Bogleheads University 501 2024 Asset Protection with Jim Dahle

00:00:00.000 | >> [APPLAUSE]

00:00:05.500 | >> I've been a Boglehead since 2004,

00:00:09.000 | when I was broke.

00:00:10.940 | Right at the beginning, I was just literally starting to earn money.

00:00:14.040 | And it's been 20 years, it's been a wonderful journey.

00:00:16.760 | This is probably my fifth or sixth time at the conference.

00:00:19.880 | It's a wonderful conference to be at.

00:00:22.720 | And as we talked about, what are we gonna put in the 501 course this year?

00:00:27.480 | I said, well, something I don't think we've ever covered before is something I

00:00:31.200 | talk about all the time to groups of doctors, which is asset protection.

00:00:35.480 | So that's gonna be our topic for the next half hour.

00:00:38.000 | And then we've got two more great presenters that we're gonna be

00:00:42.120 | bringing on to finish this up.

00:00:43.520 | But we'll have a five minute break after this presentation, and

00:00:47.320 | then we'll go into our last two.

00:00:49.600 | So a few disclosures and disclaimers.

00:00:53.680 | I'm not a lawyer, I'm not an accountant, I'm not a financial advisor,

00:00:57.460 | I'm an emergency physician.

00:00:58.560 | Right now, I'm even disabled from doing that, I'm a blogger.

00:01:02.440 | So this is for your entertainment and general education.

00:01:05.600 | This is not personalized, formal advice.

00:01:07.840 | And the only relevant financial relationship I have

00:01:11.800 | is I have a few advertisers on my blog that sell malpractice insurance.

00:01:16.520 | So I'm not gonna tell you who they are.

00:01:17.920 | So I don't think there's a real conflict there.

00:01:20.400 | Here's what we're gonna talk about, though.

00:01:21.640 | We're gonna talk about how to get sued less.

00:01:24.280 | And I'm gonna use a little bit of insight from my own profession of

00:01:26.520 | medicine with that.

00:01:27.820 | And then we're gonna talk about what people are really worried about,

00:01:31.700 | which is above policy limit judgments.

00:01:34.380 | We'll talk about the general principles of asset protection, and

00:01:38.260 | then I'm gonna tell you what a basic asset protection plan looks like that you

00:01:41.660 | probably all ought to have.

00:01:43.220 | Then we're gonna talk about the complex ones that few of you ought to have, but

00:01:48.180 | should be somewhat interesting.

00:01:49.340 | The first thing, how to get sued less.

00:01:52.980 | Be competent at what you do, and be nice to people, okay?

00:01:58.880 | People sue you when you screw up, and they sue you when you're a jerk, okay?

00:02:03.000 | The literature's very clear on this.

00:02:05.800 | It also helps if you avoid some high-risk activities.

00:02:08.080 | Well, what are the high-risk activities in your life?

00:02:10.160 | In my case, practicing medicine is a high-risk activity.

00:02:13.360 | It may be the case with your profession as well.

00:02:16.040 | But it might be the pool, or the trampoline in the backyard, a playground.

00:02:19.560 | It might be the Rottweiler you have.

00:02:23.140 | It might be that you have a boat you're always inviting people out on, or

00:02:25.860 | you fly, or you let people use your ATVs.

00:02:29.100 | But you know what's interesting is when you really look at the data of when people

00:02:33.260 | use their umbrella personal liability policies, 80% of those uses are auto-related.

00:02:40.820 | Auto-related is driving around is your big risk.

00:02:44.100 | If you're not a doctor practicing medicine, driving around is your big risk.

00:02:47.540 | So don't drive drunk, don't drive tired, don't drive long distances if you can

00:02:50.980 | avoid it, don't drive in heavy traffic, etc.

00:02:53.340 | That's how you don't get sued, stop driving around.

00:02:55.780 | Okay, this is interesting here, this is from the medical literature.

00:03:00.420 | They studied a bunch of things, which doctors get sued?

00:03:05.940 | And it turned out that the only things that actually matter in everything they

00:03:09.500 | studied was how long you've been practicing and how many patients you see.

