RPF0606-Asset_Protection_Planning_-_Part_5_-_Homestead_Exemption_Planning
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00:00:14.720 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge,
00:00:18.960 | skills, insight, and encouragement you need to live a rich and meaningful life now,
00:00:23.280 | while building a plan for financial freedom in 10 years or less. In today's episode, we continue
00:00:28.480 | our series on asset protection planning. My hope is to help you protect the assets that you currently
00:00:34.480 | have and those assets that you are currently accumulating while you're on your path toward
00:00:39.840 | financial independence. In the early episodes of this series, we tackled a lot of big picture
00:00:44.640 | topics. We tackled a lot of theory, a little bit of philosophy, and some big picture understanding
00:00:49.840 | of how the litigation risk works against you. In today's episode, we're going to get very tactical
00:00:55.840 | because I want to provide information that will help you where you are now. The good news is this,
00:01:00.560 | you don't need to hire an attorney to engage in asset protection planning. There are many
00:01:05.920 | forms of asset protection planning that you can do entirely on your own. And in fact,
00:01:09.440 | almost everything in today's show will be entirely accessible to you without ever hiring legal
00:01:14.880 | counsel. You don't need exotic strategies that cost a lot of money necessarily. You can do a lot
00:01:21.840 | with simple practical things that you're already doing by simply understanding those things.
00:01:26.800 | So today we're going to start the process of specific tactical advice that you can put into
00:01:32.080 | place in your own life to protect the assets that you currently have. You don't have to be a
00:01:36.880 | millionaire. You just need to listen and start to think about how you can put things in place.
00:01:42.240 | Now, in asset protection planning, there are a number of different categories or rubrics that
00:01:47.520 | different planners use to organize their strategies. I will touch on some of those in
00:01:52.880 | shows to come, but today I'm going to use the categories that come from a wonderful book for
00:01:58.640 | financial advisors called Asset Protection in Financially Unsafe Times by Ryan Fowler and
00:02:04.000 | Arnold Goldstein. And in this book, in the introduction, these authors start by categorizing
00:02:09.360 | asset protection planning in two different ways. First, they lay out three core strategies
00:02:15.520 | relating to asset protection ideas. And those strategies are number one, exemption planning.
00:02:19.760 | Number two, asset titling, making sure that all of your assets are titled to a protective entity.
00:02:25.280 | And then number three, encumbering your assets or equity stripping your assets in order to reduce
00:02:30.240 | their economic value and/or the ability of a creditor to attach those assets. And so I'm going
00:02:35.840 | to begin by using their categorizations to lay out for you some basic ideas that you can put in
00:02:41.760 | place. Today's episode focused on exemption planning. An additional scheme of categorization
00:02:47.920 | that they touch on is the use of what are called transfer-based asset protection strategies
00:02:54.160 | or transformational asset protection strategies. The idea behind a transfer-based asset protection
00:03:00.160 | strategy is that you can transfer an asset out of a creditor's reach by moving it from one place
00:03:06.000 | to another. The idea of a transformational asset protection strategy is that you can transform
00:03:11.920 | an asset into something that a creditor can't get or wouldn't want. So the examples that are
00:03:19.360 | easiest to consider, a transfer-based strategy could be simply you're taking money from your
00:03:25.760 | bank account and investing it into your 401(k). So thus you've taken, or from your salary, I guess
00:03:32.320 | would be more appropriate, you take some of your money from your salary, instead of letting it hit
00:03:35.920 | your bank account, you put it in your 401(k). You've transferred that asset into something that
00:03:41.520 | a creditor can't get. The 401(k) asset is outside of most creditors reach. Or you can transform an
00:03:48.320 | asset. So if you have money in your bank account, you can use that money to prepay a lease on an
00:03:53.280 | apartment or a commercial building. And thus you've changed the money that was easily available in
00:03:58.320 | your bank account into something that's useful to you, but it's probably not useful to your creditor.
00:04:04.080 | You can prepay a five-year lease and that may be very helpful to you and your business,
00:04:08.480 | but your creditor is probably not that interested in coming in and taking over that lease, even if
00:04:12.320 | they can get legal title to it. And so those are two more methods of categorization that we want
00:04:19.600 | to keep in mind. Let's dig into exemption planning, because of any asset protection strategy that's
00:04:25.520 | available to all people, I think exemption planning is the most straightforward and it is the
00:04:30.800 | simplest and easiest thing for people to understand. Exemption planning is simply the process
00:04:37.520 | of organizing your wealth so that it is protected by the current law from a creditor's ability to
00:04:47.440 | take it, from creditor attachment, even though you still own it. The form of exemption planning
00:04:55.120 | that is available to you will vary largely depending on your state. Some exemptions come
00:05:00.800 | from federal law, but most exemptions are governed by the individual laws of your state.
