Asset Protection Strategies to Secure Your Wealth with Brian Bradley – Podcast #132

Intro: This is the White Coat Investor Podcast, where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011. Here's your host, Dr. Jim Dahle.

Jim Dahle: Welcome to White Coat Investor Podcast number 132, asset protection. I just got back last week from two speaking engagements. One was here pretty close to local down in American Fork, Utah. That's between Salt Lake City and Provo for those who have no idea where American Fork was. Actually the time I was married and many years ago, there's a hospital there and I met with the medical staff and talked with them for about an hour about financial literacy and all the kind of usual stuff you hear on the podcast. It was great because I had a few people that I actually refer patients to that were in the audience, that was great to meet face to face. So that was a lot of fun.

Jim Dahle: My second trip I flew out Detroit for, which, you know, the trip went flawlessly. I had perfect flights, the hotel was great and everything. But it's always a little bit more work when you got to spend 30 hours to give a similar presentation. You're there an hour, two, three hours talking with docs and answering the questions and signing books and hanging out afterward. But you're gone from home for 30 hours. And so, it's obviously a little bit more work. But I like to do it because I like going to different parts of the country and getting to know docs and what they're worried about and what their struggles are and what their questions are, because I take all that information and pour it right back into the podcast and the blog and the courses and try to meet your needs.

Jim Dahle: And that's partly why the White Coat Investor's become so popular over the years is just because I am literally reaching out, finding out what your problems are and trying to solve them. And so, it's wonderful to meet you in person, it's wonderful to help people individually. I wish I could come see all of you but honestly, I'm just not going to travel that much. It's too much work to do. And so, we'll reach as many people as we can with the blog and the podcast, but probably never going to do very many more speaking gigs than I'm already doing right now.

Jim Dahle: Our sponsor for this episode is SoFi. And hundreds of White Coat Investor readers have refinanced with SoFi over the years. If you apply via whitecoatinvestor.com/sofi, that's S-O-F-I, not only will I get paid if you close the loan, but you'll get paid too. You'll get $300. If you're smart, you'll just have them apply that your loan balance but I suppose you could use it to get yourself some new climbing shoes and a rope too. It's yours to do with as you wish. They also have a special resident program with $100 monthly payments. So, it's hard to beat this, right? You get $300 cash back, you get a lower interest rate that saves you thousands on your loan. And if you're in residency, you still get low payments, probably lower than what you would get in the government income-driven repayment programs. Obviously, you'd have to run the numbers because some people can have zero dollar repayments there, but most residents have more than $1000 payments there.

Jim Dahle: They also have a few other cool financial products. They have SoFi Money, which is a cash management account. I like to think of it as a bit like a checking account that pays interest like a savings account. They have personal loans. I'm not a big fan of you borrowing more money, but if you are in a pinch, you may be able to get a loan there with interest less than 10% just based on your signature. And so, I've got links for those in the show notes as well. They have a wealth management firm, it's low cost, it's like a robo advisor plus having a CFP that you can call by phone. And they also have a mortgage product. You have to put 10% down but you avoid any sort of private mortgage insurance on that. So, we'll put all those links in the show notes, but the main one you need is the refinancing one, whitecoatinvestor.com/sofi.

Jim Dahle: Our quote of the day comes from Charlie Ellis, who said, “Don't get confused about stockbrokers and mutual funds sales people. They're usually very nice people but their job is not to make money for you, their job is to make money from you.”

Jim Dahle: Thanks so much for what you do, medicine is not easy. I had a kid come into the ER yesterday. It looked like a crime scene. There was blood everywhere. And when I got to the bottom of this massive bandage that had been put on this kid's foot and of course the blood soaked all the way through all this bandage because there's not actually any pressure on the wound once you put that huge bulky bandage on, there was a one centimeter laceration. Had a little bit of arterial bleeding coming out of it. But it's pretty easily controlled by just putting your finger on the artery. And so while I held my finger on the artery, I had the nurse gather up the supplies we'd need, numbed it up, washed it out and sutured it up quickly. The parents were so grateful.

Jim Dahle: And it's sometimes easy to forget that these easy skills we picked up as an MS2 probably in some pig lab really can be pretty life-saving, life-changing for other people. And so, thanks for what you do. I know your patients appreciate it, even if they sometimes forget to express that appreciation to you.

Jim Dahle: If you have not checked out the White Coat Investor lately, you may notice that we have some recommendations pages there. Under the recommended tab, we have a lot of new stuff including a legal page, we're gradually getting new recommendations there for people that can review contracts and we're trying to get some people that can help you if you've been the victim of fraud as well as estate planning and asset protection there. So if you're in need of services, whether it be legal or student loan advice or financial advisors, insurance agents, etc, you can find those under the recommended tab. These are folks we've worked with, that our readers go see regularly and that we get feedback on. If we're getting bad feedback on them, we take them off those lists. And so, check those out if you have any need of any of these financial services.

Jim Dahle: All right, we've got a pretty special guest today. We've got an asset protection attorney that I'm going to bring on here and let's get him on the line. All right, my guest today is Brian T. Bradley of Trust-cfo.com. That describes himself as a leading educator and asset protection attorney for high risk business professionals,
entrepreneurs, and real estate investors. His firm focuses on adding value for clients and educating them on what they don't realize they don't know. Acting as an advisor and focusing on setting up systems and strategies and teams to protect your assets and manage your wealth, preserving lifestyle and peace of mind, changing the way predators view you and providing better tax planning and risk management and decreasing your taxable estate. Welcome to the White Coat Investor Podcast, Brian.

Brian Bradley: Well, thanks, Dr. Jim. And just one update on, I'm a Bradley legal Corp and then I'm a counsel in House Counsel for trustee. So I actually have my own practice and then they outsource legal representation for their selves internally to me. So I just we don't confuse your listeners on that.

Jim Dahle: Awesome. Appreciate that clarification.

Brian Bradley: Yeah. But you know, thanks for having me on. This really is a big topic, especially for the physicians who have to manage a lot of their risk and on top of also investing and having business liability and all these moving parts.

Jim Dahle: Yeah. You describe yourself as an asset protection attorney. Occasionally, I talk to attorneys about asset protection attorneys, and they tell me that's not even a real specialty of law. What do you say to those guys?

Brian Bradley: First, I would laugh. I've never actually heard that because I work with a lot of other firms that don't have asset protection in there, especially a lot of estate planning, like traditional estate planning firms or real estate firms. They need to bring in the asset protection component into it. And asset protection has been around since the crusades and putting property into trusts or different types of holding patterns for when they were going to fight wars. And the oldest asset protection firm in the nation is over 113 years old here in the US. So it's been around for a long time.

Brian Bradley: I think the confusion is like the standalone term asset protection really started to be used as a specialty in the 70s, and then it really took off in the 80s, when specific asset protection trust came about in the Cook Islands and then in the US. And so, I would bring it down to what is asset protection I think is what the confusing part of it is. And asset protection is not, you know, like I said, traditional estate planning. It's modern estate planning, finding the things that are destroying modern family assets like predatory lawsuits, which we're going to jump into a lot to today. And then also fighting out of control medical costs, death of one spouse and then remarried to that other one, or even death of your one child and remarriage of that child or your children's divorce. So even your children can affect your estate and legacy when they're adults.

Brian Bradley: And so these are the things that are really moderately destroying wealth and that's what asset protection does. So it's really a niche field and it's a combination of a lot of different areas. It's advanced estate planning, strategic planning, insurance law, real estate law. Business organization and tax law all combined into one basically on steroids, could just manage all of them together with all these moving parts that have to be done correctly. So we're working with a lot of other different attorneys in their specialty to make sure that the overall systems that we create function if and when they ever need to be protected.

