Course 1: Asset Protection

Transcript:

Cort:

Hello, and welcome to another episode of Wealthy and Wise, I'm your host Cort Christie. Today on this episode, we're going to be talking about how to protect real estate. That means how do I protect my residence? Maybe I have a vacation property, maybe I'm a real estate investor and I've got a property, several properties, a commercial real estate investor, could be a number of things.

Our special guest today is none other than Kurt Harris of the Harris Law Group. Kurt has been practicing real estate asset protection law for over 30 years. He's an absolute expert in all areas of asset protection. He's a friend and colleague. We've worked together very closely for many years. Welcome to the program, Kurt.

Kurt:

Thank you very much, Cort. It's great to be here, it’s wonderful. Thanks for having me on.

Cort:

Absolutely. So Kurt, we've had many conversations about different ways that business owners can protect assets and things that you can do in business to make sure that you're gaining the most protection when it comes to avoiding litigation and lawsuits that occur in business. But today, we're going to segue into the real estate world. And the real estate market, we've got a lot of clients at Nevada Corporate Headquarters that have invested in real estate, single-family homes, land, commercial properties, and a number of different things. You and your law firm have several unique tools that you take advantage of to help real estate investors.

So let's just start with the thing that's near and dear to everyone, your personal residence.

What do you tell somebody when they say, “Hey, I want to make sure that my personal residence is protected, it's always gonna be there that if I get involved in a lawsuit for some reason or another, nobody's going to take it away from me and my family.” Where do you go with that in that conversation?

Kurt:

Well, some of the first questions we ask about personal residence is we want to know first of all, whether it's paid off or not paid off, because that can have a big difference with how you go or what route you take.

Generally, with a personal residence, I recommend or it's my opinion that it is best to put most personal residences into your revocable living trust. Your personal revocable living trust, for a couple of reasons. And again, I just want to emphasize that one size doesn't fit all sometimes what works best for one person may not be best for the other. But in this particular instance, generally, I think using your revocable living trust is the best route to go particularly with your personal residence, that is not paid off. A couple of reasons, if you put it into a revocable living trust, your personal revocable living trust, we never recommend that you put it into the name, your trust, use your own name, but we like to use some other name and “the lazy dog trust” or some other trust name so that your personal residence is really no longer in your personal name. That's not a huge deal.

Cort:

It does give you a little cover, I suppose if somebody pulls up your property online, and tries to figure out who owns this particular house, they're gonna come up with a name, that might not mean anything.

Kurt:

Correct, as opposed to what I normally see, which is the Kurt Harris revocable living trust that owns that home, and everybody knows exactly what's going on there. And so it's not the end-all cure-all but it's something.

Beyond that, if you put it into a revocable living trust, you have all of the ability to leave that to the next generation through the trust, you don't lose any of your tax credits for your deductions for any of the interest payments that you may make on that. And if everything came to an end the worst case ever, you can preserve it and bankruptcy, because you have the homestead protection by way of a revocable living trust. So you never really want to lose the ability to perhaps bankrupt yourself and then save your home. That's the worst-case scenario, but it is that last case where it's like well, the last thing I'm going to do is declare bankruptcy and I can save my home.

Depending on what state you live in. There are certain bankruptcy exemptions. For instance, here in the state of Nevada, you can preserve $550,000 in equity by way of bankruptcy. Other states are less, (e.g) Florida is unlimited. So hence, there are a lot of retirees in Florida because they have the ability to bankrupt their home with an unlimited exemption in bankruptcy. So, worst case scenario, you have bankruptcy, but in the revocable living trust, you preserve everything as though you're still the owner. You can have some minimal privacy by changing the name of your trust, and it just seems like the best thing to do with your personal residence.

Cort:

So my personal residence, mine's already in my revocable living trust. So it works out great for that. But we use a little strategy, put a different name on it than your normal routine name like Christie Family Trust, or Harris Family Trust, to get a little bit of privacy so the whole world doesn't know exactly what you own or what's out there. That's something that a lot of people don't think about just changing the name of that. Just to create a little bit of anonymity in that process, which I think is great for financial privacy and a lot of things.