00:03:12.820 | >> [LAUGH] >> It was exposure.

00:03:16.820 | The more patients you see, the more likely you are to be sued.

00:03:19.700 | And it's the same in your life.

00:03:21.020 | The more miles you drive, the more likely you are to be sued, or

00:03:23.580 | the more teenage drivers you have in your household,

00:03:26.220 | the more likely you are to be sued.

00:03:28.060 | Those are your risks, so reduce those.

00:03:30.500 | If you're a doctor, you're seeing fewer patients per hour working fewer days a

00:03:33.660 | month, fewer years of practice before you retire, prevents lawsuits.

00:03:38.660 | It also helps to over communicate, okay?

00:03:42.980 | Patients and families, they'll help you avoid committing malpractice.

00:03:47.980 | And if you talk to them, they'll be less likely to sue you.

00:03:51.060 | This is an interesting study from OBs,

00:03:52.980 | who are some of the most highly sued doctors.

00:03:56.220 | They asked the people who sued them, why did you sue?

00:03:59.180 | And look at all these high percentage reasons.

00:04:02.380 | They didn't warn me about long term neurodevelopmental issues.

00:04:05.660 | The doctor didn't tell them something.

00:04:07.700 | They attempted to mislead me, okay?

00:04:10.500 | They wouldn't talk openly.

00:04:12.020 | They covered it up.

00:04:13.340 | I needed information.

00:04:14.820 | The physician wouldn't listen.

00:04:16.700 | Look at all the things you can do to prevent lawsuits.

00:04:20.780 | The other stuff you might not be able to do much about, but

00:04:23.020 | look at all the things you could have done to prevent a lawsuit.

00:04:25.900 | Talking to people, over communicating, and of course, being nice.

00:04:30.780 | This is a fun study, primary care docs this time.

00:04:33.700 | They looked at the ones with no claims against them versus doctors with claims.

00:04:37.140 | The ones with no claims told the patients what to expect more often.

00:04:40.380 | They used more humor.

00:04:41.740 | They solicited the patient's opinion.

00:04:43.300 | They made sure the patient understood.

00:04:45.060 | They encouraged the patients to talk.

00:04:46.820 | They spent longer with the patients, less likely to be sued.

00:04:49.580 | Be competent, be nice.

00:04:52.900 | And then of course, know where lawsuits are coming from.

00:04:57.980 | In my specialty of emergency medicine, 20 years ago when I started,

00:05:01.260 | it was missed heart attacks.

00:05:02.700 | You didn't diagnose a heart attack, you should have diagnosed, or

00:05:05.260 | you didn't diagnose an appendicitis, you should have diagnosed.

00:05:07.820 | These days it's missed strokes,

00:05:09.700 | especially weird ones that just show up with dizziness.

00:05:13.140 | That's what people miss these days.

00:05:14.420 | So when you're seeing that sort of a patient, you pay extra attention.

00:05:19.780 | Maybe do a few more studies.

00:05:21.940 | You make sure you talk to the family, and you talk to the spouse, and

00:05:25.060 | you really put a little bit more effort in there.

00:05:26.700 | So think about what your risks are, whatever your risks might be in your life,

00:05:31.900 | put a little more attention into those.

00:05:35.380 | Okay, let's talk about above policy limits judgments.

00:05:37.940 | This is what we're worried about, right?

00:05:39.460 | Most of us carry some kind of liability insurance.

00:05:42.340 | But we're worried we'll be sued for more than that, and they'll clean us out.

00:05:45.980 | Okay, so this is like a judgment of $1 million when your policy limits are $100,000,

00:05:50.180 | or $10 million when you have $1 million policy limits.

00:05:52.980 | This is the big fear, right?

00:05:54.300 | So, you worry when you see articles like this show up,

00:05:58.740 | the biggest medical malpractice verdicts of 2019.

00:06:02.380 | And here's what some of them are listed, $205 million for not doing a c-section.

00:06:07.100 | I got news for you.

00:06:08.220 | There isn't an OB in this country who carries a $205 million liability policy.

00:06:12.800 | It just doesn't happen, right?

