset Protection Strategy Advice

Post by MikeG62 » Wed Sep 13, 2017 7:35 am

Sounds like you value your advisors opinion. However in this case, I think all you need is a good umbrella policy. Such a policy would also pay legal fees incurred defending you from lawsuits.

Only time I have heard of hiring an asset protection professional is in the context of a trust.

ResearchMed
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Re: Asset Protection Strategy Advice

Post by ResearchMed » Wed Sep 13, 2017 8:42 am

Cheego wrote:
Tue Sep 12, 2017 9:17 pm
Not long ago, I was on the wrong end of a law suit for something I didn't do. Though a judgement against us was a small concern, the bigger issue was the cost of the defense counsel which was finally tallied at 74 hours.

Our CFP is one of the good guys out there and has always been super helpful. A good Christian guy who walks the walk. The asset protection suggestion was largely about removing the target from our backs. His concern was our exposure level. Suing someone without assets is pointless. There are ways to reduce the appearance of ownership. For example, he mentioned getting a HELOC on our home (though not using it) just to show an encumbrance on the property (we have no mortgage). I think this a great idea considering that opening a HELOC with our bank is essentially free. Plaintiff counsel will look at your assets (they can know more about your financial status than you'd think) to decide if you are even worth suing.

So those are the types of strategies I'm looking for.
Our CFP is not an attorney and he didn't recommend one so I doubt his motivation is misguided.
The "cost of defense" in case of a frivolous lawsuit is definitely among the reasons someone would get a good Umbrella policy.

As you stated, opposing party can know more about you than one might think, etc.
That is likely to include an "encumbrance" that is for... zero.
Plus, a HELOC is unlikely to cover the full value of a home, even when it's non-zero, so that leaves "something". And if it's a house worthy of notice (partially encumbered or not), then one might think there are other assets somewhere.
Also, in rare situations, one could possibly have future wages garnished.

What are the situations/risks that your "planner" has described that would *not* be covered by a good Umbrella policy?
His "motivation" may not be misguided, but it sounds as though his actual advice here might be.

RM
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palindrome_r
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Re: Asset Protection Strategy Advice

Post by palindrome_r » Wed Sep 13, 2017 11:17 am

Good advice from others to purchase an umbrella policy.

Note, though, that umbrella policies often don't cover punitive damages or damages caused by the insured's "intentional acts". So, there's still risk that an umbrella policy won't cover all damages as well as risk that the damages exceed the policy limits.

The Original Poster didn't indicate a marital status or a state or residence -- some states recognize that property can be held amongst spouses in the entirety -- tenancy by the entirety. If an asset is titled as being a tenancy by the entirety, a judgment against one spouse can not be enforced against property titled in this manner. Note also, though, that a spouse can become a creditor. Or, the spouse might die.

Commerce Clearing House (CCH) published a book, Asset Protection Planning Guide (Barry S. Engel). Fairly costly, and the bias of the guide was towards offshore trusting of assets. Also, the book is intended for a legally-educated audience. But, the book had good advice and describes various types of asset protection.

A fairly simple expedient is to form a limited partnership and title at-risk assets in the partnership. A partnership requires a partner but provides charging order protection that would make assets held in the partnership unattractive to a creditor -- the creditor can stand in the shoes of the debtor to obtain distributions from the partnership, but the partnership isn't required to make distributions, only allocations. The partnership could allocate all of the taxable income to the creditor but not make any distribution, requiring the creditor to pay the taxes on the allocation without having received any actual distribution. Hence, the un-attractiveness to a creditor. The downside, though, is that the debtor also can't get access to the partnership assets.

Jack56
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Re: Asset Protection Strategy Advice

Post by Jack56 » Wed Sep 13, 2017 2:36 pm

"Asset protection" costs money (both to set up and maintain) and the offshore trust route will likely raise tax issues. Few lawyers will chase individuals as opposed to insurance companies because contrary to popular belief obtaining a judgment and then collecting on it as against an individual presents lots of problems. The argument that the lawyers know how much money you have and where it is doesn't sound right to me. Obtaining a citizen's financial records is difficult even for law enforcement.

