Well welcome everyone to another abundance group trusted advisor training. And apparently I was a little ahead of myself last week. Today is week 10 for certain it is being recorded on August 30 2022. And our topic today is case studies. I want to do the least amount of talking I've ever done on today's call. I have invited several guests to join us who each have different configurations so that we can have you guys tell us what structure and what you do to implement for them. So of our guests, who would like to go first? I'll make you last brandy. Do you want to go first? Yeah, no problem. Awesome. So Todd, pretend like you had just heard about the Trust for the first time. You came in your did a consult you liked what you heard. And you're just getting started with nothing as knowledge and tell them what things you've got so that we can have them tell us how they would structure it. And what to do from there?
Well, I'm I think I'm pretty much meet that criteria of not having much idea on what I'm doing. So I've got all three.
So Todd has the trifecta package, prior to the trust, how were you making money and through what
I was doing, using land trusts and doing a lot of rental and rent to own? And that was primarily what I was doing. Any other
sources of income?
A little bit of credit repair. But no, not not in the other act. What
about your wife?
Yeah, if Yeah, if you want her included? Yes. My wife works full time.
And how does she get paid?
Whu.
Oh, and give us a ballpark of how much income in the WTO?
Ah, right around 250. With COVID, we found it has varied a little bit.
Okay. And she is a physician, correct? Correct. Which should be a clue to all of our trusted advisor trainees. High risk, high risk, high risk, high risk.
Yes, you gave a little bit last week very high risk.
Thanks a lot. This is George or Dr. Wessler. Okay, so, if Todd is just getting started, how many properties total in land trusts?
Um, between a dozen to two dozen, some of them are held in IRAs.
Okay, we can't do anything with the IRA ones. So on those that are either in land trusts in your name, or in an entity like an LLC, who's the ultimate beneficiary?
My wife and I,
jointly, are tenants in common.
Pretty much tenancy in common because most of the lot of the stuff was already established before she was in the picture.
Gotcha. Okay, and you're in Michigan.
I am. I have some properties out in Maine still.
Okay. So who wants to take a stab? at what times should do now that he has a trifecta package. And hint, you can use the personal trusts instructions and business business trusts instructions as cheats if you want.
I'll step out there and at the beginning, I would say she, how many LLC is that you say you hit
I only have one LLC? Primarily because the properties are pretty much purchased in cash. So my former account and set it up to lien the properties just so if somebody tried to sue me, they would be protected. Using it, I think to run my taxes through I believe,
or they lean through UCC one financial statement or they lean through what is like a mechanic's lien type of thing, or how's the lien?
I'm not 100% Sure I was assuming something like a mechanic's lien or something, just basically saying there's a mortgage against it, but I don't specifically know.
Okay, because or I would say a quick claim deed or something like that. That's what I'm trying to find out. Because So, okay, if it's if it's a lien, my suggestion would be and I'm taking a stab at it. It is. Obviously the LOC needs to be. So to him his name first write the trust first.
The properties are in the
odd you probably have. So probably what it is, is your accountant did the equity stripping? Right, Todd?
I, yeah, that's what I'm assuming. But I'm not
sure what it is, is there's a vendor out there a gentleman, his partner passed away a few years ago, but ally ello. And Bill No, Bill Knowles, a tax attorney and CPA and whatnot. But anyhow, he advertises equity stripping, so the LLC most likely has mortgages in them.
Yep, that's exactly what I think.
So okay, go ahead.
All the properties are held in Land Trust somewhere between 12 and 24 properties.
So he still needs to have the land trusts, conveyed into his name, and then convert and then conveyed into the trust.
Anybody else have any other different? Kevin,
this is where this is Tim, Dr. JR. He's gonna have to decant all of those land trusts into the business trust into yesterday is absolutely going to be the best solution for him since he has everything in Land Trust right now. So everything can stay the same in the public records perspective, he's just going to be can't think to the name of the business into the same name into the business trust
in the divisions there. Let's just assume that there's 20 properties to make it easy on all of us. So what's the first step of decanting those land trusts? Anybody
well go to the canting folder on the in the drive.
That's it doesn't still have to come back to him first, before it goes into the business.
There's two parts. There's the actual decanting, which is going to swap one trust instrument for another. So we're swapping the instrument of the divisions for the instrument of the land trust. And once that happens, the asset that was in the Land Trust is now in the division automatically. No deeds need to be done. But he's gonna need to create 20 divisions. So what documents are needed to create 20 divisions? That's the first step,
the operating agreement and the
oh shoot,
what's the P word?
Articles of formation.
Okay. Okay, articles.
