How to Protect Real Estate Assets and Other Wealth Preservation Tools

Headshot of RealWealth Co-founder Kathy Fettke. smiling.

Kathy Fettke


How to Protect Real Estate Assets and Other Wealth Preservation Tools – Videos 1&2

Video 1 Transcript

Presenter: I’m licenced in California, so if you’re out-of-state or have properties out of state, some of the things I talk about will not be applicable to you. What we’re going to talk about is wealth preservation and wealth transfer. Wealth preservation is protecting your family from Uncle Sam, lawsuits, and probate. Everybody know what probate is?

Audience: License to steal.

Discover the power of

long term investing

This field is for validation purposes and should be left unchanged.

Presenter: License to steal. That’s pretty close.

Audience: It happens if you don’t take care of it.

Presenter: If you don’t take care of stuff before you’re going to be paying me a lot of money to do it. You really don’t need to. Probate fees on a million dollar piece of property in California, anybody want to guess what the attorney earns?

Audience: 15%.

Presenter: It’s not 15. It varies. $23,000. That’s the attorney’s fees for statutory work. If you sell a house, you also get paid hourly rate. Now, let’s change the scenario a little bit. You owe the bank $900,000 on the property. What are the attorney’s fees?

Audience: $23,000.

Presenter: $23,000. It’s on gross, not on net. You want to avoid that like the plague. That’s why you have revocable living trust and other options that we’re going to discuss today.

All asset protection is, or wealth preservation, is having peace of mind, knowing you’ve taken care of it or your family, nothing more than that.

What’s a castle? How many lines of defense are in a castle? Is it one?  Is it multiple? There are multiple barriers to prevent you from getting into the keep, which is where they keep their assets and money, right? That’s what asset protection is. It’s not one thing alone, it’s multiple things put together to make it difficult or impossible to reach.

It’s not putting everything. It’s a portion of what you own. You’re preserving and protecting. You’re planning for future liabilities. We get several calls a month from individuals saying, “I’m being sued. I want to protect my assets.” Too early, too late?

Audience: Too late.

Presenter: Too late. That’s exactly right. You need to be careful. You need to plan in advance. Who’s the biggest person out there to take your money away from you?

Audience: The attorney.

Presenter: After the attorney, yes, the IRS. Again, if you have known creditors, it doesn’t mean you can’t do estate planning or asset preservation or wealth preservation. It means you need to weave enough assets to cover that potential judgment. The remaining assets you can change, you can do. You can put it in entities. You can do a multitude of different things.

What’s California known for, regarding property?

Audience: Lawsuits

Presenter: No, simpler than that.

Audience: Community?

Presenter: That’s true, lawsuits too. Community property, exactly. Does everybody understand what community property is? If you think of wealth preservation and wealth transfer, that’s not really why you want to do it. You want to have logical reasons why. Is there a legitimate business purpose to do what you’re doing? Is it an estate-planning tool like continued gifting to your children year after year after year? Is there a family purpose for doing what you’re doing? Preserving wealth for the family, being able to use that wealth to generate a bigger return.

You want the asset protection as a result of the other reasons. If you’re not doing it for asset preservation, it’s just a side benefit for everything else. Everybody understand that? So it’s important to understand that you’re doing it for asset protection or wealth preservation but there are many other reasons why you’re doing it. That’s what survives lawsuits and people suing you.

So, again, anybody here not want to leave their stuff to their kids? Most of their kids?

Presenter: Yes, there’s always a few people that have one that’s in question, right? Do you want to leave it to your kids or you want to leave it to their spouses? Right? I’m serious. You want to leave it to your children, right? Because you don’t want the in-law turning into the what?

Audience: Outlaw.

Presenter: Outlaw. You want to avoid that. So, again, is that legitimate reason to do things? Maybe transferring it into an entity. Giving a portion of the entity to your children. So does it have anything at all to do with wealth preservation? A little bit but that’s not the main reason. We want to make sure what we’re doing it for is a direct reason rather than an indirect. If it’s old and cold it’s always better than new and hot any time you’re dealing with litigation. So you do a gifting plan if you can afford it.

Are you doing charitable contributions? Possibly. Are you doing retirement plan contributions? Are you having recurring payments for doing services if your kids are old enough to be your property managers? So you get the wealth to the children instead of to yourself.