So that covers our personal residence. And a lot of people aren't lucky to live in a state like Nevada like we are where with this 550,000 of the equity of that home that's protected. Or you mentioned Florida, I think Texas is the same. I get a lot of big ranches down there where they protect 100% of the value of that ranch and those homes in Florida, and states. I know like next door to us in California, I think they might get $100,000 protection it’s very limited by their homestead laws. So let's talk about someone who might want a cool property to get away to, they've got a cabin somewhere like people in the Midwest do. Or maybe it's a beach house in Southern California or in Florida, or somewhere they like to get away from the winter, maybe it's Arizona, what do you tell people about a vacation home or second property?

Kurt:

Well, a couple of things. I want to know a few things about the property, is this going to be your second home? Is this going to be a vacation property? Is this going to be a place that you frequent? Are you going to rent it out on VRBO? Or will you be renting it out to third parties, if you are going to be using it as a business and with rentals, we always recommend the limited liability company to hold that property.

Cort:

So if I own an Airbnb or VRBO, as you mentioned, is renting this place out better to put it into a legal entity like an LLC, and then have the expenses written off and report the income on that? And I would imagine you've got a higher level of asset protection with that LLC than anything else because you've got people coming and going out of your property.

Kurt:

That's definitely correct. And anytime you do have an LLC, regardless of what state where you've organized that LLC. There is a higher level of protection. And you are letting the renter know they're dealing with a company, they're not necessarily dealing with an individual. And it does remove some individual liability for the most part. Every case varies, but for the most part, that's the goal with it, if you're going to VRBO or you're going to Airbnb, that kind of property. If you are going to hold the property as a rental, long-term rental, or some other version of that property, where you're going to be using it for a vacation home, land trust is a great way to go. And for a variety of reasons, which we'll probably get into why a land trust over an LLC, or why not an LLC instead of a land trust? But for the most part, we like revocable living or living trusts in the form of land trusts, and we call those real estate privacy trusts, where we changed the name, again, us as the owners, to some other name on the trust, whatever that might be. And then we have a trustee step in who holds the title of that property. And then the person deals with that trustee rather than deal with us as the owner, it is one step removed from us actually owning that, and using it as though we would our personal residence. So it gives us some buffer with regard to asset protection.

Cort:

Interesting. And I know for me personally, you helped me with a condo that I have. And we set up a really basic Land Trust. But it did a couple of things, right? It got it out of my name. And so if somebody pulls up county records are not going to see Cort Christie owns a condo in this particular city, it's got a little level of privacy in that. And it also just kind of allows it to be put in a vehicle that I can exchange that I can sell that I can add another entity or property to that. So I think it works works out really well. And it was really easy for me to get in there and work with the title company to get it done and set up, because people always think, well, this is going to be confusing, or this is going to be hard or how do I go about this because it's all new. And that's one of the things that it's easier than it sounds. And as people are hearing this, it's like you want to be looking at what these vehicles are and how you might take advantage of it. So I think that's really important for people with secondary properties to look at.

So, Kurt, you've got a very long history of working with investors and investors in real estate. You mentioned some of these different properties that might be a real estate protection trust, which also can be called a land trust, and there are variations of that. And then you've got people that talk about putting their real estate investments in LLCs. How do you direct people down that path? Have I come to you and said, I've got a single-family home that I'm going to be renting out to long-term tenants but I'm concerned about taxes? I'm concerned about, what might happen if my tenant damages the property, if my tenant gets hurt on the property, if my tenant throws a giant house party and God forbid somebody dies on my property. What are the things that you discuss with people and their objectives, and then talk about these different alternatives that they have?

Kurt:

Now, the real estate investor is a little bit different than owning a second home or a second property. Real estate investor now is a little more serious about the accumulation of properties, and maximizing those profits as well as minimizing their exposure. Because with real property, there's always exposure, unfortunately, just by way of ownership. And so we have several recommendations that we like to do with them. And sometimes, if they have multiple properties, let's say five or more, sometimes I'll have investors that have just say, Look, I can't afford five LLCs, I can't afford that renewal fee alone. And there's additional paperwork I have to fill out, I have to do additional filings with the Secretary of State every year, tax returns each individual one, I gotta have some kind of a form. And I've got to make some kind of declaration, whether it's a disregarded entity or what it's not, that's just too much. You're killing me, I'm already trying to run these properties and trying to do this kind of stuff. And so half the time they're seeking by making enough cash flow, even to justify the property.