And they're found in the business trust folder in the conveyances folder. The articles of formation are 100% complete. The operational rules are almost done. I hope I have them done by the end of today. But they're not 100% yet, they will be very soon. So we've got to create all of those divisions first. So that there's something to decant into. And there is a version of the articles of formation specific to de canted trusts, just like there is a certification of trust for the business trust, specific for deep canting into a division. So it the order is articles of formation first. Next is divisional certification of trust. And third is operational roles. In Todd's case, the operational roles are going to be identical for all 20 divisions, except for the names the name of the division, the name of the trustee. The name of the interest holder, although I think the interest holder is going to be the same on all of them as well. So that takes care of the title, portion of ownership. Now we need to take care of beneficial interest. And this is where you were correct, Samantha, the beneficial interest needs to go from land trust, to Todd, from Todd to personal trust, and from personal trust to the division. That is done with three bills of sale. The first one going from land trust to Todd, you'll go into the conveyances folder, then you'll go to Pete at Pete conveyances. And if Todd and his wife are tenants in common, that bill of sale needs to have to sellers not one. And it needs to say specifically, Todd and his wife, as tenants in common tenants in common is not available in all states. But in those states that have it. It is extremely powerful for asset protection purposes. We allow tenants in common here in Florida, Michigan also allows tenants in common. So if we have the ability to convey as tenants in common, there's some case law out there that suggests that if we go Tenants in Common from the lion trust to Todd and his wife, as tenants in common, then Todd and his wife as tenants in common to the personal trust, that it keeps the tenants in common protection, even though it's going into a non renter, irrevocable trust. So anytime someone is holding land or property of any sort, as tenants in common, make sure that you advise them to protect this even further than the ironclad asset protection that trust provides. By having it conveyed as tenants in common. What that does, technically, is two things. Number one, when the demand note gets issued, it must be issued to Todd and his wife, as tenants in common, which provides even further protection for the demand though, they will have to demand notes. Because non real estate items are not typically held as tenants in common real estate is they'll have one that's the two of them as tenants in common. And then they'll have another that's the two of them as joint tenants for those assets that weren't held as tenants in common originally. Does that make sense to everybody? Questions about that?
So in the case that Todd believes he has, since he acquired a number of the properties before the marriage, then it's an operation of law versus the deeds having been changed. So does it actually
on a deed, it wouldn't be on the deed because it's the beneficial interest that we're talking about. The only thing that's on the deed is the title, the equitable interest. Yep, yep. Okay. So, once he and his wife got married, it's possible that they changed the beneficiaries to have the two of them as tenants in common. If they didn't, it's very easy to update a land trust, I would update it to make it as tenants in common. And then start might two three bills of sale. And that's all he needs to do to get the assets into the divisions. But he told us something else earlier about the LLC, and the LLC, putting liens on all of the properties. Now, liens are liabilities. It's a mortgage lien. That's what happens with equity stripping. If you're conveying the asset, do you have to convey the liability to?
Yes,
absolutely. So how would we get the liability into the divisions
The assignment of note from with that this is the part that's a little fuzzy for me, this is Tim again, it is he would have to go, does he have to do a multi step assignment of note from the LLC to himself personally and then into the trust, or can it just goes straight from the LLC to the, to the, to the personal trust.
So it's gonna go to the divisions of the business trust that hold the asset that the liability is attached to. So each division will have a property and a mortgage. And because the asset, the Bill of Sale, part of it is going three steps, you've got to have the liability, going three steps to sort of go from the LLC, the Titan as wife as tenants in common from them to the personal trust as tenants in common, and from the personal trust to the business trust blast.
As a point of clarification, so then the the first step, Land Trust pod, then basically that's, that's implying that then, like you said, that it's Todd and his wife on that particular bill of sale or assignment of note. Correct.
Okay. So, each of the match, except that Todd and his wife are getting the property as they're just getting the beneficial interest. And they already hold that. Because they're beneficiaries of the land trusts. So as long as they are the ultimate beneficiary of the land trust, we don't have to have a bill of sale from the land trust to Todd and his wife, except that we want to preserve the as tenants in common in order to preserve that it requires a bill of sale to be done from the land trust to them as tenants in common, even though they already held the beneficial interest. It's only to preserve that one little piece that's very, very powerful.
Gina, yes, to most of the folks that are in the Lwe world have been taught to make one of them the primary beneficiary and the other the successor beneficiary. So in that case, are you suggesting change the beneficial interest to the two as tenants in common and then do the transfer
depends on the state. If that state recognizes the preferential treatment of tenants in common, that would be a good idea. If the state doesn't, because not all states recognize tenants in common, then now it's not necessary. If one of them has a first set, first beneficiary and the other as a successor beneficiary, then the whoever the Current Beneficiary is, is the one that's going to get the 260 or the 265 account in the personal trust, it wouldn't be done jointly to the both,
right. So it's only the state. And of course, that's also a distinction of how they've set up their trust as to be construed under the laws of the state of blank, because it could be a different state than the state they're actually in.
So even f this, the governor, the administrative address is a South Dakota address. If the property is currently are in a state that recognizes tenants in common, it goes with the seller and transfers to the buyer. So even though it's a South Dakota trust, it would then recognize the tenants in common by virtue of the Michigan law that applied to the original land trust, so long as you preserve the tenants in common through the conveyance. Does that make sense?
