\n<\/p>\n
Most investors assume LLCs for rental properties<\/strong><\/a> are the way to go in terms of asset protection<\/strong>. From a novice\u2019s point of view, LLCs seem to provide everything you would need?\u2014anonymity, simple tax filing statuses, and legal protection<\/strong>. But, an LLC in reality isn\u2019t as airtight as most real estate investors think. And the worst time to learn about the limitations of an LLC is during a lawsuit, where your wealth (and sanity) is at risk<\/strong>.<\/p>\n To stop you from guessing when it comes to asset protection<\/a>, we\u2019ve brought on our go-to expert and heavy hitter asset protection lawyer, Brian T. Bradley, Esq<\/strong><\/a>.<\/strong> Not only is Brian well versed in the realm of asset protection, but he\u2019s also helped numerous clients protect their real estate wealth, making him the perfect person to ask about LLCs, limited partnerships, trusts<\/strong>, and more.<\/p>\n Brian walks through the different types of legal \u201clayering\u201d <\/strong>that real estate investors can set up to protect themselves from lawsuits and angry creditors<\/strong>. He defines exactly how each type of real estate investor should set up their assets as their net worth<\/a> expands, and what to do BEFORE you get served with a lawsuit<\/strong>. While Brian may not know your personal situation, he does speak with years of experience serving high-net-worth investor clients and can relay their mistakes (so you don\u2019t make them too).<\/p>\n David: Brian: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Brian: Rob: David: Brian: David: Brian: Rob: Brian: David: Brian: David: Brian: David: Brian: Rob: Brian: Rob: Brian: Rob: Brian: Rob: Brian: David: Brian: Rob: Brian: Rob: Brian: Rob: David: Brian: Rob: Brian: David: Brian: David: Brian: Rob: Brian: Rob: Brian: Rob: Brian: Rob: Brian: Rob: Brian: Rob: David: Rob: David: Brian: Speaker 4: David: Brian: David: Rob: Brian: Rob: Brian: Rob: Brian: David: Brian: David: Brian: Rob: Brian: Rob: Brian: Rob: David: Rob: David: Brian: David: Rob: Brian: Rob: David: Rob: David: Rob: David: Brian: Rob: David: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n
This is the BiggerPockets podcast show 595.<\/p>\n
So as you go through and evaluate how good an asset protection plan is, just remember that acronym, ECCC, effectiveness, control, cost-<\/p>\n
What\u2019s going on, everyone? It\u2019s David Green, your host of the BiggerPockets Real Estate podcast, the show where we teach you how to build financial freedom through real estate. Look, if you want to grow your wealth, if you want to improve your life, if you want to get your time back, if you want to travel the world, if you want to spend more time with family, if you want to have a better overall life, and you know that real estate is way you want to do it, you, my friend, are in the right place.
BiggerPockets is a community of over two million members, all strong, all walking the same journey as you, and we at BiggerPockets are committed and dedicated to helping you achieve that goal. We do it through providing a forum where you can ask questions, an agent finder service where you can find real estate agents to help you with your deal, blogs with articles written by people that have done well, and this podcast where we bring in experts in the field that are relevant to what you need like we have today.
Today\u2019s a fantastic show that I can\u2019t believe we\u2019re actually going to be able to give you for free because it\u2019s awesome, where we dive deep into asset protection with our guest, Brian Bradley.
Now, in our show today, we cover a lot of topics about how to keep yourself safe as a real estate investor, as well as how to grow to the point where this would become relevant. Here joining me today is my awesome and fun co-host, Rob Abasolo. Rob, welcome to the show.<\/p>\n
Hey, man. I always like being described as fun. I also would\u2019ve accepted funny, but I can\u2019t demand that. It has to be earned.<\/p>\n
It\u2019s funny you say that because we were just talking about how you add Y to the end of most words and create another word. I think it was bridgey that you just described and now fun and funny. You just can\u2019t help yourself.<\/p>\n
It\u2019s the millennial way, man. It\u2019s the millennially way. Do you ever feel like you have it, something about what you\u2019re learning or an aspect of your business where you\u2019re like, \u201cI have this down, I have figured it out, I am a pro at this,\u201d and then you talk to somebody so smart and well-versed in that specific area and then you\u2019re like, \u201cOh, my goodness. I know nothing\u201d? That\u2019s kind of how today\u2019s talk went when it came to asset protection.<\/p>\n
You thought you had protected your assets, but you found out maybe you hadn\u2019t.<\/p>\n
Yes. Yeah. Yeah. Brian talks a lot about, well, A, trusts and how he relates it to Baskin-Robbins. There\u2019s 29 flavors. There\u2019s a lot of different types of trusts out there, common misconceptions about LLCs. He talks about protecting yourself and your assets, how it\u2019s like layering up with clothes and how each layer of clothing gets a new layer of protection on your business.<\/p>\n
Yeah. I think we also got into some of the very common misconceptions when it comes to different corporations or levels of asset protection where people think they\u2019re safe where they\u2019re really not. So make sure that you pay attention to what the first word means in an LLC and how that describes what you can expect from that company.
We talk about what piercing the corporate veil really means. We talk about the safest way to protect some of your assets and when that might be necessary. Then also as a bonus, we got into how some of these structures can protect you in one sense, but can also build your wealth in another. So there\u2019s a dual side to all of this. You\u2019ve got the tax strategy side where you have to claim your income within these structures and you can benefit or you can maximize your tax benefits, and then that\u2019s the offensive side, how you\u2019re going to make more money. Then you\u2019ve got the defensive side, which focuses on how you prevent people from taking it away from you.
Now, this is probably the most commonly asked question in Robinized world is everyone would come to us and say, \u201cShould I buy an LLC or should I buy in my own name?\u201d So we wanted to bring you a show just like this with an actual attorney to go deep into how to know how you should start and where to go. Anything else you think that they should keep an eye out for, Rob?<\/p>\n
No, man. This is really great. I\u2019m really excited to have this because people always ask me about legal questions and I\u2019m always just sweating profusely because I\u2019m like, \u201cI\u2019m not an attorney. You can\u2019t sue me.\u201d So this episode I\u2019m going to be like, \u201cHere you go. Just listen to this. This will answer most of your legal of questions and it\u2019s free.\u201d<\/p>\n
So here\u2019s a good question. What type of things should people reach out to you to ask about?<\/p>\n
If they want to invest or if they want to learn how to start an Airbnb or if they have questions about running an Airbnb business, anything in that capacity, but when it comes to taxes and legal liability, no, thank you. That\u2019s not me. That\u2019s not my jam.<\/p>\n
That does make you nervous. People should reach out to me if they want to know about financing real estate, having an agent to help them to get it, if they\u2019re looking to invest their money with somebody or if they want to be connected to the people I have in my world that do provide these services. So here\u2019s just a good note. Please don\u2019t ask us for legal advice, but you can ask us for the people that we use to get our legal advice. We would sweat a lot less if that was the case, and then I would be drinking less water from doing less sweating.
All right. Before we move on to the show, let\u2019s get to today\u2019s quick tip. It\u2019s so nice that I don\u2019t have to do that high pitch quick tip that Brandon was always trying to do, and it was so hard to get my-<\/p>\n
Quick tip.<\/p>\n
Oh, so you do that so well. You\u2019re just like Brandon. It is tax season. So I would like you to think about every single thing that you\u2019re dealing with right now that you wish you were not and put a plan in place so that next year you don\u2019t have to deal with it. The best way to do that is to get connected to a good CPA and actually plan throughout the year.
So what I do is I meet with my CPA monthly. We go over my books. We go over the properties that I\u2019m buying. We go over tax strategies, where I might be on the hook, and what type of real estate I would need to buy or what I would need to do to reduce my tax liability. I highly recommend doing the same thing. Meet with your CPA semi-regularly so that they\u2019re not super long meetings and they\u2019re not in the middle of nowhere where they\u2019re busy and you\u2019re like, \u201cHey, I got to talk to you right now?\u201d Have it set up on a calendar so you can work around it, and if you don\u2019t have a CPA you like, I\u2019m happy to share with you mine. Send me a message on Facebook Messenger, Instagram, BiggerPockets or if you have my email, send it there and I\u2019ll make a connection for you.
