The Trump Blog

Along with taxes and spring cleaning each year, should come a time of introspection into your assets.  Do you carry the right amount of insurance to sufficiently protect yourself and your possessions against unexpected perils?  I am talking about the third “must do” besides death and taxes...Insurance and how to make it part of your asset protection program.  

I am surprised at how many people have no idea about what their insurance covers, what endorsements they are paying for, or what deductibles they have.  They spend thousands each year between health, accident, auto, home, liability and commercial insurance and much of their attitude is that “it’s all the same”...”motor oil is motor oil”.

They think that until they need to make a claim and are furious to find out that they weren’t covered properly for what they thought.  My brother-in-law recently had a burglary at his home and they took a gun safe with close to $30k in guns inside.  His agent had even been to his home and marveled at his collection...then sold him a policy with $2500 worth of firearms coverage.  He didn’t bother to sell him the necessary floater policy that would have protected him. 

It’s not surprising, though.  The lawyers have made the policies so verbose by having to spell out what is and isn’t covered and in doing so, forced the average American to make a real time commitment when deciding to investigate for themselves.   Most never do.

My point is that you should each year, review your coverage and ask your insurance agent to shop your policy thru multiple carriers.  See what the difference is in premium by raising your deductibles. You may be able to purchase additional endorsements and get more coverage for less money than what you are paying now.   You will keep the insurance companies honest and likely create your own, self-driven, economic stimulus rebate each year!  For more on proper use of insurance for Asset Protection you may want to check out Asset Protection 101 by J.J. Childers

So have you even felt the sting of not being covered for something you thought you were covered for?  If so did you utter the now famous phrase, “you're fired” to your agent? 

Many people mistakenly believe that they don't need an asset protection plan because they're insured. Nothing could be further from the truth. While insurance does have a place in your asset-protecting system, it must not be your only line of defense.

Insurance proceeds are only paid in accordance with the terms of the policy. Sure, insurance companies are in the business of accepting the risks of others, but it's on their terms.

Think about how casinos make their money: Casinos know that some people are going to win at the tables, for example, but because far more people lose than win, at the end of the day the casino is going to show a profit. Insurance companies have a similar philosophy to making a profit: they know that some policyholders (customers) will suffer an accident for which the insurance company has to accept liability, but many more people will have accidents for which the insurance company is not responsible, or they won't have an accident at all.

Why do more people walk out of a casino as losers rather than winners? It's because the casino makes the odds, and the odds are in their favor. Now let's think about insurance policies, which are based on the "odds" by which the insurance companies issues policies. Who writes those policies? That's right -- the insurance companies. So of course, the policies are in their favor.

With all of this in mind, there are two main concerns about relying solely on insurance policies for your asset protection:

First, policy limits - You should always know how much the policy will pay out in the event that a claim is filed. In many situations, it is impossible to know how much coverage you need, especially with respect to liability policies, since you don't know how much of your money a sympathetic jury might give away in the event of a lawsuit. Still, you can often tell how much coverage is too little, especially for property policies that insure damage to a specific asset that can be appraised.

Second, policy exceptions - All insurance policies are not equal, and many times the insurance company will "put the odds in its favor" by carving out endless exceptions to its policy. Accordingly, it is imperative that you know exactly what types of accidents, events, and damages the policy covers.

Just as important as the exceptions to a policy, an insurance company can be relieved of having to honor a claim if proper filing procedures are not followed. Many times a policy will specify that a claim has to be filed within a certain period of time after an accident has occurred, or if changes have occurred to the business or property covered by the policy.

And always look for whether a liability policy has a duty to defend clause. Such clauses state that in the event that the policyholder is sued, the insurance company will provide an attorney to defend the suit.

Regardless of the type of insurance policy you have or are considering purchasing, always keep in mind that any policy will only fulfill its role as a last defense in your asset protection system.

To be certain your assets are fully protected, be sure to read Trump University Asset Protection 101: Tax and Legal Strategies of the Rich by J. J. Childers.

One of the biggest misconceptions I hear about asset protection law - even from other lawyers - is that everyone should have his or her personal residence owned by a business entity such as a corporation or LLC.

This is a huge mistake. I realize that this may sound counter-intuitive, but your home should always be owned by you and your spouse and held in a revocable living trust. (I discuss revocable living trusts in detail in my new book Trump University Asset Protection 101. You can also learn about them from your attorney and accountant.)

So why wouldn’t you want to have your personal residences owned by a business entity? For starters, let’s think about what would happen if that business entity is sued. Since your business conducts more activities, deals with more money, and interacts with more people than you do personally, your business entity stands a greater risk of being sued than you do. Therefore, if your business entity is sued, all of its assets, which would include your personal residence, stand to be lost.

The second reason you should own your personal residence in a revocable living trust rather than in a business entity is because you would lose the personal deduction on your individual taxes that you would otherwise have. As you already know, the amount of interest you pay on your mortgage each year, depending on the amortization schedule, amounts to a significant deduction. Moreover, this deduction would not be available to your entity. Accordingly, it would not make good tax sense to place your home into a business entity.

The third reason why you would not want to place your home into a corporation is because you would lose the homestead exemption. As you’ll recall, the homestead exemption allows for your home to be protected, up to a certain amount, from most types of creditors. Homestead exemptions (and all other types of exemptions) are not available to business entities. By transferring your home into a business entity, you will be losing a powerful asset protection tool.

So what benefits does placing your home into a revocable living trust give you? As we just discussed, placing your home into a revocable living trust allows you to keep the tax and exemption benefits that you personally enjoy as a homeowner. Another benefit is that it allows you to pass your home on to your heirs and beneficiaries outside of probate. To learn more, check my future installments on this blog or get your hands on a copy of Trump University Asset Protection 101.