And so that's when we really step in and say, well, the land trust really is the answer here, because Land Trust is a one-time fee. So you pay that fee, one time you set up the trust, and it will hold the property in the name of that trust as long as you want it to. You can buy and sell through the name of the trust if you want to. And you will have these several land trusts for the cost of a one-time fee, you don't have to renew them every year, you don't have to do anything with them, you can put them on the shelf, or whatever you want to do. And they continue to hold the property in the name of the trust. What we like to have behind that might be a single manager type LLC, or a management LLC, where all the trust feeds into that LLC. So you might have five trusts that are all feeding up into a single LLC that is mailing those rent checks, and all the payment is flowing through a single LLC. And then I've got one renewal fee on the LLC. And I might file one tax return on behalf of that LLC. And I might set up some of my costs. That way, I still have some privacy by way of each individual land trust, each individual Land Trust has its own individual name and its own individual identity, I can have several different trustees if I want to, or I can have one all the same. But in the end, I own all of those land trusts, I own all the properties, obviously. And then I have one single point of contact there. By the way, the LLC, which is one removed, I still have corporate protection, or the company protection of the LLC, I own the LLC, and I own the land trust. But by way of it, it's kind of two hurdles to get over before you get to me to try and invoke some personal liability on my part. So we like that structure when it comes to multiple properties because that is a much more secure way to hold your real estate. And it's a lot more efficient and practical, and financially makes a lot more sense.

Cort:

And less paperwork and less cost, as you mentioned, does it have the same level of loss of protection? Everybody is concerned about the what ifs, right, and you get into these new areas of real estate investing, and then you're buying the next piece of property. For the next use property, you mentioned somebody who might have five land trusts that all are managed by one LLC. To compare the two Land Trusts versus an LLC, how do you compare the liability protection?

Kurt:

Well, with a land trust, I look at that little more as a shield. It's shielding you from liability to some degree. But at the end of the day, if that land trust were ever discovered that you're the owner of that land trust, which is quite possibly in potential, then the liability would be of the property held by the trust. With regard to an LLC, you have a little more asset protection there, where they can really only get at the profits of the LLC in most states. And that's not all of them, but it can be for most of them, we find that a lot of times the liability is kind of the same. I've seen a lot of people out there that make a lot of recommendations. And I think you got to choose what's best for you. Some people will say, Well, you should have a trust, and you should have an LLC for every single property. And we just think that that's kind of overkill in many situations and circumstances.

If it's a commercial property, I think you should hold it in an LLC. I think that's an easy answer to that. And a land trust is not suitable for commercial properties. But I think, it's what fits the person best and it's what they can manage. And it's their level of tolerance with the amount of paperwork that they want to do when they get to a certain threshold of properties or a certain value of properties. I think you might want to have another LLC because then you're starting to diversify a little bit or separate those eggs into different baskets and so on, but I always think that that first line of defense of a land trust is never wrong. It's always a good, good step to take.

Cort:

So you have some shielding, as you mentioned, you have some privacy, financial privacy with regards to that land trust being on county records, not your name showing up on county records. And there's a lot of trolls out there. I know this, I know people that say, oh yeah in the old days, right, oh, I see, you bought the property over here, I was perusing the county records, or they find out the value of somebody's home or the what you paid for it, I like not having anybody just be able to pull up county records and just kind of find out who owns what and how much it's worth. Zillow already makes it so transparent. You don't need to have your name attached to everything that people want to dig up information on you. So I love that. So you get the shielding, you get some protection, but then you mentioned, having the extra layer of an LLC for valuable assets, right? So commercial properties, right? They tend to get into litigation more. So you might have disputes with your tenant, you might have, you've got traffic flow, people coming in and out of commercial properties, whether their storefronts, whether office buildings, and we know we live in the most litigious society, and the United States of America loves litigation. And so that's a way to protect yourself and have that that extra shielding that extra layer, which I think is so important, in the classical client that you're working with day in and day out, are we talking about, people that have 10s of millions of dollars in real estate? Or are they small investors, what kind of people you're working with?