Rob, anything that you\u2019d like to leave our listeners with before we jump in to this jampacked show with Brian?<\/p>\n
No. I\u2019m not a lawyer or a CPA. So I\u2019m just going to let Brian do all the talking today.<\/p>\n
It wouldn\u2019t be fair if you were a lawyer or a CPA and had a beautiful singing voice to match that face of yours. God, can\u2019t give you every gift. It wouldn\u2019t be fair to the rest of us.<\/p>\n
I\u2019ll take it. I\u2019ll take it.<\/p>\n
All right. Let\u2019s bring in Brian.
All right. Brian Bradley. Welcome to the BiggerPockets Real Estate podcast.<\/p>\n
Thanks David and Rob for having me on. Today\u2019s an important topic and I\u2019m going to try to keep it less dense and not legal boring, and I\u2019m not anyone\u2019s attorney here, and I\u2019m not a legal guru. We\u2019re just going to be talking in generalities, and we\u2019re going to be learning a lot, and I hope the concepts that we talk about help you and your listeners understand this area of asset protection. Specifically, we\u2019re going to spend a lot of time later on on asset protection trust just to understand this world a little bit better.<\/p>\n
I would argue that this is not boring at all. I mean, for the people that are actually at home listening to this or watching this on YouTube, these are some of the most asked about topics on the BiggerPockets YouTube channel, on my YouTube channel, on our social media. So I\u2019m actually genuinely excited to learn how to protect myself so that I don\u2019t get sued, Brian.<\/p>\n
Yeah. Brian, how would you sum up what asset protection is?<\/p>\n
Yeah. So what asset protection actually is is just think of it as a legal barrier between your assets and your potential creditors before you need it, and that\u2019s the key word, before. That\u2019s it. It\u2019s just like a safe for your gold or your guns or your valuables, anything of value you want to put behind the legal barrier and out of your personal name so that it\u2019s not easily attached with the lien or reach. To mimic the rich, and I love that Tony Robbins is saying that success leaves clues. So the rich don\u2019t own things in their personal name, their businesses do, their asset protection trusts do. They just get the beneficial use and enjoyment out of them while separating out the liability. Then as you grow, you just create different layers as you grow and scale up your planning.<\/p>\n
When you talk about layers, in specific terms, what does that mean, also in layman\u2019s terms?<\/p>\n
Yeah. So in layman\u2019s terms, let\u2019s just break it down as key concepts and tools that we use. So I want you to think of each tool as a layer of clothing, and we add layers as you and your wealth grow. So these tools generally are going to be LLC, so limited liability companies, limited partnerships, and then as the protection trust, and where you land in this scale depends on your risk profile, your profession, the asset classes that you own, for example like single family, multi-family, commercial, where you own them at, the states you own them in, Texas, Nevada, California.
Then we look at your total unprotected net worth, and then we look at this holistically and then start creating plans based upon where you\u2019re currently at and then your growth and what you\u2019re investing in.
So I want you and your listeners to think about winter. So when it comes to asset protection, like I mentioned, we have different layers. That first entry layer is your base layer. It\u2019s the foundation, and it sits on your skin. This is the LLC and insurance. This layer is generally when you\u2019re just starting out. You have no unit, zero to three units or properties. Your net worth is generally going to be around below 250,000 nets.
Then as you grow and you add more assets and you hit that four-unit spot, you\u2019re investing in probably multiple states with different LLCs in different states, your net worth has probably hit around 500,000 to 700,000 nets, you want a mid-layer, which is usually going to be a little bit thicker. It\u2019s generally going to be made out of Merino wool or for you ladies a cardigan, and this is your management company.
We personally use limited partnerships for this management company, that mid-layer. I broke those two layers down the LLCs and the limited partnership on BiggerPockets Rookie in great detail, but that mid-layer limited partnership will be owning all those LLCs. So this way, you only maintain one tax filing at the end of the year.
Then when you hit around one million net worth, you want an outer shell layer. This is your waterproof layer. This is like we\u2019re going out skiing, we\u2019re in Siberia or somewhere really cold for some reason. This keeps you nice and dry and warm when the weather is really bad. This is your doomsday lawsuit protection layer. This is your asset protection trust. We\u2019re going to be spending a lot of the time on later on talking about these today, but by layering, you\u2019re now more flexible. You can adjust and make yourself more comfortable.
Now, for all these layers to work, I want you to think about this acronym, ECCC. These are the four things that must be true. So one, your plan has to be considered effective. Two, you\u2019re going to want to control your plan and your assets. Three, you\u2019re going to want reasonable and sustainable cost, and then four, you need to worry about compliance. It can\u2019t be too difficult for you and your IRS CPA to figure out how to make this compliant with the IRS. So as you go through and evaluate how good an asset protection plan is, just remember that acronym, ECCC, effectiveness, control, cost, and compliance.<\/p>\n
Okay. So let\u2019s unpack this a little bit because for me and for a lot of the people that we talk to that are just getting started out, a lot of people seem to get very wrapped up in an LLC and often associate LLCs with both legal protection and taxes. I get a lot of people that are like, \u201cOh, do I need an LLC to file taxes as my business?\u201d So could you share a little bit of the journey of someone that\u2019s investing when they would start with an LLC? Then I think you briefly touched on this, but at what one would then take the next step to get, I guess, into that next level, which I think you said LLP?<\/p>\n
Yeah, the limited partnership or a management company. Yeah. So the LLC, the Limited Liability Company, it\u2019s that first layer. It\u2019s basically asset protection 101 along with insurance. So the entry level base layer that most of us are all going to be familiar with and I think a lot of people spend a lot of time talking about is this LLC. That\u2019s going to be holding your real estate and your risky assets. Anything that has a key or needs insurance or can go boom, these all go into an LLC.
So we know about LLCs. People hear about partly the effectiveness of them, but there\u2019s some things that we\u2019re just not told about them, and I think it\u2019s really important to understand these three big misconceptions of the lack of effectiveness on LLCs to then understand the reason for the next layers as you grow.
So once you move from zero to three units and you\u2019re getting into probably four units, about 500,000 of unprotected net assets or more, you\u2019re going to start accumulating a lot of LLCs. So we need to start cleaning these things up for your accounting system so you\u2019re not being nickel and dime on all these K1 filings, but also, one of the big issues with LLCs is that the courts now have a tendency to disregard single member LLCs.
So when your corporate veil is pierced, it\u2019s not very effective. Remember, that\u2019s one of the most important things. We are looking for an effective plan, meaning it needs to work when you\u2019re in courts, and CPAs tend to set up LLCs as disregarded entities for tax purposes. That\u2019s really great for taxes, but it\u2019s really bad for lawsuits.
What being disregarded means is that the IRS is not taxing your business separate from you. It passes through to you personally, and because of this, they\u2019re basically worthless for asset protection or lawsuit protection because that liability also passes through to you, but don\u2019t get me wrong. I still use LLCs but at that base layer entry protection, and then we add the next layers up as we need to as you and your assets and your wealth grow. So that would be that limited partnership.
Eventually, you want those LLCs to be owned not by you, but by that limited partnership. Then as those taxes pass through to that limited partnership because they\u2019re disregarded, you only have one tax filing, but now you\u2019re getting the protection from the limited partnership.
The other two big misconceptions about the LLCs is just where do you even set these dang things up in? Do you go to Wyoming, Delaware, Nevada, Texas? You hear about all these states and it\u2019s technically called charging order chasing. So they\u2019re chasing different states\u2019 laws. The problem here is that this is not creating a business like Dave and I or Rob and I going in and selling widgets. We\u2019re holding real estate and LLCs as a holding company.
So you can\u2019t really go and buy another state\u2019s beneficial laws and bring them to another state that you have no jurisdictional connection to. So if I own, for example, real estate in California and Ohio and Washington, and then I go stuff them all in a Wyoming LLC, I can\u2019t take Wyoming law with me to one of those other states because there\u2019s no jurisdictional connection there. The damage that you\u2019re going to be getting sued from is going to be from where the injury is at, where the lawsuit is coming from, where the property\u2019s at, where the person\u2019s at.
