All Forum Posts by: Mike S.

Quote from @Todd Goedeke:

@Mike S.as a former licensed life and health insurance agent I have witnessed countless class action suits over the years against life insurance companies for their sales tactics in duping the public into buying life insurance policies as investments. As a result today ‘s whole life and universal life policies come with illustrations followed by 7-10 pages of disclosures in legalese.

Just because people don t agree with your sales pitch about life insurance does not mean they are uninformed. On the contrary, they have educated themselves and affirmed that lining the pockets of life insurance agents with commissions does not benefit their retirement plans.

If you want to be taken seriously Be upfront, identify yourself, and disclose your relationship with the insurance industry when making comments.

I have no relationship with the insurance industry except as a client.
And the comments made on this forum by some show that they are indeed uneducated on this topic as their statements are not correct.
Life insurance agent commission on properly set up policies, over the life of the product, is probably lower than the commission of registered financial adviser selling wall street product or some retirement account custodians...

Quote from @Todd Goedeke:

@Dmitriy Fomichenko great advice and use of common sense regarding whole life not being an investment. Watch the shady ,slick , insurance salesmen , disguised as investment advisors come out of the woodwork to defend life insurance without any factual basis .

Obviously a lot of people here have not made their own research on LIRP. While life insurances are not an investment per se, they are very useful and safe retirement vehicle. The growth of the cash value in a permanent life insurance optimized for LIRP is only in the 3 to 8% IRR depending on the product. They grow tax free like in a Roth component of a retirement plan. However, during the disbursement phase, while it is recommended not to withdraw more than 3% from a regular retirement account to make it last for 30 years, with a LIRP you can disburse safely 8% per year until 120 year old. And there will be money left over to transfer tax free to your heirs, without all the pesky limitations of an inherited IRA.

Before dismissing these products, please educate yourself. They have drawbacks like all other plans including IRA, 401, 403 or 457. But they also have plenty of great benefits. And the often repeated "buy term invest the difference" or "life insurance agent are making a huge commission, so the product is bad" is only proving that you have not studied these products and are relying on other people's opinions with nothing to back it up as it as been debunked many times.

@Jeet Sangha

Yes an umbrella insurance is cheap and simple. It is a must and I also have one. However have you read all the fine print exclusions? And are what happens when you are sued for more than the coverage?

If you can live with that, then great, it is all you need.

@Bob Floss II

The amount of asset is irrelevant. In fact, the less asset you have, the more you need to protect it.

Everyone has a different threat model and acceptable loss threshold.

For me l would have no problem using these structures with only $50,000 of asset. But again no one here can tell you what YOU need. That is a decision that you should make for yourself based on YOUR own specific situation. That is why you need to educate yourself on the different aspects of asset protection to assess what will fit you.

There are a few concepts that need to be clarified regarding asset protection.

You are facing two kinds of liabilities. Inside liability and outside liability.

Inside liability is when a claim arise from one of your asset, and it is threatening all your other asset (for instance a mold problem in one of your property and a tenant claiming major health issue resulting from it).

Outside liability when you are personally attacked for your personal actions or your kids through vicarious liability (think your son is involved in a DUI and kill someone whose family is suing you for damage). All the asset you own personally are at risk.

The goal of asset protection is to insulate all your assets in different boxes to contain the spread of an attack only to that box, and protecting all the other boxes.

For years, Limited Partnership was one of these boxes that was commonly used in the asset protection field. Today Limited Liability Companies are the most used entities as they are offering the same level of protection than LP in some states, but with much less formalities and cost. All states will offer inside liability protection for LLC, but only a few states are offering outside liability protection. WY is one of these states that have the charging order protection that limit the reach of outside liability claims. FL for instance also has charging order protection for multi-member LLC, but not for single-member LLC anymore (see Olmstead vs FTC). WY also does not publish the list of its LLC members, giving anonymity. Anonymity by itself is not asset protection, but is a preventative measure against contingency ambulance chaser attorney. If they can't see your assets, they don't know if it is worth to spend tens of thousands of dollars in a lawsuit where there is maybe nothing to collect.

