Legal - LLC vs Trust vs Personal Umbrella Coverage

[Sam Mathew]

Hello Bigger Pocket Members, 

I request your advice from experienced folks. I live in Florida but I have 12  rentals up in Michigan. They are all currently in my personal name.

I was considering putting even a $2M umbrella policy to provide personal protection. Or I was going to put them into an estate trust or LLC. But should the trust be a Michigan trust or Florida trust? Please let me know your thoughts.

[Greg Scott]

Quote from @Account Closed:

Quote from @Greg Scott:

My 2 cents

Why would you NOT get a liability umbrella? They are super cheap. They protect you from problems that may occur at your properties. Most people don't even think about this, but an umbrella also protects your properties from YOU. If you look at your phone because you received a text message and run into someone, they could sue and take your properties. An LLC won't help against that. Take a good look at an umbrella policy.

Trusts are great for estate planning but have minimal legal protection.

Hi Greg, you mentioned that an LLC wouldn't help protect against an outside-in lawsuit.  Can you expand on that a little?  (I would love to learn more about this.)  We recently did move property into an LLC to (hopefully) protect against both outside-in and inside-out lawsuits.  Thanks for any info you can share for my learning.
-tom

I'm not a lawyer.  This is my understanding of how this all works.

When you get an umbrella policy, the pricing is based on your exposure so they will ask you how many cars, boats, rent properties, motor cycles, etc you have.  These are general liability policies that cover just about everything you could get sued for, including running over someone with your car.

An LLC, when operated properly, can protect you personally, against something that happens on the property and someone sues. The first line of defense is actually running your property well. The second line of defense is the property liability policy. An umbrella adds a third line of defense. Personally, I stopped putting my properties in LLCs because with $2.5M of liability coverage, I felt pretty safe. An LLC is a final line of defense. Unfortunately 50% of people don't manage their LLC properly, and in those cases it just provides the appearance of protection where none actually exists.

You can also create liability for yourself by doing something like running someone over with your car. First line of defense is driving well. Second line of defense is your auto insurance. An umbrella policy creates a third line of defense. But, let's say you don't have the umbrella policy and you run over a Billionaire and their estate sues you. The amount they win will likely exceed your insurance, so then they go after your assets. What are your assets? Cash, stocks, cars, houses, and closely held companies, such as your LLC. Say goodbye to all that.

That is why I like the umbrella policies.  For $500ish per year, you get liability protection from just about every angle.