So a lot of people have this misconception that I\u2019m going to go buy another state\u2019s more beneficial law so I\u2019m just going to go use a Wyoming LLC without understanding I can\u2019t just take these other state laws with me to where I\u2019m actually getting sued.<\/p>\n
You mentioned two things I want to point out. The first is that when it comes to these legal entities, at least the way I see it, is you\u2019ve got protection in case you\u2019re sued or something like that, and then you\u2019ve got tax purposes. So they function in this dual role and you highlighted how that can become confusing. So I\u2019m going to ask you in a second if you could maybe give us a summary of how to understand them as they function in those two roles.
Then the other one was you mentioned that you can pierce the corporate veil, and we just kept going. Can you explain to people that this misguided understanding that an LLC is a iron tight if you have it in LLC, you get sued, they can\u2019t get anything outside of it, it\u2019s actually not the way that it works in the legal system?<\/p>\n
Yeah, absolutely. Let\u2019s start with that one. I think you just need to pay attention to the first word, first letter, limited. I mean, they just tell you straight out in the name, \u201cThis is limited protection,\u201d and what piercing and the corporate veil means is there\u2019s certain ways that we go through and say, \u201cOkay. This LLC is not an actual business. It\u2019s an extension of you personally.\u201d So because of that, that\u2019s where we\u2019re piercing that limited liability veil and now holding you personally liable.
A couple of the easiest ways to pierce this veil is, one, just the nature of real estate. All right? We use LLCs and business entities as holding companies. We don\u2019t operate out of those LLCs. You generally use an operating company. So when I\u2019m trying to pierce through that LLC, the number one argument that we use that would work nine times out of 10 is saying, \u201cWell, Your Honor, this is just a holding company. This isn\u2019t actually a business. It does nothing but hold this company for David or for Rob. So this is actually just an extension of themselves.\u201d That argument in itself will win nine times out of 10. Then the next ones we look at is funding issues. How is the LL-<\/p>\n
Well, it\u2019s true, right?<\/p>\n
Yeah.<\/p>\n
I mean, isn\u2019t that why most of us are using an LLC is I just want to stick a property in it and I don\u2019t really do anything else other than that?<\/p>\n
Absolutely, and that\u2019s the thing that you don\u2019t want to do is operate out of the holding company because now, if you\u2019re going to be getting sued through your business operations, now the whole point of separating out the asset from the operation defeats the whole purpose of what you just set up the LLC for. So that\u2019s why people need to realize the nature of real estate and investing in real estate is completely different than taking the same analogy of we\u2019re going to go create a business and sell widgets because our widget factory actually has a business to it. Our real estate LLC that\u2019s a holding company has no business connected to it. It\u2019s just holding the real estate for us and then we operate it out of something else.
Then it goes into funding issues. A lot of people don\u2019t realize that one of the biggest ways to pierce an LLC is just bad money management, funding the LLC incorrectly, bad accounting, co-mingling assets, which would be I got paid from the renter, it goes into my business account connected to my LLC, and then I go buy groceries out of that business account on the LLC versus paying yourself first. So those three right there beyond the list of a lot of other why LLCs get pierced very easily.
The next question was charging orders. What a charging order is is just saying, \u201cWe\u2019re trying to stop what damages can come to you and hold it just in the LLC itself.\u201d So the charge that you\u2019re going to get from a court stops at the LLCs and doesn\u2019t bleed into you, the owner or manager of that LLC. Every state is going to be different on how strong those charging orders are going to be. Some suck. Some are horrible like California. Some are very strong like Wyoming or Arizona and Florida. So at that base layer LLC, we\u2019re not chasing charging orders. What we\u2019re doing is creating LLCs at the state the asset is at.
That second layer, it comes to becoming important of where we create that limited partnership at, which I generally use Arizona for the limited partnership just because they have a specific statute that we like to play off of, but other than that, I don\u2019t think chasing charging orders or chasing states with beneficial laws is that important at LLC level because you have no jurisdictional connection there.
Then taxwise, the third part of your question, taxwise, realize asset is not tax planning and tax mitigation. We\u2019re protecting your assets. So it\u2019s going to be tax neutral. Your tax, we need to talk to your CPA and coordinate with your CPA. Your CPA and wealth manager is going to be where your tax mitigation strategy comes through. So it\u2019s the three of us talking together, the attorney, the CPA, and the wealth manager of saying, \u201cWell, first, we need to protect the assets,\u201d because if you get sued and lose your assets, your CPA and your wealth manager have nothing to do tax mitigation strategies on.
So the first advice is protect the assets as strong as you can. Then the next part is talk to your CPA and your wealth managers to then accelerate tax mitigation strategies as aggressively as you want.<\/p>\n
I think that this is probably the part of the show where everybody\u2019s hitting that share button and sending it to their partner and they\u2019re like, \u201cOh, my God! The LLC isn\u2019t enough,\u201d and they\u2019re all like, \u201cOh, we\u2019ve been told wrong.\u201d
So now that we know that LLCs aren\u2019t really quite bulletproof, I mean, you mentioned also pairing that with a good insurance to, I guess, level out some or to mitigate a bit. Then I think I\u2019m still, if you could unpack a little bit on the limited liability protection or the LLP.<\/p>\n
The limited partnership?<\/p>\n
Yeah.<\/p>\n
Yeah, what it is or?<\/p>\n
Yeah, yeah, because I think you mentioned here that the LLP could somewhat function as like a management group for the LLC.<\/p>\n
That\u2019s exactly. So really, you\u2019re using a family limited partnership at that second layer. When you use them for asset protection, they\u2019re just called an asset management limited partnership. All right? So they\u2019re like LLCs and they also have some charging order protection. I like them better at that second layer because limited partnership have a delineation between a managing partner called the GP, the general partner, and the minority partner who does not.
So think of it like a split personality. We like having both a general partner interest and a limited partner interest, and we use that limited partner as a starting point for our clients, as that holding company or that management company because it can hold all of those LLCs that you\u2019re creating so all those K1s will flow directly through that limited partnership, and then there\u2019s just a one page attachment of a 1065 that your CPA will file. Now, you only have one tax return versus some of my clients have 30 LLCs with hundreds of properties, thousands of properties all over the place.
The great thing is we can segregate out those properties and then have all those K1s flow under the management company. So it\u2019s still very easy accounting, just one tax filing.
Then the other benefit here is that people don\u2019t realize is, one, limited partnerships are perpetual, whereas other states, they have an annual report on filing LLCs. Privacy, though I\u2019m not a big component of anonymity and privacy because once you get sued, privacy goes out the door, but partnerships statutorily are private to where the name party, the GP is not named by the state on there. So you have a statutorily privacy built in and limited partnerships by themselves cannot be disregarded entities by nature.
So there\u2019s statutorily a lot of really strong builtin mechanisms and mechanics that are just stronger than an LLC. So some people do the wrong thing of saying, \u201cOkay. I have my base layer LLCs at the bottom.\u201d They layer up by adding another LLC like a Wyoming LLC. That\u2019s the wrong next layer. Really, it should be a limited partnership because then we can come in and attach the asset protection trust to own that limited partnership not you.<\/p>\n
Great. Okay. So obviously, there are a lot of moving parts with setting up, establishing, forming, evolving your business. So there are obviously going to be several different types of lawyer attorney roles in this. So I would imagine you\u2019re an asset protection lawyer and that would be \u2026 What you do would be a little different than what a business lawyer who\u2019s just setting up the business does or do you do at all as an asset protection attorney? Is there a difference between different people in this field, different, I guess, niches in this field?<\/p>\n
Yeah. That\u2019s a great question. I related to, I think, a good analogy is look at it as like medical doctors. They all go in a medical school, but they all have different specialties. So sometimes you\u2019re going to go to your general family doctor, but you wouldn\u2019t say, \u201cOkay. You have a brain aneurysm.\u201d \u201cHey, doc. Cut my brain open.\u201d You\u2019re going to go to a brain surgeon. You\u2019re going to go find a specialist in that.
So your real estate attorney is going to be focusing on what? Real estate deals, closing your deals, and doing the paperwork for that. Your business attorney is going to be focusing on the business aspect internally of your business. They\u2019re generally not going to know as the nuances of asset protection. Generally, what you\u2019ll find is their knowledge stops at the LLC level of protection to where I\u2019m not going to go in and do your real estate closing for you, that\u2019s not my job. I\u2019m going to create the buckets that we\u2019re going to be transferring title and holding all of those assets in.