00:06:14.060 | 101 for this, 23 for that, 10, 1.2 for this.

00:06:19.420 | That's what people are worried about.

00:06:20.580 | They see these headlines, and then some of the law firms kind of brag about them.

00:06:25.900 | They got all these high-dollar listed things,

00:06:29.020 | every one they've ever won, they put up there.

00:06:31.900 | But here's what people don't tell you.

00:06:33.960 | The jury verdict does not equal what the defendant pays,

00:06:37.100 | much less what the victim receives, okay?

00:06:40.120 | You guys remember the McDonald's case, right?

00:06:42.300 | Everybody remembers the McDonald's case.

00:06:43.860 | They handed them a hot cup of coffee and the lid wasn't on or whatever.

00:06:47.020 | They dropped in their lap, burned themselves, right?

00:06:49.220 | Well, they got a $2.86 million jury verdict, okay?

00:06:53.180 | Of which $2.7 million was punitive, to punish McDonald's for doing this.

00:06:58.380 | Well, the patient was judged to be 20% at fault cuz they spilled the coffee, so

00:07:02.660 | multiply that by 80% to start with.

00:07:05.500 | And then your punitive damages got reduced to $480,000, okay?

00:07:10.220 | So in total, it might have been a $2.86 million jury verdict, but

00:07:14.520 | it was settled for 600.

00:07:15.700 | And that sort of thing is actually really common in lawsuits.

00:07:20.780 | Cuz a lot of times the defendant has an advantage, okay?

00:07:25.300 | They're asymmetric stakes.

00:07:26.580 | This is especially true with doctors, right?

00:07:28.680 | It's asymmetric.

00:07:29.700 | They don't want any lawsuits on their record.

00:07:31.940 | And so they're gonna defend against this little thing with everything they've got,

00:07:35.220 | and so is their insurance company.

00:07:37.140 | And so if it's a low odds claim, the patient might go away,

00:07:39.580 | whereas the doctor's willing to go full bore on it.

00:07:42.700 | Asymmetric risk tolerance, the plaintiffs will often settle at a discount.

00:07:46.500 | And it turns out when it does go to trial, the plaintiffs almost never win.

00:07:49.740 | And those verdicts are routinely settled for less.

00:07:54.700 | And the defendants often have more resources.

00:07:57.900 | That's why they're being sued.

00:07:58.940 | And so they have superior access to useful resources.

00:08:02.500 | So the truth about asset protection and lawsuits cleaning you out

00:08:08.500 | is that it actually doesn't happen that much, okay?

00:08:11.940 | The payouts are actually much less than you would expect them to be, okay?

00:08:17.460 | This is a legal paper from 2015.

00:08:19.220 | They looked at many, many years of lawsuits in Texas.

00:08:24.620 | 15,000 actual payouts among 28,000 doctors in that time period.

00:08:29.020 | 8.8 billion total was paid out.

00:08:31.300 | Only 77 out-of-pocket payments were paid, right?

00:08:35.620 | It was just $16 million, about $30 a doc a year, right?

00:08:40.140 | Everyone's worried about these out-of-pocket judgments.

00:08:42.200 | 8.8 billion paid out, which only 16 million was above policy limits, right?

00:08:48.940 | It's a tiny, tiny percentage, okay?

00:08:51.820 | And here's what they look like, right?

00:08:53.340 | This is the way most distributions are here.

00:08:56.340 | If this is your policy limits, a whole bunch of people get policy limits.

00:08:59.300 | Lots of people get something less.

00:09:01.180 | There's one above policy limits one there, right there.

00:09:03.900 | There's another one right there, right?

00:09:05.500 | And right there, that's it, okay?

00:09:07.420 | Above policy limit judgments, very, very rare, that aren't reduced on appeal.

00:09:11.860 | Again, you see the amounts when they're above policy limits.

00:09:17.380 | There's a fair amount that is less than 500,000 here, and a few that are over.

00:09:22.420 | And you can kind of see those here, right?

00:09:25.100 | This thing we all fear, that there's gonna be an $8 million judgment against us,

00:09:30.060 | it just doesn't happen.