Jim Dahle: Now let me share a hot take I got from an author of real estate investing books, a guy by the name of John T. Reed. His suggestion on one of his books was that asset protection is immoral, at least the idea of getting out of pain, a legitimate legal judgment. He's not talking about carrying insurance to pay that judgment, but he's talking about getting out of it. He says that if you've injured somebody, you should pay them. What's your response to that?

Brian Bradley: I think it's hilarious and kind of hypocritical, to be honest with you. I get it here and there. What's that same person going to do the second they get sued> They're going to go run to their insurance provider and then go lawyer up. So they're going to make a claim that they want everybody to pay whatever the money comes out, whether it's unfair or not. And we're not talking about paying unfair claims. Sometimes damages are just out, they're there to prove a point when no one has that kind of money ever, $16 million claims, for example.

Brian Bradley: And then what's going to happen is these guys are going to be scared out of their mind and knowing how much they're going to pay, how much their reputation is going to take a hit, how's it going to affect their business professionally. They're not going to be worried about, oh my god, I have to do the morally right thing and pay every penny in the world. They're going to go lawyer up and go hire defense firm. And what do you think those defense lawyers are going to do? They're going to go after that plaintiff that's suing them and call them liar, cheats and frauds. That's the defense argument right there.

Brian Bradley: And so you hired someone to then go call the person who's suing you a liar, a cheat and a fraud. But then you're trying to make the counter argument that everybody in the world should go pay everything and there never should be any defense to it. If you think that's the case, then don't go hire a lawyer and just tell your insurance provider, hey, pay what you want and then I'll pay whatever else I can. So, I think his is what side of the fence to fall on. If you want to protect yourself, protect yourself. If you don't, then don't.

Jim Dahle: Can you talk just for a minute about kind of the daily life of an asset protection attorney? Do you spend your time setting up trusts, do you spend your time meeting with clients? Do you ever go to court? I know you're in California, and I suspect you do a lot of California retirement plans I think for lack of a better term. I think we had a guest post on the blog a few years ago from Jay Adkisson out there who talked about that. What is it that you spend a large percentage of your time doing as an asset protection attorney?

Brian Bradley: And we'll break down that later on because I think we're going to talk about exemptions and different ones. And one I really want to talk about is specifically that California PRP exemption plan because there's not many people really know about it, and it's a great one for California residents. But for me specifically, I'm licensed in a bunch of states, California, Oregon, Washington, Michigan. We represent clients nationwide all over on the nation and internationally. I was trained as a trial litigation attorney and got really good accolades, super lawyer rising star list, lawyer distinction list. And I built myself through trial and litigation.

Brian Bradley: And then I made this transition into adding asset protection as a specialty in my firm because I just got tired of seeing clients come in being sued and their lives turned just completely upside down and had no protection or false sense of security setup and they couldn't do anything about it. And so I wanted to get ahead of the game. And so, what I do with most of my time is I spend a lot of my time talking to clients and educating investors and business owners, talking to doctors and lawyers and even CPAs on asset protection and how it is an actual investment for them to not just protect their assets, but also if you do it properly at a higher level, you can get these return on investments from it itself.

Brian Bradley: Or I'm consulting with, like I said, other estate planning firms who are doing the traditional revocable living trust but they don't know anything on the protection side, or real estate firms who are buying and selling and closing the transactional part of the deals, but they need help on what bucket and what mechanism to put the property or asset in to maximize value and to protect it. So, it's a marriage of a lot of different things that I have to manage and I'm just spending a lot of my time managing my law practice and the legal team. And the legal production teams are just a group of the best and most amazing lawyers handling hundreds of different types of trust, exemption trust, offshore and onshore trust. I affiliate with the top firms in the nation on asset protection. And so, my day is generally spent talking to, like I said, the clients the trust administrators, financial advisors and CPAs managing this big network of people to accomplish our clients' goals.

Jim Dahle: All right, let's talk a little bit about cost to value. I got a lot of questions about this from readers mostly on value kind of questions. So we'll go through a few of those first and then I'll kind of give you an open ended question, talk a little bit about the cost of doing this. I think the worry a lot of docs have is this above policy limits judgment. They read about in the medical journals, or they read about in the paper where some doctor ends up with a $20 million judgment against him. But I've gone out and calculated the likelihood of a successful above policy limits malpractice lawsuit that isn't reduced on appeal for me at about one in 20,000 per year.

Jim Dahle: Now, given that very low risk, why should I spend a bunch of time and money and effort on anything more than the most basic and inexpensive asset protection plan? I think one of my readers put it when I was collecting questions for this episode, he said, “My sense is that the odds of losing money is very low or am I just not paying attention?” Another one said, “How much of this in a number needed to treat sort of way has really shown to protect assets versus the emotional side and just helping people sleep better at night?” And so, those are kind of the questions about value and what kind of value there really is there. Can you talk a little bit about that?

Brian Bradley: Yeah. It can be a little bit longer of a talk than that because there's a lot that you just asked in that so I want to kind of break down the malpractice part of it plus the other part of the business life and the investment life plus the actual numerical value of cost to value and how it gets money back into the client. So it's going to be some more in depth answer that I'm going to give right now than I think you're expecting.

Brian Bradley: Just off the numbers that you calculated, the AMA and Medscape and others have current studies that the numbers are being a lot higher than yours. But I think that's really not the point of what we're getting at. Like the points are on appeal and basic and inexpensive. And so, cheap forms of protection isn't protection, that's obvious. But it's all about personal risk tolerance at the end of the day. Some people just don't perceive enough risk. So a simpler and more inexpensive form of protection is enough for them. That's a personal choice. Malpractice then is probably not their greatest risk. But there's other areas of their life and business and investments that they also have to manage the risk and liability from.

Brian Bradley: And to the first part of the question, there's a lot to it like I was saying. The actual price doctors pay goes beyond just so you're saying financial harm, it also goes to their reputation, possible loss of revenue, which we can address with access and surplus insurance. In cases of a lot of emotional and family turmoil being dragged through all this. And the amount of money it takes to go through the entire litigation process with legal fees, depositions, expert witnesses, trial costs, and after all that, then they want to go and appeal, it's going to cost a hell of a lot of money. So it's really in both sides' best interests, the plaintiffs and the defendants to settle the claim and avoid the added expense and time as fast as possible. And that's what properly drafted asset protection systems really do.

Brian Bradley: Generally, your insurance carrier will cover most of your litigation expenses if the claim is made against the insurance provider. But then you're working off the assumption that a doctor only has an internal claim for medical malpractice and that the coverage is inclusive, not exclusive. And that the provider will actually cover 100% of the claim amount, but that's just an unrealistic expectation of real world litigation. And the statistics and numbers really scare me when I look at this, the AMA recent study. And it shows one out of three doctors, and I think you hit on this in other literature that you guys put out, so 34% of you, doctors have already been sued. And so the longer you practice, that percent close to 55%, that have actually been sued before the age of 55. And then 48% of those doctors are named personally, and being named personally in a lawsuit is a really big problem, not just naming the insurance.

Brian Bradley: And then 89% of all these claims, the doctors feel are frivolous, but then they have to go and fight them anyways. And so, when we start breaking down cost, as I mentioned, defense costs can either be inside or outside the limits of your policy. If it's inside the limit, then the cost of defending that claim is actually subtracted from the total amount of the policy coverage that's available. So if, for example, your policy is for $1 million in liability, and the defense cost is $150,000, that part subtracted out from what can be paid to cover a claim along with having to pay your annual premiums.

Brian Bradley: And then like I was talking about, there's always a business side of this that goes beyond just malpractice. There's billing issues, payroll violations, sexual harassment claims, and others that are internal that aren't covered for malpractice insurance. And then add on the other external issues like if that doctor owns a property of the practice, then any issues that come from that asset can cause the doctor's assets to be at risk also. And then you also have exceptions and exclusions to every policy.

