Tom's Blog

Corey listened to our teleseminar with Doug Lodmell and asks the following question:

Q: Tom, Thanks for the great information on Asset protection. It seems the more I read though the more confused I become. In the Rich Dad series Garrett Sutton talks about Nevada and Wyoming LLC's and Nevada Asset Protection trusts being great for asset protection. Douglas Lodmell listed these as poor when it comes to asset protection in his teleseminar. I guess the question is who is correct or are they both correct and I am misunderstanding the presentation?

A: As Doug pointed out in his teleseminar last week, there are several levels of asset protection. Doug showed a scale of poor, good, better and best types of asset protection. I don't think there is any question that the offshore asset protection Doug advises is the ultimate in asset protection. But that doesn't mean that you don't want to do at least some of the other pieces as well. As Doug suggested, most of your investments and business interests you want to be held in an LLC. This is what Garrett is talking about. This is good asset protection and is the minimum anyone should do.

The next level beyond LLC's would be a domestic asset protection trust (DAPT). I don't believe Doug addressed these during his presentation. Here is how the DAPT works. In most states, a self-settled trust (i.e., one in which the person who puts the assets into the trust is also the beneficiary) does not protect you against lawsuits. However, a few states have enacted DAPT statutes that do protect you in a self-settled trust. Wyoming, Alaska, Nevada and Utah are a few of the states with these laws in place.

So why go to the trouble and expense of an offshore asset protection trust when you can just form a DAPT? There are two reasons I can think of. First, these trusts have not been tested in the courts. So, we don't really know what will happen when they are tested. More importantly, however, is the situation where you don't live in one of these states or your assets are located in a state other than the state in which your trust was formed. When you are sued, which state's law is going to apply? If I were a plaintiff, I would sue in the state where the property is owned if it is not a DAPT state. Will a court in a state without the DAPT statute protect you? This is a big unknown.

What we do know is that offshore APT's have been tested for over 20 years and have proven to work. Hopefully there will come a day when all of the states have DAPT statutes and we don't have to go offshore. In the meantime, though, if you want maximum asset protection, especially if you own property or live in a non-DAPT state, you should consider an offshore APT as suggested by Douglass Lodmell.

Let me know if you have any other questions about this. Hope it helps.

Warmest regards,

Tom

Corey mentioned the other day that he was confused about the different advice given by different attorneys, including Doug Lodmell and Garrett Sutton. He also told me that he was a bit confused about where to form entities, as he had heard both good and bad about Nevada LLC's.

Different opinions from different advisors is always a concern. That is precisely why, at ProVision, we recommend a solid, informed Wealth Coach (http://www.provisionwealth.com/strategic_wealth_coaching.asp) to explain the differences and how to decide which advisor to follow.

Nowhere is this more true than in the case of asset protection. I have been told by some attorneys, including Garrett, that they really like Nevada LLC's for the privacy they provide. I have had other attorneys tell me they don't like Nevada because of the cost, the current focus of the IRS on Nevada companies or because of the legal system in Nevada. I'm not saying that one is right and one is wrong. What I am saying is that each person's situation is different and you need a good wealth coach to help you identify which option is best for you and to work with the attorneys to make a good decision.

By the way, Garrett saw my blog and got back to me right away with his comment (see below under "Comments" to the previous blog entry. I understand Garrett's position. It certainly is more expensive to use an offshort APT than a domestic APT. The question is simply the level of protection you want. Some people are fine relying on their umbrella insurance policy with no LLC's at all. Others want the protection of LLC's. But some people want the most protection possible and I have not seen anything that is better than the offshore APT. And the way Doug sets these up, the APT does not go offshore until there is a triggering event. So, Garrett and Doug are both correct - it just depends on where you are and what level of asset protection you desire.

Warmest regards,

Tom

At ProVision (http://www.ProVisionWealth.com), we focus our clients on their wealth strategy. With regular coaching, our clients have excellent success. But what happens when you have a setback? How do you keep going and what do you do?

One of our great clients, we will call her Alice, recently had a serious setback when her husband contracted cancer. This was a huge setback for them, both financially, due to the cost of insurance and the cost of treatments, and more especially due to the amount of time and energy these treatments consume. How do you overcome a setback like this?

I had a considerably smaller setback recently when, in the midst of my training for my triathlon in May (and desired weightloss to go with it), I injured my foot for the third time in a year. I had to stay off it completely for about a month and now have a boot to wear for another 6 weeks. How do you overcome the setback?

The most important thing to do is to stay focused on your goals and keep moving toward them. A setback is just temporary and as long as we stay focused, we can still accomplish our goals. For Alice, she simply will have to concentrate what time and energy she has on her business and investments and focus even more intently during the few hours a week she can devote to them. For me, I have to maintain even better focus on nutrition, since I won't be able to run until a week or two before my triathlon. (Fortunately, the doctor has given me the go ahead to swim and bike - no excuses there.)

So, whether you have a major setback like a loved one with cancer, or a minor setback like a foot injury - stay focused. Lack of focus is the single biggest deterrent to creating massive amounts of wealth.

Warmest regards,

Tom

This is the time of year when all Americans think about their tax situation and what they might do differently to reduce their heavy tax burden. There is a record of an ancient civilization that was required to pay 50% of their earnings to their captors. They considered themselves in bondage. And yet, many Americans who earn over $100,000 per year pay far more than that in federal and state income tax, sales tax, social security tax, property tax and excise taxes.