00:09:30.900 | Now, it stinks to get an $80,000 out-of-pocket payment, but

00:09:34.900 | that usually isn't going to cause you to have to declare bankruptcy.

00:09:38.740 | So over 18 years, they had 77 total payments, 43 of them less than 100,000.

00:09:44.860 | 15, less than a quarter million, 19, more than that, the median was only 62,000.

00:09:51.180 | It's just not this huge thing out there.

00:09:53.300 | So I hope that reduces the anxiety about lawsuits.

00:09:56.820 | And I think among other things, personal lawsuits and

00:10:00.180 | other professions is even less than it is for these docs.

00:10:02.220 | So what do attorneys say?

00:10:04.660 | This guy says, in 50 years of litigating them,

00:10:06.620 | I've never attempted to go after a doctor's assets.

00:10:08.940 | Another one says, we share a norm, we only go after their personal assets in

00:10:13.860 | egregious circumstances, like when they're doing heinous behaviors like drunk driving,

00:10:18.460 | or when they intentionally, and this is important, intentionally underinsure.

00:10:23.340 | The attorneys say it's usually unprofitable for

00:10:28.140 | the attorneys to go after personal assets, therefore we reserve it for

00:10:31.100 | unusual situations when the normal economic incentives do not apply or

00:10:35.300 | are overridden.

00:10:36.140 | We've never had a case in which a doctor had to pay his own money for

00:10:39.900 | an excess judgment.

00:10:40.660 | We feel the doctor isn't liable and the case is defendable.

00:10:42.860 | We'll do what's right.

00:10:44.420 | So the insurance company will even pick it up if it's above policy limits.

00:10:47.180 | Defendants say, or defense attorneys say, if he's let his coverage lapse or

00:10:52.660 | only has 1 million when he should have 3 million,

00:10:54.460 | then he may have to come up with some of his own money.

00:10:56.420 | Those sums are usually nominal, 25 or 50,000, that may sting, but

00:11:00.260 | it won't wipe the doctor out, okay?

00:11:02.940 | Above policy limit judgments, not as big a deal as you might think.

00:11:06.740 | So what can you do to avoid above policy limit judgments?

00:11:09.300 | Well, number one, avoid lawsuits.

00:11:12.660 | Number two, and I think this is the biggest point in this whole presentation,

00:11:16.460 | is carry enough liability insurance, okay?

00:11:21.060 | Don't be afraid to settle, right?

00:11:22.500 | We're just talking about money here.

00:11:24.620 | It's just money.

00:11:25.900 | And if you're settling, you're almost surely doing it for

00:11:27.860 | less than policy limits, it's not your money.

00:11:30.460 | It's the insurance company's money, okay?

00:11:33.780 | So don't be afraid to settle.

00:11:35.020 | Don't do something just to make the plaintiff or their attorney mad, okay?

00:11:38.980 | Don't provoke them.

00:11:40.700 | And you might consider high-low agreements, right?

00:11:43.140 | Whereas if they win, they don't get more than a certain amount,

00:11:45.780 | like your policy limits.

00:11:47.180 | If they lose, they don't get less than a certain amount, right?

00:11:50.420 | High-low agreements can keep you from having above policy limit judgments.

00:11:53.260 | And then, of course, avoiding judicial hell holes, okay?

00:11:56.540 | Where are they?

00:11:57.460 | Well, this is where they were in 2019, 2020.

00:12:00.300 | Sorry for those of you who happen to live in one.

00:12:02.620 | But that list changes year to year.

00:12:05.220 | Usually, something in Illinois and something in southern Florida is on

00:12:08.900 | the list, but otherwise, they tend to change around a little bit.

00:12:11.020 | Okay, let's talk about asset protection.

00:12:15.380 | The most important thing to know about asset protection is all the laws are

00:12:18.180 | state-specific, okay?

00:12:20.540 | So you have to know your state's laws.

00:12:22.580 | I wrote a book on asset protection.

00:12:24.220 | The entire second half of the book is literally just a list of all the laws in

00:12:27.740 | each state, because that's what you have to know, because it varies by state.