On the other side of the spectrum, when you have a property in one state, you need your entity to also be legally existing in that state to be able to act in court. So you will need an LLC in the state where the property is located. Using a WY LLC that is foreign registered in another state is probably not a good solution as not only will you have to pay an LLC registration in both states, and more importantly, a judge may decide to apply the LLC laws of either state the most unfavorable for you.

So the most often used setup is to have a single member LLC in the state where the property is located. This LLC is then owned by a WY holding LLC. You get the best of both worlds. You keep the anonymity and the charging order protection of WY, while your local LLC can go to court.

If you have multiple properties in the same state, you can have all of them in the same LLC. But remember that if you have an inside liability claim arising from one of these properties, you are putting the totality of LLC's asset at risk. So it is probably better to have multiple LLCs to divide your properties in small chunk that you are comfortable to risk losing.

Now you raised another question regarding properties in CA. CA is a state where the franchise fee is $800 per LLC per year, while in most other state the yearly cost of an LLC is between $50 and $200. CA will also assess that franchise tax on LLC in other states doing business in CA. However this franchise tax is not assessed on trust. So for CA it is sometimes suggested to use a land trust (with some caveats) or a WY Statutory Trust to avoid this franchise tax.

Creating these complex structures has a cost, and if you are not familiar with some technicalities, it is probably not a DIY setup. Creating the LLCs is not difficult, what matters is their operating agreements that need to be drafted by an experienced asset protection attorney. This document is what will make or break your asset protection if you have to go to court.

Also operating these structures have recurring cost (annual LLC fees, registered agent). You also need to have proper bookkeeping, separate account, and proper operation procedures to avoid piercing its veil.

Taxwise, these structures are tax neutral and could even not require any other tax reporting if your WY holding is disregarded for tax purpose.

However, you can also improve the basic structure by adding some other features, like a management corporation in the middle, that can offer you some tax advantages and ancillary benefits.

Also, when creating such a structure, it is often recommended to have estate planning in mind as it is easily incorporated in it.

So ideally you would like to talk to an asset protection, tax, and estate planning attorney as all three fields should work together to make a comprehensive solution. One expert matter on only one field may have an excellent solution for that part, but be disastrous for the other.

I would highly recommend that you check the Youtube Channel of Clint Coons. I have found his very detailed videos excellent and I am in agreement with most of his advice. By educating yourself you will not become an expert, but you will know enough to assess what you need and if what is offered to you meet your goals.

At the end of the day, the level of asset protection you need is a personal choice. Some people are happy with $250k umbrella insurance. Some wants $10M. Some wants one single LLC. Some wants one LLC per property. It is whatever makes you sleep at night.

Personally I am using insurance and I have one LLC per property and a WY holding LLC. In the big picture, the cost of these LLC is negligible compared to all the other insurances I am already paying. I see it as another cost of doing business. But I am also confident that if I am unlucky and find myself on the receiving end of one of these rare, but catastrophic lawsuits, my family asset will be protected.

The only question you need to ask yourself is how much are you accepting to lose if you have a devastating lawsuit in one of your property.

If you tell me you can afford to lose 10 properties, then by all mean put 10 properties per LLC if you want to save $150 a year.

If you tell me you want to lose the minimum, then one LLC per property is a better choice as your liability will be limited to only that asset.

As other mentioned before, the title holding LLC should be in the state where the property is located. And all these disregarded LLC could be owned by a single holding LLC, usually in WY, that will do all the tax reporting and give you the charging order protection to protect you from outside liability claims.

Quote from @Todd Goedeke:

@Thomas Rutkowski your bias precedes you. As someone who makes commissions selling life insurance pretending to be a financial strategy, your opinion is hardly impartial.

