Introduction & Webinar Overview
Francisco Sirvent: Welcome, welcome everybody. If you are here and you’re in retirement or close to retirement, and you’re in the situation where you have about $1.5 million in rental properties and other liquid investments, and you are wondering what’s different about that specific situation when you’re planning your estate, I do want to give you the promise of what I’m going to deliver to you today.
If you lock down that kind of an estate with just a typical, run-of-the-mill, off-the-shelf estate plan, I want to show you what I think are three unique differences for somebody in that situation. You have got to protect your rental properties. That’s a big part of your estate, and there are unique things to do there. You have got to protect those liquid accounts. Honestly, there are things to do to protect your estate from lawsuits, creditors, nursing home expenses, and all those things that are unique to that scenario. Then, how do you balance all of that while making sure it goes to your kids and grandkids when you pass as easily as possible?
00:07:26
Francisco Sirvent: So, we’re going to blend that all together and show you how to do it while paying as little in taxes and as little in probate or other fees, making sure your estate has the things that you need. My goal is really simple: if I can show you the unique pieces of that and help you understand and evaluate whether you need that unique stuff, then I think you’ll be able to walk out of here at the end of 30 or 45 minutes and say, “I know what’s different about my plan,” and you can just take it and run with it.
Now for the lovely legal notices. Yes, so I’m Francisco Sirvent. I’m the owner and founder of Keystone Law Firm and Lifestyle Planning, where we do estate planning, wealth management, insurance and annuities, and tax strategies. We do that all under an umbrella service we call the Retirement Management Office. This is not legal advice for your specific situation. I need everybody to make sure you understand that this is general information of an educational nature.
00:08:38
Francisco Sirvent: I do hope it’s helpful, but please don’t run out and say, “He gave me specific legal advice, tax advice, or investment advice.” I’m not giving any of you specific advice on anything. Please talk to a qualified professional who can help you get specific answers. If you need more information, you can check us out at keyston.com or retirementmo.com.
So, secret number one: what’s one of the big differences here? If you’re sitting here and thinking, “Look, I’m living in Chandler. I got my trust drawn up 5 or 10 years ago. I’m good, right?” The truth is, if you’ve got a house and a little bit of money in the bank sitting at Schwab or somewhere similar, a typical trust is going to do what you expect. If it’s current, funded properly, and reflects current laws plus your current wishes, it should do what you want it to. But when you’ve got different kinds of assets—you’ve got real estate and you’ve got other liquid investments—when you lump those all together into one bucket, that’s where problems come up. They are very different categories of assets.
00:10:01
Categorizing Assets & Understanding Real Estate Liability
Francisco Sirvent: Real estate carries with it a lot of liability, and that’s not the case with investments sitting in a Schwab, Fidelity, or Vanguard account, or wherever you have your investments. You’re invested in some portfolio of funds; they grow and they spit off dividends. But if one of those companies gets into a lawsuit, they’re not trying to sue you because you own some tiny little piece of the company in fractional shares. It’s not going to happen. There’s no liability in owning those assets.
The liability exists on the real estate. Real estate carries a lot of liability, whether you own residential rentals or commercial property. Either way, when I first started out as a clerk in law school, the first lawyer I worked for had been doing this for 30-plus years. His job was defending cases assigned by insurance companies when someone was sued. As you can imagine, if you have homeowners or car insurance and something happens, a lawyer sends a demand letter saying, “We’re going to sue you if you don’t pay us all this money.”
00:11:31
Francisco Sirvent: When that letter comes to someone, they hand it to their insurance company, and the insurance company says, “Okay, we have to get you a lawyer.” He was that lawyer. So I got to see a bunch of lawsuits that he had to defend, and in almost all of those cases, real estate was involved.
In one case, a woman tripped over a curb walking outside of a community building during a meeting. She hurt herself, found a lawyer, and sued the organization. Well, guess what? The organization owned that property, so the real estate was at risk. I can’t tell you how many times I’ve had clients with rental properties where something happened and someone got injured. There was one horrific case where they owned a small apartment building with a community pool, and somebody drowned in the pool. People are going to sue whoever owns that real estate, and if they win, they’re going to get the real estate.
00:12:48
Francisco Sirvent: That’s why real estate, even if you only own one rental, is a unique asset, and you don’t want to blend it in with everything else. The first part of an estate plan when you own these two categories of assets is to separate them out. Separate the assets that carry high liability because it’s not just money in the bank—it’s an asset, but it also carries risk. You want to insulate that risk away from your other assets.