00:05:06.480 | Now, the most commonly known examples of exemption planning would be things like the house that you
00:05:12.960 | own, your homestead. Depending on the state that you live in, your homestead will be protected to
00:05:18.800 | some degree by the actual laws of your state. Now, where I live here in Florida, Florida has
00:05:26.880 | extremely generous homestead protection laws. And in fact, there is an unlimited value of your
00:05:34.480 | personal homestead, the actual property that you live in, there's an unlimited value or equity
00:05:40.480 | that's protected from the claims of a creditor. Now, there are a couple of rules such as your
00:05:45.760 | homestead can't, if you live inside of a city, your homestead can't exceed half an acre in size
00:05:50.560 | if you're inside of a municipality, or if you're outside of a municipality, your homestead can't
00:05:54.720 | exceed 160 acres. So you have to have a house that fits in under those categories. But as long as you
00:06:02.320 | file a homestead declaration, as long as you live there and own, and that's your homestead, you can
00:06:07.760 | protect an unlimited value of property. There are a few other states, notably Texas, and then there
00:06:13.440 | are a couple of Midwestern states, I think Kansas and Iowa have very generous homestead exemptions,
00:06:19.040 | but most states don't provide such a generous homestead exemption, but Florida does. And that's
00:06:24.800 | just an example to show you how the actual state that you live in will govern what you are entitled
00:06:31.440 | to. Another example of an exemption that you should plan for is the protection of your pension
00:06:39.680 | and retirement plans, especially those that are governed by the Employee Retirement Income
00:06:44.960 | Security Act, ERISA legislation. This is most pension plans, what are called qualified plans,
00:06:50.880 | including traditional pensions, or also including things like a 401k account, are governed by ERISA.
00:06:56.320 | And as such, they are governed by the federal law, which makes those plans completely
00:07:00.880 | protected from the claims of a creditor who will sue you. The other prominent examples
00:07:08.160 | would include life insurance, especially life insurance cash surrender values,
00:07:13.040 | although life insurance death benefits are also protected depending on the situation.
00:07:18.000 | One of the benefits of Florida law is that life insurance cash values are protected to an
00:07:24.240 | unlimited amount, cash surrender values. And so life insurance is a very valuable asset as our
00:07:29.840 | annuity contracts here in Florida. Your state may vary, your state may differ. There may be
00:07:34.800 | restrictions in your state where only a few thousand dollars of life insurance cash surrender
00:07:39.280 | values are protected. And so you need to look at the specifics for your state. Annuities are also
00:07:45.920 | falling into that method of protection. Annuity contracts can be very valuable to protect yourself
00:07:52.240 | from the claims of creditors. And then you can also look at specific items. So each state,
00:07:57.920 | and here what you want to do is you want to look at each state's bankruptcy exemptions.
00:08:02.160 | Each state will have different items that can be protected by the bankruptcy code in that state.
00:08:08.560 | Some states have adopted the federal bankruptcy code exemptions and some states have created
00:08:13.360 | their own. And depending on the state, different items or amounts of personal property will be
00:08:18.560 | protected. Some states have fairly generous amounts and some states don't. So in Florida,
00:08:25.120 | Florida exemption amounts for personal property are fairly limited. For example,
00:08:30.320 | if you claim a homestead exemption in Florida, you can only exempt in bankruptcy filings up to
00:08:35.680 | a thousand dollars of personal property. Of course, that can double if you're a husband and wife,
00:08:40.240 | or up to $4,000 if you're not claiming a homestead exemption. Florida doesn't protect tools of the
00:08:45.520 | trade. Many states protect tools of the trade to very high value amounts, which can be very
00:08:50.400 | important for you if you work in a trade where you have expensive tools that you've accumulated
00:08:54.480 | that have a large value. And instead of having to see those tools sold at auction in order to
00:08:58.880 | satisfy your creditors, you can protect those in certain states. And so we'll go through that in a
00:09:03.360 | moment. And then also wages, you want to consider how wages are protected. Many times if a garnishment
00:09:09.200 | is issued against your wages, that garnishment can be very hurtful to you and your ability to
00:09:14.560 | provide for those that are dependent upon your income. It can be very difficult and hurtful for
00:09:18.800 | you to be able to rebuild your financial base. And so you might want to consider moving to a state
00:09:26.160 | that protects wages from wage garnishment. Also, then, of course, there are many kinds of public