So I\u2019m making sure that we set up the protection system fine. Your business attorney should do their job helping you and advising you on the internal running of your business and contracts. Your real estate attorney should be focusing on what their job is, successfully closing the deals that you\u2019re getting, and then we just all communicate together depending on whatever the deal is.<\/p>\n
I was going to ask you, Brian, if you had to sum up how a newbie could understand when it comes to these legal entities, how they protect you in case of a lawsuit as well as how they save you money in taxes, can you just give us a brief understanding of how they work in those two roles?<\/p>\n
Yeah. At the base layer, LLCs really work as smoke screen and as a financial deterrent. So they\u2019re good for little things like grandma slips and falls, breaks her hip. Pizza guy slips on ice, breaks his arm. You hit somebody in your car, it used to be it can help for that, but now you\u2019re seeing radically excess damage awards, even just in fender benders and people getting \u2026
I had one client call that said, \u201cOh, I got on a fender bender. We were both taken away in an ambulance. I don\u2019t remember much. What can I do to protect my assets?\u201d I\u2019m like, \u201cWell, you know you\u2019re possibly getting sued now so we have to walk a very fine line, but if you\u2019re being carried away in an ambulance, even if it\u2019s a fender bender, expect this lawsuit is going to probably run to be expensive in damages.\u201d
So the LLCs, like I said, they\u2019re good as deterrents. So if you think about a leg, what you\u2019re doing is with an LLC cutting off one leg of the plaintiff\u2019s attorney suing you because you\u2019re trying to make it harder for them and more expensive for them to collect damages on you because law firms are what? Businesses. Businesses have profit lines.
So if I\u2019m going to sue you for $100,000, I have to make sure that when I get the settlement from the case or a judgment, I didn\u2019t overspend and break even. We have to create a profit. So each layer cuts off more legs of the chair to where then the chair is unstable and it\u2019s either going to be too costly to push the case forward so they\u2019ll take the insurance coverage or a settlement or in certain big cases like I have, I was talking about off screen with you guys, we have that California client, who\u2019s a doctor, who owns a Jersey property, rented it out to a gang member, didn\u2019t know, didn\u2019t know he was a gang member. There was a fight that broke out. Guns were pulled. Someone was shot and killed. Who\u2019s was getting sued? Mr. Deep Pockets, white coat investor here with the rental property for negligence and wrongful death.
Would insurance and an LLC hold up and protect you in that case? No, because whoever\u2019s suing you has a war chest and now they\u2019re going after millions of dollars for lost earnings and wrongful death. That\u2019s where a stronger protection needs to come into play, and that\u2019s where very strong asset protection trust come in to protect you because in those type of cases where you have a doomsday lawsuit and you\u2019re going to potentially lose everything, we have to be able to what\u2019s called break a bridge and move your equity out of a US jurisdiction to protect your assets, and that\u2019s where the different layers really come in depending on, and strength comes in. It just depends on the type of lawsuit.<\/p>\n
So effectively, if I\u2019m hearing this correctly, we\u2019re trying to bog people down in the actual legal flow. So LLCs, there\u2019s going to be a lot of paperwork that you have to mitigate through or go through as someone that\u2019s in this lawsuit. So that can already be costly, but then to then start going into that next layer of the LLP and having to go through all of that, it just takes more time and expense for the other party that\u2019s trying to take legal action. Is that about right?<\/p>\n
Yeah. That sounds about right. Then the final layer, the asset protection trust. If you\u2019re using, for example, a bridge trust, a very strong asset protection trust, we can break domestic compliance, meaning move the equity to an offshore account to where no judge can actually reach that money legally, and then that generally, once the party suing you sees that a foreign trust is in play at that point, they\u2019ll just go away because it\u2019s just too difficult. We can break through all of that when we talk about trust and why it\u2019s so strong, but the ultimate deterrent is saying, \u201cEven if you win that $10 million judgment against me, I\u2019m uncollectable.\u201d
Really, what we\u2019re trying to do is make sure in a doomsday scenario, you\u2019re going to lose this lawsuit. You\u2019re going to lose bad and you\u2019re going to probably lose most of your wealth. We want to be able to make sure you\u2019re not collectable legally.<\/p>\n
Yeah. So let\u2019s dive into it a little bit because I want to know a little bit more about trust. I actually, not too long ago, set up a family trust and I was under the impression, \u201cHey, is that it? Am I good to go? Is that all I need to do here?\u201d Are there different types of trusts just like there are LLCs and LLPs and all that kind of stuff? Is there a whole branch of trusts out there that a lot of people don\u2019t know about?<\/p>\n
That\u2019s a great question, and it\u2019s absolutely true. A lot of people have this misconception that trust our trust, \u201cWell, I have a trust so I\u2019m good to go,\u201d and it\u2019s not. It\u2019s like Baskin-Robbins, 31 flavors. It\u2019s all ice cream, but there\u2019s different types of ice cream.
So asset protection trusts are that final layer of your planning. Like I said, it\u2019s that full bad weather outer shell layer, but it\u2019s the heart and soul of the system. So trusts have been the longest lasting entity of all entities, and you can sculpt them to fit however you want them to fit or they can morph it as you need them without dealing with funding issues that you see with LLCs and business entities that we talked about before that can generally get them pierced.
So I just love trusts, and then having a trust at the very top of your planning is just very powerful and so is picking the right place to actually set these things up in. So to keep with my Baskin-Robbins theory, the standard 101 trust that everybody\u2019s familiar with, Rob, that you mentioned that came from the \u201960s is the family revocable living trust.
So trusts don\u2019t die. So when you do and you actually funded your trust by transferring ownership and title to it, you don\u2019t have to go through the courts and probate, and that changed the landscape of estate planning, which is not asset protection planning. That\u2019s just estate planning to avoid courts and probate.
Then you also have land trust, which I\u2019m sure some of your listeners have heard other people talk about for real estate. They hold your real estate and the land, and then you connect those to an LLC, but land trusts don\u2019t have any protection in and of themselves. They\u2019re only as strong as the LLC that they\u2019re connected to. So land trusts are just a privacy mechanism. They\u2019re not a protection mechanism.
Then from here, you have higher levels of trust that are called asset protection trusts. If you guys don\u2019t mind, this is where I think that we can really spend a lot of time breaking these three concepts down of an offshore, domestic, and then a hybrid because then I think after this you and your listeners will probably know 99% more and all the attorneys out there just on asset protection trust.<\/p>\n
No, I don\u2019t mind at all. In fact, I would very much welcome it. What about you, Dave?<\/p>\n
Yeah. I don\u2019t think you can ever have too much of this information. I mean, there is a stage in your career where you\u2019re listening to this and thinking, \u201cWell, this doesn\u2019t apply to me. I\u2019m trying to get my first property or my second property,\u201d but the thing with real estate is it doesn\u2019t grow in a linear way. It grows exponentially. You get a property, you get a second one, you start to think, \u201cHoly cow!\u201d
This happens all the time. One property made me more wealth in a year than all the money that I made at my full-time job after I was taxed. This paradigm shift starts to happen where you realize gaining assets is how you grow wealth, and I\u2019ve been banging this drum for a long time. I think people are finally starting to listen to me, which is nice, but there is a massive problem with inflation going on in our country. We are devaluing our currency, and in that environment, you can feel like you are getting wealthy because you\u2019re saving money, but you\u2019re really not. Your money is losing massive amounts of value every year it sits there.
So you almost have to be investing just to breakeven. Just to stay where you want to be you have to be taking action. I really believe more and more people are going to start to figure this out, and you, BiggerPockets fans, you heard it first, right? So you had an advantage, but you\u2019re going to see that we\u2019re not likely heading to a crash in the real estate market. It\u2019s just going to get hotter as wealthier people start putting their money there to protect it from inflation.