To give you a visual picture: you have your regular home, your money in the bank, etc. What you want to do is pull out your rental properties and put them into something else. You plop them into a completely separated structure to isolate their liability. You’re not separating out the fact that you own it, that it’s yours, or that you receive the rental income, but you are separating out the liability.
00:14:04
Building a Firewall: Trusts, LLCs, and Asset Protection
Francisco Sirvent: The main way we do that is by building a firewall. That’s a simple way to think about it. You’re going to have the standard foundation you need, which is a trust. That trust is going to hold your liquid investments, brokerage accounts, bank accounts, and primary home. All of that goes into the trust to keep it organized, ensuring there’s no conservatorship if you become incapacitated and no probate when you pass away. That’s the organizing piece of your whole estate.
On the side, however, we set up an LLC. That is what protects your rental properties and prevents liability from those rentals from reaching the rest of your estate.
So how does that work? First, you need to know that a revocable living trust does not protect you from creditors. Whatever you put in there—if you get sued because of a car accident or a profession that carries liability—creditors will be able to reach those assets too.
00:15:22
Francisco Sirvent: That’s just the reality with a revocable living trust. There is no creditor protection and no asset protection while you are alive. Your money, property, and everything inside your trust are subject to your liabilities. If something happens and a judgment is entered against you, creditors are coming in to get what they need. You might have insurance—hopefully you do—but they will be able to get in there to satisfy the full judgment out of your insurance and the rest of your assets.
That’s the first thing to understand. When you take rental properties and decide to put them into an LLC, think of it like drawing a little castle around them. If you incur a personal liability on your side, Arizona law doesn’t let creditors reach into your LLC, provided it is set up, managed, and operated correctly according to all the rules. If you don’t follow the rules when a liability arises, creditors will be able to break through despite the LLC.
00:16:44
Francisco Sirvent: It has to be done correctly. But if it’s structured properly, when creditors try to get in, they just bounce off the wall. You will be able to protect those rental properties from being forced into a sale to satisfy a judgment.
The other side of this works similarly. Let me draw my little castle around that rental property better. If a liability occurs on the rental property itself—someone trips and falls, or something bad happens in a pool—and they sue and win for more than your insurance covers, that liability cannot escape the LLC. It stays contained inside, blocked by the firewall of the LLC. They may get that one rental property—that is very likely—but they cannot reach your other assets. Your primary home, investment accounts, bank accounts, and whatever else you have remain protected.
00:18:03
Francisco Sirvent: Creditors can’t get to those other assets because the LLC creates a firewall. If they can’t satisfy the entire judgment out of that rental property and your insurance, the remainder of the judgment goes unsatisfied. They simply don’t get the rest of the money.
Now, what if you have multiple properties? The best approach is to create multiple little castles: one LLC for each property. That isolates the liability of each rental from the others. They can’t cross-contaminate because there is a firewall between each one.
If you really want to get sophisticated—for clients who own five or more pieces of real estate—you can set up a master entity that acts as the property manager for all your rentals. That way, the entity that owns the real estate is not the entity managing the real estate.
00:19:30
Francisco Sirvent: If someone says, “We slipped and fell,” or something bad happens on the property, they have to sue the property manager because the manager is the party liable for operations. The house was just sitting there as real estate, but the property manager actively took responsibility for maintaining it. If they didn’t maintain the property well—if a pool fence was broken or a gate lacked a working lock—they can sue the property management company. But again, that liability cannot escape that entity or reach down into your property-holding LLCs because you’ve put a firewall between them.
All these layers are essentially what you are trying to construct when thinking about asset protection. Then, you can have all of these entities owned by your trust. Holding ownership through your trust does not eliminate that firewall; it keeps it in place. You still own everything, receive all the rental income, and enjoy the properties’ growth in value. You can even act as your own property management company. All of this is still under your control, but you are putting layers upon layers between everything.
We have layers between each entity, layers between management and ownership of the rentals, and layers isolating the management entity from the rest of your life.
00:20:51
Francisco Sirvent: You have to set them up, manage them, and operate them correctly over the long term. If you do all of that, you gain this protection.