00:09:31.040 | benefits, such as public assistance or Social Security payments or veterans benefits or workers
00:09:36.960 | compensation, and these are governed differently. Now, in planning your exemption amounts, you
00:09:42.160 | should be aware of the interplay between potential creditors and creditor attachment in a lawsuit
00:09:48.640 | and bankruptcy exemptions. The most reliable, the best place for you to start if you're ever
00:09:55.600 | researching the subject for yourself is to look up your state's bankruptcy laws and your state's
00:09:59.840 | bankruptcy exemptions, because there will often be a good, strong connection between that and what a
00:10:05.520 | creditor would be legally entitled to be able to take from you. There are differences, for example,
00:10:10.800 | in Florida, there are certain laws related to bankruptcy of how long you have to have lived
00:10:18.880 | in a place. If you're going to file for that unlimited homestead exemption amount, you need
00:10:24.720 | to have lived in the property for at least a few years, something like a thousand days. And there
00:10:29.200 | are a couple of different numbers that you would need to check on. So all of these things are
00:10:33.040 | based upon the specific state that you live in. But when you sit down and you look at your balance
00:10:39.360 | sheet, one of the most valuable things you can do in terms of protecting your assets is to try to
00:10:46.240 | make sure that you maximize the exemptions that are available to you. When it comes to asset
00:10:52.720 | protection planning, you have the fewest problems to look out for when it comes to simple exemption
00:11:00.560 | planning. What do I mean? Well, first, you need to make sure that any time you engage in asset
00:11:06.880 | protection planning, that you're always doing something for a reason that's not exclusively
00:11:12.480 | asset protection planning. You should always imagine yourself standing in a courtroom,
00:11:17.680 | facing an antagonistic creditor, and the judge looking over your debtor statement,
00:11:24.160 | the statement of accounts that you've submitted after a judgment has been issued against you,
00:11:29.120 | where you've listed out every asset that you own. And the judge is sitting there looking at your
00:11:33.040 | assets and asking you, "Why did you put this money here?" You always need to have a good
00:11:38.000 | answer for that. And a good answer does not involve, "Well, judge, I put it there so my
00:11:43.680 | creditors couldn't get there." Now, we all know that that's one benefit, but that should not be
00:11:48.880 | your only benefit. So the reason that you buy a house and pay down your mortgage is not to protect
00:11:55.360 | your claims from creditors. The reason that you buy a house and pay down your mortgage is because
00:12:00.480 | you need a place to live, and it's a prudent thing to do to pay down your mortgage. The reason that
00:12:05.600 | you buy a life insurance policy is not to protect your cash surrender values from the claims of
00:12:10.000 | creditors. The reason you buy a life insurance policy is to provide income for your family
00:12:14.480 | and to make sure that you have invested well and have a safe asset. The reason that you put your
00:12:21.200 | money in a 401(k) is not to protect your money from creditors. The reason that you put your
00:12:25.040 | money in a 401(k) is to provide for your retirement. And that's the way that the law
00:12:30.160 | works as well. The law is intended to protect those things that are needed in the long run.
00:12:35.520 | So for example, why are Social Security benefits exempt from the claims of creditors? Well,
00:12:40.080 | because the understanding is those Social Security benefits are protecting poor people.
00:12:44.880 | And so as a last line of defense against poverty, if a creditor can now come in and take those,
00:12:50.720 | then the government has a whole bigger problem on their hands where the poor people they thought
00:12:54.960 | that they were providing for by providing Social Security benefits, now they have an additional
00:13:00.880 | problem. And now the government is the one bailing out the creditor. So the reason that
00:13:05.440 | disability benefits or Social Security benefits or Veterans Administration's benefits or unemployment
00:13:11.120 | compensation is protected from creditors is so that the government doesn't have more problems,
00:13:16.320 | they don't have more broke homeless people living on the street. So that's the basic mentality that
00:13:22.240 | flows through this. And so you need to understand that and be able to articulate non-asset protection
00:13:28.400 | planning reasons for all the things that you do. This is especially important when you get into the
00:13:33.040 | more exotic world of asset protection planning, especially planning that involves offshore trusts
00:13:37.920 | or offshore investment products. If you're going to stand in front of a judge and he's asking you,
00:13:42.960 | "Why did you move this money over into this offshore trust where the trust document
00:13:48.960 | specifically states that your trustee must not turn over the funds to creditors?"
