Episode Summary: The Ultimate Guide to Asset Protection: LLCs, Insurance & Partnerships
BiggerPockets Money Podcast
Host: Mindy Jensen & Scott Trench
Guest: Bonnie Galam, Asset Protection Attorney
Release Date: June 3, 2025
Introduction
In this insightful episode of the BiggerPockets Money Podcast, hosts Mindy Jensen and Scott Trench welcome Bonnie Galam, a seasoned asset protection attorney specializing in estate planning and real estate transactions for investors. The discussion centers on the multifaceted world of asset protection, emphasizing its critical importance in an era marked by economic uncertainty and legal complexities. Targeted towards both seasoned investors and those embarking on their financial independence journey (FIRE), the episode delves into practical strategies to safeguard wealth through tools like LLCs, insurance policies, and thoughtful partnership agreements.
Defining Asset Protection and Asset Allocation
Bonnie opens the conversation by distinguishing asset allocation from a legal standpoint, focusing on balancing present needs with future financial events such as children’s education, moving, and long-term care.
Bonnie Galam [02:00]: "It's about what we need to have now and what we need to project to have in the future, including what we want to leave behind."
Scott adds that while some in the FIRE community advocate for extreme frugality, most will need to consider asset protection strategies to preserve their wealth for future generations.
Major Risks to Assets
Bonnie identifies the two most prevalent risks Americans face:
- Car Accidents
- Divorce
Bonnie Galam [06:10]: "The two most common risk factors are car accidents and divorce. Ensuring proper insurance and considering prenuptial agreements are fundamental steps in asset protection."
Scott emphasizes the importance of preparing for unforeseen events, noting that many FIRE adherents may underestimate the complexity of long-term financial needs.
Strategies: Insurance Policies vs. LLCs
A significant portion of the episode explores the debate between using insurance policies (like umbrella policies) versus forming Limited Liability Companies (LLCs) for asset protection.
Insurance Policies:
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Provide a financial safety net by covering legal fees, judgments, and settlements.
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Recommended by Bonnie as the first line of defense.
Bonnie Galam [10:45]: "Insurance covers your lawyer and pays for judgments or settlements, making it invaluable for asset protection."
LLCs:
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Act as a legal barrier to personal liability but offer limited protection compared to insurance.
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More beneficial for higher-value properties and complex investment portfolios.
Scott Trench [14:00]: "For properties with significant equity, forming an LLC makes sense, whereas for house hackers, it might add unnecessary complexity."
Bonnie advises that LLCs and insurance policies are not mutually exclusive and can be used complementarily based on individual circumstances.
Homestead Exemptions and State Variances
Bonnie explains the concept of homestead exemptions, which protect a primary residence from certain legal actions, varying significantly by state.
Bonnie Galam [08:48]: "In some states, your primary residence can be entirely protected in the event of a bankruptcy or lawsuit, up to a certain value."
She also cautions against overestimating the risks of professional liability claims, noting that many catastrophic incidents are rare and typically covered by existing insurance policies.
Timing and Costs of Asset Protection
The discussion highlights that asset protection planning should commence early in one’s financial journey. Bonnie recommends conducting an asset protection audit to assess coverage adequacy.
Bonnie Galam [17:43]: "It's never too early to think about asset protection. Start as you grow your portfolio, whether financial or real estate."
Regarding costs, Bonnie reassures listeners that asset protection measures range from affordable to moderately priced, with many options involving one-time fees or manageable annual premiums.
Bonnie Galam [20:01]: "Most asset protection strategies cost between a few hundred to a few thousand dollars, making them accessible for many investors."
The Role of Partnerships in Asset Protection
A pivotal segment addresses the complexities of partnerships in asset protection. Bonnie warns against forming partnerships without thorough due diligence and comprehensive legal agreements.
Bonnie Galam [35:19]: "People often enter partnerships based on superficial connections, which can lead to significant risks and disputes."
Mindy and Scott further explore the necessity of detailed partnership agreements, outlining roles, responsibilities, profit splits, and exit strategies to prevent future conflicts.
Scott Trench [38:24]: "When entering a partnership, be explicit about roles, financial contributions, profit splits, and termination clauses to avoid future disputes."
Bonnie emphasizes the importance of estate planning within partnerships to ensure smooth intergenerational wealth transfer and conflict resolution.
Practical Advice and Insights
Avoiding Risky Deal Structures: Bonnie strongly advises against engaging in "subject to" property deals, highlighting the legal and financial pitfalls involved.
Bonnie Galam [30:22]: "I wouldn't touch a 'subject to' deal. It's too risky and not ethically sound."
Effective Partnership Management: For those who choose to partner, Bonnie recommends clear communication, formal agreements, and understanding each partner’s financial standing to mitigate risks.
Conclusion
The episode wraps up with a recap of key takeaways:
- Prioritize Insurance: Ensure comprehensive coverage to protect against common risks like accidents and divorce.
- Strategic Use of LLCs: Utilize LLCs for higher-value assets and more complex investment structures.
- Early Planning: Initiate asset protection measures early in your financial journey to provide a solid foundation for future growth.
- Thoughtful Partnerships: Enter partnerships with trusted individuals, supported by detailed legal agreements to prevent disputes.
Mindy and Scott underscore the importance of asset protection in achieving and maintaining financial freedom, encouraging listeners to take proactive steps to safeguard their wealth.
Mindy Jensen [45:24]: "Protecting what you've built is essential in our litigious society. Use the tools available to ensure your financial legacy remains intact."
Additional Resources
For more information on Bonnie Galam’s services and resources on asset protection, listeners can visit her website at thegallenfirm.com or follow her on Instagram @BonnieGalamEsq.
By leveraging expert insights from Bonnie Galam, this episode provides a comprehensive guide to asset protection, equipping listeners with the knowledge to protect and grow their wealth effectively.