00:12:32.540 | Anything you do for asset protection, you have to do in advance and

00:12:36.740 | for another purpose, like estate planning or for your business purposes or whatever.

00:12:42.340 | If you're doing it just for asset protection,

00:12:44.580 | the judge is going to say, no, that's not going to work.

00:12:47.980 | You can't really hide assets.

00:12:50.500 | These people are out there trying to sell you asset protection plans

00:12:53.180 | to keep anybody from finding out what you own.

00:12:55.460 | Well, no, they sit you down in the chair, and they say, what do you own?

00:12:58.420 | And if you lie, you're going to jail.

00:13:00.500 | So hiding stuff doesn't work.

00:13:02.660 | They're going to find out what you own.

00:13:05.220 | There are no guarantees in asset protection, right?

00:13:08.060 | We all want guarantees.

00:13:09.180 | We want to know, are my money safe?

00:13:10.980 | There's no guarantees, okay?

00:13:12.620 | Everything's probability based.

00:13:14.660 | And there's usually a cost to doing particularly complex

00:13:18.380 | asset protection techniques.

00:13:20.220 | It's going to be higher taxes, or you're going to have lower returns, or

00:13:22.940 | you're going to have legal fees.

00:13:23.820 | You're not going to have as much control over the asset, or whatever.

00:13:26.700 | There is a cost to most of the stuff you do for asset protection.

00:13:31.900 | One big idea that you use is you use exemptions, okay?

00:13:35.460 | So things in your state are exempt.

00:13:38.340 | Meaning that if you get a $10 million judgment against you, and

00:13:41.620 | your insurance cannot pay, and you have to declare bankruptcy, guess what?

00:13:46.540 | You get to keep something, and it varies by state what you get to keep.

00:13:51.260 | Jurisdictions, different states, different countries,

00:13:53.620 | they have different laws, okay?

00:13:55.180 | So some asset protection is all about putting things in the states and

00:13:58.220 | the countries that have the good laws, right?

00:14:00.540 | That's what it is.

00:14:02.100 | Okay, so what does a basic asset protection plan look like?

00:14:05.180 | Number one is reduce your risk and the likelihood of a lawsuit.

00:14:07.780 | We talked about that.

00:14:08.940 | Change where you live, have the best professional practices,

00:14:12.140 | get rid of that old trampoline that doesn't even have a net around it in

00:14:14.420 | the backyard, that's what you do, number one.

00:14:17.460 | Number two, insurance is your first line of defense.

00:14:22.900 | If you're in a profession that should have it, malpractice insurance, okay?

00:14:27.020 | But everybody ought to have personal liability insurance.

00:14:30.140 | The crazy thing is that your state's minimum is probably like $50,000 or

00:14:33.820 | $100,000.

00:14:34.340 | Meanwhile, there's people driving around in $140,000 Teslas, okay?

00:14:39.500 | And they're worth themselves a whole lot more than the Tesla is.

00:14:42.860 | You gotta have higher liability insurance than that.

00:14:45.260 | You gotta raise it, okay?

00:14:46.700 | You can't have that on your auto, you can't have that on your homeowners.

00:14:49.300 | You gotta increase it.

00:14:50.700 | The good news is this costs a lot less than a lot of other insurances,

00:14:53.580 | cuz it doesn't get used that often.

00:14:55.940 | And then, of course, you can stack a personal liability policy on top of your

00:15:00.260 | auto and your homeowner's or renter's coverage.

00:15:02.740 | That's called an umbrella policy, cuz it sits over, right, it's an umbrella.

00:15:06.620 | And you can get a seven-figure amount there.

00:15:09.580 | Well, most people will go away for a seven-figure settlement, okay?

00:15:12.940 | You'd be surprised how many people are willing to go away if you can give them

00:15:16.340 | a million dollars from your insurer, no matter what bad thing happened to them.

00:15:20.260 | And so the good news is that's usually pretty cheap, $200, $300 a year.

00:15:23.940 | It'll get you a million dollar umbrella coverage.

00:15:25.860 | Okay, know your state exemptions and take advantage of them, okay?

00:15:30.780 | And these are super interesting if you dive into them, right?