00:13:54.480 | You need an investment reason. "Well, judge, I was able to access better investment products,"
00:13:58.960 | or something like, "Well, judge, I wanted to buy a life insurance policy from Lichtenstein,
00:14:04.880 | and in so doing, they wouldn't sell it to me if I was a US citizen, so I had to put the policy
00:14:08.800 | into a trust so that they would actually take out the policy." Now you have an appropriate reason
00:14:14.800 | for your actions. So think in advance about this and be very cautious about ever saying or implying
00:14:21.680 | that you're doing asset protection planning. It should be an important first step. And with regard
00:14:28.160 | to exemption planning, this is the easiest thing for you to do. Let's begin with homestead
00:14:33.280 | exemptions. Look up the laws in your state relating to the exemption of your homestead,
00:14:40.160 | the place where you live, and its protection from the state of creditors. The first thing that you
00:14:47.040 | want to look for is the amount of your home's value that would be protected from a creditor.
00:14:54.880 | The amount of your home's value that would be protected in bankruptcy court is your best place
00:14:58.960 | to start. Now, if you live in Florida, Texas, Iowa, Kansas, and there's one other state,
00:15:07.680 | I think Oklahoma, if you live in one of these states where all of your value is, all of the
00:15:12.480 | equity in your homestead is protected, then you should know that. If you live in a state where
00:15:18.400 | less value of your house is protected, then you need to know that as well. And this will drive
00:15:23.920 | some of your decisions. Some, not necessarily all, but it will drive some of your decisions.
00:15:29.040 | It'll drive a decision such as paying off a house. If you live in Texas, it's very much going to be
00:15:37.440 | in your best interest of protecting your assets to pay off your Texas house. Now, if you live in a
00:15:45.520 | state like North Carolina, where less than $20,000 of your equity is protected, then now you're going
00:15:51.920 | to have a more questionable decision. Do you really want to expose $300,000 of equity to the
00:15:58.880 | potential claims of a creditor? If you have a paid off, you live in a $300,000 house that's paid off,
00:16:04.880 | if a creditor sues you and you're ordered to pay them the amount of money that they owe,
00:16:09.920 | they can force your home to be foreclosed. And yes, you'll get $20,000 back after the sale,
00:16:15.440 | but they'll receive the rest of the asset. So you have to look at it and you have to balance
00:16:20.160 | the cost of having that equity pulled out in some other way, such as the cost of carrying a mortgage,
00:16:27.600 | the benefits of carrying a mortgage, et cetera. And in this constant challenging decision that we
00:16:33.280 | face of carrying debt versus not carrying debt, doing it safely, et cetera, one of the things that
00:16:39.920 | comes into play is asset protection planning. And you need to consider the amounts. So look at the
00:16:46.160 | amount of equity that is protected. The second thing that you need to look at is the exceptions
00:16:51.680 | to the exemption. For example, obviously having a paid off house does not protect all of the equity.
00:17:01.440 | The most common example would be property taxes or liens that would be filed on your home by,
00:17:07.600 | it could include mechanics liens if you're hiring workers to work on your property,
00:17:11.920 | but even by your local government. I got into a scrap with my local government here in Florida
00:17:16.720 | because I had chickens. And one of the things that they threatened me with, if I didn't get
00:17:20.480 | rid of my chickens, was that they were going to lien my property by $1,000 a day until I got rid
00:17:26.800 | of my chickens. Now, this is one of the things that really changed my outlook on financial
00:17:33.280 | planning because I'd always had this idea that, yes, in the United States of America, you can own
00:17:37.280 | your house, you can own your property. And I had this somewhat naive understanding of that. I had
00:17:41.920 | this idea that protection of property, that's the American way, blah, blah, blah. I didn't understand
00:17:46.880 | how naive that was. That was stupid and naive of me. Now, there are still countries in the world
00:17:51.680 | that do actually protect your property. There are countries in the world that don't
00:17:56.320 | charge property taxes. And you can go back and have the political argument on whether that's
00:18:00.640 | right or wrong. But the point is today in the United States, you can never actually own your
00:18:04.640 | property. You'll always be required to pay property taxes. And if you don't pay those property taxes,
00:18:09.440 | your local government can place a lien on your property. Now, usually they can't force the sale
00:18:15.440 | of your property for taxes, although sometimes they can, but those taxes will arise in tax liens.
