Hey everybody it is Ken.
I cannot wait to talk to my good friend here.
Garrett. Sutton
So, Garrett and I have known each other, what, 20 years at least?
Something like that.
what we really wanted to talk about was this now.
Garrett I'll just play what this is because this is straight
from the IRS, guys. This is the Dirty Dozen.
They do it every year.
Beware of the abusive tax avoidance schemes.
So let's talk about that because this is a big deal.
It is a big deal, Ken.
And the IRS feels the need to put this out every single year
because there's so many promoters out there letting people
get in to these shady tax schemes.
Yeah, and, you know, a lot of times you're going to deal with
someone who won't be there the next year when you're in trouble.
I see these all over the internet, like you see them on Tik Tok Instagram
and they're short little clips and they're like, you know, you can avoid tax.
I always tell people like this that, you know, the purpose of,
you know, what we're doing here is to protect your assets.
It's not not to pay tax right? Right.
That is a big difference.
People think, oh, I'm not going to have to pay tax.
That's not how it works, folks.
Right, Exactly right.
I mean, we do not want you getting in trouble,
ruining your life, your family's life, going to jail.
You know, the tax code allows you to minimize tax.
Yeah, and that's fine.
And by the way, you use a CPA for that.
I'm not an attorney.
Like, you know, use an attorney to try to avoid tax.
I mean, the CPA and attorney do work together, right?
A lot.
And that's, you know, I well, if you don't use the CPA for asset
protection because CPA stands for cannot protect asset,
that, let's
talk about some of these dirty dozens, because this is very interesting.
What are some of the dirty dozen?
Well, the one that really stands out to me is the Maltese Retirement Plan,
where these promoters, including some lawyers out there, are encouraging
people to set up a retirement plan on the island of Malta and avoid U.S.
tax by doing it.
And the IRS has had so many people claim that they don't have to pay U.S.
taxes because they have a retirement
plan in Malta that they added it to the list this year.
So it's risen to the top of being a problem.
And I think that all these lawyers out there that are promoting
this scheme to their clients are having a tough time.
Okay.
So before we jump to the next topic,
you guys didn't understand, there's a couple of things going on.
One, there's all kinds of people promoting this online.
Yeah, there's all kinds of people doing it.
And the IRS says we're going after it.
So, okay, So hopefully you guys see the problem here.
Like, you know, this is not these are not opinion.
Right, Right, exactly.
Selves have said this is a problem. Right.
And so there's so many schemes out there.
They have to do this every year. The top 12.
And so if you're on the Internet and someone's
promoting this tax free scheme and it doesn't sound right to you,
but they're very convincing, just know that this scheme
could be on the IRS, Top 12, the Dirty Dozen in the future.
So you've got to engage in critical thinking it right way.
It's all there now. Yeah, we know that. Okay.
But the one thing that's always saved my thought is
the CPA handles tax.
The attorney handles asset protection.
Right.
Don't take tax advice from the attorney.
And don't take asset protection advice from the CPA.
Especially that one. Yeah. Well, you know what I mean.
Like, they are two different things.
And sometimes you, like, am arguing true.
And I like getting on the phone with the client, the CPA and myself.
And usually in one phone call, we can solve everything.
Yeah, right.
But to have the attorney say, Well, that's a CPA question,
call your CPA and you're bouncing back and forth.
Just get everybody on the call all at once and solve.
That's a very good point.
I know as I move money around and we've done trusts and stuff like that,
we get our we get the attorney on the phone,
the CPA in the fall, we get everyone on the phone
and we come up with a strategy.
Then it doesn't take very long now.
But but I do think that if the if the CPA, who has a fiduciary obligation
to is on a phone call with an attorney and the attorney saying something
that CPA doesn't agree with, it's going to come out in that conversation.
It should come out.
It should give a sense worth if but if you listen to the CPA for asset
protection advice, I've had so many clients come to me and say, well,
my CPA said I was starting out, I couldn't afford an LLC.
They're not expensive.
But the CPA says, just start out with the property in your individual name.
That is really bad advice. It is. It is.
So before we go so much deeper into these dirty dozen,
let's talk about the basic problem that
we have, which is people holding things in their own name.
Right.
That is a huge problem because when that tenant sues, not if
when the tenants sues, they can reach all of your personal assets.
You you hold a duplex in the name can McElroy.
Right. And the tenant sues.
They can get the equity in the duplex and they can get
all of your personal assets by simply setting up an LLC,
transferring title into the name of the LLC.
They can get the equity inside the LLC, but they can't get beyond
your personal assets.
And so it's just so easy at the start.
It is to set up an LLC.
there are certain buckets of money that you have and they're all separated.
So you got maybe equity in your home, maybe got equity in some piece of land,
maybe you've got a business, maybe you've got, you know, some
some assets in the stock market or gold or silver or whatever it might be.
So you have stuff all over and if you buy something
and it's in your name
and you get sued, then they have access to all of those things.
And that's the that's that's what's important to understand.
Right.
And what you're trying to do is put, you know, a forcefield around the thing
that you buy.
Right. Essentially.
And we want to segregate assets from each other.
So if you put ten properties into one LLC, the tenants
suing over the first property can get the equity in all ten, right?
So we don't want to have too much in one LLC, We want to split them up
so that you don't have a target Rich LLC.
Right.
So that's the basics of asset protection is that you essentially,
you guys might be surprised, but I believe and I have to think about this,
I don't think I have one thing in my personal name.
is that you're trying to segregate all this stuff
so that people don't have access to all of it.
Right, Right, right.
And so we have a lot of clients that will have a brokerage account with,
you know, a couple hundred thousand, a million or more.
And it's if it's in their individual name, say, at Charles Schwab,
they get in a car wreck somewhat, could reach that brokerage account.
It's very easy to transfer all the brokerage assets into an LLC.
Yeah, it's not a taxable event.
You're just transferring it from your name into your LLC.
You haven't sold the securities and it provides excellent protection.
If you ever get sued, they're going to have to fight through
a Wyoming LLC to get at those assets and that is not easy.
So let's talk about that, because I hear this a lot like,
well, the bank will let me,
you know, loan to an entity that, you know, has never been set up.
I go, oh, well, why would they like, you know, there's no assets in it, right?
So so there's a lot of confusion around when to transfer things into an LLC.
And you said one really key thing that I don't want to pass over,
which was that doesn't include the securities.
Can you explain the difference?
Well, you're going to have one LLC for the real estate, right?
And when you borrow money, of course, they're going to
want your personal guarantee, right?
Not going to accept just the property you want, your personal guarantee.
And that's true for every bank out here.
That doesn't change.
But that obligation is just between you and the bank, Correct?
That doesn't mean that
if you set up the LLC properly that a tenant can go after you personally.
Yeah, I just personally guaranteed with the bank, not with the tenant.
Yeah.
And a lot of people have asked about that do on sale clause and all all that stuff.
I've never heard anybody actually exercise it.
You know, you're just protecting the equity that well.
And the other thing is you haven't sold
the property, you've transferred title from your name to your LLC name.
Right. Which for sale there which is owned by you. Right.
And so the FHA has this term
that everybody should remember continuity of obligation.
So when you borrow money, you give the bank your personal guarantee.
The bank has a first deed of trust on the property.
When you transfer title into the LLC, there's still this continuing obligation
to pay the bank.
You have the personal guarantee.
The bank still has the first deed of trust.
So the bank's position hasn't changed in that scenario.
In fact, I would argue the bank's position is better because it's
less like you likely you'll get sued if properties in an LLC.