Hi this is Lee Phillips. I'm an attorney.
I want to talk to you about a kind of thorny issue in asset protection
that's the personal residence
How do you protect your personal residence?
and of course you'd like to protect your personal residence
because you don't want to be out on the street.
Well, I've had a lot of people come to me and say okay
we know how to do it.
What you do is
you move the personal residence into an LLC.
And the LLC gives a great asset protection
we've talked about that in other YouTubes
but once you move the personal residence from your ownership
into the LLC's ownership, guess what?
It's not your personal residence anymore.
You're living in a commercial piece of property
owned by a company
and there are a number of issues associated with that.
One, your personal residence is one of the dozen or so tax shelters left in the IRS code.
You remember, you get to deduct the interest,
you live in it two out of five years, tax free when you sell...
blah blah blah blah blah.
It's a tax shelter.
As soon as you move it to the LLC, it's no longer your personal residence.
The IRS looks at it as a commercial property.
Guess what?
The state taxes, you know the property taxes,
they are almost three times in many cases
on a commercial property as they are on a residential property.
So you just increased your property taxes by three times, one.
Two.
The risk associated with a commercial property
is a lot higher than the risk associated with a residential property.
So guess what?
Your property casualty insurance type stuff
just tripled
when you've moved it from you to the LLC.
So I don't think it's a good idea.
How do you protect it then?
Well your first line of defense is to get that big umbrella policy,
insurance policy, you know protect it
fire, casualty, all that stuff.
That's actually good as a protection for your personal residence.
Do it.
Spend the extra $500 and get the deluxe policy
It's worth it.
Second.
Ownership. Who owns the piece of property, the personal residence?
Well, husband and wife own it. Joint tenants.
Or tenants by the entirety if you're in the right state.
But husband and wife own it.
Love has nothing to do with property ownership.
Just remember that.
If the wife is going to be the OBGYN
or start the little business or do the real estate deals or whatever it is,
she has the risk.
He's a professor at the University, no way he's ever going to get sued.
So we'll move property out of the joint relationship over into his sole ownership.
Now a property is in his ownership.
If she gets sued, she's the OBGYN, she gets sued,
they can't come get his property.
This works really well
in a lot of the states
if it's a common law state
husband and wife property can be separated.
If it's a community property state and there are a dozen or so community property states
then the husband and wife are considered one economic unit
and community property is another YouTube webinar too - or YouTube video
But they're one economic unit.
we can't separate their property at least not easily.
So common law state, let's control where the ownership is.
A couple of nuances: one
I don't want to just put it in his name
I want to put it in his living revocable trust
so when he dies she doesn't have to probate the house that she's living in.
The trust does not give any asset protection.
That's another YouTube video.
Trusts don't give asset protection.
Everybody thinks, "Oh yeah, my living revocable trust gives me asset protection."
No. It has the word "revocable" in it.
So the fact that it's in the trust doesn't give it any more asset protection
but it makes it so that she doesn't have to probate the house if he dies.
Or when he dies, I guess it isn't an if.
So that's an important aspect.
The other aspect of it is
he's the stay at home husband, he doesn't work, he doesn't make a dime
and he takes care of the kids, that's fine.
She does that in many cases and he does it in less.
but how do we claim that his property
if she's making all the money?
Well when she gets the $10,000 check for her wage every month
she takes that money, puts it in her account,
and then cuts him a check for $9,000 whatever it is he makes the house payments he pays the taxes
he pays the insurance, he does everything out of the check that she gives him
He's a kept man.
And if he has any money left over, fine. It's his.
It's in his account she doesn't sign on it.
That would be in his trust account.
She doesn't sign on it.
But that money is now his.
The courts have looked at that and say yep the fact that he's the stay-at-home, he takes care of the kids
he takes care of the house, that has value and she paid for it.
It's his money,
he paid for the house it's his house.
So that eliminates that argument.
So we've got insurance that we can use, and we've got playing the trick of who owns it
and we divide between husband and wife.
One more thing.
A lot of states have what are called a Homestead Act
Two states, Florida and Texas, have 100% homesteads.
You can't take away my house that I have in Florida or Texas.
It's protected by state laws
from all of my creditors, my bankruptcies, everything I do.
Can't get it.
You pay a higher mortgage in those states because even the mortgage company
has a hard time getting it back.
Good protection.
Most states have a protection of somewhere between $60,000 and $200,000 in homestead protection.
Well that still could be a pretty good deal
because yeah, it's a $400,000 house but I've got a $350,000 mortgage on it
so I only have to protect, what? $50,000.
A $60,000 homestead would protect that piece of property.
It's not in the state's best interest to have you and your family out on the street
so they give you a little leg up
protect your personal residence
they usually protect clothing, and that sort of stuff that you might have, personal effects
So the homestead, the insurance, and the who holds it trick
are really about the only ways that you can protect your personal residence.
This is Lee Phillips
I've been talking about how to protect a personal residence.