00:18:21.760 | And if at some point in time you want to transfer the property, then you wind up not being able to
00:18:29.120 | transfer it without satisfying those liens. This applies to things like fines. And so the situation
00:18:33.920 | I was in was when I'm sitting there dealing with the government, I'm looking down and it wasn't
00:18:38.080 | just chickens. The most frustrating one was that there was a 35-year-old shed on my property that
00:18:43.680 | was an unpermitted shed built without permit at the time. And there was no way to bring the shed
00:18:47.760 | into compliance because it was six inches over the setback from the property line and 12 inches
00:18:53.120 | too tall. That's the short version of the story. It was very frustrating. But it was big, beautiful,
00:18:58.320 | valuable shed. And I'm sitting here saying, "Wait a second. I put a lot of money into this property.
00:19:03.120 | I have a lot of equity. And now I'm in a scrap with the local government that basically has
00:19:06.720 | unlimited power to steal that equity from me by leaning my property." So you need to know that.
00:19:12.960 | Because even though your property might be exempt from the claims of, say, a credit card company
00:19:18.800 | that sues you for nonpayment, you're not going to be exempt from the claims of a local government,
00:19:24.080 | a lien that arises from your property taxes. Obviously also, you're not going to be protected,
00:19:29.120 | the equity in your property is not going to be protected if somebody forecloses on you because
00:19:33.440 | you don't pay your mortgage. You go out and you purchase a $500,000 property. You put a down
00:19:38.240 | payment of $300,000 because you're interested in protecting your $300,000 of equity, but you
00:19:42.800 | take out a mortgage of $200,000. Something happens, you can't pay that mortgage. That
00:19:47.600 | mortgage company can force the sale of your property at foreclosure auction. And after
00:19:52.720 | they've satisfied their lien, they'll give you the rest of the proceeds. But you may very well kiss
00:19:57.360 | off $150,000 of equity goodbye because that was the discount from the sale of your property at
00:20:04.240 | foreclosure auction. Other things like other asset protection planning, such as divorce.
00:20:10.000 | There's nothing that would require that your property cannot be issued to the spouse that
00:20:15.600 | you're being divorced from. 50% of the equity in your property can be assigned regardless
00:20:19.840 | of your ownership of it. So just because you come in and you own the property and you don't have a
00:20:26.320 | mortgage on it doesn't mean that that property is perfectly asset protected. And so you need
00:20:31.760 | to understand the fine print on or the details, the exceptions, and make sure that your personal
00:20:38.320 | situation is protected from those exceptions. Check very carefully for any requirements that
00:20:47.360 | are unique to your state or your locality. Some states require you to file certain forms,
00:20:53.840 | such as a declaration of homestead or domicile. Some states require that you live in the house
00:21:00.160 | a certain amount of time. Some states are very careful about titling. One of the biggest concerns
00:21:05.440 | that I've always had living in Florida is the titling of a home in personal name or in a trust.
00:21:14.240 | So generally, you would, for the purpose of estate planning and smooth, easy flowing of an estate,
00:21:20.000 | generally you would want your asset to be titled in a trust. However, if you title your asset in
00:21:26.080 | a trust, you lose the ability to title the asset in the ownership of tenancy by the entireties.
00:21:32.080 | One of the most, one of the other best forms of exemption planning is adjusting the ownership
00:21:37.680 | of assets, making sure that you own assets in a way that they're protected. So generally,
00:21:42.880 | for example, you want to think about if you have a large risk, a large liability exposure,
00:21:49.120 | then you would usually want to make sure that your assets are titled to your spouse who doesn't have
00:21:53.520 | such a large liability exposure. And we'll talk about that. If your state allows titling of assets
00:22:00.240 | and tenancy by the entireties, you want to make sure that you title your assets and tenancy by
00:22:03.680 | the entireties so that you each own an equal undivided interest in the property so that your
00:22:08.320 | interest can't be sold, much superior to tenants in common where your interest can then be sold
00:22:13.520 | out from under you even though you have a joint ownership situation. But one of the challenges in
00:22:17.840 | Florida has been understanding, well, wait a second, if I put this asset into a trust,
00:22:23.520 | am I still protected by the home Florida bankruptcy laws? Now, I need to verify the answer