Brian Bradley: And so, one big insurance defense tactic is to not pay claims for what they consider intentional acts and material misrepresentations are always going to challenge claims. And these misrepresentations can come from the time that you filled out the actual policy application itself. And because of that, the entire policy they're going to argue is now going to be void. Or look at any requirements that you failed to fulfill on the policy agreement that can be used to void the policy, like going to make mandatory disclosures that you didn't think you had to disclose. For example, someone wanted to file a lawsuit against you and then the lawsuit went away, there was nothing that ever resolved of it, and you just didn't disclose it because nothing ever came about it. That's now going to potentially be used avoid your policy agreement.

Brian Bradley: And another good example of this is people don't buy auto insurance because they expect to have serious and costly car accidents. They do it in case they ever have one. Same thing with asset protection. On the bottom line is that insurance doesn't prevent lawsuits, it only provides capital to deal with the lawsuits. And most coverage and capital gets eaten up by legal fees before the claim never gets attended to. But having an asset protection plan in place provides those barriers to entry. And then the stronger plans, like exemptions and on stronger jurisdictions open up the doors for negotiating at much lower levels or even better yet, to stop those 89% of the frivolous attacks.

Brian Bradley: Just remember, the real goal is to not get to court. We're talking, before we started airing, one of the things that gets lost into this is actual, the cost to value add in a return on investment of asset protection. Because it's not just about malpractice, it's also about your investments and your business operations. I think that you will appreciate this because you talk about taxes and finances a lot on your podcast and return on investments are a big deal. But people don't really think of an asset protection system in those eyes. I think cost in value is a great starting point but numerical costs really is the wrong question that they should be asking. What they should be asking or thinking about is, what's the value of the system itself, not just how cheap it is. Or more importantly, if the system actually functions to accomplish the objective and the goal that they intend to have with it.

Brian Bradley: And so, when we talk about this in a little bit more detail, the upfront cost in relation to value comes down to the fact that upfront costs will always be less if you're proactive rather than when you're under duress or being sued. And working yearly with great trust administrators, I have some of the best ones in one TRUST-CFO who I affiliate with. They work has a great check and balance system and auditing your annual taxes, and finding missing tax benefits and credits and R&D tax credits, cost segregation studies, if you have investment properties. And taking those tax deferrals. And all this equals 10s and thousands of dollars annually back to you the client by using the asset protection system and the team and the members in there to work for you. And at times, they're finding 50, 80, $100,000 that go back to the client annually.

Brian Bradley: And the reality is that, like I said, cost always comes down in the form of procrastination. Some of the things that you can get and things that you can do are benefits that you only get by being proactive like tax mitigation strategies, hedging how you invest and from what bucket you're investing from and reducing costs that way. And so, at the end of the day, if you're working efficiently and effectively, you really aren't paying anything but actually receiving a larger return on that upfront protection and annual cost plus protecting your assets and your livelihood and your legacy, plus picking up missing credits and tax benefits.

Brian Bradley: And so, a lot of clients and doctors that have these packs of businesses and medical malpractice, medical practices, active investments, private equity, real estate, a lot of moving parts. So they can't do all this management on their own. If they do, it's just going to crumble and completely fail. And all of these assets have tax implications and they all have tax deferral and mitigation opportunities. And they all also have risk and liability that have to be managed. And so that's really what the whole systems that we look at come into play and how you actually compare cost to value to return on investment.

Jim Dahle: So, are you familiar with the concept, it's a medical concept of the number needed to treat. You've got to give a certain number of patients a medication to help one patient. How many people would you say need to meet with an asset protection attorney for one person to actually save money from it?

Brian Bradley: You mean who should go and talk to an asset protection attorney?

Jim Dahle: No. More like, if five people meet with an asset protection attorney, one of them is going to end up getting a big benefit out of it or does it take 30 people or 50 people to meet with them for one to get a huge savings out of it?

Brian Bradley: Definitely we're finding, especially when you're talking about high risk professionals like doctors, the focus of who your listeners are, they're making more, they're investing more. And so, they actually almost all of them are going to have a higher return on investment or finding these missing benefits because they're doing more with their money. They're trying to make passive cash flow also. And so, we find almost all of our clients are actually getting that benefit that we just talked to because CPAs are passive. So they're not going to be applying aggressive strategies to help maximize value. That's not really what their job is.

Brian Bradley: Some CPAs are better than others, especially if you go to investment specific CPAs or financial advisors. That's what asset protection firms do and network with our financial institutions for investors, CPA for investors. So we're more aggressive in finding and auditing all of those missing tax benefits, tax credits, deferrals opportunities.

Jim Dahle: I think it's pretty clear you view asset protection I think much more broadly than most doctors do.

Brian Bradley: Well, because I'm an asset protection attorney, and I even look at it differently and why I'm one of the top attorneys who do it because I look at it differently than a lot of other asset protection attorneys do because I was trained by the best of the best in asset protection. And so, we look at it as an overall sweeping need and cycle of your life. Insurance have umbrella policies, different versions of insurance, life insurance. An asset protection policy, where does that fit into your life and your investments? And it's also a whole cycle that we have to go through the plan, revoke a building trust and how that all goes into tax mitigation and decreasing taxable estates, if possible.

Brian Bradley: So, that's what asset protection really is in a nutshell. It's not just creating something passive like an LLC, which may or may not be, you know, really has no protection value when it gets challenged because they're easily pierced, and say, here you go, good luck. You want to be inside a system that actually can work with you annually.

Jim Dahle: Now, let's look at it a little bit more narrowly just for a minute and the way most doctors look at it. I think the way most doctors look at it is they're trying to think of a way that they can keep as much of their assets as possible in the event of an above policy limits judgment. Have you ever had a physician client with an above policy limits malpractice judgment that wasn't reduced to policy limits on appeal?

Brian Bradley: Yeah, I have. I just was actually talking to a colleague over the weekend who has another one, and a couple of firms in our network that have. And so, like I mentioned before, what is the overall goal? The goal really is to not go to court. And so, you want to settle the claim and avoid the added expense and time and disruption of your life as fast as possible. That's efficient and effective planning. And that's what setting up good asset protection systems do.

Brian Bradley: So almost all of our clients don't even need to reach that stage of appeals. It's going to cost a lot of money and it's going to take a year or two to even go through that stage. And the asset protection systems get all the parties on the negotiating table very fast or have the claim go away beforehand. And that's the power of a properly drafted asset protection system is proactively planning.

Brian Bradley: And here's some good examples. Look at what happened recently in Wisconsin in 2017. This is a great example of the appeal question. This is also published in Reuters. Here, an appeals court in Milwaukee ruled that Wisconsin $750,000 cap on non-economic damages in medical malpractice suits was unconstitutional. And so, they upheld a jury award of $16.5 million. So that's way above the typical one million policy coverage most doctors carry. And this case is where an emergency room doctor and a physician's assistant diagnosed but failed to warn the plaintiff.

Brian Bradley: And then the same thing happened in Florida 2014, where the Florida Supreme Court struck down a similar damage cap in McCall v. United States. And like I just said, in our own network, we had a doctor with a $1 million policy claim policy limit with a $3 million malpractice award against him for nerve damage claim. And this doctor was personally on the hook for over $2 million. And so, what saved him was an asset protection system that forced that excess money to settle very fast and very cheaply and at a lower rate. Then like I said, right now, we have a doctor dealing with an over-billing issue from 20 years ago. And he was just indicted on this, and the doctor has no coverage that extends that far back. And so all his assets, except for the ones that we protected in that California exempt PRP plan are now at risk.

Jim Dahle: Now, let's talk just very briefly about the cost of asset protection. I walk into your firm and I tell you I got a business on the side and I've got 12 different partnerships I'm a part of that I'm getting K-1's for passive income and I'm practicing and I've got a house. What's it going to cost me to engage your firm that first year. What kind of expenses should I be looking at laying out to put in a comprehensive asset protection plan? Can you give sort of a range of what that would cost?