Is there any transfer tax associated with that? Everybody know what I mean by transfer tax? So inheritance tax, gift tax and generation skipping transfer tax. So if you’re paying a child for actually work, is that subject to any of those taxes? No. So again, it’s a way to transfer wealth to a future generation. For most people here, their children are probably going to be at a lower income tax bracket, right? So you’re saving from Uncle Sam also, all legitimately, but by doing that you’ve taken the assets outside of you estate or a portion of them and you don’t own them. What does that mean?

Audience: They’re not in jeopardy.

Presenter: They’re not in jeopardy. They can’t be lost because you don’t own them. If you don’t own them, the court can’t take them away to pay a creditor. I’ll let you read these. These are a couple of my favorite quotes. Can you see it in the back?

Presenter: The first one says, “Income tax has made more liars out of the American people than golf.” To quote Will Rogers: “I’m proud to be paying taxes in the United States the only thing is I could be just as proud for half the money.”

So again, there are a lot of legitimate ways to protect assets and to reduce your taxes. All you have to do is have the knowledge to be able to use them.

Here’s what asset protection or wealth preservation is not. These are actually excerpts, it’s hard to read, from the Waldron versus Huber of how not to do asset planning. “My father has some assets that he would like to protect and shield.” By the way, this is why litigation was going on and these were in emails to the attorney. And then “Protect a portion of Donald’s assets from his creditors.” He didn’t have enough assets to cover all the creditors. The court overturned all the transfers, all the work that was done and the creditors got paid. That’s the bottom line. You don’t want to be doing it solely for asset preservation.

So it’s not fraud. What’s the second one say? It’s not tax evasion. What happens if you are in tax evasion? You get an all expense paid vacation at club Fed. They will put you in jail. Avoidance is okay, evasion is not. It’s not transferring all the assets out of your control. Legitimately when you transfer your personal residence to someone else. By the way, the IRS says if you do, the kids need to start paying and collecting rent from you. The kids have to pay all the expenses and bills. The kids can evict you, okay?

Anybody put their kids on title in California to any real property? Hopefully you haven’t, because their liabilities become your liabilities. If they’re in a car accident and they don’t have adequate insurance and they’re on title to any of the properties, those properties are now held hostage to your kids’ activities. Not the best thing in the world to do.

If the inlaw turns into the outlaw, they’re going to be bringing that property into the divorce for a settlement. Again, you just don’t want to do that. California doesn’t use a lot of land trusts. Those are used back East. Land trusts are designed to make it harder to find out who actually owns the property.

In California, in civil court or bankruptcy, there are hearings to bring you in where you’re under oath and the creditor gets to ask you all about what you have. I’ve been involved in some of those. If you’re ever involved, don’t bring a lot of cash. Don’t bring the keys to a paid off car because they’re going to take them away from you at that hearing. Again, you just need to be careful and plan ahead. It’s not difficult.


Video 2 Transcript

Presenter: What’s that say? What’s that say? What’s that say? What’s that say? First line of defense is insurance. Talk to the company in the back or your agent. Has everybody heard of an umbrella-

Audience: Yes.

Presenter: – insurance policy. Does everyone here have one?

Audience: Yes.

Presenter: How long is a judgement good for in the state of California? 10 years. Can you renew it?

Audience: Yes.

Presenter: Yes. Is there a number of times you can renew?

Audience: No.

Presenter: No. If you don’t have a personal umbrella liability insurance policy in this state, you’re crazy. Speaking from personal experience, since we’re on tape, I’m not going to say which member of my family was involved in an automobile accident. Somebody was taking my son to a high school dance. It was a blackout dance. You’re supposed to be all dressed in black. The gentleman had headphones on.

The witnesses there said, “He neither looked right nor left.” Stepped out. My wife unfortunately hit him at about 10 miles an hour with our Suburban. He rolled up on top of the Suburban. He was fine at that point. When she panic stopped, he rolled off the Suburban. Hit his head. Two centimeter skull fracture. Seven days at Stanford. $300,000 in medical bills. What do you think we got 18 months later? A nice letter in the mail that said, you are being sued for- how much? $4.5 million.

Audience: Oh.