00:22:29.200 | to that. A few years ago, it was unclear. I need to ask a buddy of mine who's an attorney because
00:22:33.440 | he told me that that was changing, that finally there was some case law on that situation. But
00:22:37.600 | that's the kind of thing that you need to look out for very, very carefully. So think through
00:22:44.320 | those details when it comes to your home. Give very careful attention to the financial
00:22:52.720 | considerations of your house. And there are a few reasons why. Number one, your house is an
00:22:58.960 | extremely public asset. When you purchase your house, your purchase, you'll be recorded as the
00:23:08.000 | owner. The title will be recorded in the local courthouse and in the system as you are the owner
00:23:14.240 | of that house. Now, as many of our municipalities go to put the records online, used to be the
00:23:19.600 | private investigator who was looking into information on your house had to go down and
00:23:23.760 | look it up in the actual physical courthouse. Today, most of it is online. And so a simple
00:23:28.800 | search, even a wildcard search on your county's court records will usually pop up the house that
00:23:37.120 | you live in. If your name is John Smith, maybe you're good because you're protected. They need
00:23:41.200 | a little bit more. But if your name is Terrianna Hodgkinson, a quick search of Hodgkinson is going
00:23:48.560 | to pull up your residence and there aren't going to be too many other people named Terrianna
00:23:52.560 | Hodgkinson. So in that example, that asset is going to be exposed. Now, remember, that asset
00:23:59.040 | is also basically marked to market just about every year in terms of a property value. And so
00:24:04.560 | somebody can quickly look down and say, "Oh, it's a hundred thousand dollar house because that's the
00:24:08.080 | taxable value." Or, "Hey, it's a million dollar house and that's the taxable value." So not only
00:24:14.560 | does this make a major problem with regard to your personal privacy, but this creates a very
00:24:20.080 | public asset. And because generally you're going to be trying to take advantage of filing the
00:24:25.760 | property as your homestead to receive your tax savings and a homestead exemption, because you're
00:24:29.920 | going to be trying to take advantage of those asset protection laws that do apply to your
00:24:33.440 | homestead, you're probably going to be filed in your own personal name. It's probably not going
00:24:39.360 | to be filed in a trust, which would give you an additional level of privacy. So this is a very
00:24:43.760 | public asset. And what's worse is the liens that are recorded against that asset are also public.
00:24:49.040 | So now the next step is somebody will look and say, "Is there a mortgage on this property?" And
00:24:54.000 | they can quickly and easily look and find that either, "Hey, there is a mortgage," or, "There's
00:24:58.000 | no mortgage recorded. So-and-so paid cash for the house." Well, now what? Now they know if there's
00:25:02.960 | no mortgage or other lien recorded in the courthouse, now somebody knows that the full
00:25:06.800 | equity value of your house, that you own the whole thing. And so in doing a financial asset
00:25:11.840 | investigation on your case, an investigator has a lot of information right there, very simple and
00:25:18.240 | right at their fingertips to understand your situation. If you live in a state that only
00:25:23.040 | gives you $20,000 of protection on the equity of your house, well, they now know that there's a lot
00:25:29.520 | of money available for them in that asset. The same thing applies if you had an older mortgage.
00:25:36.720 | You took out a mortgage 20 years ago. Well, anybody can sit down and run an amortization
00:25:41.440 | schedule and have a guess of how much money is owed on that mortgage. If your mortgage is 20
00:25:47.040 | years old and you took it out with a beginning value of $200,000, they can see that today the
00:25:52.080 | taxable value of your house is $450,000. And now the mortgage has been paid down to probably $50,000.
00:25:59.840 | Well, now in this case, they know, "Hey, if the lawsuit comes against you, there's a good chance
00:26:05.760 | they're going to be going for about $400,000." It's as simple as that. And all of that information,
00:26:11.680 | because it's all public record, is available to any person with the ability to go down to the
00:26:16.880 | courthouse and spend about 15 minutes there checking the books or the ability to go on the
00:26:22.160 | website and check the information that's there on the website. So your home is a huge potential
00:26:27.840 | problem. Now, if you're in one of those states, such as Florida or Texas or Kansas, okay, a little
00:26:35.200 | bit better than even if your home information is public, then you're protected because of those
00:26:43.680 | states. But if you're not in one of those handful of states, this is a potentially a huge problem.