00:15:33.860 | Like in Utah, you get a year's worth of food storage you get to keep, and

00:15:37.180 | you get to keep 120 rounds of ammunition.

00:15:39.580 | In Texas, you get 120 ducks and 12 head of cattle.

00:15:43.780 | There's all kinds of cool laws out there about this.

00:15:46.220 | But mostly, what you need to know is retirement accounts are exempt, okay?

00:15:51.820 | ERISA retirement accounts, like your 401(k) or 403(b),

00:15:55.060 | you get to keep it if you're cleaned out.

00:15:57.020 | One more reason to max that stuff out.

00:15:59.260 | In many states, even non-ERISA retirement accounts like your IRA or

00:16:03.140 | Roth IRA, totally exempt, okay?

00:16:06.740 | So all the more reasons to do Roth conversions and

00:16:09.500 | move taxable money into retirement accounts.

00:16:11.780 | All the more reasons to max out your retirement accounts.

00:16:14.780 | All the more reasons to spend from taxable first is asset protection.

00:16:19.140 | Okay, there's also homestead laws.

00:16:20.580 | What's a homestead law?

00:16:21.860 | Well, that means you get to keep some of your house, right?

00:16:23.980 | We all remember O.J. Simpson, moved to Florida,

00:16:26.980 | got to keep his whole house when he was judged to be liable for what he did.

00:16:30.700 | And that's the idea here, right?

00:16:33.340 | Texas, Florida have very good homestead laws.

00:16:35.820 | Utah, where I live, not so much.

00:16:37.700 | We get $42,000 of our home equity.

00:16:40.260 | If we're single, 84,000 if we're married, that's it.

00:16:43.500 | The rest of the home equity is gone, but that varies by state.

00:16:47.420 | In many states, your cash value life insurance,

00:16:50.420 | your whole life insurance, you get to keep.

00:16:52.500 | In some states, you get to keep annuities, okay?

00:16:55.080 | Again, all varies by state.

00:16:56.940 | Don't buy something for asset protection if your state doesn't even protect that

00:17:00.300 | thing.

00:17:01.740 | Use corporations, use LLCs for toxic business assets.

00:17:05.540 | These include rental properties.

00:17:07.100 | Something can happen in a rental property that you'll be liable for as the owner.

00:17:12.660 | In general, these are better if there's multiple members, not just one.

00:17:16.300 | But it provides both external liability from something that happens in your

00:17:20.460 | personal life, keeps them from seizing what's in the LLC, as well as internal

00:17:24.540 | liability when something happens on the property the LLC owns.

00:17:27.860 | Keeps them from getting to your personal assets.

00:17:30.100 | And of course, you have to keep a strict division between your business assets and

00:17:34.360 | your personal assets.

00:17:35.460 | Okay, here's a really great asset protection plan.

00:17:39.740 | Give your money away.

00:17:40.540 | Now you can't lose it.

00:17:42.940 | Now you can't give it away after you've done something that's gonna cause you to

00:17:45.420 | be sued, right?

00:17:46.660 | That's a fraudulent conveyance.

00:17:48.420 | Or worse, after you've been sued, you can't do that.

00:17:51.500 | But you put money in a daff, guess what?

00:17:53.580 | It's not yours anymore.

00:17:54.860 | You give it to your kids or your other heirs, it's not yours anymore, right?

00:17:59.740 | And that can be an irrevocable trust.

00:18:01.860 | Okay, and one of the last things you ought to do is make sure you've titled your

00:18:06.060 | property properly.

00:18:07.620 | Okay, one really cool thing from asset protection perspective

00:18:10.940 | is tenants by the entirety titling.

00:18:13.580 | That means you and your spouse both own the entire property.

00:18:17.420 | So if just one of you gets sued, you can't lose the property,

00:18:20.220 | because your spouse owns the whole thing.

00:18:22.140 | It's very cool.

00:18:23.180 | You can also do it for brokerage accounts in many states.

00:18:25.900 | These are the states where it's available.

00:18:28.020 | Okay, if that's one of your states, unfortunately mine's not listed there.