Brian Bradley: Yeah. So like some of the stuff that we were talking about now, we were talking about like California exemption plans. Generally that's going to start 17 to $22,000 just depending on how much needs to get done, how much needs to be protected and how much they want to work with the trust administrator side. And the annual fee on that would be 4500 a year. But then like I said, your listeners go back to the return on investment talk, you're paying $17,000, $22,000 on the upfront charge. But that's just upfront costs. You're not thinking about then how you're getting all of these tax deferrals and money and auditing coming back to actually pay for that 10 times over. So it's really you're paying for an investment and protection.

Brian Bradley: And then some of the other things that we're going to talk about, for example, offshore planning or asset protection trust, depending on which route you go. Domestic ones would be cheaper. You're talking probably $12,000 domestically for an asset protection domestic trust. If you're going to go offshore, you're going to start getting into the 20 to $30,000 range for offshore or a combination of called a hybrid bridge trust, which we'll break down later on. That's about where you're talking about, that price range. If you want to go on the lower end side and you just want to do an LLC, that's going to be cheaper. But that's maybe protection, and generally you're going to look depending on how many or what you need, $1200, $5000.

Jim Dahle: Now, asset protection law tends to be pretty state specific. You mentioned that you're licensed in a number of states, do work all over the country. Should someone really be looking for someone that's licensed in their state that does a lot of work in their state? How important is that when it comes to asset protection?

Brian Bradley: It's really not because asset protection is nationwide. We represent clients all over the place. And it's a good question, big misconception. There are state specific nuances when it comes to for example, exemptions and the amounts that can be exempted. But when we get into different levels of protection, all we're doing is looking at jurisdictions, what the client's needs are and then maxing stronger jurisdictions when it comes to like charging for LLCs or different types of trust. And then using those. There's about 17 states that have some sort of self-settled pass protection expenditure legislation. And the client and the attorney living anywhere can pick any state to set these up in. For example, in Nevada.

Brian Bradley: But we're also seeing a legal shift and weakening of domestic asset protection trust that break down later on when we get more into jurisdiction selections. And then the same thing goes for LLC. You're really just looking for charging over strength. And so, when we're using the tools that we need, we're looking for the stronger jurisdictions. And because we're not, the only time you have to “pass the bar,” in the sense is when you're going in to represent a client in court and talk and represent them in a legal situation.

Brian Bradley: So if I were to go and represent you in court, I can only go and represent you in court in states I'm actually licensed in. But I can do the asset protection part nationally. And then if you're looking for a good asset protection firm, look for firms that are regional and national because of the network that they have. They're going to be well versed in all of the different exemptions.

Jim Dahle: Now, speaking of identifying a talented asset protection attorney, what do you really look for there? I mean, who are the good guys in the field, who are the bad guys in the field? You probably don't feel comfortable naming the bad guys unless we end up with some libel issues here. But can you name a few of the good guys and why you think there's good guys in the field?

Brian Bradley: There's me, there's Lodmell & Lodmell, I really like working with Verdon, Jeffrey Verdon out of California, a great guy. Cunningham Law Firm is a great firm. So there's an Asset Protection Council, they're the oldest firm in the nation that's 113 years in existence. These are the top guys in the field. We all work together, know each other. I think the best litmus test for your listeners when they're thinking about how to, because you should vet a firm and talk to more than just one and kind of get a feel for them before you hire somebody. So I think some of the questions I would ask when vetting them would be, is this the bulk of your practice or just part of it. Are you just dabbling in it? I'm a traditional estate planning attorney and I maybe set one of these two up a year. So they're not going to really know how to set up an asset protection plan. They're just traditional estate planning attorneys.

Brian Bradley: What percentage of their time is spent with asset protection basically? How many clients do they do this specific type of planning for? Has it been challenged and what are the results have been? Can they send you existing case law? Do they do an asset assessment and diagnostic for you? That's a big one. A problem with some of these firms is they are just trying to stump everybody into, everybody can use an LLC or everybody in the world can use this and they're not assessing the actual client's needs through a diagnostic and doing any detailed work on them. They're just basically throwing everybody into one bucket. Do they work nationally? We kind of talked about that before. If so, that's good just because of the depth of work that, and other firms in the network that they can pull from.

Brian Bradley: What's the network like? Do they work with trust administrators and financial advisors and CPAs who all focus on investments? Can they provide professional recommendations? What kind of ongoing support and education do they provide to the clients themselves or are they just saying here's the system, goodbye, good luck, try not to screw it up on your own. Don't come back. What you should be looking for is a person with a vast network who does this as their primary area of law and then making the client an ongoing member of their family.

Jim Dahle: Now, you have a framework you like to use when you're looking at asset protection principles that we talked about before we got on the podcast today. Exemptions and then jurisdictions, LLCs and charging orders and family limited partnerships. Can you explain a little bit about the framework you like to use and why you like it?

Brian Bradley: Oh, yeah, my framework is everybody starts. I don't care who you are. I had one client that's like, I don't want to fill out a diagnostic, I want to get on the phone with you immediately and talk. The framework starts with you go on our website and you fill out the exemption diagnostic because this is going to go in and break down all the exemptions and they fit state by state. So, it doesn't matter what state you're in. And it uses analytics and metrics to actually break down what we need to do. So when I get this diagnostic report to me, it breaks down your entire financial life. And then we review it with the client. So it starts there.

Brian Bradley: And then we look at what exemptions can we max out and then what's left over. Some states have great exemptions, some states have horrible exemptions, some fall in the middle. And then if they can't do anything through exemptions, then we go into advanced asset protection, which are different versions of trust. Or sometimes they can, let's say this person's worth $10 million and I can exempt four million of it. That means I now have $6 million that I still have to do something with. So I have excess planning that I have to do. And so we just work through the client on those steps. And we always have to know, are you being sued or do you have a reasonable expectation that you're going to be sued right now because this is really proactive planning. Courts don't really favor you coming in knowing you're going to be sued because then we have to really go through fraud and fraudulent transfer arguments.

Brian Bradley: And then the cost is just going to be a lot more. Like there'll be things that we can do but it's better to pay five cents on the dollar than 75 cents on the dollar if you're coming in when your hair's on fire.

Brian Bradley: And so, to break down, I guess some of these tools, we can start with exemptions. I love exemptions and exemption planning is one of the main staples besides jurisdiction selection. But it's also one of the least understood. And there's a few reasons we start with exemption planning. First, it's a state given legal right. So, you always want to claim and max those out first. The second you're starting to see the weakening of out of state asset protection trust nationally, for example, we have a California case came down in 2012. And they completely disregarded the Nevada Asset Protection Trust for a California resident.

Brian Bradley: So we're starting to see this more and more now nationally. And so, we prefer to start with your state and federal exemptions. Max those out and move on to using the strongest jurisdictions possible when we set up asset protection trust which we'll get into afterwards. But to break down a few examples of exemptions, first exempt, like I said, they'll vary state by state. And a few good examples are Florida homestead exemptions. And I think it's just an easier concept to start with homestead because people have heard the word before. And so, in Florida, your home regardless of its value is going to be absolutely protected from creditors so long as it's contained within one fourth of an acre. Same with Texas but for any size. And so that's a basic understanding of an exemption.

Brian Bradley: I'm sure you have a high percentage of California listeners and doctors and I want to break down the specific California exemption because California is rated the number one litigious hellhole for like five years running. And there's not really many asset protection benefits in California that they have, except for this. California is the only state to grant full exemption protection for any asset that qualifies for being placed in a private retirement plan. And this was codified under CCP Section 704.115 way back in the 70s. So it's been around for a while. It's been around for over forty years, a very, very strong case law from the Ninth Circuit during that time.