00:26:49.280 | And this is the type of analysis that can more easily go back to analysis of your renting versus
00:26:54.400 | owning, especially if there is a high potential liability in your situation. Should you rent or
00:26:59.840 | should you own? Well, if your ownership is going to be a matter of public record, if your ownership
00:27:06.560 | is going to not be protected, and if the financial calculations of rent versus own are comparable,
00:27:16.400 | this situation, now you have many more compelling reasons to rent. Put more money in your 401(k),
00:27:23.440 | which is more privately protected from the claims of creditors or from their ability to see it,
00:27:28.560 | in any case, the basic people who could see your 401(k) are going to be the federal government
00:27:32.880 | based upon the reports that are filed with them, the people who work at the 401(k) institution,
00:27:37.520 | but are likely not going to be the private investigator or the local attorney. And so
00:27:43.040 | put more money in your 401(k) and just rent. And then if you want to buy property, consider buying
00:27:47.840 | property that's paid for rental property, which you can title into a trust, which will give you
00:27:53.280 | more privacy. And you can also have some protection depending on what asset form you use for it. And
00:27:58.960 | you can protect that asset based upon the ownership entity. Possibly you can even do it abroad where
00:28:08.640 | now you get even more protection. So there are a lot of different ways to do it. But this is the
00:28:13.440 | type of analysis that you will need to do based upon the state that you live in. Now, in conclusion
00:28:20.320 | on Homestead exemptions, I would be remiss if I did not point out to you that you should always
00:28:25.680 | have a plan B. Now, I believe in your having a plan B, a plan C, a plan D, going all the way to
00:28:32.880 | Z. And then I like the ideas of having plans AB, AC, AD, etc. Multiple plans. And you should be
00:28:41.040 | aware of the fact that one of your kind of last ditch efforts, if you've done no asset protection
00:28:45.920 | planning and you're facing a severe claim, you should be willing to consider moving to Florida
00:28:50.880 | and purchasing a homestead in Florida. To my knowledge, Florida is the only state where the
00:28:56.720 | Florida Supreme Court has affirmed that the purchase of a homestead in Florida, even if it's
00:29:01.920 | intentionally done to thwart creditors, cannot be undone as a fraudulent transfer. Remember back to
00:29:09.280 | that pesky fraudulent transfer law. Many things that you would do in a difficult situation can
00:29:14.720 | and will be undone by a court as fraudulent transfers if you didn't do the planning prior
00:29:20.320 | to the facts that occurred came up. But one of the few things is move to Florida and purchase a
00:29:28.160 | home. Now, the good thing about that, depending on the amount of money that you have to spend,
00:29:32.960 | you can find in the state of Florida a homestead that you could purchase for anywhere from a few
00:29:38.720 | tens of thousands of dollars to many tens of millions of dollars. And you should always have
00:29:43.760 | that and be aware of that and consider that as a potential backup plan. There are some more details,
00:29:50.160 | two things that you would need to know, and that won't protect you from bankruptcy,
00:29:55.920 | but it can protect your asset from the claims of creditors. So if you're in a situation like that,
00:30:00.480 | always keep in mind, Florida is there. It's an easy car ride from most of the country,
00:30:05.840 | and it's a very large state with many diverse cultures, many diverse places, many diverse
00:30:12.080 | business opportunities as well. And one of the benefits of Florida, which we'll talk about in
00:30:16.480 | a separate show, is creditor wage garnishment exemptions. If you're the file taxes as the head
00:30:23.440 | of a household in Florida, you have additional protection from the garnishment of your wages,
00:30:27.440 | which can be very helpful if you are a wage earner. I'm going to wrap up this show on
00:30:33.200 | exemptions here with that discussion of the homestead exemption. I repeat, check your state
00:30:40.720 | laws. This is state law territory, and I will use Florida again and again simply because it's the
00:30:46.400 | state I'm familiar with. I wouldn't presume to talk to you about Nebraska state laws, or I
00:30:51.600 | wouldn't presume to talk to you about Maine. You need to check those things. If in doubt, speak
00:30:55.680 | with an attorney in your area. One of the most important things to do is always to consult legal
00:31:00.400 | counsel on this type of discussion. And it's much easier for you to spend a few hundred dollars
00:31:06.240 | down at the local bankruptcy attorney's office where they live and breathe this stuff every day,
00:31:11.600 | and they can point out all the exemptions to you. It's much easier for you to do that than it is
00:31:16.640 | to get it wrong. So go and consult a planner in your state and find out what the appropriate
00:31:25.840 | situations are for your state. The next episode in this series, we talk about pensions and
00:31:31.040 | retirement plans and exemption planning for those assets. So I hope you'll stay tuned for that in
00:31:35.680 | another series. As I close, I want to continue to market to you my credit card course. And I want
00:31:41.280 | to point out to you that one of the most valuable things about that is in the credit card course,
00:31:46.400 | I do a serious deep dive into the strategies that you can use when taking on debt to protect
00:31:53.520 | yourself. And this is a good example of why that's so important. Let's pretend that you just got
00:32:01.040 | noticed that you're going to be served with a lawsuit and you need to fight that lawsuit.