Here is what else it does: if someone sues you over property management, a rental property, or an individual matter, creating this web of layers leaves any plaintiff’s lawyer looking at it and saying, “This is going to be extremely difficult to navigate.” I know this because I’ve had to evaluate these structures from the other side. A lawyer will tell their client, “They have all these layers, entities, and master structures. It’s going to be hard to collect even if we win.”
That is a major reason to implement this strategy. It creates a disincentive for plaintiff’s lawyers to even take the case, or if they do take it, they quickly realize what a hassle it will be. The more legally daunting you make it look, the better defense you have against ever dealing with a trial.
00:23:08
Francisco Sirvent: It also helps with your insurance. If a plaintiff’s lawyer sees all these layers and your insurance company offers a modest settlement, the plaintiff’s lawyer is much more likely to accept it because that’s guaranteed money in hand. Trying to pierce the corporate veil and collect against multiple layers of entities is a massive amount of work. They would rather take the check and advise their client to do the same. So, the visibility of these layers serves as a strong deterrent against major lawsuits.
That covers our first main topic.
Long-Term Care, Nursing Home Expenses, and Irrevocable Protection Trusts
Francisco Sirvent: The second main topic is what happens as you get older. You set up a trust, put your assets in it, structure your rental properties in LLCs, and put layers in place—with your trust sitting at the top owning everything. What happens if you end up needing nursing home care?
Nursing home expenses in Arizona increase every year, but they generally run in the $8,000 to $10,000 a month range for quality care. Sometimes you can find cheaper options, but we all know what cheaper often means. You’re looking at shelling out $8,000 a month—$100,000 a year—and if you’re married, you have to consider both spouses. What if you get sued, or what if the assets in your standard trust remain exposed to long-term care costs?
00:24:18
Francisco Sirvent: The first layer of defense is an umbrella insurance policy. That’s step number one because if a claim is covered, insurance pays for your defense lawyer and settles the claim, handling the cash out the door. Umbrella policies are relatively inexpensive.
The second layer is setting up the LLCs I described earlier.
The third layer is what we’re going to discuss now: an irrevocable asset protection trust.
Irrevocable asset protection trusts are complex—they could cover a whole semester in law school. There is a vast category of information here because so many different types exist. They should all be customized to achieve specific goals, as they carry different consequences for gift, estate, and income taxes, as well as varying levels of asset access.
00:25:27
Francisco Sirvent: With some irrevocable trusts, you retain full access to the assets; with others at the far end of the spectrum, you have no access once the assets are transferred. You have to balance a spectrum of options based on your goals.
In Arizona, the legal spectrum dictates that the less access you have to the assets after setting up the trust, the higher level of asset protection you receive. The more access you retain, the less protection you have.
There are specific irrevocable trusts you can use to hold assets that, when compliant with all statutory criteria and fine print, protect those assets from ever being consumed by nursing home expenses. This structure can help you qualify for government benefits available to assist with care costs, and there is no dollar limit on what you can place inside these irrevocable trusts.
00:26:45
Francisco Sirvent: On another version of this: if you want to protect your standard trust assets—not the rental properties in LLCs, but your primary home equity, bank accounts, and brokerage accounts—from potential lawsuit creditors, you can also use an irrevocable trust.
Arizona allows a hybrid approach. Instead of completely relinquishing access for maximum protection, you can establish a hybrid asset protection trust. You place assets inside and retain some access and control, though not total control. The assets can still be used for your lifestyle and living expenses, but you surrender the authority to sign the checks yourself to a trusted independent party who manages disbursements.
You can use a hybrid asset protection trust in Arizona to safeguard your brokerage accounts, cash, and home equity above the homestead exemption limit.
00:28:07
Francisco Sirvent: A lot goes into evaluating the pros and cons of these trusts, but I want to plant the seed so you know they exist.
As mentioned, asset protection trusts lock assets away. Because they are irrevocable, transferring significant wealth requires careful consideration. They can be structured to avoid estate and gift taxes, and that protection can extend across multiple generations.
Historically, Benjamin Franklin set up a trust with strict withdrawal limits for a hundred years to benefit the cities of Boston and Philadelphia. The trust invested and reinvested over that century, growing a modest initial sum into millions of dollars by the time it was distributed.
00:30:17
Francisco Sirvent: You can apply a similar multi-generational concept for your children, grandchildren, and great-grandchildren, allowing assets to grow and benefit your family long-term. Without proper structuring, assets can be subject to estate taxes at every generation. A properly structured irrevocable trust can avoid multi-generational estate taxes entirely while ensuring your assets don’t disqualify you from long-term care benefits.