When that happens, there\u2019s always vultures that will circle because it\u2019s easier to go and take your money than it is to make their own. I think what Brian\u2019s talking about, which is beautiful, is this is how you make it harder to take your money, right? When you were talking about how we set up these foreign trusts and different ways to make it difficult, it made me think about I believe it was World War I. Actually, I should know this. I\u2019m sorry that I don\u2019t, but when the Russians pulled the Germans into invading Russia and they just kept sucking them deeper and deeper and deeper into Russian territory and their supply lines got stretched out and then winter hit. It was very, very difficult to go after the Russian so they finally gave up and said, \u201cI don\u2019t want it.\u201d
Well, you could think about your wealth in that same way that as people are coming after it, the more obstacles that you put in their way and the longer of a process you make them spend, the more money they have to spend on their lawyers to try to get to it. They\u2019re either not going to fight that war or they\u2019re going to quit once they start. So this is a very thing to be learning, especially if someone really likes real estate because it\u2019s going to become more and more important in the future.<\/p>\n
Absolutely. I like to piggyback off of that. I\u2019ll use my ex brother-in-law as an example, a guy who couldn\u2019t rub two pennies together and then decided he was going to go do a flip and fix, and then that turned into a short-term rental, that turned into a sixplex, that turned into him specking out a couple homes, and three years\u2019 worth of time, he has over a million dollars worth of assets and unprotected net worth just by listening. I\u2019m like, \u201cHey, go listen to BiggerPockets. Go listen to these guys. Start learning this stuff, but execute it. Don\u2019t just read it and get stuck in analysis paralysis.\u201d He actually did. The next thing you know, from the not being able to rub two pennies together, it\u2019s amazing how fast real estate can accelerate wealth.
So the whole point of this is if you\u2019re just starting out, it\u2019s good to know here\u2019s the foundation, but you need to know the direction that you\u2019re heading because then you\u2019re going to set up like most of my clients come in like a complete mess. They\u2019re going to come in, \u201cI own 15 properties, either all in my name in all these different states,\u201d or \u201cI have a Wyoming LLC,\u201d or one was, what, four days ago, \u201cI have a Montana LLC.\u201d I don\u2019t know why Montana. \u201cI have 15 properties in all these different states in a Montana LLC that I don\u2019t live in. I have no connection to Montana, whatsoever. So what can you do for me?\u201d
I\u2019m like, \u201cOkay. Well, now we\u2019re going to have to disassemble all of this craziness that you did, but let\u2019s make this flow and let\u2019s put you in a stronger jurisdiction for this trust.\u201d
To get into the strength of these three different trusts, but going offshore as particularly the Cook Islands does is they have this beautiful thing that\u2019s called statutory nonrecognition. All right? What this means is that if you have a judgment against you in the United States, and you took it down to the Cook Islands. US judgment there is completely worthless. It literally has no value whatsoever because it has seven very strong statutory standards.
So if somebody wants to sue your trust that you create in the Cook Islands, they\u2019d have to start the case all over from scratch there. The person suing you would have to prove their case beyond a reasonable doubt. So that\u2019s the murder standard, the 99% sure standard, not the US civil case 51% called a preponderance of the evidence like, \u201cOh, maybe, I don\u2019t know, but sure. Let\u2019s give them their money.\u201d You\u2019re talking about the highest legal standard in the world.
You can\u2019t get a contingency fee attorney to represent you there because they\u2019re not allowed down there. It\u2019s unethical like it used to be here in the US, but that got changed in the \u201960s because lawyers now control our legal system and they want lawsuits to get started so they can get bigger pay days.
The claim, meaning the lawsuit, is not amendable. So once you file your complaint, that\u2019s it. Once you start sending out discovery and you start digging around and poking around, you can\u2019t just say, \u201cOh, okay. Well, we\u2019re going to now change what we\u2019re suing you about and sue you for this even though we didn\u2019t know we were suing you for that. So we\u2019re going to amend our complaint.\u201d You can\u2019t do that down there. The person suing is going to have to front the entire court cost plus flying a judge from New Zealand, and you can\u2019t take your US attorneys with you down there.
The kicker here with this is if you lose, you pay. So this is one of the single worst things that we don\u2019t have here in the United States, that the loser does not need to pay the legal fees of the winner. So if you get sued by somebody for something completely bogus, I mean like a frivolous lawsuit and you spend $200,000 defending yourself on legal fees and then the judge decides, \u201cHey, you know what? This is ridiculous. I\u2019m throwing this case out,\u201d you\u2019re still out $200,000. They\u2019re not going to be getting the bill for it because that\u2019s discouraged in the US because that will discourage people suing other people. Then there\u2019s only a one year statute of limitations.
So while you have now the most effective, remember the four things I told you to think about, effectiveness, cost, control, compliance, while you have the most effective trusts in the world by far, I mean, statutory nonrecognition, right? Doesn\u2019t get stronger than that. Those other three factors, if you\u2019re going to go purely foreign, it falls short because now costs are going to be very high like $50,000 to $75,000 to set up a purely foreign trust. You\u2019re going to be out of control of your assets, and the IRS compliance is insane. You\u2019re talking about full disclosures, FACTA disclosures, full trust disclosures.
So for most people, that\u2019s a hard pill to swallow. So that\u2019s why we rarely, rarely ever see going purely foreign. What most people then default to is going domestic. It\u2019s cheaper to start up. You\u2019re going to be in control of your assets. The problem is they suck on effectiveness and they\u2019re starting to get pierced because we have what\u2019s called a constitution. Article four section one, full faith and credit clause, meaning if I own a California piece of property and I have a Nevada LLC, I can\u2019t take that judgment, go to Nevada, and Nevada say, \u201cHey, sorry. We\u2019re not going to exercise that judgment,\u201d they legally have to adhere to that judgment and even litigate the case because you have to give the full faith and credit to other states\u2019 judgements and recognitions.
Then you have crazy judges nowadays that are just, what is it, litigating from the bench. So you have radical judges now not following case law and statutes and using their super power called public authority, public policy. So the way you combat this is you want to take the best of both worlds. You create what\u2019s called a hybrid trust or a bridge trust, and you take an offshore Cook Islands trust, and you domesticate it through the IRS. Now, it\u2019s cheaper to start up. It\u2019s cheaper to maintain. You have no IRS disclosures, whatsoever.
While that trust is domestic, okay, the maintenance is going to be easier, but I have that strength in my back pocket. So if I ever do get sued and, for example, there\u2019s this Louisiana case that happened some time in September I think it was. There was a guy Airbnbing his property. The short-term renter like a lot of people party we know in short-term rentals. All right? Guy got plowed, decided to do a head dive off the back patio and landed in the shallow pond, broke his neck, became a quadriplegic. Sued the land owner of the property and got an 11 million judgment out of him because he was a dumb drunk.
So what this means is if you\u2019re that land owner getting sued and you had a bridge trust, we can do what\u2019s called a demand on the assets. Break the IRS compliance and now your trust is what it is. It\u2019s purely foreign. Now, we have that strength in our back pocket because we set it up beforehand. So now, even when you lose that 11 million lawsuit, I\u2019ve moved your equity, I\u2019ve moved your money, you\u2019re safe. Now, we can either have them just completely walk away, which most people do nine times out of 10 or the case is settled for a penny on the dollar. Once the case settles, you redomesticate that trust and it\u2019s back to being purely domestic again.<\/p>\n
So I actually have a question about this because a lot of interesting stuff here. So let\u2019s just say in the case where you have a trust, let\u2019s say the hybrid trust, for example, and that holds all your real estate and you have an $11 million judgment. So that judgment is against your trust, which is more protected because it\u2019s offshore. Do you personally just as a person walk in the streets of America, have any sort of liability at all or any kind of charging order or any money that you would be on hook for from that $11 million?<\/p>\n
So what would happen is at that point, removing the equity and removing you as the trustee. So the likelihood of them following you, so we\u2019ve had to break over 300 bridges and move a bunch of equity offshore. We\u2019ve never had or seen over decades a client actually follow us down to the Cook Islands because it\u2019s just too daunting of a task if you go through those seven prongs that they\u2019d have to do. The only people who ever go down there is the IRS, the government, the man who can print money and has infinite amount of resources, and all they do is lose down there.
So do you have liability walking around? Yes. Can you run from that? No. Do you have a judgment against you, a valid judgment? Yes, but we did is make it legally to where you\u2019re not collectable on that judgment because the offshore trustee is going to say, \u201cSorry, this is the Cook Islands. We don\u2019t recognize any country\u2019s court orders or judgements. You have to sue us here,\u201d and that\u2019s out of your control. This is the US versus Grant case to where a guy stiffed the IRS for 36 million, stuffed it in a Cook Island\u2019s lawsuit, had a heart attack, died.