Brian Bradley: And so, when you talk about adding value, just within exemption planning over the last 24 months, we've been able to through the trust administrators TRUST-CFO I'm working with, through trust administrators, protect over $600 million in assets and save over 45 million in taxes. So, that goes part in hand to that add value that we were talking about earlier. And then one of the nice things about exemption planning is that once that asset is qualified as exempt, nothing crazy or elaborate needs to be done to protect it. It's exempt. And because these plans are tax neutral, you can invest in anything you want. They're not limited like our recent plans. We can protect a lot like cash, real estate portfolios, life insurance, private equity, your corporate stocks, your LLC membership interest. And then these plans aren't limited like a recent government plans because they're state created, not federal government related. They were created before the government even created ERISA plans. They actually copied these California plans and piggybacked off of them.

Brian Bradley: And so, what this means is that there's no 59.5 age limit for distributions. And then the other beautiful thing for exemption planning is that you can actually protect the future value of an asset. And so, what this means is that a lot of businesses that you start or you're investing in or real estate, they all have future value. We can actually protect the values that haven't been earned yet by using them. The cost of it is a higher end protection and it's going to start around $17,000. Go between 17 to $22,000 to get going,

Jim Dahle: Are there other states besides California which offer those, I say non-qualified, I know some of it is qualified, but these special retirement plans that people use for asset protection? Are there other states that offer that or are they primarily just your standard ERISA and IRA plans?

Brian Bradley: It's just basically ERISA plans are going to be exempt. IRA ones just going to be state by state, they're not going to be fully exempt. But this is really just a California specific, this is the great thing about California is they're thinking ahead in the 70s to protect retirement assets. But, we're the only state that created that private retirement plan full exemption. And then when we go break down the next stage of it, if you want to move into that jurisdiction and what is all this confusion about, domestic trust, offshore trusts.

Jim Dahle: Well, before we move into that, let's just finish up exemption a little bit. I think I've got a good grasp on it, but I'll bet there are a lot of listeners that don't quite understand what you're referring to when you talk about exemptions. In general, most states will exempt your qualified retirement plans, both ERISA plans and IRAs. And what that means essentially is that even in the event of a huge judgment against you, they essentially can't touch those assets, depending on the state law as well as some protections for cash value life insurance, some protections for annuities. You mentioned the homestead one.

Jim Dahle: I know some states have some really wacky laws, like I think Texas will protect 120 fowl and 12 head of cattle and a couple of firearms or something. What else is there that's included in exemptions?

Brian Bradley: So then you got some exemptions, like HSA funds, 529 funds. And then that's just going to come down to, are those deemed property or not? And so, you kind of went through a good list on there. The only one that I would say just be cautious on is you mentioned IRAs. They're not fully exempt. So, you just got to be cautious on thinking your IRAs going to be fully exempt. Government ERISA retirement plans, like your 401k are, 100%. That's great, we max it out. But IRAs are limited and they're only partially limited for bankruptcy. And different states will treat IRA exemptions differently. Same for life insurance. So, some have significant protections, others not as much and some not at all that aren't fully exempted will be subject to cover for an over policy claim or a claim that's not going to be fully covered by your insurance provider.

Jim Dahle: What about 529s and HSAs. Do they get exemption protection in any states?

Brian Bradley: With the 529 funds, they'll have some protection built in for exempted under the Global Education Code. At the end of the day, the protection comes from the fact that those funds are not for the benefit of the parents but the child. So the parents don't own those funds themselves, they're not the beneficiary of it, the children are. So that's how that kind of breaks down.

Jim Dahle: Even though technically, the parents are the owners. They could take the money out and pay the penalties and spend it on a sailboat with the 529.

Brian Bradley: It's just protected under the Global Education Code. And so, the argument would be, that's the argument. If someone were to make a claim for 529 funds is, well, it's not for the benefit of the parents. It's in the trust, it's not for the benefit of the parents, it's for the benefit of that child. And then it's going to be well, can the parents access it or not. So they'll offer some protection, but like I said, it's not fully exempted protection.

Jim Dahle: It doesn't sound like there's a lot of case law on 529s because I've looked it up. I'm not sure anybody really knows if that protection is going to stand up. Do they?

Brian Bradley: No. I think like I said, it's going to come down to the courts, the court getting challenged and where it falls in line up there but you're right.

Jim Dahle: How about an HSA?

Brian Bradley: So HSA, so it's its own trust so it can't be placed in another trust. These HSAs are similar to ERISA plans but HSAs will vary state by state. Is the fund going to be is the fund going to be considered property or not? And the exemption status is going to be determining on the state if you, for example, if you declared bankruptcy. And the Eighth Circuit Court just came down and said, no, they're not exempt and will be deemed property in bankruptcy. So it's just going to be state by state circuit by circuit decision on do they deem these property or not. Some will say yes, some will say no, some will say to a certain limit.

Jim Dahle: That doesn't sound like it's looking good if the circuit courts are starting to strike it down.

Brian Bradley: Exactly.

Jim Dahle: All right, let's move on and let's talk about jurisdictions a little bit, particularly with regards to trust. You've mentioned asset protection trust, I think there's 17 states that have some form of that, as well as offshore trusts and portable trusts, which are moved offshore in the event that's needed. Can you talk a little bit about jurisdiction and those trusts and their pros and cons?

Brian Bradley: Yeah, definitely. After maxing out exemptions, picking a jurisdiction to set your protection system up is really the next big issue no matter what state you live in, especially if you have equity to protect. What jurisdiction means is that the laws and the rules that govern you and trust and business entities are going to be different from one jurisdiction to another. For example, one state to another one country to another. And so you have two options when you pick a jurisdiction. You can establish them domestically in the US, for example, like in Nevada, or you can set them up offshore in another country like the Cook Islands.

Brian Bradley: I personally prefer the power of going offshore if and when it's needed. And it's simply because it's the best home court advantage. It makes lawsuits go away very fast or quickly resolve them for pennies on the dollar, even against super creditors like the IRS and the SEC, who can just create money and come after you forever. And so the power of the foreign offshore trust like the Cook Islands is that it has statutory non-recognition of any other jurisdiction.

Brian Bradley: So what this means is that your US judgment is worthless in the Cook Islands. The foreign trustee would just tell them to go pound sand, we don't care. They would have to start the case all over from scratch in the Cook Islands facing the highest legal standard in the world, the murder standard, which is beyond a reasonable doubt. The plaintiffs have to front the court cost, employing a judge from New Zealand. And if they lose, they pay. And so, when you have to prove a civil case by the murder standard, they're most likely going to lose. And then the statute of limitations is only one year. So by the time they even realize they have to see you in the Cook Islands, most likely that statute's already run so they miss their chance to swing the bat.

Brian Bradley: But there's pros and cons to everything. If you're purely foreign, meaning offshore, for example, in the Cook Islands, that's going to be very effective. I mean, five out of five stars not going to be statutory non-recognition. But on the other three factors that we look at, control costs of compliance, it falls a little short. And so, for a foreign asset protection trust to work, you'd have to be out of control and subject to a foreign trustee. The annual maintenance costs are going to be higher. And if you're purely foreign, you now have a lot more IRS reporting and asset disclosures to file every year like IRS forms 3520s and 3520-As. But we really only you have about 5% of our clients that ever need to go purely foreign.

Brian Bradley: For most people, it's just going to be overkill. And now if we're going to compare this and break this down to purely domestic asset protection trust, stateside, US based, purely domestic asset protection trust will be less expensive, so they'll be easier on costs and maintenance fees, but they fail on effectiveness and control. You still have to give up control to a trustee, and then they fail because of the foundation of asset protection. And the foundation is to not recognize another jurisdictional court orders. But the hallmark of the US legal system is the US Constitution. And in the US Constitution, we have the full faith and credit clause meaning every state has to get the full faith and credit to the judicial proceedings and court orders of every other state. You just can't run and ignore judgments in the US, which is how our whole system is set up as a good thing.