Beneficiary Protection Trusts & Preserving Wealth for Heirs
Francisco Sirvent: Once you’ve protected your assets, how do you pass them down to the next generation so they aren’t lost to a child’s potential lawsuit or divorce?
Early in my career, I drafted a will for a family in Chandler. The mother had passed away years prior, leaving the father and five adult children in their 50s and 60s. The will simply left everything to the kids equally. It was a straightforward estate—he owned a home with a couple hundred thousand in equity and had two or three hundred thousand in savings.
00:31:26
Francisco Sirvent: Not long after, the father passed away, and the adult children came back to execute the will through probate. We went to court to get everything filed. This was around 2008 or 2009. Before any funds could be distributed, two of the adult children hit financial hardship—one lost a job, and the other was already struggling financially—and both filed for bankruptcy.
In bankruptcy proceedings, the court investigates whether the debtor is an heir to any estate. They found out, and the bankruptcy court seized both children’s entire inheritance shares to pay off their personal creditors. Dad’s hard-earned life savings went to his children’s creditors rather than his family.
Contrast that with a case years later. I was working with a client on her estate plan, and by then, I had implemented a different strategy.
00:32:43
Francisco Sirvent: She had three adult children, one of whom was a recovering addict in and out of rehab who had been doing well recently. She was concerned about his financial stability, so I suggested a protective strategy, and she agreed.
She passed away less than a year later. Her brother served as trustee to administer the estate, and a similar situation occurred: the struggling child ended up in bankruptcy before any trust distributions were made.
However, the outcome was entirely different. The bankruptcy trustee contacted me directly as the attorney for the trust, demanding information and claiming the inheritance money had to be turned over to the bankruptcy court. Because of how we structured the plan, I sent back a letter explaining that the inheritance was legally exempt.
00:33:49
Francisco Sirvent: The client had left his share inside a protective trust structure that, under Arizona and federal bankruptcy law, is completely shielded from creditor claims. Within 30 days, the bankruptcy trustee conceded, and the funds remained safely in trust. The uncle continues to manage the funds and distribute money to the son as needed. The inheritance was saved.
We call this structure a Beneficiary Protection Trust. Instead of giving an inheritance outright, you leave it in a protected trust account so heirs cannot lose it to unexpected life events.
If a child receives an outright inheritance, commingles it with marital assets, and later gets divorced, an ex-spouse’s attorney will argue those funds became community property subject to a 50/50 split.
00:34:58
Francisco Sirvent: When left inside a Beneficiary Protection Trust, that cannot happen. The inheritance remains in a separate account, fully protected from divorces, lawsuits, and creditors, while still being available for investment and growth. That protection remains intact for your child’s lifetime and can pass down to safeguard your grandchildren.
You can even design the trust to act as an education vault for grandchildren’s college expenses.
Additionally, assets held in these protective trusts still receive a step-up in tax basis upon your passing, which can eliminate substantial capital gains taxes. Many clients want to sell appreciated rental properties or long-held stocks (like shares of Pepsi bought decades ago) but hesitate due to massive capital gains tax exposure.
00:37:16
Francisco Sirvent: While there are various ways to manage capital gains, holding the asset until death allows the step-up in basis to eliminate that built-in tax liability for your heirs.
An early case illustrating this involved two sisters whose mother had passed away. Prior to her death, the mother quitclaimed her house to the daughters, thinking it would make things easier. When they came to my office planning to sell the home, I had to explain that because the house was gifted during the mother’s lifetime, the daughters did not receive a step-up in basis at her death.
The mother had bought the house for around $100,000, and it was worth $400,000 when she passed. That created a $300,000 capital gain, resulting in a $60,000 tax bill at a 20% rate. We eventually utilized a complex court- and IRS-approved strategy to remedy the situation and save them money, but it was an expensive nightmare. It is far easier to structure it correctly from the start and preserve the step-up in basis.
00:38:18
Key Takeaways & Upcoming Events
Francisco Sirvent: To recap the main differences between traditional planning and this comprehensive approach: traditional planning—such as a simple will, an off-the-shelf trust, or a basic online document—leaves your rental properties exposed to liability, your liquid investments exposed to creditors, and your estate vulnerable to long-term care costs.
The approach we discussed today separates high-risk assets into protective entities, incorporates long-term care planning options, and keeps your wealth protected within your bloodline.