ResearchMed
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Re: Asset Protection Strategy Advice

Post by ResearchMed » Wed Sep 13, 2017 2:51 pm

Another advantage of having an Umbrella policy is that the Insurer is "Big Business".
And this is "what they do".

They'll have good attorneys, and for any large claim, they'll probably have attorneys of a caliber and *cost* that you would be unlikely to be selecting on your own.
You want "those attorneys" on your side.

RM
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zzcooper123
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Re: Asset Protection Strategy Advice

Post by zzcooper123 » Wed Sep 13, 2017 3:05 pm

Jay Adkisson has written a somewhat outdated book on asset protection. He writes for Forbes: https://www.forbes.com/sites/jayadkisson/#146e51fc7ad9
A HELOC is great idea, with the remainder of Home equity covered by Homestead exemption (State dependent).
401k's and possibly IRA's are protected.
All dangerous assets i.e. boats, rentals should be owned by multi-member LLC's. "Safe" assets i.e . brokerage accounts are probably best in Limited Partnerships.
Business assets and AR should be protected.
Trusts offer little protection.
An Umbrella policy is probably the cheapest protection you can buy.
Bank accounts and W-2 income can be garnished without difficulty.

Cheego
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Re: Asset Protection Strategy Advice

Post by Cheego » Wed Sep 13, 2017 6:02 pm

ResearchMed wrote:
Wed Sep 13, 2017 8:42 am

The "cost of defense" in case of a frivolous lawsuit is definitely among the reasons someone would get a good Umbrella policy.

As you stated, opposing party can know more about you than one might think, etc.
That is likely to include an "encumbrance" that is for... zero.
Plus, a HELOC is unlikely to cover the full value of a home, even when it's non-zero, so that leaves "something". And if it's a house worthy of notice (partially encumbered or not), then one might think there are other assets somewhere.
Also, in rare situations, one could possibly have future wages garnished.

What are the situations/risks that your "planner" has described that would *not* be covered by a good Umbrella policy?
His "motivation" may not be misguided, but it sounds as though his actual advice here might be.

RM
We have an umbrella policy but those don't cover everything. I now know this from experience! I'm in complete agreement with our CFP that asset protection helps fill some gaps (not nearly all) that umbrellas leave open. The risks typically come from exposure where there is not clear evidence of your innocence. Have a "he said, she said" case and insurance gets very iffy.

The HELOC option was discussed with him today and it just makes sense to me, him and the attorney I chatted with this afternoon. It simply helps reduce the target you become if plaintiff counsel discovers you have no encumbrances on real property. Of course those attorneys don't know how much you owe if you do have a mortgage or a HELOC but you do expand the target area on your back if the see there are no encumbrances at all. Real property with no encumbrance is a potential sign of high equity elsewhere. And yes, it appears in my opinion to be very easy to determine if real property is encumbered or not.
Last edited by Cheego on Wed Sep 13, 2017 6:10 pm, edited 1 time in total.

Cheego
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Re: Asset Protection Strategy Advice

Post by Cheego » Wed Sep 13, 2017 6:08 pm

Jack56 wrote:
Wed Sep 13, 2017 2:36 pm
"Asset protection" costs money (both to set up and maintain) and the offshore trust route will likely raise tax issues. Few lawyers will chase individuals as opposed to insurance companies because contrary to popular belief obtaining a judgment and then collecting on it as against an individual presents lots of problems. The argument that the lawyers know how much money you have and where it is doesn't sound right to me. Obtaining a citizen's financial records is difficult even for law enforcement.
I now believe offshore asset protection is a myth unless you are dealing with 8 figures. Repatriation enforcement appears to be very real... even for domestic out of state trusts.