Brian Bradley: And like I said, we're seeing a pattern of domestic asset protection being pierced. And we have just a few recent high profile cases where this has happened. Ray Hubber in 2013, Dale v. Dale, 2015. All these were good facts but the court just completely disregarded the jurisdictional selection for the trust, which if you can't protect your assets, then that's not asset protection so that's not good. So then your listeners or the client is weighing the options. All right, what do I do, which do I pick. Power of offshore, cost maintenance of domestic. And if you don't need to go purely foreign, then I say neither.

Brian Bradley: We use what's called the bridge trust and it's a hybrid of a domestic and a foreign asset protection trust. And so we're combining the best of both. And this was created 30 years ago by my affiliate Doug Lodmell. And we use the word bridge just to demonstrate how we're using a foreign trust in connecting two countries together. And then we just crossed the bridge to the safety of the Cook Islands if and when you ever are under attack and need to. And then when the attack is over, they move back to the US.

Brian Bradley: And so, for those of you who, like me really like to geek out on things, the bridge trust is a grant for trust. And so, what this means is that you're the creator of the trust so you're retaining some of the powers for it. And then like all asset protection trusts, it's a self-settled spendthrift trust. So what this means is that they're self-settled, meaning by you, for yourself as your own beneficiary. And then this is now where the win win really comes in the value add. For the purpose of IRS reporting and disclosures, your bridge trust is actually considered domestic, not foreign. And this is because it's specifically drafted to me a two part test under USC section 7701, referring to the court test and the control test.

Brian Bradley: And so, why we care about this is for tax purposes. What this means is none of the foreign IRS filings or asset disclosures of any kind. And it's cheaper on cost and annual maintenance. But for protection purposes, you also now have the strength and power of the Cook Islands in your back pocket when you need it. So this is the power of foreign asset protection trust or the hybrid option with statutory non-recognition, combined with the extreme statutory of hurdles and the difficulties to sue somebody in the Cook Islands for anything domestically. The purely domestic version only has half the formula, but the asset protection trust for them to work, you need to have both options. You need the offshore component if you really want to be protected. But again, it's a higher level of protection. You were talking about cost before so it's going to be about $30,000 start up cost for that.

Jim Dahle: So is a domestic asset protection trust by itself, is that even worthwhile? You talk about all these trusts being pierced, is it not even worth doing?

Brian Bradley: My view of it now is it's becoming weaker. So, if you want to use it more as a higher level of protection than versus like an LLC, then yeah, go ahead and use it, you're going to get more protection than an LLC from it. But a protection is really, really a concern for you and you really want to know that you're safe and secure, then go and use a hybrid. Unless you're under, you know you're about to be going under fire, then you go offshore immediately. But that's just going to be a determination of the person who's making a decision and where they fall on that line of that.

Brian Bradley: I personally would recommend the hybrid just because I always like to have the big red button that works at the end of the day if and when I ever need it, especially if I'm big, I'm visible, I have moving parts. I can get sued from a lot of different areas. The more I have, the more I would be concerned about. So for me personally, I would want a stronger protection.

Jim Dahle: Now, is it complicated at all? For example, if I want to put my business, the White Coat Investor LLC in this hybrid trust, is that even possible to do something like that or are you basically limited to cash and more traditional investments? What can be put in that trust I guess?

Brian Bradley: You can put all your assets into it. Obviously, like a house isn't going to be portable, I can't physically put a house into it. So, the first way that it works, you can protect corporate shares, all your value out of your business interests that you own. What happens is, first, it's used as the ultimate negotiating settlement tactic to where if someone were to want to sue you, you just say, well, we don't hide the ball here. We have our foreign offshore component to our trust. Even if you were to get a massive judgment, you get nothing. Good luck exercising it. Let's make a deal right now for pennies on the dollar and that's how we settle these to go away. That's a strength of it.

Brian Bradley: If by chance all hell broke loose and you couldn't settle the claim and you had a judgment exercise against you, by that point, triggering events would already transition the assets to the Cook Island trustees, and they would be managing it. And then if we would have to, at the end of the day, we would just equity strip everything of value and then protect, because at the end of the day, that's what pays your bills, access to cash. And so that's what the end of the day if all hell broke loose which really doesn't happen, you would transfer the value out and equity strip what you have, so that way you have access to live and continue your life how you're living it.

Jim Dahle: Now, a lot of my listeners may not be familiar with the term equity strip. As I've seen it used, it basically means borrowing against anything that isn't exempt and taking the money out of it and putting it into something that is exempt. Is that the way you use the term equity strip?

Brian Bradley: Yeah, that's a great way to break it down, yeah.

Jim Dahle: So, let's take a kind of typical doctor. Let's say you got a doctor and he's got a million dollar ERISA plan, he's got a house that maybe only $100,000 of his $400,000 in home equity is exempt. And he's got a half million dollar, a million dollar taxable investment account invested in mutual funds. Is he a candidate for a domestic or an overseas asset protection trust, or really the cost of that just not worth protecting that small of an amount of unprotected assets?

Brian Bradley: His ERISA plan is already exempt so he's good there. It's a matter of what I would look at also, what is his long term goals. Like does he want to keep investing, what is he going to be investing in? He doesn't have that much equity at that moment to say it's really worth it because we really look at net worth 2.5 million to go which is minus your liability. And so, his house wouldn't equal to that level yet. It would then look at what is the value of your business and then maybe that is, the liability of that and where you can get sued. So we would just look at the overall picture.

Brian Bradley: So I would say a starting point would be, look at where you're getting your risk from, all of your different buckets. What's the equity of that number, what's at risk. And then when you start getting into that million dollar corner that you're rounding, that's when you need to start thinking about these higher levels of protections.

Jim Dahle: All right, let's move on a little bit. Let's talk about limited liability companies, LLCs, and charging orders and the kind of protection you can get from those and how it varies by state.

Brian Bradley: Yeah. So, the LLC or limited liability company is a good entry point to establish some basic level of protection. And if you're trying to protect just a few assets and money is limited, it's a great place to start. It's affordable and you'll get some limited personal liability out of it provided its protection element isn't pierced, like the veil isn't pierced, which would mean you're being held personally liable.

Brian Bradley: And then depending on the state on the jurisdiction, you can either have strong charging orders or horrible ones. But that's state specific. And so what a targeting order is referring to is how much a creditor can collect from you, the member owner of the LLC. And that's why we look for stronger jurisdictions when you set up LLCs with better charging orders. Nevada is a good state, Delaware, Wyoming, Texas, Arizona have strong charging order protections. California, horrible. Oregon, horrible.

Brian Bradley: So if you're thinking of the LLC option, I would say use two. One as an asset holding company, especially if you're investing in real estate, and then a second as an operating company, do all the contracting and operating out of. But also remember, it's still just maybe protection and use more as a deterrence. That's how these play up. Generally, it's easy to make a piercing the corporate veil argument just with how money is managed in their accounting. Nobody's perfect. Most people start commingling personal business accounts with their personal accounts. And so LLCs then are going to be argued to be extensions of the person, the veil pierced and then access to those funds to pay damages.

Brian Bradley: And then I think the other part of your question comes down to inside versus outside liability. It's a good concept just to understand. Inside liability is liability that comes from inside the business from your business activities, like having an investment property inside an LLC, and then somebody gets hurt, or the house burns down and there's a party and somebody gets drunk and drive and killed somebody. That creditor's claim is limited to what's inside the business. Now, if you only have one property in one LLC, that's fine. But what if you have four properties in one LLC and that LLC gets sued? All those houses are now on the line for that collect on that damage.

Brian Bradley: Outside liability is liability that comes from outside the business from your personal life. Like you hitting somebody while you're driving your car. If it's set up correctly, yeah, your business entities or your LLCs can protect you from both, but you just need to remember that, you can't protect an asset 100% because you always have the capacity for one of those assets to self-explode. And so, if that asset explodes, you can't protect that asset, you got to move it away. But what you want to do is protect the rest of the assets that are there from the exploding asset.