The IRS came after the wife for the back taxes and the money three times and three times lost, and then tried to hold her in civil contempt of court and throw her in jail until the money came back and the court said, \u201cListen. It\u2019s not her choice.\u201d Now at this point, the offshore trustee is the one in control saying, \u201cNo. Sorry. You don\u2019t get access to this because it\u2019s under duress,\u201d and she even tried to instruct the offshore trustee to give the money back and they kept saying no because it\u2019s under duress.
The court said three times to the prosecutors, \u201cWe can\u2019t hold her in civil contempt of court because it\u2019s no longer in her control.\u201d So that\u2019s how effective and strong that becomes. So you\u2019re walking around with a liability, but it\u2019s the ultimate settlement, big red button that works that you have in your toolbox.
So generally, before you go down that route, you\u2019re going to be settling the case because the attorneys at that point realize a foreign trust is in play. It just is up to me, the attorney, to decide when I\u2019m going to use that option or not because of the ultimate negotiating factor.<\/p>\n
So I have two questions about that. The first would be, how quickly can you get this set up? Is this something where you\u2019re like, \u201cOh, boy! I\u2019m in trouble. I can\u2019t get it moved over before a judgment is issued\u201d? Number two, approximately how much money should someone plan to set aside to do this technique?<\/p>\n
That\u2019s a good question. So it generally takes about 30 days to set up and transfer all the assets over.<\/p>\n
That\u2019s fast.<\/p>\n
Ideally, you want to set this up, yeah, it\u2019s pretty quick. Ideally, you want to set this stuff up before you even have a whiff that you\u2019re going to get sued because realize states have look back periods. The most extreme is California, a 10-year look back period. Other states have two-year look back periods, meaning you set this up and then if you get sued next year, someone\u2019s going to look and say, \u201cOkay. Well, this is a fraudulent transfer. Unwind it because you had a reasonable expectation within this timeframe that you could have been sued.\u201d
Anyways, that\u2019s irrelevant because you\u2019re not getting sued, but that\u2019s the argument that\u2019s going to be played. So you want to set these up like any defense system before a lawsuit happens. Okay. Once a lawsuit happens, you\u2019re starting to go too far down the rabbit hole, and you\u2019re really limiting the options that we have, and if you have a big lawsuit against you already and you come to me, I\u2019m either going to have to exempt that lawsuit or just go purely foreign, and that\u2019s going to be very expensive. Purely foreign, like I said, you\u2019re generally talking like 45,000 to 75,000 to set up plus 10,000 to $15,000 a year to maintain. That\u2019s why we don\u2019t use them very much and the IRS compliances. It\u2019s just too much.
That\u2019s why you go the hybrid option to where, generally, with a bridge trust with a limited partnership, you\u2019re talking about 29,000 to set up plus around $2,600 to maintain a year, and all of this is asset protection. So it\u2019s a tax write off. The profile that generally fits a bridge trust set up is you have about one million, like I said, of unprotected net. You probably have four to six or more real estate properties in different states. Either you\u2019re a pure real estate, 100% into real estate investing at this time or you have some other type of high risk career like you\u2019re a medical doctor investing in real estate or a lawyer, CPA, something that has more profile besides just the real estate itself because I think people don\u2019t realize how much bad things can happen in real estate even if you\u2019re the most wonderful landlord in the world. You can\u2019t control mold issues. There\u2019s a lot of things that are just \u2026 Renting out to the wrong person, a fight, breaking, someone dying. There\u2019s just so many things that go out of your realm of control. That\u2019s what these trusts are for.
I tell people think of it like a pie chart. There\u2019s three quadrants, the things you know, the things you don\u2019t know, and the things you don\u2019t know that you don\u2019t know. Most bad things happen in the third quadrants and that\u2019s where most people own their assets, the things that I don\u2019t know that I don\u2019t know. If I know something, I already know the answer. If I don\u2019t know something but I know Dave or Rob knows the answer, I\u2019m going to be like, \u201cHey, Dave. Hey, Rob. What\u2019s the answer to this?\u201d and you\u2019ll tell me, but if I don\u2019t know that I don\u2019t know something, I don\u2019t even know how to ask the question. So the idea is shrink that portion of the pie as much as possible, but create protection around yourself so that when something does blow up in that quadrant, we\u2019re safe.<\/p>\n
Okay. So I think for offshore, you mentioned that it\u2019s expensive 45 to 55,000. Can you also break down that for, I think, for the domestic side? I don\u2019t know if I missed that particular number. Then that\u2019s one that you said if I remember correctly, offshore, highest level of protection, most expensive, domestic, more affordable, but not as much protection, and hybrid, basically marries the best, right? So what would be the cost on those side of things?<\/p>\n
Yeah. So the domestic side, the purely domestic side, on average you see a domestic trust fall in the realms of I would say 9,000 to 12,000 to set up, and probably around a thousand dollars a year to maintain. Again, the weakness with that is purely US domestic. So there\u2019s no escape option. So just realize that\u2019s the weakness of it. Okay? We\u2019re having a lot of case law come down of judges, even in states that have asset protection statutes and self-settle spendthrift statutes just completely ignoring those statutes now or you have states like California that don\u2019t have self-settle spendthrift legislation and people running off to Nevada, for example, to create an out of state asset protection trust.
Well, the courts in California came down in Kilker versus Stillman in 2012 and said, \u201cAh, ah, ah, not anymore. We\u2019re not going to allow you to do this anymore. We\u2019re not recognizing out-of-state asset protection trust,\u201d or people run off to create Delaware statutory trust. Well, California doesn\u2019t recognize them anymore. So you have very thin lines of what states recognize them and what states don\u2019t. So when you combine where your assets are, where you\u2019re resident of, where the potential lawsuits come in, that really weakens the effectiveness of anything purely domestic.
So yeah, I can spend $12,000 on a domestic trust, but I feel like we\u2019re buying false sense of security at that point, and then that\u2019s where the domestic comes in in-between, but what you\u2019re doing, like you mentioned, Rob, is taking the best of both, the pure strength of the foreign, the ease and simplicity from tax purposes of the domestic, combining them together and then that falls within a half price range around $29,000.<\/p>\n
So okay. Yeah. I mean, it\u2019s still up there, but I mean, I think now hearing the benefits of it, I mean, it starts to make a lot of sense, especially when you do have a very quickly growing portfolio. I also wanted to get some clarity on something you said about the, I guess, if you solely do real estate, then the trust is going to help you, and then if you\u2019re in another high risk job like a doctor or CPA, a podcaster, YouTuber, in those instances as well, if you got sued personally out in the streets here or whatever for something you said or something you did, you would still have protection on all of your assets, even if what you\u2019re getting sued for isn\u2019t necessarily real estate-related. Does that make sense?<\/p>\n
Correct. Yeah, absolutely, because your assets are out of your personal name. They\u2019re owned in the proper buckets, the real estates and the LLCs. You have the management company as a second layer. Your trust really owns everything. So since everything\u2019s out of your name, you\u2019re going to get sued personally, but they\u2019re going to have to break into the system. Let\u2019s say they do pierce veils, and they do get into that system. Everything\u2019s unwinding. You\u2019re in your doomsday health situation right now. You had a glass of wine at date night with your spouse and you hit somebody with your car and then they died. That\u2019s just a general negligence on you personally. They\u2019re coming into your trust to try to get it. That\u2019s where those layers come into play, and then that trust disconnects does a unilateral with demand on the assets and it\u2019s gone.