I'm not against paying taxes for necessary government services. To the contrary. What I am opposed to is paying a dime more than I have to. But MOST OF YOU are paying far more than you have to. Why? In most cases, it's simply because you are getting poor tax advice.

The reality is that the Internal Revenue Code is full of opportunities to reduce your taxes. I have spent almost 30 years pouring through the Code and learning all of these opportunities. And I am continually learning new ways to reduce taxes. It's all a matter of understanding the law and applying it the way Congress intended. That's right, Congress intended to provide tax benefits to individuals and companies who behave a certain way. Why? Simply because Congress has long used the Internal Revenue Code as a way to promote social, energy and economic policies.

But how do you know if your tax advisor is giving you the best advice? Unless you are legally paying no taxes, you really don't. The answer, quite frankly, is to have another, experienced tax advisor review your tax returns from prior years and your current tax situation. It may be that when you were a simple wage earner that there were few ways to reduce your taxes. But now you are in business or you are investing in real estate. What's happened is that YOU HAVE OUTGROWN YOUR TAX ADVISOR!

Before you commit to another advisor, have them review your situation. Don't expect that they will give you free advice. But find out if they think they can do something different. Just the other day while reviewing a tax return I found $60,000 of taxes that a prospective client was paying that we could easily eliminate. What would you do if I found $60,000 of ANNUAL tax savings for you? I hope you would jump on this opportunity and hire me.

Whatever you do, remember that "if you always do what you have always done, you will always get what you have always got!" Come join us at ProVision for a free teleseminar tomorrow night to learn 5 Tax Mistakes That Cost Business Owners $20,000 or More http://www.provisionwealth.com/seminars/Details.asp?Seminar_ID=19.

Stop paying so much tax that you feel you are in bondage to the government. Don't waste any time. Let me help you. You can reach me at cs@ProVisionWealth.com or 866.467.5809.

Warmest regards,

Tom

Here we are less than a month from the due date of tax returns. Most of you are scrambling to get your information together for your accountant. You hope the tax bite is not too big this year - that you won't have a big tax payment due on April 15th. You wonder, "Is there anything that can be done on my tax return to lower my taxes?" After all, it's a little late to "plan."

I have great news for you. There are literally hundreds of things you can do in preparing your tax return that will both reduce your taxes AND reduce your change of being audited by the IRS. The other day, we were doing our weekly training of our tax professionals. I asked them to get together and list everything we do at ProVision for clients DURING the tax return preparation process that either reduced taxes or reduced audit risk.

Even I was amazed by the resulting list. We came up with over 60 categories of ways we help our clients reduce taxes/audit risk during the tax return preparation process. Specific items of savings number in the hundreds. And all of these savings are PERMANENT! I'm going over some of these ideas during our FREE! teleseminar tonight. You can join us by registering at http://www.provisionwealth.com/seminars/Details.asp?Seminar_ID=19.

So the question you should be asking yourself right now is whether your tax return preparer knows enough of the law and how to apply it that they can produce the best result for you. If you are like most people, you are leaving THOUSANDS OF DOLLARS on the table. Your tax preparer may not charge a lot, but WHAT ARE THEY COSTING YOU???

My analysis, as illustrated in our free cd, "What Your Financial Planner Will Never Tell You" (go to http://www.ProVisionWealth.com/wealthcd), proves that if you take the tax savings from good tax advice and reinvest it, you can double the amount of wealth you might otherwise accumulate.

So don't be thinking that you are saving money by using an inexpensive tax preparation service. Over 95% of the tax returns I see prepared by other preparers overstate the client's tax. It's not too late to make a change. So do something now. At least have another advisor look at your taxes from last year. You can reach us at cs@ProVisionWealth.com or call us toll free at 866.467.5809.

Warmest regards,

Tom

Corey asks the following question:

A partner and I have an LLC with 50% ownership each. We both plan to transfer title via a Quick Claim Deed for both of our current homes to our LLC. We then plan to move out of these homes and rent them. We will then keep the new homes that we purchased in our own personal names. Both of the homes that we plan to put into the LLC have been lived in for more than 2 years. Is the transfer of our homes into the LLC a taxable event? Also is there anything else besides the Quick Claim Deed that needs to happen in order to fully transfer the new properties into the LLC and protect us from legal liability of our new rentals?

A: Like most tax questions, this one prompts another question. How is the LLC being taxed? If you are taxing it as a partnership (my recommendation), there probably is no tax consequence to tranferring the houses into the LLC. However, you may want this to be a taxable event. If it is a taxable event, then you will receive a basis in the property (for depreciation and subsequent sale purposes) equal to the fair market value of the property at the time of the transfer. And as long as the fair market value is not more than $250,000 greater than what you paid for the house, there should be no tax on the transaction. This is a tremendous benefit, but you need to make sure you handle the transaction properly. I recommend you sit down with your tax advisor to make sure you do this right.

There is another issue regarding this transaction and that is the use of a quit claim deed. You should speak to your title company about this. They may recommend that you use a warranty deed instead so you don't lose the benefit of your title insurance. Be sure you also speak to your regular insurance agent to make sure your houses maintain the appropriate coverage for property and casualty insurance purposes.

For more about this, visit our Tax Mastery section of Wealth Strategy U at http://www.ProVisionWealth.com/wealthu.

Warmest regards,

Tom