By Lee Phillips — There’s a little secret the rich know that is lost on the wannabe wealthy. You can’t build a house from the roof down. You have to have a foundation first. Funny thing, the same applies for your financial empire. But, what’s the foundation of wealth? You’ve figured out the First Cornerstone that will help you put your foundation in place. Now in a series of articles, we will build the foundation.
Have you ever noticed that the truly wealthy always seem to know the laws? The foundation is built using legal structures. How you use the legal structures to form your foundation will make all the difference. To a large extend, knowing the laws and skillfully using the legal “tools” will determine how much money you get, and just as important, how much money you keep.
As a lawyer, I often hear the statement, “If I just had all the money I have lost, I’d be ok.” Keeping it may actually be more important than making it. Lawyers always recommend corporations or limited liability companies (LLCs) as the basic business structures. They are supposed to protect their owners from liabilities. Once you get the corporation or LLC documents from the lawyer or off the internet, you put them in the drawer, and life goes on.
The vast majority of corporations and LLCs offer little or no asset protection when the lawsuit actually strikes. The documents supplied by the lawyer or internet site may be flawed, but more likely, the user (you) never get any training in how to skillfully use the documents – how to maintain and use your corporation or LLC. In most cases, the “corporate veil” of the corporation or LLC is “pierced,” and the officers/directors/managers are held personally liable.
There’s actually a business foundation and a personal foundation. The two have to meet smoothly in order to establish a flat foundation for your wealth. The corporations and LLCs are usually thought of as the business foundation part. There are four elements to the personal foundation. You need a will, living revocable trust, durable power of attorney, and a living will to have a balanced personal foundation.
Having just formed a commitment to help the elite of First Cornerstone, I will be exploring all of the aspects of each legal tool with you, and I will be tutoring you on exactly how to skillfully use each tool. I have already helped over a million people with their foundations, now it’s your turn.
Taxes are your biggest asset protection threat. Taxes just quietly take half of everything you get. Yes, it is half. You are hit with federal and state income taxes, property taxes, gas taxes, cell phone taxes, and on and on, plus a whole lot of taxes that are disguised as “fees.” One of the things you’ve got to understand is your adjusted gross income (AGI) and how to lower it. You’ve never had your tax guy put his arm around you and explain that your AGI has to go on a diet. How would you like to cut your AGI by 20%? That will be our goal. In fact, let’s just cut your tax bill by 20%. That’s certainly possible for most of the people I work with.
One of the people in my office is an accountant, but before joining our team, he spent seven years as a special auditor for the IRS. He taught the auditors and handled the big criminal cases. Yes, he will be one of your resources as we work together. Taxes aren’t usually thought of as an asset protection problem, but they certainly are.
People lose in subtle ways. If I say “asset protection,” you will say “lawsuit.” There is no question that in today’s society if you have much of any wealth there is a target on your back. For some reason, a large sector of society feel that they are entitled to what you have worked hard to build, and they will try and knock over anything you build. So, you are very careful, carry insurance, keep a low profile, and do everything you can to stay out of the lawsuits. But, there are a lot of other actors that sneak away your wealth.
For example, over of half of all bankruptcies are the result of someone in the family just getting sick. Is an illness an asset protection threat? Yes, it is a lot bigger threat than the lawsuit. But, you say you have health insurance. My wife of 43 years is in the final stages of ALS. She will die in the next couple of months. We have great insurance plus Medicare. In the past two years her illness has cost us well over a half million dollars in addition to what the insurance paid. That would take many families under. We are blessed to be able to withstand the expenses.
The question is how many of your rental units will you lose when you have to declare personal bankruptcy? How many will you lose in the next real estate bubble pop? If one goes under what will the effect be on the other units? I saw people lose everything in the 2009 bubble, because one went bad and the others just fell like dominos.
If you hold the units in corporations, they will all collapse. If you use an LLC, there is a good chance you can save some of the units. You have probably never been told how to get twice as much asset protection out of an LLC when compared to a corporation. Lawyers hardly ever talk about the double asset protection. But, different states have different requirements for achieving this double asset protection.
The question of which state to locate your LLC or corporation in is always an issue. A whole industry has grown up around creating LLCs and corporations in Nevada, Wyoming, Delaware, New Mexico, Utah, or some other state. Most people are talked into making a huge mistake. The issue of tax choice for your LLC or corporation is another issue where people make big mistakes.
These are all issues that do have a right and wrong answer – actually lots of wrong answers. If you pick the right answers, you get a lot more money and a lot more security. No, your lawyer won’t answer the questions for you. You have got to know enough to at least direct your lawyers and CPAs.
Professionals can’t afford to give advice today, because of the liability. If your CPA just takes the numbers and plugs them in the tax formulas, he doesn’t have any liability. As soon as he starts telling you how to cut your AGI, he has a liability. So he will keep his mouth shut. If you come up with the plan and direct it, your professionals will support you, but they won’t make the plan for you, and they won’t teach you how to work the plan once it goes into place. You’ve got to operate your plan every day to get the tax benefits and the asset protection. You have to make decisions every day that will generate the numbers you give the accountant to calculate your taxes. You have to make a lifestyle change, but you’re not alone. We will help.