Jim Dahle: So as a general rule, are LLCs better for internal or external liability?

Brian Bradley: You can set them up to protect for both. But I think as a general rule, what I like to do is limit how much equity you put in to a single LLC. Like we try to limit to, I would say, 250, $500,000 per LLC. But in some states, that's just unrealistic. For example, California, good luck buying a house for like under a million dollars, so that general rule doesn't work. So you might have two properties in an LLC, but you just want to split up the equity and what somebody has access to in the LLC, just so that it can't bleed into other assets that you put into it.

Jim Dahle: But in general, if somebody slips and falls in my rental property, successfully sues me and I lose the rental property, is that protection that they can't come after my personal assets pretty strong? Or is it relatively easily pierced if they can show the one time I use the business account to buy groceries?

Brian Bradley: That's why I say LLCs are good starting points if you don't have the money to go into something more protected, but there may be protection. What is the first letter of the first word there, limited. So they tell you what it is, this is limited personal liability and piercing the corporate veil is very easy to make. I did this a lot as a trial lawyer. And it all just comes down to simple things as accounting errors or mismanaging the business and using it as an extension of yourself.

Jim Dahle: Let's talk for a minute about family limited partnerships and their role in asset protection. I mean, there's obviously a huge role for them in estate planning, but can you describe their use and role in asset protection?

Brian Bradley: Yeah, they're like LLCs and they have some charging order protection and I like them better than LLCs because they have a very distinct delineation between the managing partner called the general partner and the minority partner who doesn't. We like having both a general partner interest and a majority limited partner interest. And we use what's called an Arizona Asset Management Limited Partnership as the starting point for clients as the holding company. And then later on, we add the bridge trust if and when they need it. And for the actual asset protection component of it, it's really a combination of the two together that you want to capitalize on.

Brian Bradley: So, an AMLP is a family limited partnership, but when they're drafted for asset protection purposes, they're called an ANLP. It's your holding company. And the way it works is that LLCs are owned. So you can create separate LLCs if you want, and those LLCs would be owned by an AMLP, along with, you can put cash, stocks, bonds, whatever safe assets you want in there. The way ownership and control gets set up is that the general partner of an AMLP, which can be you or a Wyoming LLC, if you want privacy, is the managing partner. That now gives you control and privacy.

Brian Bradley: The minority limited partners, they're going to be the bridge trust or domestic trust as the asset protection trust. And this is where the asset protection connection comes in. So you want both components of them there. And that's why we like the AMLP over LLCs is because of the delineation.

Jim Dahle: We're starting to get a little bit shorter on time. I've got a few quicker questions I'd like to hit on though that I get a lot from doctors. How much malpractice insurance should a doctor carry?

Brian Bradley: I think they should have as much as they feel comfortable, I'm not going to give like a dollar amount and I'm not going to give them legal advice on how much, they can say, I listened to this podcast and Brian told me to have that. So I'm not trying to say a numerical number there. But I think they should carry as much as they legally are required or that covers their specialty. Different specialties are going to have higher risk. A lot of doctors carry $1 million but that might not be enough, especially nowadays, especially as you adjust for inflation. And malpractice awards have risen and very few doctors have the resources to come up with them out of pocket especially if it's going to be an above policy claim or the coverage isn't going to be paid fully.

Brian Bradley: And look to possible access and surplus claims on liability if your policy holder, your insurance policy holder won't cover a specific part of your practice. And even look to umbrella policy insurances. And if you are also investing in money investments and businesses, I'd then add the component of asset protection into it also.

Jim Dahle: Now, a lot of times when I've talked to malpractice attorneys, both defense and plaintiffs, they've told me, carry what everybody else in your specialty and in your area carries. For example, in emergency medicine in Utah, most people carry one million, three million policies. Do you think that's good advice or do you think people really need to seek out and maybe buy more? Does that just make them fat pockets and bigger targets?

Brian Bradley: I just think that it matches their concern and risk more. You can say I have the bare minimum. I would say look at your specialty and the likelihood of what's going on in there and carry that amount. And then I would also say, look for an umbrella policy, read the fine print of your coverage and know what parts of your practice may not even be covered. And then consider excess in surplus liability. Or if you're concerned about the likelihood of me being sued is a lot and then I'm going to have damage to my reputation and possibly my earning capacity, excess in surplus claims can come into cover that back source of lost revenue and income right there. So, that's just as an assessment of what they need to do, that would be my recommendation.

Jim Dahle: Now when you're saying umbrella, are you talking about a professional umbrella policy or are you talking about a personal umbrella policy? Because they essentially always exclude malpractice claims from any sort of coverage.

Brian Bradley: No, I would say look at excess and surplus claims. You also have to remember, there's multiple components to all of these people's lives are also invested. And so, you also then want to protect yourself. It's not just malpractice that can come and bite them in the butt. There's also business issues that they can get sued from, we went over those, and then there's investments that they're making that they can get sued from. But the umbrella policies would cover them on those business ends and their investment ends as well to a certain point. But there's weaknesses in insurance also because they're always going to try to wiggle out of paying claims.

Brian Bradley: But in the realm of asset protection, you want to have as many moats and buckets and protections to protect yourself and your castle and your legacy as you can. You want to have max out all your protection. It just depends on where that client lies in the cost and need, the risk, the liability and everything they're doing in their life.

Jim Dahle: How about a personal umbrella policy? Do you have an amount that you recommend people carry? Should it be tied in way to your net worth? How do you decide how much to carry as a personal umbrella policy?

Brian Bradley: Yeah, I think a good way to look at it is have as much and above beyond the amount of the traditional limits of your personal home and your auto policies. Each area of your life is going to have a different level of risk. So the idea is, as you're more successful and making more and investing more, you should be creating more of these layers around you. So they have to assess what the amount of that is, what's not covered and then go from there. And so, it's just going to be an assessment from there. So I don't want to give them a dollar amount because I don't want someone to say, go and get this amount covered, but I just think that they should get and pay for as much as they can afford. I always think more protection is better, especially if you can afford it. Make sure you have the coverage above and beyond those limits of your personal home and your auto, for example, your auto policies. That way you're covered beyond limited claims.

Jim Dahle: I mean, that's pretty vague. It's hard to use that advice to do anything with. Most of us have raised our auto and home policies to $300,000, then stacked an umbrella policy of one or two or $5 million on top. But none of us have any idea of one million or five million is the right amount.

Brian Bradley: That's a personal decision on that. All I can say is, look at what your risk is and what's not covered and what you think is going on in each individual area. And then if you feel like you need to have excess coverage on that, then get that amount. I can't sit there and say, as a standard general rule, you should go and get $2 million umbrella policy because everybody's different.

Jim Dahle: Yeah. Let's talk a little bit about tenants by the entirety titling. Does it really work? Does it work for both real estate and for bank and brokerage accounts that are titled that way when the excrement hits the ventilatory service?

Brian Bradley: It's a good question. And the question comes down to does a creditor of one spouse have rights against tenants by the entirety of the property. And the answer is going to be that's going to be a state by state assessment when you're getting sued. Some of those states will have good homestead rights so that's great. But the issue and problem is what happens if one of the parties or spouses is sued? What happens? Cash flow stops, revenue stops. It's tied up and the property can have a lien placed on it. So that's why you need to protect your assets properly.

Brian Bradley: And this only is partially works if you're talking about individual debt, not joint debt or joint credit. So, if the majority of states that allow tenants this type of tenancy including like Michigan and Florida, you have a husband and a wife, they have to act together to transfer or partition or encumber the property. And so, a creditor of one of those spouses doesn't have to have an attachable interest in that tenancy.