Lawyers may not know how much you have but they have ways to find out if you could be potentially wealthy. They can know if you have unencumbered real property and that appears to make you a target. I suspect they can find out what kind of car you drive as well. Drive a beat up Ford 150, that's one thing. But drive a BMW I-8 and they will have at least a hint to your financial standing.

boglerdude
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Re: Asset Protection Strategy Advice

Post by boglerdude » Wed Sep 13, 2017 6:59 pm

Cheego wrote:
Wed Sep 13, 2017 6:02 pm
We have an umbrella policy but those don't cover everything. I now know this from experience!
What isn't covered?

Nate79
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Re: Asset Protection Strategy Advice

Post by Nate79 » Wed Sep 13, 2017 7:17 pm

Your net worth is not that high and there are tons of bogleheads with similar or much higher net worth and I don't hear them doing some fancy asset protection strategy. Your "financial planner" sounds like they don't know what they are talking about unless he wanted to help his buddy make his boat payment.

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FIREchief
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Re: Asset Protection Strategy Advice

Post by FIREchief » Wed Sep 13, 2017 7:58 pm

Cheego wrote:
Wed Sep 13, 2017 6:02 pm
The risks typically come from exposure where there is not clear evidence of your innocence. Have a "he said, she said" case and insurance gets very iffy.
I thought insurance covered you when you were found "guilty." (i.e. liable) :confused
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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FIREchief
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Re: Asset Protection Strategy Advice

Post by FIREchief » Wed Sep 13, 2017 8:05 pm

Cheego wrote:
Tue Sep 12, 2017 8:20 pm
I don't understand why a normal schmoe can't learn to protect his/her own assets. I'm open to suggestions for DIY asset protection... books, websites, etc. I'm willing to put in the effort to make this happen but I just can't toss money into the hands of an attorney simply to get a cookie cutter "plan" that could be had for far less.
Many "normal schmoe's" protect assets. For themselves, they do it by stuffing them into ERISA protected retirement investments. In some states, IRA's and homestead protections also are effective. For their heirs, they leave them in trusts that protect from creditors, predators, in-laws and outlaws.

Beyond that, the more creative either gift their money into irrevocable trusts (so it's not their money any more - which may not be what they're really looking for), or they launder it to cash and bury it somewhere in the South 40. (that last one is not a suggestion for DIY asset protection)

Beyond those, I don't know what else an attorney could do for somebody. Maybe somebody with broader knowledge will clarify.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Cheego
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Re: Asset Protection Strategy Advice

Post by Cheego » Wed Sep 13, 2017 9:04 pm

Nate79 wrote:
Wed Sep 13, 2017 7:17 pm
Your net worth is not that high and there are tons of bogleheads with similar or much higher net worth and I don't hear them doing some fancy asset protection strategy. Your "financial planner" sounds like they don't know what they are talking about unless he wanted to help his buddy make his boat payment.
AGAIN... our CFP is one of good guys out there. Bugs me to read "financial planner". AGAIN... he didn't recommend any specific attorney. His comments were entirely based on my asking about it since I recently spent a ton of money on defense for a lawsuit in which I did nothing wrong.

Honestly, my net worth is irrelevant here and it doesn't matter who else has worked toward protecting assets or not. Perhaps those who haven't also have not been recently been writing checks to an attorney at a rate of $8 per minute. Once you get burned, you'll want to better protect your assets regardless of total assets.

My original question was not to spark indictments against my CFP. It was to ask if anyone else who had done anything toward protection, what did they do. I really wish I never opened this thread. Is there a way to delete a thread or close it? I'll go back to being a lurker here. I promise. My tone here is not of anger but retreat and submission.

Nate79
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Re: Asset Protection Strategy Advice

Post by Nate79 » Wed Sep 13, 2017 9:19 pm

Cheego wrote:
Wed Sep 13, 2017 9:04 pm
Nate79 wrote:
Wed Sep 13, 2017 7:17 pm
Your net worth is not that high and there are tons of bogleheads with similar or much higher net worth and I don't hear them doing some fancy asset protection strategy. Your "financial planner" sounds like they don't know what they are talking about unless he wanted to help his buddy make his boat payment.
AGAIN... our CFP is one of good guys out there. Bugs me to read "financial planner". AGAIN... he didn't recommend any specific attorney. His comments were entirely based on my asking about it since I recently spent a ton of money on defense for a lawsuit in which I did nothing wrong.

