>> >> I've been a Boglehead since 2004, when I was broke. Right at the beginning, I was just literally starting to earn money. And it's been 20 years, it's been a wonderful journey. This is probably my fifth or sixth time at the conference. It's a wonderful conference to be at.

And as we talked about, what are we gonna put in the 501 course this year? I said, well, something I don't think we've ever covered before is something I talk about all the time to groups of doctors, which is asset protection. So that's gonna be our topic for the next half hour.

And then we've got two more great presenters that we're gonna be bringing on to finish this up. But we'll have a five minute break after this presentation, and then we'll go into our last two. So a few disclosures and disclaimers. I'm not a lawyer, I'm not an accountant, I'm not a financial advisor, I'm an emergency physician.

Right now, I'm even disabled from doing that, I'm a blogger. So this is for your entertainment and general education. This is not personalized, formal advice. And the only relevant financial relationship I have is I have a few advertisers on my blog that sell malpractice insurance. So I'm not gonna tell you who they are.

So I don't think there's a real conflict there. Here's what we're gonna talk about, though. We're gonna talk about how to get sued less. And I'm gonna use a little bit of insight from my own profession of medicine with that. And then we're gonna talk about what people are really worried about, which is above policy limit judgments.

We'll talk about the general principles of asset protection, and then I'm gonna tell you what a basic asset protection plan looks like that you probably all ought to have. Then we're gonna talk about the complex ones that few of you ought to have, but should be somewhat interesting. The first thing, how to get sued less.

Be competent at what you do, and be nice to people, okay? People sue you when you screw up, and they sue you when you're a jerk, okay? The literature's very clear on this. It also helps if you avoid some high-risk activities. Well, what are the high-risk activities in your life?

In my case, practicing medicine is a high-risk activity. It may be the case with your profession as well. But it might be the pool, or the trampoline in the backyard, a playground. It might be the Rottweiler you have. It might be that you have a boat you're always inviting people out on, or you fly, or you let people use your ATVs.

But you know what's interesting is when you really look at the data of when people use their umbrella personal liability policies, 80% of those uses are auto-related. Auto-related is driving around is your big risk. If you're not a doctor practicing medicine, driving around is your big risk. So don't drive drunk, don't drive tired, don't drive long distances if you can avoid it, don't drive in heavy traffic, etc.

That's how you don't get sued, stop driving around. Okay, this is interesting here, this is from the medical literature. They studied a bunch of things, which doctors get sued? And it turned out that the only things that actually matter in everything they studied was how long you've been practicing and how many patients you see.

>> >> It was exposure. The more patients you see, the more likely you are to be sued. And it's the same in your life. The more miles you drive, the more likely you are to be sued, or the more teenage drivers you have in your household, the more likely you are to be sued.

Those are your risks, so reduce those. If you're a doctor, you're seeing fewer patients per hour working fewer days a month, fewer years of practice before you retire, prevents lawsuits. It also helps to over communicate, okay? Patients and families, they'll help you avoid committing malpractice. And if you talk to them, they'll be less likely to sue you.

This is an interesting study from OBs, who are some of the most highly sued doctors. They asked the people who sued them, why did you sue? And look at all these high percentage reasons. They didn't warn me about long term neurodevelopmental issues. The doctor didn't tell them something. They attempted to mislead me, okay?

They wouldn't talk openly. They covered it up. I needed information. The physician wouldn't listen. Look at all the things you can do to prevent lawsuits. The other stuff you might not be able to do much about, but look at all the things you could have done to prevent a lawsuit.

Talking to people, over communicating, and of course, being nice. This is a fun study, primary care docs this time. They looked at the ones with no claims against them versus doctors with claims. The ones with no claims told the patients what to expect more often. They used more humor.

They solicited the patient's opinion. They made sure the patient understood. They encouraged the patients to talk. They spent longer with the patients, less likely to be sued. Be competent, be nice. And then of course, know where lawsuits are coming from. In my specialty of emergency medicine, 20 years ago when I started, it was missed heart attacks.