So even though you have a judgment against you personally, your asset protection trust is what\u2019s going to be owning everything, and then that offshore trustee eventually is what\u2019s going to be the ultimate door in that judgment\u2019s face. It\u2019s just a matter of having the layer set up, again, keyword, beforehand. So that\u2019s where when we create the trust and everything before you\u2019re getting sued, now I have that option to break the bridge or that compliance because it\u2019s in my toolbox already, just like you\u2019re hiring a contractor to build your house. I want to make sure the contractor has all the tools and knows how to use them and not saying, \u201cOh, I\u2019m going to go put the roof on and I need to get a crane, but I don\u2019t know how to use a crane.\u201d So you need the pieces and the tools in place beforehand.<\/p>\n
Okay. Okay. See, this is, truly, this is all mind-blowing stuff for me. So the only other real question around the trusts, well, no, actually, I have a thousand more questions, but the one big one that I think a lot of people are probably wondering at home is once you start getting into \u2026 Let\u2019s say you put your property in an LLC or you did a quick claim into an LLC or you did anything in that world, refinancing and doing a cash out refi and moving those deeds over, that can already start getting tricky at that level. So my question is once you completely move your properties into your trusts, how does that affect doing any kind of financing in the states? Does that get murky at all or is it the same straightforward process?<\/p>\n
That\u2019s a great question, and I would say it depends on the type of trust that you use. We specifically use a grantor\u2019s trust so there\u2019s no murkiness, and banks and lenders prefer to see a grantor\u2019s trust because you are the one that\u2019s maintaining the control of the management of your assets. There\u2019s other types of trust that you create that you hear some people saying, \u201cWell, I have an asset protection trust in Nevada, and it\u2019s so difficult to get lending through or using it for bankers.\u201d Well, that\u2019s because it\u2019s not a grantor\u2019s trust. So it just depends on the type of trust that you\u2019re using at the end of the day.<\/p>\n
So if it\u2019s owned in a foreign, well, I guess, it\u2019s hybrid, but if it\u2019s owned in this hybrid thing, it doesn\u2019t necessarily have really bad ramifications on going to a bank and saying, \u201cHey, okay.\u201d<\/p>\n
Not at all because it would just be a foreign grantor\u2019s trust. The hybrid trust is a grantor\u2019s trust, and all that the banks will see is a domesticated US grantor\u2019s trust, and that\u2019s all that they\u2019re going to see, and it\u2019s just like everything else. Another form of a grantor\u2019s trust is your revocable living trust. That\u2019s another self-settled created for you by you. So they\u2019re familiar with that.
If you start going away from grantor\u2019s trust, then you\u2019re going to start seeing banks or lenders saying, \u201cOh, I really don\u2019t understand what this is.\u201d So like the basic KISS principle, keep it simple, stupid, it\u2019s the same thing that you want to apply when you start creating asset protection plans. Some attorneys that don\u2019t do this at higher levels create very convoluted message for clients who just becomes a nightmare for what you\u2019re saying lending purposes or even tax accounting purposes, and then they just stop using it and unwinding what they did, and they just completely wasted a bunch of money because the system was so convoluted and so difficult to use and maintain that is completely contrary to what you want to do.
So again, remember the acronym, ECCC. You want to make sure you can maintain your compliance and the costs are going to be easy to maintain. So that acronym, just everything that you do, realize if it looks convoluted as corona probably be convoluted to you, so you want to really simplify what you create. Just make sure it\u2019s strong and has different multiple layers.<\/p>\n
Okay. I want to pivot a little bit here, not super left field, but a question here because, obviously, in today, in 2022, today\u2019s world, cryptocurrency and digital real estate, NFTs, and other things, that\u2019s obviously a really growing industry at the moment. So I\u2019m curious, when you start factoring in technologies like crypto and blockchain, is there anything you can speak to with protecting that through any kind of trust as well?<\/p>\n
Yeah. Absolutely. I almost feel like that\u2019s a whole another episode in and of itself, but just remember that the IRS defines cryptocurrencies as a property. Okay? It\u2019s very, very important for your listeners to understand this, and what this means is that it can be targeted with legal action and you are legally required to disclose that you own it, and how much of it you own and where.
So people have this misunderstanding that because you purchased this cryptocurrency and that is private, that they think that it can\u2019t be traced or that it\u2019s inherently protection in and of itself, meaning that simply owning your cryptocurrency is asset protection in and of itself, and that you\u2019re hiding wealth.
This is the farthest thing from the truth. If you ever are subjected to a money judgment and you\u2019re brought into debtors court, because the US classifies your crypto as a property, you\u2019re legally required to disclose it, and like any property, it can be frozen and ceased.
So if you don\u2019t disclose it, you\u2019re lying to the court, you just come into perjury and perjury means people go to jail. So what we need to do is assign your exchanges and your wallets out of your name and into your asset protection plan to protect those assets. Now, this is where blockchain technology and the law is really getting fun. So there are things called blockchain trust that we\u2019re developing right now ourselves using the same concepts as the blockchain that\u2019s powering crypto. That then can be used to create these unique trust. You can make changes and amendments to these trust that they\u2019re going to be recorded in the blockchain, and then it\u2019s going to be forever verifiable.
We can build our pre-builtin triggers into a blockchain trust that allow the trust to alter its structure based on certain events that are happening. For example, a trust can convert into an irrevocable asset protection trust if you\u2019re ever in a lawsuit or it can become an irrevocable income-only trust before a beneficiary ever needs to apply for Medicaid. So the blockchain trust, based off of all this new technology, is really starting to accelerate the trust that we\u2019re using for the future, but this is all in beta development now, but I expect to see big changes starting to happen there.<\/p>\n
Awesome, man. Well, we\u2019ll bring you on for a whole another deep dive on that. I guess a general disclaimer for everybody out there, David and I will never ask you to send us crypto. We\u2019ll never ask you to contact us on WhatsApp. So if you\u2019re on the BiggerPockets YouTube channel, you\u2019re going to see a lot of BiggerPockets-branded accounts at our scanners that are saying, \u201cHit me up on WhatsApp, send me Forex trading.\u201d I don\u2019t really know what it is these days. It\u2019s not true. We\u2019re never going to ask for that.<\/p>\n
That is a good point. Every month, I get a new fake account where they will have some variation of my screen name. Do we call them screen names? Did I just go back to AOL days right now on the podcast? What do you call your social media name?<\/p>\n
Well, it\u2019s a handle now. The cool kids say handle, your handle.<\/p>\n
All right. So they\u2019ll copy some variation of my handle. They\u2019ll leave off the E at the end of Green or they\u2019ll turn the E into a C so it doesn\u2019t look like it. They\u2019ll copy all my pictures and then they\u2019ll say, \u201cHey, send me your bank account information. I want to give you some money,\u201d and I get so many people that say, \u201cHey, I thought I was sending you my bank account. I sent it to a scammer.\u201d I was like, \u201cWhy would you send it to me? That\u2019s a terrible idea,\u201d but yeah. Please be very careful with these DMs.