Honestly, my net worth is irrelevant here and it doesn't matter who else has worked toward protecting assets or not. Perhaps those who haven't also have not been recently been writing checks to an attorney at a rate of $8 per minute. Once you get burned, you'll want to better protect your assets regardless of total assets.

My original question was not to spark indictments against my CFP. It was to ask if anyone else who had done anything toward protection, what did they do. I really wish I never opened this thread. Is there a way to delete a thread or close it? I'll go back to being a lurker here. I promise. My tone here is not of anger but retreat and submission.
I would be interested to understand a situation that an umbrella insurance would not be covered in a lawsuit. Your comments has sparked me to google what umbrella doesn't cover. However, what I see are kind of obvious (things related to business using a personal policy, intentional acts, punitive damages).

Can you give some more information without getting into your personal details?

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unclescrooge
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Re: Asset Protection Strategy Advice

Post by unclescrooge » Wed Sep 13, 2017 10:25 pm

Nate79 wrote:
Wed Sep 13, 2017 9:19 pm

I would be interested to understand a situation that an umbrella insurance would not be covered in a lawsuit. Your comments has sparked me to google what umbrella doesn't cover. However, what I see are kind of obvious (things related to business using a personal policy, intentional acts, punitive damages).

Can you give some more information without getting into your personal details?
If a female employee accused you of sexual harassment, I don't think umbrella insurance would cover you, regardless of whether you were innocent.

I'm sure there are many other such instances.

OP's question is simple. He wants to obscure his assets to prevent frivolous lawsuits. He already has umbrella, but he wants to do more.

Cheego
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Re: Asset Protection Strategy Advice

Post by Cheego » Tue Oct 10, 2017 9:31 am

unclescrooge wrote:
Wed Sep 13, 2017 10:25 pm
Nate79 wrote:
Wed Sep 13, 2017 9:19 pm

I would be interested to understand a situation that an umbrella insurance would not be covered in a lawsuit. Your comments has sparked me to google what umbrella doesn't cover. However, what I see are kind of obvious (things related to business using a personal policy, intentional acts, punitive damages).

Can you give some more information without getting into your personal details?
If a female employee accused you of sexual harassment, I don't think umbrella insurance would cover you, regardless of whether you were innocent.

I'm sure there are many other such instances.

OP's question is simple. He wants to obscure his assets to prevent frivolous lawsuits. He already has umbrella, but he wants to do more.
That's a good example. Much of what an umbrella policy does not appear to cover occurs when the plaintiff says you did something wrong when you didn't do anything. As soon as there is a he-said-she-said event, be prepared to pony up some serious money for defense counsel because the insurance company could be quick to bail out on you in that situation. We were paying several attorneys a rate of about $8 per minute. In my opinion, our legal system seems to be broken. Even when there is a law protecting you, a plaintiff can come forward and twist the truth looking for an exception to the law. And then the attorney fees alone can really empty your savings. If you get hit with a judgement, you will be very unprotected by an umbrella policy.

Here is a bit of what I've learned so far...
  • An umbrella policy is a good start but we already have one and we are now painfully aware of some of the circumstances that can occur in which such policies do not offer any coverage.
  • Setting up an out of state or international trust is expensive and maintenance fees are excessive.
  • Both foreign and domestic trusts are not necessarily guaranteed against creditors, judgements, etc. There are apparently cases where funds in either type of trust were forced to be "repatriated".
  • Setting up a HELOC on owned real estate does not offer protection but at least it shows the property is encumbered which may discourage a frivolous lawsuit since the encumbrance can indicate lack of equity in the property.
  • Placing large assets - house, cars, bank accounts - in joint ownership or tenants by entirety can help as long as both spouses are not named in a lawsuit or subject to collection of mutually owned debts.
  • It appears that a whole life insurance policy can offers some protection against judgements. However, we do not want to have the funds inaccessible for long period of time.
Last edited by Cheego on Tue Oct 10, 2017 9:13 pm, edited 1 time in total.