You didn't diagnose a heart attack, you should have diagnosed, or you didn't diagnose an appendicitis, you should have diagnosed. These days it's missed strokes, especially weird ones that just show up with dizziness. That's what people miss these days. So when you're seeing that sort of a patient, you pay extra attention.

Maybe do a few more studies. You make sure you talk to the family, and you talk to the spouse, and you really put a little bit more effort in there. So think about what your risks are, whatever your risks might be in your life, put a little more attention into those.

Okay, let's talk about above policy limits judgments. This is what we're worried about, right? Most of us carry some kind of liability insurance. But we're worried we'll be sued for more than that, and they'll clean us out. Okay, so this is like a judgment of $1 million when your policy limits are $100,000, or $10 million when you have $1 million policy limits.

This is the big fear, right? So, you worry when you see articles like this show up, the biggest medical malpractice verdicts of 2019. And here's what some of them are listed, $205 million for not doing a c-section. I got news for you. There isn't an OB in this country who carries a $205 million liability policy.

It just doesn't happen, right? 101 for this, 23 for that, 10, 1.2 for this. That's what people are worried about. They see these headlines, and then some of the law firms kind of brag about them. They got all these high-dollar listed things, every one they've ever won, they put up there.

But here's what people don't tell you. The jury verdict does not equal what the defendant pays, much less what the victim receives, okay? You guys remember the McDonald's case, right? Everybody remembers the McDonald's case. They handed them a hot cup of coffee and the lid wasn't on or whatever.

They dropped in their lap, burned themselves, right? Well, they got a $2.86 million jury verdict, okay? Of which $2.7 million was punitive, to punish McDonald's for doing this. Well, the patient was judged to be 20% at fault cuz they spilled the coffee, so multiply that by 80% to start with.

And then your punitive damages got reduced to $480,000, okay? So in total, it might have been a $2.86 million jury verdict, but it was settled for 600. And that sort of thing is actually really common in lawsuits. Cuz a lot of times the defendant has an advantage, okay? They're asymmetric stakes.

This is especially true with doctors, right? It's asymmetric. They don't want any lawsuits on their record. And so they're gonna defend against this little thing with everything they've got, and so is their insurance company. And so if it's a low odds claim, the patient might go away, whereas the doctor's willing to go full bore on it.

Asymmetric risk tolerance, the plaintiffs will often settle at a discount. And it turns out when it does go to trial, the plaintiffs almost never win. And those verdicts are routinely settled for less. And the defendants often have more resources. That's why they're being sued. And so they have superior access to useful resources.

So the truth about asset protection and lawsuits cleaning you out is that it actually doesn't happen that much, okay? The payouts are actually much less than you would expect them to be, okay? This is a legal paper from 2015. They looked at many, many years of lawsuits in Texas.

15,000 actual payouts among 28,000 doctors in that time period. 8.8 billion total was paid out. Only 77 out-of-pocket payments were paid, right? It was just $16 million, about $30 a doc a year, right? Everyone's worried about these out-of-pocket judgments. 8.8 billion paid out, which only 16 million was above policy limits, right?

It's a tiny, tiny percentage, okay? And here's what they look like, right? This is the way most distributions are here. If this is your policy limits, a whole bunch of people get policy limits. Lots of people get something less. There's one above policy limits one there, right there. There's another one right there, right?

And right there, that's it, okay? Above policy limit judgments, very, very rare, that aren't reduced on appeal. Again, you see the amounts when they're above policy limits. There's a fair amount that is less than 500,000 here, and a few that are over. And you can kind of see those here, right?

This thing we all fear, that there's gonna be an $8 million judgment against us, it just doesn't happen. Now, it stinks to get an $80,000 out-of-pocket payment, but that usually isn't going to cause you to have to declare bankruptcy. So over 18 years, they had 77 total payments, 43 of them less than 100,000.

15, less than a quarter million, 19, more than that, the median was only 62,000. It's just not this huge thing out there. So I hope that reduces the anxiety about lawsuits. And I think among other things, personal lawsuits and other professions is even less than it is for these docs.