Kurt:

Mostly it's the smaller investor types. I've had people that have come in with 32 or 33 properties or something they're trying to manage, and they just can't juggle 33 LLC, that just doesn't make any sense at all. And then I've got others, but for the most part, we have people that are between one and five investment properties. And these are people who are trying to work their way up towards building a portfolio of real property, so that they can one day retire, and perhaps live on those rents. But they don't want to be looking over their shoulder. Constantly thinking, what if I should have set it up properly when I got started, as I was adding each property, I should have been watching this, because now here I am with these properties, and I'm trying to get my name off of the public record, which you can never do. Once it's on there, it's always on there, it may fall off the radar. And you can be suspicious about that as you begin to peruse those records. But you don't really know who owns it after that. You brought up the county information and the trolls out there. The county even sells that information. I mean because I'm a trustee of a lot of different properties, I get all kinds of solicitations in the mail all the time. “Do you want to sell your property? Do you want to do this? Do you want to do that?” I forward some of that on and some of that gets thrown away because it's just people out there that are looking for information and it's out there all the time. And so you want to get your name off there and perhaps try and arrange things in such a manner that you don't have to worry about it all the time, get a little bit of peace of mind, and still own these properties still receive the rents and I don't have to constantly worry about being sued.

Cort:

We have a lot of viewers right now listening to this. And a lot of people have already been involved in investing in real estate, and they're holding real estate in their names. And they're listening and thinking, well shoot… Where was Kurt Harris, where was NCH when I first got involved in real estate investing, why didn't I know about this? What can I do now that I already own pieces of property, homes, condos, commercial real estate, whatever it is that they have for income purposes? What can they do now that they have it in their name? How did they get their name off of these properties?

Kurt:

Well, the thing they do now is transfer it either to a trust or to an LLC. We prefer that it goes to a trust because that doesn't implicate any due-on-sale clauses they might have in their mortgage or one thing or another. So there are benefits you can immediately make that transfer. As an attorney, I, or anybody else for that matter can look on the website for their county assessor. And they can see that that name was on there. Kurt Harris's name was on there. But now it's the asset protection trust or whatever it is. I think maybe he owns that, but I don't know. And the county doesn't have that information, or at least they can divulge it at that point. They may want to look at the trust at some point or the trustee certificate of trust, but they don't have it. So my name was on the radar. It's now off the radar. There's just no time like the present to do it. A lot of people call me because they've got a lawsuit right now. Now they have the lawsuit, and now they are now they're in trouble. But now when's the right time to fix that? The right time is right now. It doesn't really matter when it is but get on it now and see if you can get your name off the radar. And people can draw whatever conclusions they want to. But let's get going that way.

Cort:

So I can still get some of the shielding that you talked about with a land trust, right? And I've got properties in my name, I can get my name off of it, I can provide myself a little bit of defense for people just digging into my stuff, knowing my financial information or my financial affairs. And you're saying, also, I think that your name might still be out there because you originally had it in your name. But now you just added some, I guess you convoluted it a little bit, it's a good way to look at it. And now it's less obvious. It's like, okay, now all sudden, this ABC trust just showed up, where did that come from? And how does that interplay with this? And I think it's the right approach. Some people might say, well, if my name is gonna show up on the history of this property, also, and all of a sudden, there was a document that allowed it to transfer from me to the trust, what's the big difference? I get it. And so those are some considerations for people. Now, how easy is it? I'm sitting at home listening to this right now thinking? Well, yeah, I want to get my name off at everything. If I can have financial privacy in my life, that's wonderful. I avoid exposure, I avoid litigation, is there a lot of documentation they have to go through? And what do they have to do at the county, in order to move it from my name to a trust name?

Kurt:

You brought up several good points there that I wanted to address. One is that your first line of defense, and I'm not an insurance salesman, but your first line of defense is insurance, you have a good insurance policy, and maybe that's going to settle most claims, and I hope it settles all of them. But if it doesn't settle that particular claim, it can be very expensive for me to figure out that you're the owner of that trust. And everybody who's litigating has to make that kind of cost analysis about whether I want to spend $50,000, in discovery to figure out that you're the owner, I'm suspicious that you are the owner. But now I just spent a ton of money, when I could potentially just settle with the insurance company, and be done with it. And so that's the first line of defense.