Lastrun
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Re: Asset Protection Strategy Advice

Post by Lastrun » Tue Oct 10, 2017 10:17 am

Cheego wrote:
Tue Oct 10, 2017 9:31 am
  • Setting up a HELOC on owned real estate does not offer protection but at least it shows the property is encumbered which may discourage a frivolous lawsuit since the encumbrance can indicate lack of equity in the property.
I like your list but don't agree with this one. First, one person's frivolity is another's crusade. Second is that this "paper wall" would last about 5 minutes in debtors interrogatories. Think of a debtor's deposition. There is such a thing as an equity strip on US based real estate. Essentially, debt is placed on US real estate up to 100% of equity, cash is offshore bank in a CD, as additional collateral. Very expensive, may not work, and you don't do this until the bitter end.

You are right to avoid trusts (expensive and may not work) and, with all due respect, you don't have enough of the "right" type of assets to protect (after-tax investment accounts).

Look for the free lunches. Many states have great state law exemptions and asset exemptions (ex. annuities, life insurance, homestead, TbyE, etc), in addition to the federal bankruptcy exemptions.

Umbrella policy plus use of state law exemptions will get you 90% there.

LLCs and LPs are not perfect, but something to look at. This planning can be implemented relatively inexpensively.

Idea is that your have yourself or yourself and spouse (if married) as partner-members. You hold this interest TbyE if married and available under state law. Another meaningful interest in the entity is held by an irrevocable trust. This trust could be for benefit of children or charity, or both. This trust could be set up as taxable or a grantor trust. Note that single member LLCs offer no protection. See In Re Albright. But see the footnotes in that case. You need to have another non-debtor member/partner for the charging order protection to have even a chance to work. Also, the charging order protection does not fully work in all states. See e.g. Crocker Bank v. Perroton.

Not recommending it, just something to look at in your searches.

Oh, and if you can PM me with your state of residence, I will send you a "cheat sheet" on state law exemptions for you.

Cheego
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Re: Asset Protection Strategy Advice

Post by Cheego » Tue Oct 10, 2017 9:24 pm

Lastrun wrote:
Tue Oct 10, 2017 10:17 am

I like your list but don't agree with this one. First, one person's frivolity is another's crusade. Second is that this "paper wall" would last about 5 minutes in debtors interrogatories. Think of a debtor's deposition. There is such a thing as an equity strip on US based real estate. Essentially, debt is placed on US real estate up to 100% of equity, cash is offshore bank in a CD, as additional collateral.
The idea of encumbering the real estate is not that it would do anything to shield the asset from bankruptcy, judgements, or divorce proceedings. The idea is simply to make you look less "worthy" of a lawsuit. If the plaintiff counsel knows you have several unencumbered properties, they can make an assumption that you have plenty of money. If those same assets are encumbered, you have a slightly smaller target on your back and might be considered not wealthy enough to sue.
Lastrun wrote:
Tue Oct 10, 2017 10:17 am
Look for the free lunches. Many states have great state law exemptions and asset exemptions (ex. annuities, life insurance, homestead, TbyE, etc), in addition to the federal bankruptcy exemptions.
Annuities tie up the money for too long (for us). Ditto for life insurance.
Homestead, check. Done but its a fraction of the home value for us.
Lastrun wrote:
Tue Oct 10, 2017 10:17 am
LLCs and LPs are not perfect, but something to look at. This planning can be implemented relatively inexpensively.
Our attorney advised us that we can not set up an LLC unless the "business" shows income. Since we don't rent to anyone (all of our properties are simply land), there is no option for an LLC for us.
Lastrun wrote:
Tue Oct 10, 2017 10:17 am
Oh, and if you can PM me with your state of residence, I will send you a "cheat sheet" on state law exemptions for you.
Will do and thanks!

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