Please provide a link to a You Tube video of a financial investment advisor with no ties to the insurance industry so I can watch and get better” educated” from someone with no bias favoring life insurance as a good investment.

Provide me a link of a financial adviser who has no ties to wall street or any other products he recommends...
Every financial adviser earns a remuneration one way or another. No one is working for free.
You are yelling against these "gigantic fee" that life insurance agent are earning one time, but you don't yell about the much more enormous fee that so called wall street financial advisors are making every single year on the products they are selling you. I told you that over the life of the insurance, the average yearly fee is below the cost of most mutual fund. Why are you not yelling at mutual fund. Why are you not yelling at syndicators earning a 2% closing fee on OPM. Why are you not yelling at real estate agent making a 6% commission for just driving a client to a house for an hour? Why are you not yelling at mortgage broker getting a commission for just playing intermediaries with a lender?

Please go back to follow Dave Ramsey's advice if he is your guru. But stop coming on this forum, Dave Ramsey would not approve you getting involved in real estate. And buy one of his term life insurance he is promoting, he said you need one. Give a high commission to the life insurance agent who is earning more commission in term life insurance than in permanent life insurance products.

First you need to trust that foreign citizen as you will have no control of this trust... There are a lot of stories of scam.

Second, while it is easy to make money "disappear" in an offshore setup and grow in some tax advantage shelter, is is a completely different game to use to make that money "reappear" and use it.

Last, it is called tax evasion and will cost you heavy fines and many years in jail.

There are however some legal ways to put your money offshore for excellent asset protection and access to other alternative investment that could you not access from the US. But it is tax neutral and you will continue to pay US taxes if you are a US person. The setup is expensive to maintain and the tax reporting is usually a PITA. These kind of structure is usually not worth it for asset under $10M.

Quote from @Todd Goedeke:

No one is begrudging life insurance salesmen for wanting to make a living. But high upfront commissions in relation to insurance payments is not helping the insured.

A high upfront commission by a real estate agent is not helping the house seller or buyer.
A high upfront commission by mortgage broker is not helping the mortagee.
A high upfront commission by the car dealer is not helping the car buyer.

Each product has different remuneration model. Some financial advisers are taking a commission on asset under management every year. Wall street is taking a commission on every transaction. Some mutual fund are taking a commission upfront. Edge fund are taking even more outrageous fee each year. It does not mean it is bad. I don't mind paying fee, if I am getting a better return after fee.

If you look at the sum of all the fee of a life insurance and divide them by the total length of the life insurance, you will see that the average yearly fee is lower than most of mutual fund.

And I agree with @Jeff Nash that Dave Ramsey is of great help for people who don't know how to manage their money and are getting in debt. But his advice are useless for people building wealth as leverage is a very useful tool. And the majority of people on BiggerPockets are absolutely not following what he preaches.

@Jeff Nash

I fully agree with you.

Permanent Life Insurance is a complex product that has many advantages. When used properly it could be very valuable. However when their use is not properly executed you lose most of its benefit as the front loaded costs were charged no matter what.

Some people don’t have the proper mindset to stay on course for many years and should stay away from them as it takes almost a decade of careful execution to start benefiting from their powerful benefits.

I hate people in these forum dealing in absolute. You should put all your money in IRA! Or in 401k! Or you should never use a retirement account! You should not buy stocks. It's not black and white. All of those, including permanent life insurances have their place in a personal portfolio but some people believe that because one specific product does not make sense in their personal situation that it should never be used by others.

I am using credit card debt for some of my investments. If you listen to some credit card should never be used… I disagree there are some situations when it could be use. But you have to be careful as they could be dangerous for your financial health if not used properly. I am using margin on my brokerage account. Some people will tell you never to use margin. I am using permanent Life insurance too and use it as collateral for investing. Again some people will tell you that is stupid.

Then by some ‘expert’ I’m a triple moron. So be it. These same experts will be coming to me asking to finance their next real estate project….