Now, let’s open it up for questions via the chat or microphone.
While you are typing your questions, I want to mention our upcoming events.
00:39:28
Francisco Sirvent: You can view and register for all our events at keyston.com/events.
Next week, my partner, Michelle Dexter, will present: “Generational Wealth: Structuring an LLC for Privacy and Seamless Succession.” If you own rental properties or LLCs, I highly recommend attending.
On August 19th at noon, I will present an “Intro to Wills and Trusts.” If you know someone looking to create or update their plan, send them to our website—it covers the basics, our process, and our fee structure. You can also watch past webinar recordings on our YouTube channel at youtube.com/keystone.
If today’s topic resonated with you, feel free to give us a call to schedule a free discovery call with our intake team, managed by Alexis. If you want to sit down with Michelle or me for a full one-hour paid strategy session to map out a custom blueprint for your estate, our office can get that scheduled.
Let’s see—I see Michelle has a question.
00:40:31
Q&A Session
Michelle Dexter: Francisco, I have a question if I can.
Francisco Sirvent: Yeah, please.
Michelle Dexter: One thing I see with our clients is that they may be upgrading or downgrading their home and want to convert their current home into a rental property. Because their current home has an existing mortgage, they wonder what the bank’s policy is regarding transferring a mortgaged property into an LLC. Do you have any words of wisdom on that?
00:41:31
Francisco Sirvent: Yes. Before addressing the mortgage issue, keep in mind that your primary residence qualifies for a significant capital gains exclusion under the tax code—up to $500,000 for married couples and $250,000 for single individuals—provided you lived in the home for two of the last five years. If you convert it to a rental, selling it within that five-year window preserves that tax exclusion.
Regarding the mortgage: if you transfer a mortgaged property into an LLC, almost every mortgage contract in Arizona contains a “due-on-sale” clause stating the lender can demand immediate payment of the full loan balance upon transfer. Transferring the title to an LLC technically triggers that clause.
00:42:59
Francisco Sirvent: However, the lender must choose to enforce that right. In practice, among local estate planning attorneys, enforcing the due-on-sale clause in this context is extremely rare. As long as regular mortgage payments are made consistently, banks generally do not audit title changes. While the contractual risk exists, transferring the property to an LLC is our standard operational recommendation to gain liability protection.
We have a question in the chat: “If I have collected rents via Zelle into my personal account, can I still be sued if the property is owned by my LLC?”
Yes, because collecting rent in your personal account demonstrates that you are personally managing the property. If you commit a negligent act in managing the property, you can be sued personally.
00:44:12
Francisco Sirvent: To prevent this, keep operations separate: ensure the property is owned by an LLC, and have all rent deposited directly into a bank account held in the name of the LLC or a designated property management LLC.
Another question in the chat: “Is a protection trust separate for each risk category—such as healthcare costs, credit card debt, or the IRS—or is it one trust for all possible creditors?”
That’s a good question, Luis. A Beneficiary Protection Trust created for your heirs can protect against all those risks within a single trust. For your own asset protection during your lifetime, it depends on your specific financial profile—your mix of cash, real estate, and investment accounts will dictate whether a single hybrid trust or multiple specialized trusts are required.
Regarding the previous LLC question: if you fix the banking setup today—transitioning rental deposits from your personal account to an LLC account—and an issue occurs 5 years from now, can you still be sued?
Anyone can be sued, but making that correction today establishes the legal separation required to defend against personal liability moving forward. Moving rental income into an LLC bank account demonstrates that the business is a distinct entity from you personally.
Michelle, did you have an additional point on that?
00:45:26
Michelle Dexter: I was going to add that your LLC needs its own Employer Identification Number (EIN) or tax ID. When opening a business bank account for the LLC, the bank will require that separate tax ID to distinguish the entity from you personally.
If you haven’t obtained an EIN yet, obtain one before going to the bank so they don’t turn you away.
00:46:31
Francisco Sirvent: That’s right—the bank will definitely ask for an EIN before opening the account.
I have shared the link in the chat for anyone who wishes to schedule a free discovery call with Alexis to discuss your situation. If you would like to book a full one-hour strategy consultation with Michelle or myself, you can select a time on the calendar and complete the booking online.
Thank you, everyone, for attending today. We look forward to seeing you at the next webinar!
Transcription ended after 00:48:26