00:18:31.360 | And you're married, you ought to have your property titled tenants by

00:18:34.100 | the entirety for asset protection purposes.

00:18:36.420 | Super cheap asset protection technique, works very well.

00:18:40.980 | Okay, let's talk for just a minute about some complex asset protection techniques

00:18:45.700 | that may or may not be worth it.

00:18:47.540 | In general, the more complex it is, the less well it works, the more it costs, and

00:18:51.580 | the more hassles there are associated with it, okay?

00:18:53.860 | Equity stripping.

00:18:55.060 | This is when you live in a state with really low homestead laws.

00:19:00.660 | And you're like, well, I'm gonna take all my equity out of my house with a HELOC.

00:19:04.860 | And I'm gonna put it in, since my state protects whole life insurance,

00:19:08.300 | I'm gonna buy a big whole life insurance policy, right?

00:19:10.740 | That's equity stripping.

00:19:12.300 | A domestic asset protection trust, these are pretty cool.

00:19:15.340 | They're available in a lot of states, including mine.

00:19:17.460 | You can put your house or

00:19:18.460 | other assets inside a domestic asset protection trust.

00:19:21.220 | Where you're both the grantor and the beneficiary.

00:19:24.220 | It's pretty amazing.

00:19:25.020 | If it works, it's great.

00:19:26.820 | There's still some doubt out there about how well these work all the time.

00:19:30.540 | But all it costs you is the cost of setting it up.

00:19:33.580 | Foreign asset protection trust, right?

00:19:38.180 | Everyone here is about putting your money down in the Cook Islands or something.

00:19:42.100 | The problem with this is a lot of times, it puts you at risk of contempt of court.

00:19:46.220 | Right, they tell you, bring your assets back or we're gonna put you in jail.

00:19:49.980 | Well, okay, I guess I'll bring my assets back since I don't wanna go to jail.

00:19:54.260 | Delaware bank accounts also have been pierced, but

00:19:57.780 | there is some potential asset protection there.

00:20:00.380 | Family limited partnerships and LLCs, they're really helpful if you're trying

00:20:05.300 | to pass your business along to your kids and provide some substantial

00:20:08.940 | asset protection techniques.

00:20:10.660 | Not cheap, definitely some complexity there, but some possibility there if

00:20:15.020 | you're trying to pass something like that along to your heirs.

00:20:18.620 | And obviously, if you're gonna do a family LLC,

00:20:21.540 | you need to be in a state with pretty strong LLC law, right?

00:20:24.900 | If they're not limiting the creditors to a charging order,

00:20:28.900 | it's not really gonna do you as much good as you probably hoped.

00:20:34.020 | Okay, so here's what we talked about.

00:20:35.300 | We talked about reducing your liability,

00:20:37.340 | consciously do things to try to get sued less.

00:20:39.500 | Buy plenty of insurance.

00:20:42.660 | It's cheap, it's your first line of defense.

00:20:44.780 | Lawsuits almost never go past the insurance.

00:20:47.780 | It pays for your defense and it pays for any judgments or settlements.

00:20:51.260 | Know your state asset protection laws, okay?

00:20:55.820 | It's really important you understand what those are.

00:20:57.300 | Any technique you decide to implement must be employed in advance.

00:21:02.460 | You can't wait until you get sued and then do this stuff.

00:21:05.300 | It's too late then.

00:21:06.740 | Max out your retirement accounts.

00:21:08.380 | Use tenants by the entirety titling if appropriate and available.

00:21:11.940 | And if you've still got a lot at stake that's outside things that are protected

00:21:16.180 | from the basic techniques,

00:21:17.340 | you might consider some of the complex asset protection techniques.

00:21:20.780 | All right, I think I've got about two minutes for questions.

00:21:24.140 | You got those for me, Mike?

00:21:26.820 | And I got a couple here.

00:21:27.540 | >> [INAUDIBLE]

00:21:36.140 | >> All right, retirement accounts are not protected in case of divorce.

00:21:38.940 | That's absolutely true.

00:21:40.020 | But they generally are from declaring bankruptcy.

00:21:44.300 | All right, let's see here.

00:21:47.620 | I gotta put glasses on to read this one.