So what do attorneys say? This guy says, in 50 years of litigating them, I've never attempted to go after a doctor's assets. Another one says, we share a norm, we only go after their personal assets in egregious circumstances, like when they're doing heinous behaviors like drunk driving, or when they intentionally, and this is important, intentionally underinsure.

The attorneys say it's usually unprofitable for the attorneys to go after personal assets, therefore we reserve it for unusual situations when the normal economic incentives do not apply or are overridden. We've never had a case in which a doctor had to pay his own money for an excess judgment.

We feel the doctor isn't liable and the case is defendable. We'll do what's right. So the insurance company will even pick it up if it's above policy limits. Defendants say, or defense attorneys say, if he's let his coverage lapse or only has 1 million when he should have 3 million, then he may have to come up with some of his own money.

Those sums are usually nominal, 25 or 50,000, that may sting, but it won't wipe the doctor out, okay? Above policy limit judgments, not as big a deal as you might think. So what can you do to avoid above policy limit judgments? Well, number one, avoid lawsuits. Number two, and I think this is the biggest point in this whole presentation, is carry enough liability insurance, okay?

Don't be afraid to settle, right? We're just talking about money here. It's just money. And if you're settling, you're almost surely doing it for less than policy limits, it's not your money. It's the insurance company's money, okay? So don't be afraid to settle. Don't do something just to make the plaintiff or their attorney mad, okay?

Don't provoke them. And you might consider high-low agreements, right? Whereas if they win, they don't get more than a certain amount, like your policy limits. If they lose, they don't get less than a certain amount, right? High-low agreements can keep you from having above policy limit judgments. And then, of course, avoiding judicial hell holes, okay?

Where are they? Well, this is where they were in 2019, 2020. Sorry for those of you who happen to live in one. But that list changes year to year. Usually, something in Illinois and something in southern Florida is on the list, but otherwise, they tend to change around a little bit.

Okay, let's talk about asset protection. The most important thing to know about asset protection is all the laws are state-specific, okay? So you have to know your state's laws. I wrote a book on asset protection. The entire second half of the book is literally just a list of all the laws in each state, because that's what you have to know, because it varies by state.

Anything you do for asset protection, you have to do in advance and for another purpose, like estate planning or for your business purposes or whatever. If you're doing it just for asset protection, the judge is going to say, no, that's not going to work. You can't really hide assets.

These people are out there trying to sell you asset protection plans to keep anybody from finding out what you own. Well, no, they sit you down in the chair, and they say, what do you own? And if you lie, you're going to jail. So hiding stuff doesn't work. They're going to find out what you own.

There are no guarantees in asset protection, right? We all want guarantees. We want to know, are my money safe? There's no guarantees, okay? Everything's probability based. And there's usually a cost to doing particularly complex asset protection techniques. It's going to be higher taxes, or you're going to have lower returns, or you're going to have legal fees.

You're not going to have as much control over the asset, or whatever. There is a cost to most of the stuff you do for asset protection. One big idea that you use is you use exemptions, okay? So things in your state are exempt. Meaning that if you get a $10 million judgment against you, and your insurance cannot pay, and you have to declare bankruptcy, guess what?

You get to keep something, and it varies by state what you get to keep. Jurisdictions, different states, different countries, they have different laws, okay? So some asset protection is all about putting things in the states and the countries that have the good laws, right? That's what it is. Okay, so what does a basic asset protection plan look like?

Number one is reduce your risk and the likelihood of a lawsuit. We talked about that. Change where you live, have the best professional practices, get rid of that old trampoline that doesn't even have a net around it in the backyard, that's what you do, number one. Number two, insurance is your first line of defense.

If you're in a profession that should have it, malpractice insurance, okay? But everybody ought to have personal liability insurance. The crazy thing is that your state's minimum is probably like $50,000 or $100,000. Meanwhile, there's people driving around in $140,000 Teslas, okay? And they're worth themselves a whole lot more than the Tesla is.

You gotta have higher liability insurance than that. You gotta raise it, okay? You can't have that on your auto, you can't have that on your homeowners. You gotta increase it. The good news is this costs a lot less than a lot of other insurances, cuz it doesn't get used that often.