The thing about setting it up is really, it's not a big deal, you draft a trust, which is some minimal paperwork for the most part for what it does, and the benefits you receive, and you sign a quitclaim deed from you over to your trust or over to your trustee of your trust. We don't want you to use a relative using your son, Mr. Christie, it's not a good idea, because now your trustee has the same name, and your surname isn't what you had. But if you have a third party, brother-in-law, or somebody out there that may or may not carry your name, it's not blood-related, and it's not bound by what you say, you put their name on there, and now it's somewhat removed. Again, that's going to cost me a certain amount of money to figure it out. And there is a cost-benefit analysis that I have to run and I'm gonna make the determination is just not worth it. And I'll settle with the insurance company, and you sleep better at night. And we're done that way with just a simple quitclaim deed and a trust. And that's really all it is, I go down to the county, and I record the paperwork. I record the quitclaim deed, it's done every day, all day. At that point, my name was once on the radar, and now it is no longer on the radar. If I search for current ownership, my name will not come up. If I search past history, I'll see my name on there for a time. And then I wonder, Well, did he sell that to a third party? Or did he just put it into a trust? I really don't know. But I don't know that I want to invest the time and money into figuring it out. Right?

Cort:

Right. That makes a lot of sense. I don't want to call it subterfuge. But it sort of is. It's just like, if I can have less people know what I own personally, I know in the long run, it's going to lower my profile, it's going to lower the likelihood that anybody is going to be snooping around and wanting to find out, what is Cort Christie on? Or what is Kurt Harrison on? And there are snoops as I mentioned trolls out there that like to know everything about their neighbors and dig into stuff. And frankly, I think privacy really goes a lot a long way in this society that we're in today, where privacy is an absolute commodity, we don't have much privacy left in our world. And if you can get a little financial privacy by using trust, or using LLCs so that everybody doesn't know your stuff. That's a big deal.

Kurt:

Super interesting point too, because sometimes, well, a lot of time in litigation, the information that I find out from the adverse party comes right out of their mouth, they can't help but tell me, you don't have to help them. You don't have to give them that information. And you don't have to expose yourself. You don't necessarily have to do that. And again, nine times out of 10 my clients will volunteer information to the other side that they don't really need to volunteer, but they do and people have a tendency to just let it out despite the fact that you don't have to help them necessarily and so we're just not trying to help the other side to in their endeavors to do whatever they want to do. We're just not here to help them. I guess we're trying to protect ourselves from unscrupulous types. eats and those types of things that are quite common right?

Cort:

To avoid people like you. To avoid the attorneys, the sharks that are out there trolling all day long. But you're not one of those, never. You're the good guy now which we appreciate about that about that for you, Kurt.

Kurt:

But if it were me, and there is the low-hanging fruit of the insurance policy, yes, that's it, you're gonna go out, that's it. And then I have to have that long talk with my clients, they look, it's gonna cost you 50 or $60,000, to figure out that they are the true owner. And then at that point, then what, then we try to get a judgment, and then good luck on the judgment. And here we go with that. Yeah, it's a tough conversation to have, but just take the insurance money and go away.

Cort:

There you go. So and the final thing about insurance too, is one thing that I always say to people is to have an umbrella policy, just because you have a renters policy, or you have a homeowner's policy to cover certain liabilities, layer that with one extra policy, and it doesn't cost a lot. I think, personally, I've got a $5 million umbrella policy. And that thing cost me I don't know, $1,500 a year, and I used to have a million-dollar policy that was about $600. It was very inexpensive insurance, just in case. So as we talked about asset protection strategies using trusts and LLCs. For real estate, one of the best is to get an umbrella policy. And if you don't know what an umbrella policy is, call your insurance agent right away and make sure you're layering things with an extra policy on top of things.

So Kurt. Hey, it's been fun. Thank you again for coming on wealthy and wise. And we hope we can have you back again if you're willing to take your time. I know you. You've got a lot of clients and you're very active and busy all day long. But I just appreciate you coming into the studio today.

Kurt:

Thanks. Great to be here.

Cort:

Well, thanks again, everyone for tuning in to another episode of Wealthy and Wise, I'm your host, Cort. Christie. And if you have any questions about how to protect your real estate, whether it's your personal residence, your vacation property, or any investment properties that you might have call Nevada Corporate Headquarters, and talk to one of our experts. They do free consultations all day long on setting up a strategy for you to help you protect your real estate investments. So thank you for tuning in. See you next time.

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.