00:21:49.180 | Does having an umbrella policy make you a juicy target?

00:21:54.180 | That's a good question.

00:21:55.100 | I like this one.

00:21:56.860 | People worry because they have all this liability insurance that people

00:22:00.820 | will actually sue them more.

00:22:02.620 | This is not the case in medicine, okay?

00:22:05.140 | Having insurance does not make you more likely to be sued.

00:22:09.660 | I suspect that extends to most other things.

00:22:11.980 | The truth is most people don't know you've got significant

00:22:16.100 | liability insurance until they sue you, okay?

00:22:19.340 | So I don't think it really attracts lawsuits.

00:22:21.380 | Maybe you don't wanna advertise that you got a $5 million umbrella policy.

00:22:25.020 | But I don't think it really makes it more likely for you to get sued.

00:22:28.380 | And let's see how much time we got for your break here.

00:22:32.660 | We got a little bit of time.

00:22:34.620 | Okay, how do you relate personal net worth to umbrella policy?

00:22:37.820 | Does your umbrella policy just keep going up with your net worth?

00:22:40.900 | Okay, I like this question.

00:22:42.100 | People are like, well, how much should I have, right?

00:22:44.900 | Well, how much should you have?

00:22:46.900 | Well, how much are you gonna be sued for?

00:22:49.060 | That's how much you should have.

00:22:50.660 | And of course, you have no idea, right?

00:22:52.860 | So people put these weird formulas together like that it's supposed to equal

00:22:56.180 | your net worth.

00:22:57.100 | No, has nothing to do with your net worth.

00:22:59.180 | You can have a net worth of 500,000, you can be sued for 10 million.

00:23:02.540 | You could have a net worth of 10 million, you can be sued for 500,000.

00:23:05.860 | It has nothing to do with your net worth.

00:23:07.860 | So my general guideline is what will people be happy with if you settled for

00:23:13.260 | policy limits as a general rule?

00:23:15.500 | And in my experience, most Americans think a seven-figure amount,

00:23:21.580 | a million dollars is still a lot of money.

00:23:24.400 | If they can walk away with a million dollars from whatever mistake you made or

00:23:27.700 | whatever happened on your property, they're usually pretty happy.

00:23:31.260 | And that's a relatively cheap umbrella policy.

00:23:33.740 | But these people run around with $50,000 on their car, that's crazy.

00:23:37.740 | You shouldn't have only $50,000 of liability coverage, it's just not enough.

00:23:41.700 | Now, if you're particularly well-to-do, I mean, a few years ago when we became more

00:23:45.420 | financially successful, we increased our umbrella policy.

00:23:48.020 | And I think we've got a 5 million policy now.

00:23:50.500 | But that's not tied to net worth in any way, shape, or form.

00:23:53.820 | It's just like, well, we can afford this, it's not that much more.

00:23:56.900 | And if someone had a little bit higher lawsuit,

00:23:59.660 | we'd have a little bit more coverage.

00:24:01.100 | I'll tell you what, if you got a $5 million policy,

00:24:03.100 | the insurance company's gonna send their best people to defend you, so.

00:24:06.300 | >> [LAUGH] >> All right,

00:24:09.780 | I think we got time here for one more before we go to break.

00:24:13.740 | Does the issuer of the umbrella insurance policy matter?

00:24:18.220 | Should I dump GEICO and go for a high-end umbrella insurance company?

00:24:21.260 | I don't know the answer to that.

00:24:24.940 | I think the way the policies are written,

00:24:26.620 | I think the company's on the hook for it.

00:24:28.700 | And I think they're gonna do well,

00:24:30.140 | hire some good attorneys to defend you and fight hard to do it.

00:24:33.300 | I don't think it matters a lot.

00:24:35.380 | I think most people, what they do is they go, who's doing my home in auto?

00:24:39.660 | And that's where they get their umbrella policy from.

00:24:42.340 | So it's not super complicated.

00:24:44.820 | Okay, let's take a break here.

00:24:47.740 | [BLANK_AUDIO]

Bogleheads University 501 2024 Asset Protection with Jim Dahle

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