00:32:04.880 | And the problem is you have been investing a lot of money in your business and you have a house,
00:32:10.640 | but you know you need to fight this lawsuit and you don't have a lot of ready cash right now.
00:32:16.320 | So what do you do if you're in that situation? Well, the problem is if you go to your house
00:32:22.800 | and you take out a home equity line to pay your attorney, well, now you, especially if you live
00:32:29.200 | in a state with good homestead laws, now you run a problem. As a Floridian, I'd never take money out
00:32:35.120 | of my house to go and pay an attorney because if the attorney loses, not only if I don't pay,
00:32:40.400 | I'm going to have the attorney sue me, of course, but if the attorney loses, then now all of a
00:32:45.360 | sudden I'm out because the attorney is going to require their money up front for them to take the
00:32:48.960 | case. I'm not going to get that money back unless we can get the opponent to win the legal fees and
00:32:53.200 | a victory on our side. But now I've lost that asset of the house. Well, I could take out a 401(k)
00:32:58.720 | loan if I have a 401(k), but I'm not about to do that because now that puts 401(k) money at risk.
00:33:04.160 | So where am I going to get the money? I don't have the money in savings right now because it's all
00:33:07.760 | out in investment right now. Well, if I've got an asset I could sell, then I want to sell that asset,
00:33:12.400 | but I don't want to fire sale the asset. Let's say I've got a rental property and I look at it and
00:33:16.800 | say, "Hey, this rental property, I wouldn't mind being divested of it for investment reasons,
00:33:22.320 | but I don't want to fire sale it. I don't want to become a motivated seller." But the attorney's
00:33:25.760 | saying, "Hey, Joshua, if I'm going to fight this case for you, I need some money." Where would I
00:33:30.560 | turn? Credit cards. Credit cards are a beautiful answer to this problem because if I have a good
00:33:38.720 | credit score, and especially if I've developed extensive lines of credit that are available to
00:33:44.640 | me, I can access that line of credit fast and I can access it cheap. I can use that money to go
00:33:53.120 | and pay my attorney so that the attorney will fight my case for me. If I win the lawsuit and
00:34:00.240 | if I can get the opposing party to pay my reimburse me for my legal fees, now I can reimburse myself
00:34:05.280 | for that loan, that credit card loan. If I lose the lawsuit, then I can go ahead and work through
00:34:14.640 | and sell my rental property at a higher rate, buy myself more time, and I can take those proceeds
00:34:19.360 | and pay off my credit cards. If I really lose the lawsuit and I wind up just sunk, well,
00:34:25.680 | I may have to go through bankruptcy court, and at least there I can discharge the credit card debt
00:34:31.440 | while still keeping my house and my 401(k) while also keeping those proceeds protected from the
00:34:37.040 | claims of creditors. And so that's why understanding the secured and unsecured nature of debts is so
00:34:41.680 | important. But the only way that situation works is if I've done the advanced planning. First of
00:34:48.480 | all, if I understand what that plan XYZ is in that worst case scenario, if I've thought about
00:34:54.480 | which assets I would sell, where I would get the forms of financing, if I have a high credit score,
00:34:59.280 | and if I have extensive lines of credit available to me. Credit cards are low-hanging fruit if you
00:35:05.280 | understand how they can be used strategically. If you have credit card debt, my course will help
00:35:10.320 | you get out of debt faster and cheaper. If you don't have credit card debt, my course will help
00:35:15.680 | you make sure that if you ever do have credit card debt for a scenario like I've just described,
00:35:20.080 | that you're at least protected so that you can keep your business going, so that you can keep
00:35:25.840 | your life going, so that you can keep your family intact in order for you to earn the money,
00:35:31.360 | liquidate the assets, whatever you need to pay off the debt. The point is not to escape creditors.
00:35:36.480 | I don't ever want to help you do that necessarily, like in the sense of a fraudulent intent. I'm
00:35:40.800 | sure somebody will do it. I can't stop that. But I don't want to help you do that. I want to help
00:35:46.800 | you protect yourself, keep your life stable, so that with all those things stable, you can solve
00:35:52.960 | the problem and move on from a place of security to a place of additional security. I hope you'll
00:35:58.640 | give it a try. Go to radicalpersonalfinance.com/creditcardcourse. Again, radicalpersonalfinance.com/creditcardcourse.
00:36:05.840 | Give it a try. How much? Forty bucks and 30-day money-back guarantee, unconditional. So give it
00:36:15.760 | a try. Go to radicalpersonalfinance.com/creditcardcourse. Be the best 40 bucks you spend this year.