Brian Bradley: On the other hand here in the minority of states, so there's always, it works this way in one area and this way in another, so in the minority of states that don't do this, either spouse can act alone to affect the property, like mortgages, partitioning and selling. So, tenancy by the entirety is treated the same as the other forms of joint ownership. And a creditor of one spouse can attach to the extent of the debtor spouse the interest and the property. And this then is going to allow a creditor to for sale a partition of property. So, it goes down to great, I'm not being sued and I have my ownership interest but my wife's being sued and she has hers. My ownership interest might not be taken away from me but she can still encumber that property and causing the effect on the property and tie it up.

Brian Bradley: But then there's also special creditor situations that could still have an attachable interest even in tenancy by the end of the properties. So even in states where the spouses must act together, the US supreme courts decided that property held as tenants in this way are always going to be subject to federal tax liens, again, one spouse no matter what the underlying state law is. The rules been extended even to criminal fines and forfeitures. Federal tax liens always trump state law.

Brian Bradley: So at the end of the day, look at it through the eyes of business. If you have clouded title and no revenue and cash flow, it didn't really do anything for you.

Jim Dahle: Yeah. All right, let's talk about future earnings. For example, a doctor's cleaned out. They're sued about policy limits, they lose everything that isn't exempt. Is it possible and how often does it occur that their future earnings are at risk in that sort of a judgment?

Brian Bradley: Future earnings can come into judgments at play especially if they don't have the money presently to pay off. Then those future earnings can be garnished for a claim, it's just like in any type of lawsuit for damages.

Jim Dahle: And is there any way to protect that?

Brian Bradley: In certain areas, there are. For like California, you can protect future value through PRP plans that we talked about with exemptions and assets and on business interest. But if you've already maxed out all those areas, like your earning of your paycheck can be garnished.

Jim Dahle: All right, we better wrap up here soon, but you've got the ear of, by the time this is listened to, in a month, probably 20 or 30,000 high income professionals, mostly doctors. What else would you like to tell them about asset protection that we haven't yet talked about?

Brian Bradley: Yeah, I would just say be proactive. Everybody will assume that you a doctor has money and deep pockets, even if you don't, even if you're just coming out of med school and starting up. Like I said, before cost is a byproduct of procrastination, you can pay five cents now on $1 now or 75 cents on a $1 later on if you wait. What you can do is proactively plan and set up installations and protection from frivolous lawsuits by forming and implementing a protection plan. And this helps deter litigation before you even get started. Like that's the point of it. Or places you in a position of strength to settle cases for pennies on the dollar.

Brian Bradley: And it's not just for medical malpractice, but also all the other areas of your life. Like your business investments, your real estate investments, whatever that you're doing on the side. That also has liability. Understand what's causing you to have a false sense of security. Have the small things in place, have insurance, know its limits. Have enough coverage and extra so that you know that you can sleep well at night. And as you started investing, having a California PRP exemption plan for doctors or a strong properly set up asset protection trust, it's safer, less costly in the long run, is more powerful, and it has proven case law on track records, even the worst case scenarios.

Brian Bradley: So with a properly structured plan, any excess amount of any judgment that you're worried about or any amount that's not covered would likely not come from your personal assets. So just at the end of the day, be proactive, be prepared and plan before you're under attack. So you have that peace of mind and you can sleep better at night.

Jim Dahle: All right, Brian T. Bradley, thank you so much for coming on to the White Coat Investor podcast. We appreciate your time.

Brian Bradley: Oh, thanks, doctor, for having me on it. I think we covered a lot so they might have to listen to this a few times. And I really had a great time talking to you, Dr. Jim.

Jim Dahle: Thank you. All right, I hope you enjoyed that interview. It's interesting, you can always know when you're talking to an attorney, it's a little bit hard to pin them down on stuff, isn't it? Specific questions, and sometimes you get specific answers, and sometimes you don't. Clearly asset protection more than many parts of law, the answer is it depends. As he mentioned early on in it, there's really no 100% sure protection available in asset protection. That's why I think it's really important that you start at the basics.

Jim Dahle: And the first line of defense in any sort of liability situation is insurance. Professional insurance, malpractice and personal insurance, your auto and homeowner's policy, renters policy with an umbrella stacked on top of it, that's your first line of defense. And then of course, you want to reduce liability as much as you can. You want to treat your patients nicely and practice good medicine, maybe not have a Rottweiler, and maybe not have a trampoline or a pool on your property, those sorts of things. Not let your teenage kid drive. There's all these things that we have to weigh all the time, whether we're going to take on that liability or not. But that's really the first couple of steps of asset protection.

Jim Dahle: Above and beyond that, you'd certainly want to know your state's laws and what's exempt in your state. In some states, all your retirement accounts are exempt. And that's a great reason to max out your retirement accounts. If you can max them out, then you know at least in the event of some huge judgment and you haven't declared bankruptcy, that you're going to be able to keep that much money. Maybe you don't get to keep your house if there's not a strong homestead law in your state, maybe you don't get to keep your taxable accounts and your investment properties and that sort of thing. But at least you'll have what's in those retirement accounts.

Jim Dahle: Same thing in some states with cash value life insurance and annuities, those sorts of things. You just need to know your state laws. If you have toxic assets like a rental property, you probably want to put them in an LLC. Yes, there's a little bit of a cost there but it's almost nothing. I mean, the White Coat Investor LLC was formed for $70 in Utah. It's a lot more in California. If you go to California, it's like 800 bucks a year I think. But in Utah, it's $15 a year. $70 to form it, $15 a year to maintain an LLC, it's just not expensive. And if it gives you any protection at all, it's probably worthwhile.

Jim Dahle: And then if you want to go above and beyond that and start making trusts, overseas trusts and domestic trusts and these portable or bridge trusts that can be moved overseas and family limited partnerships, well now you're talking about spending 10s of thousands of dollars. I think at that point, you've got to ask yourself, how much protection do I need? Is this really a significant risk for me? There's certainly a little bit of value there in letting you sleep at night, but how much real value is there? If your risk of above policy limits judgment, either personal or professional is so low and only you can really weigh that out.

Jim Dahle: It's interesting when he talks about the cost of value, he starts talking about these other values that they provide, these estate planning values and these tax savings strategies. Well, you can do that without setting up the trust. In California, they've got this California retirement plan, which can be both qualified and non-qualified. There's a blog post on that on the website if you want to read more. But in that case, obviously, the qualified aspect of it would save you some taxes, but the non-qualified it's not going to save you much in taxes, is pretty much, a pretty pure asset protection play.

Jim Dahle: And then it's also hard to put a value on the benefit of being able to deter a lawsuit or to force a settlement, right? Part of asset protection isn't necessarily to protect your assets in the event that there is a judgment, is to keep people from realizing that you have those assets in the first place and then to kind of force them to take a settlement, to take a policy limits judgment rather than going above and beyond that. And it's really hard to put a value on that too. And so, unfortunately, I think the listener is left with a pretty vague understanding of what they really need to do. And it's really hard to give you a nuts and bolts how to guide to asset protection. Certainly, as your financial life becomes more complicated as you become more wealthy as you take on more risks with more businesses and investments, a riskier practice, that sort of thing, it may behoove you to find an asset protection attorney and maybe spend some money with them.

Jim Dahle: All right, don't forget to refinance your student loans with SoFi. You can get $300 cash back and lower rates. And if you're a resident, you can even get $100 a month payments. Whitecoatinvestor.com/sofi is your access to that cash back. Thanks for telling your colleagues and trainees about this podcast and for leaving us a five star review to help spread the word. Head up, shoulders back, you've got this and we can help. See you next time on the White Coat Investor Podcast.

Disclaimer: My dad, your host, Dr. Dahle, is a practicing emergency physician, blogger, author and podcaster. He is not a licensed accountant, attorney or financial advisor. So this podcast is for your entertainment and information only, and should not be considered official personalized financial advice.