Brian, I think now would be a good time to transition over to the fire round section of the show. Did you have anything that you wanted to say before we move on?<\/p>\n
No, I\u2019m ready for the fire round.<\/p>\n
It\u2019s time for the fire round.<\/p>\n
Awesome. Okay. This is a segment of the show where Rob and I will fire questions at you and we will see how you would reply in your best response where you fire them back. So what is the biggest myth surrounding LLCs?<\/p>\n
Yeah. So the big myth right now is this wonderful word called anonymity like, \u201cLet\u2019s go create an anonymous Wyoming LLC and we can completely ghost and disappear lawsuits.\u201d That\u2019s not how the legal system works, but I get this call probably three times a day. Sorry. I\u2019m cracking up as I say it, but it amazes me that this isn\u2019t the general train of thought that we\u2019re creating this anonymous Wyoming or Delaware LLCs. Now, I don\u2019t have to show up in court and I can never be sued or discovered.<\/p>\n
It reminds me of the person who can figure out somebody\u2019s MySpace password and then they think they\u2019re a hacker. They\u2019re like, \u201cOh, I\u2019m in.\u201d They think that that\u2019s what computer hacking is, right? It\u2019s the same type of thing like, \u201cIf we just fight an anonymous thing,\u201d or there\u2019s this one move that they know about that nobody else knows that can win them the fight. It\u2019s the same type of an idea, but yeah, when you go to court, they unpack everything. There\u2019s no five-finger death punch.<\/p>\n
I\u2019m going to say you can definitely think TikTok for that. I mean, TikTok is 15 to 32nd viral videos that are like, \u201cThis hack is going to save you millions of dollars in a lawsuit, Wyoming LLC,\u201d and then it\u2019s like, \u201cOh, gosh!\u201d<\/p>\n
Well, and that\u2019s where this comes from because you have so many promoters, and even attorneys and CPAs have no idea about this because they just take a continuing legal education course and then just realize, \u201cI can use this for everybody,\u201d and cast a big net and don\u2019t realize, \u201cWell, what really happens and plays out in court because I am a trial lawyer by trade?\u201d
It\u2019s like, \u201cWell, you do get this thing called you\u2019re getting a service so that personal agent of service that\u2019s legally required to be attached to that Wyoming or Delaware LLC, their still job is to be like, \u2018Hey, Rob. Guess what, man? You just got served. Here\u2019s your lawsuit. Now go get a lawyer and show up in court.’\u201d
Well, there\u2019s no more anonymity at that point. So now you got to show up in court and the judge is going to say, \u201cHey, you\u2019re going to potentially have a judgment against you. So here\u2019s this great thing called an asset declaration list. Write everything down that you own, and if you don\u2019t and you don\u2019t disclose everything, now you\u2019re going to commit perjury on the court and go to jail.\u201d
So once you get sued, anonymity goes completely out the door. Now, if you want to hide your assets, you\u2019re the weak link on that because you\u2019re going to be the one going to jail. So just realize anonymity is a private seat mechanism, not a lawsuit ghosting mechanism.<\/p>\n
All right. Awesome. Let\u2019s move on to the next one here. How will investors use blockchain in the near future?<\/p>\n
I think investors are going to be \u2026 From the legal side or contract side?<\/p>\n
Yeah, yeah, smart contracts, anything in that side of things.<\/p>\n
Yeah. So I would go and look at what is a company. I\u2019m not pumping any one specific currency or anything like that, but at ADA, they\u2019re really getting into \u2026 What it\u2019s called? Cardano? Yeah, ADA is Cardano. They\u2019re really getting into the smart contract play. So realize, blockchain is about transferring a title. So now, you\u2019re going to have these smart contracts and it\u2019s going to be really easy, clear title.
So the importance of that even in the legal field is you can\u2019t go in and manipulate a piece of evidence and document because it\u2019s all going to be transparently there in the blockchain, and you can\u2019t just go in and start manipulating these agreements.<\/p>\n
All right. Next question has to do with building your team. So in the book that I, David, wrote, Long Distance Real Estate Investing, I talked about the core four. You want a deal finder, a property manager, a contractor, and a lender. You have those four pieces, you can invest anywhere. Outside of those pieces, Brian, who do you think investors need on their team?<\/p>\n
Yeah, and that\u2019s a great book there. I actually wrote that your book is a really good book.<\/p>\n
So you\u2019re the one that read it. I\u2019ve been looking for you.<\/p>\n
It\u2019s me. It\u2019s me. I should get a little courteous like, \u201cHey, man,\u201d but I bought all the covers. So I just gave them out as gifts, but anyways, no, the key pieces beyond those I would say become friends with your CPA. Really, you should be talking quarterly to your CPA to take better advantage of your tech strategies. Your asset protection attorney, before you buy something, before you sell something or if you have a sniff in the wind that you did something wrong and are about to get sued. So we need those two to talk and we need to talk to each other and your wealth manager because we need to protect what you have. Your CPA needs to be able to file the proper tax forms and your wealth manager needs to be able to do whatever tax mitigation strategies that you want in place.
So I think those are the three key pieces of your investment world that you need to be constantly talking to. Some people are afraid to talk to the lawyers. Some people don\u2019t realize you should be talking to your CPA probably quarterly to create proper plans on how to write a lot of stuff off, and then your wealth managers take your CPA\u2019s job to a whole another accelerated level. So if you really want to accelerate wealth, get in with your wealth manager, tell them your strategies, tell them how aggressive you want to be, and let them do their magic.<\/p>\n
Totally agree, man. I mean, that\u2019s a whole nother level on the Avengers, right? I call mine Airbnb Avengers. I think David calls his the dream teamers, core four. This is now your financial, I don\u2019t know. We don\u2019t have to think of the name for them now, but yeah. I mean, teams in every aspect of your business, I guess, there\u2019s no limit to the amount of teams that you can have when you\u2019re trying to scale and protect your assets. So thanks for answering that.
So I\u2019m going to be re-listening to this podcast myself. Just I\u2019m going to digest it and then come back and then relisten with a whole new, I mean, I feel like I\u2019ve just evolved to the next level of what it takes to really know your business. So Brian, for you, are there any final takeaways or anything you want to leave the viewers or the listeners with as we close out?<\/p>\n
Yeah. I would just say in the realm of what we\u2019ve been talking about, it\u2019s too late after you\u2019re getting sued. So you got to think about this stuff beforehand and then just layer it up and structure it as you go. In the investment side of things, I would just say don\u2019t get stuck in analysis paralysis. Eventually, you got to just jump in and kick your arms and feet around and realize, \u201cLet\u2019s float then swim.\u201d<\/p>\n
Where can people find out more about you, Brian?<\/p>\n
Yeah. They can jump on my website, www.btblegal.com. I have it set up more as an educational resource with a bunch of case law, frequently asked questions, video content because I\u2019d rather have you be educated to ask better questions when you are shopping around versus just coming in at a blank slate or you can just email me, [email\u00a0protected]<\/a> I generally do a one-hour free consultation, whether we\u2019re right match or not. I\u2019d rather, again, just have you have a long, educated opinion and then take that and see what other people have to say.<\/p>\n
Announcing that you\u2019re about to get all the hours on your calendar filled out for the next year, I think.<\/p>\n
I\u2019ll say, you know this really is-<\/p>\n
David, what about you, man?<\/p>\n
You know this really is a trial attorney because you\u2019re referring to case law. The second I hear that I\u2019m like, \u201cOkay. That\u2019s actually a person who is going to end up being in court and knows this from a practical standpoint not just a theoretical standpoint.\u201d I always notice that when I worked in law enforcement. Those of us that were in court testifying had to pay a lot more attention to the case law involved in those that never did anything.<\/p>\n
Well, and I would say that\u2019s a great thing to ask people when you\u2019re vetting your attorney is asking for some case law because most of them won\u2019t send it.<\/p>\n
That\u2019s exactly right. So the 15-second clip on TikTok person probably doesn\u2019t have case law. I think that\u2019s an awesome litmus test. All right. Well, thank you, Brian.<\/p>\n
I think that\u2019s it.<\/p>\n
I\u2019m thinking about creating a case law TikTok.<\/p>\n
Hey man, you could probably go viral with that, Brian. You want to hit up TikTok after-<\/p>\n
I think that\u2019s also how you know if someone\u2019s like-<\/p>\n
David, where can people find you?<\/p>\n
You could find me at DavidGreene24. Find me on Instagram, find me on Facebook, find me on Twitter and LinkedIn. I\u2019m going to be making a TikTok for the David Greene team. I\u2019m just trying to figure out who the right person is to make that thing. Brandon Turner has warned me very, very carefully, \u201cDo not get sucked into TikTok.\u201d It\u2019s like putting on the ring in Lord of the Rings where it just can pull you right in. So I\u2019m going to be making content for TikTok, but not ever actually watching it because I\u2019ve been warned of the dangers of it.<\/p>\n
Oh, it\u2019s true. They know me well. They know me well. You can find me on TikTok, @robuilto, Instagram, Robuilt, on YouTube, @robuilt as well. Remember, everybody, it\u2019s David Greene with an E24. It\u2019s not DavidCream25. We will never ask you for crypto.<\/p>\n
All right. Well, thank you very much, Brian. This has been a fantastic show, probably more practical knowledge and insight than almost anywhere else you could get. I mean, this is just like the consultation that you\u2019re going to give to somebody. Many people would pay money to get this information. So thank you very much for coming and bringing it to our audience. We appreciate you. I think Rob and I will now be having another talk where we say, \u201cOh, my God! Do we need to do anything differently? What could happen here? Do we want to go to Monaco? Do we want to go to Switzerland? What\u2019s the key going to be?\u201d but we appreciate you, man.<\/p>\n
We\u2019ll be in touch.<\/p>\n
We\u2019ll be in touch.<\/p>\n
This is David Greene for Rob robuilto Abasolo.<\/p>\n