And then, of course, you can stack a personal liability policy on top of your auto and your homeowner's or renter's coverage. That's called an umbrella policy, cuz it sits over, right, it's an umbrella. And you can get a seven-figure amount there. Well, most people will go away for a seven-figure settlement, okay?

You'd be surprised how many people are willing to go away if you can give them a million dollars from your insurer, no matter what bad thing happened to them. And so the good news is that's usually pretty cheap, $200, $300 a year. It'll get you a million dollar umbrella coverage.

Okay, know your state exemptions and take advantage of them, okay? And these are super interesting if you dive into them, right? Like in Utah, you get a year's worth of food storage you get to keep, and you get to keep 120 rounds of ammunition. In Texas, you get 120 ducks and 12 head of cattle.

There's all kinds of cool laws out there about this. But mostly, what you need to know is retirement accounts are exempt, okay? ERISA retirement accounts, like your 401(k) or 403(b), you get to keep it if you're cleaned out. One more reason to max that stuff out. In many states, even non-ERISA retirement accounts like your IRA or Roth IRA, totally exempt, okay?

So all the more reasons to do Roth conversions and move taxable money into retirement accounts. All the more reasons to max out your retirement accounts. All the more reasons to spend from taxable first is asset protection. Okay, there's also homestead laws. What's a homestead law? Well, that means you get to keep some of your house, right?

We all remember O.J. Simpson, moved to Florida, got to keep his whole house when he was judged to be liable for what he did. And that's the idea here, right? Texas, Florida have very good homestead laws. Utah, where I live, not so much. We get $42,000 of our home equity.

If we're single, 84,000 if we're married, that's it. The rest of the home equity is gone, but that varies by state. In many states, your cash value life insurance, your whole life insurance, you get to keep. In some states, you get to keep annuities, okay? Again, all varies by state.

Don't buy something for asset protection if your state doesn't even protect that thing. Use corporations, use LLCs for toxic business assets. These include rental properties. Something can happen in a rental property that you'll be liable for as the owner. In general, these are better if there's multiple members, not just one.

But it provides both external liability from something that happens in your personal life, keeps them from seizing what's in the LLC, as well as internal liability when something happens on the property the LLC owns. Keeps them from getting to your personal assets. And of course, you have to keep a strict division between your business assets and your personal assets.

Okay, here's a really great asset protection plan. Give your money away. Now you can't lose it. Now you can't give it away after you've done something that's gonna cause you to be sued, right? That's a fraudulent conveyance. Or worse, after you've been sued, you can't do that. But you put money in a daff, guess what?

It's not yours anymore. You give it to your kids or your other heirs, it's not yours anymore, right? And that can be an irrevocable trust. Okay, and one of the last things you ought to do is make sure you've titled your property properly. Okay, one really cool thing from asset protection perspective is tenants by the entirety titling.

That means you and your spouse both own the entire property. So if just one of you gets sued, you can't lose the property, because your spouse owns the whole thing. It's very cool. You can also do it for brokerage accounts in many states. These are the states where it's available.

Okay, if that's one of your states, unfortunately mine's not listed there. And you're married, you ought to have your property titled tenants by the entirety for asset protection purposes. Super cheap asset protection technique, works very well. Okay, let's talk for just a minute about some complex asset protection techniques that may or may not be worth it.

In general, the more complex it is, the less well it works, the more it costs, and the more hassles there are associated with it, okay? Equity stripping. This is when you live in a state with really low homestead laws. And you're like, well, I'm gonna take all my equity out of my house with a HELOC.

And I'm gonna put it in, since my state protects whole life insurance, I'm gonna buy a big whole life insurance policy, right? That's equity stripping. A domestic asset protection trust, these are pretty cool. They're available in a lot of states, including mine. You can put your house or other assets inside a domestic asset protection trust.

Where you're both the grantor and the beneficiary. It's pretty amazing. If it works, it's great. There's still some doubt out there about how well these work all the time. But all it costs you is the cost of setting it up. Foreign asset protection trust, right? Everyone here is about putting your money down in the Cook Islands or something.