Presenter: He was going to be a doctor, but because of the accident, he couldn’t be a doctor. What I didn’t tell you is his father was here from Sweden, the leading expert in brain and spinal injuries. He was a paraplegic. In his last year of neurosurgery, he dove in a lake and broke his back, lost the use of his legs. His mother was also a physician teaching at Stanford. Anybody who wants to guess what the insurance company settled it for? Of course, I can’t tell you exactly, it was seven figures. Is your normal car insurance sufficient to cover that?

Audience: No.

Presenter: No. Fortunately, I had a $2 million umbrella policy. That covered it between my auto and the umbrella policy, I was covered. Again, what’s it say? What’s it say? What’s it say?

Audience: Insurance.

Presenter: Make sure you have insurance, both for yourself, the person and if you have a business, rental properties, that they’re covered. So you have policies covering everything, because there’s unlimited amounts of renewal in California, we recommend between $3 and $5 million on a personal umbrella policy. At $3 or $5 million you can have a structured settlement, that may be worth $5 million for $3 million and the $5 million can easily be worth $10 million by payments over time. The $1 million, there’s not much you can do, because who wants to get paid right away when they settle?

Audience: The insurance.

Presenter: The insurance. They’re typically taking a third to 40% of the recovery. Again, in California even if you own nothing except a job, you should have a personal umbrella policy, because they can collect from your pay 25% how many years? Until you die. Does that come off the gross or does the IRS still take all their normal taxes and everything else? The 25% is of your net, not the gross, which really impacts your ability to live.

Again, there will be a presentation later, but it is insurance, insurance, insurance. It’s just a cost of doing business. Looking it that way and you’ll be fine. Any questions on insurance? Have I beaten that to death enough? It saved me and my family. Again, it’s just it’s that important.

After you have the insurance, which is your first tool for protection, you can have trust and there’s a multitude of different trusts. Everybody heard about a revocable living trust? It’s kind of one of those things it avoids probate. It actually saves, not you, because you have to pay for it, but your family lots of money down the road. You should have at a minimum a revocable living trust and all the other documents that go with the state plan. We like to use multiple entities, not just one, but multiple. Where’s most of the risk come from in the ownership of real estate? Not a trick question, owning or managing?

Managing. You can have multiple entities. If you have enough income coming in for yourself, who can manage the properties? Your kids. Thereby, transferring wealth to them, it’s no longer yours, it can’t be taken away from you because the kids own it.

Gifting plans. Anybody here have an established gifting plan? Meaning you’re transferring on a regular basis money to your kids. What’s the magic number for this year?

Audience: It was 14 last year.

Presenter: It’s 14. What’s the current exemption for inheritance tax? 5.3 was last year, what is it this year?

Audience: 5.4.

Presenter: Just to confuse people, 5.43, instead of 5.34 it’s 5.43. It was index for inflation that went up $90,000. That’s also generation skipping transfer tax and gift tax. Again, US citizens, there are special rules for individuals that are green card holders and special rules that if you’re not a green card holder you’re here as an investor.

Let’s see if you can remember the case, a certain person allegedly committed murder of his ex-wife and someone else, without using names, what couldn’t they get at?

His retirement plans, not an IRA, because an IRA the Supreme Court has said, “Yes, an IRA is if you file for bankruptcy protection, a retirement plan up to a million dollars can be protected subject to the jurisdiction, the judge feeling you need that much money.” But he didn’t have an IRA he had a retirement planning under ERISA. That’s absolutely protected, they can’t get at the funds.

You have one for the players, you have one for the Screen Actors Guild, you have one for broadcasters and you have the fourth one that I don’t remember. Before he went to Nevada what state was he living in?

Audience: Florida.

Presenter: Why did he move to Florida?

Audience: Homeowners exemption.

Presenter: There’s an unlimited homestead exemption in the state of Florida. It covers your house, whether it’s worth $100,000 or $100 million, it slightly changed the rules. In this great state, what do you think our homeowners exemption is?

There’s a weather tax here guys, it’s not unlimited. Maximum is $150,000, that’s it. Again, understand what the rules and things are and you have the knowledge, then, you understand what you need to do. ERISA is great, applying the knowledge is what you need to do and that’s why you’re all here today. Is learn what you can do and what you can’t do.

Headshot of RealWealth Co-founder Kathy Fettke. smiling.
Scroll to Top