The problem with this is a lot of times, it puts you at risk of contempt of court. Right, they tell you, bring your assets back or we're gonna put you in jail. Well, okay, I guess I'll bring my assets back since I don't wanna go to jail. Delaware bank accounts also have been pierced, but there is some potential asset protection there.

Family limited partnerships and LLCs, they're really helpful if you're trying to pass your business along to your kids and provide some substantial asset protection techniques. Not cheap, definitely some complexity there, but some possibility there if you're trying to pass something like that along to your heirs. And obviously, if you're gonna do a family LLC, you need to be in a state with pretty strong LLC law, right?

If they're not limiting the creditors to a charging order, it's not really gonna do you as much good as you probably hoped. Okay, so here's what we talked about. We talked about reducing your liability, consciously do things to try to get sued less. Buy plenty of insurance. It's cheap, it's your first line of defense.

Lawsuits almost never go past the insurance. It pays for your defense and it pays for any judgments or settlements. Know your state asset protection laws, okay? It's really important you understand what those are. Any technique you decide to implement must be employed in advance. You can't wait until you get sued and then do this stuff.

It's too late then. Max out your retirement accounts. Use tenants by the entirety titling if appropriate and available. And if you've still got a lot at stake that's outside things that are protected from the basic techniques, you might consider some of the complex asset protection techniques. All right, I think I've got about two minutes for questions.

You got those for me, Mike? And I got a couple here. >> >> All right, retirement accounts are not protected in case of divorce. That's absolutely true. But they generally are from declaring bankruptcy. All right, let's see here. I gotta put glasses on to read this one. Does having an umbrella policy make you a juicy target?

That's a good question. I like this one. People worry because they have all this liability insurance that people will actually sue them more. This is not the case in medicine, okay? Having insurance does not make you more likely to be sued. I suspect that extends to most other things.

The truth is most people don't know you've got significant liability insurance until they sue you, okay? So I don't think it really attracts lawsuits. Maybe you don't wanna advertise that you got a $5 million umbrella policy. But I don't think it really makes it more likely for you to get sued.

And let's see how much time we got for your break here. We got a little bit of time. Okay, how do you relate personal net worth to umbrella policy? Does your umbrella policy just keep going up with your net worth? Okay, I like this question. People are like, well, how much should I have, right?

Well, how much should you have? Well, how much are you gonna be sued for? That's how much you should have. And of course, you have no idea, right? So people put these weird formulas together like that it's supposed to equal your net worth. No, has nothing to do with your net worth.

You can have a net worth of 500,000, you can be sued for 10 million. You could have a net worth of 10 million, you can be sued for 500,000. It has nothing to do with your net worth. So my general guideline is what will people be happy with if you settled for policy limits as a general rule?

And in my experience, most Americans think a seven-figure amount, a million dollars is still a lot of money. If they can walk away with a million dollars from whatever mistake you made or whatever happened on your property, they're usually pretty happy. And that's a relatively cheap umbrella policy. But these people run around with $50,000 on their car, that's crazy.

You shouldn't have only $50,000 of liability coverage, it's just not enough. Now, if you're particularly well-to-do, I mean, a few years ago when we became more financially successful, we increased our umbrella policy. And I think we've got a 5 million policy now. But that's not tied to net worth in any way, shape, or form.

It's just like, well, we can afford this, it's not that much more. And if someone had a little bit higher lawsuit, we'd have a little bit more coverage. I'll tell you what, if you got a $5 million policy, the insurance company's gonna send their best people to defend you, so.

>> >> All right, I think we got time here for one more before we go to break. Does the issuer of the umbrella insurance policy matter? Should I dump GEICO and go for a high-end umbrella insurance company? I don't know the answer to that. I think the way the policies are written, I think the company's on the hook for it.

And I think they're gonna do well, hire some good attorneys to defend you and fight hard to do it. I don't think it matters a lot. I think most people, what they do is they go, who's doing my home in auto? And that's where they get their umbrella policy from.

So it's not super complicated. Okay, let's take a break here.