Yeah. What I'm discussing is that in some cases, people have selected an entirely different state than the state in which the property is located to have that particular trust adjudicated under. So for example, Alaska has 1000 year trust and south because South Dakota has the perpetual trust. So some have selected that site is for their particular trust, even though the property may be in a different trust.
They came up for the land trust or for the personal trust, either. So what as long as the Land Trust has a situs in a state that recognizes tenants in common, then we should use the tenants in common protection for husband and wife. All of the personal trusts use these United States of America, the geographic region, not the country of the corporation as the situs even if the administrative address is in a different state. And no matter what state the personal trust uses, as an administrative address, it can still have the protection of tenants in common because the tenants in common protection is based on the state it came from, not the state that went to.
So would you say it would be the state is domiciled in or No,
not necessarily. It's the state that was used on the land trust, or the state that was used for the LLC. Okay. And I didn't mean to go so deep into that particular issue, but it's something we haven't covered before. And it's important, it's helpful, very helpful,
and interject really quickly. If people prepare their deeds, and let's say, in Todd's instance, he's the only one on the deed. One of the ways to keep the title, so to speak clean, is that even though the wife isn't on the title, it is Todd joined by his wife. So that means down the line, there is never any issue with the fact that he transferred it to someone else. And she didn't know about it.
Gotcha. And that,
even though it even though there, it's not listed as tenants in common, it is Todd, joined by his wife, and that lets everyone know that that she knew about it, and therefore the title is clean. And she doesn't in a sense, have a claim to it down the road.
But in Todd's case, because we have 20, land trusts that are all being decanted to divisions, we aren't making any changes at all in the deeds on
those deeds, but those that would be in his personal name,
or in his LLC.
If once he transfers it to himself personally, then by adding the spouse to the document, that cuts out any issue that there may be with title down the road.
That time. Okay. So those handful of tasks for each of the 20 divisions is all tied needs to do to implement the business trust, so long as he already set up his bank accounts and whatnot. Now, what's he need to do with his personal trust?
He needs to make them the beneficiary of the of the of the entire business dress.
Yeah. Yes, it's the beneficiary of the overall business trust. And although initially, each divisions interest holder needs to be the same as the land trusts, once everything is in those divisions, then Todd can make changes to both the trustee and the interest holder if he so chooses. But what else happens to implement the personal trust because all that happens so far as we implemented the business trust as in that the trust is set up, the bank account is created, what else does he need to do?
So I would have a conversation with Todd, before he creates any of those bills of sale we just talked about, about the related party transaction and get help him to decide whether he and his wife should be co trustees and is the trust protector, or whether they should play musical chairs and become beneficiaries before those bills of sale get conveyed through the personal trust because that does raise a related party transaction issue. There's all different ways that we went over, they could choose to State Trustees, in which case, they're either going to file a gift tax return in the year of conveyance, or they're going to make sure they have documentation on values so that they can do something down the road in terms of filing a gift tax return. But now we need to deal with all the other assets that aren't real estate investment. I assume you have a primary residence. Todd. Yes. So that needs to get conveyed to the personal trust? I assume you have two vehicles. Yes. Any other assets to speak of other than household furnishings?
investment accounts? That'd be included.
Yeah. that are not in IRAs, or 401. K's are qualified retirement accounts.
Yeah, we do have a little bit snapped in that in those.
And what brokerage has, are you using that for those investments?
Let's see. One is crypto through Coinbase I believe one is Schwab.
Those are the bulk of the assets. I think we might have some other small little ones. But that's those are the two that have the most stuff.
Okay, so what happens with the Schwab account? Anybody?
What's gonna he's gonna have to do a transfer a bill of sale, or to the personal trust. Yeah. To take it from himself personally, and he and his wife to the trust.
He also needs to open a Schwab account. Go ahead, Lou.
Yeah, that's exactly what I was gonna say gonna have to change the title on that account, or alternatively open a new account at the same brokerage. And then I have
never ever seen a brokerage, any brokerage be willing to change the title. Unless it's the same tax ID number. They always require opening a new account, no matter what brokerage it is. So yes, you're right, open a new account at Schwab. Now, once the new account is open, how do we get the holdings into it? Remember this,
you have to do in kind distribution of equity,
or so they just called an income distribution or get Yeah,
income distribution that was specific for LLCs. So
Gotcha. And you're probably gonna have to call Schwab to get that accomplished. I've never seen any brokerage that does that online. But what that means is that they will move the holdings into the trust account, by using those magic words. And in kind distribution. If you don't tell them, you want an in kind distribution, and you simply say you want them to move the assets from your personal account, to your new trust account. Inevitably, and this is true of every single broker, except for AmeriTrade, even though Schwab and AmeriTrade aren't out together. It's not true for Schwab. If you fail to say, in time distribution, what will happen is they will sell the asset, get the cash, move the cash to the new trust account, and then buy back the asset in microseconds. Why is that a bad thing, Tim?
Because then you have to deal with the taxes on that. On that transaction,
yes, because that will definitely report against your social.
The other thing to say is actually, the technical term on this from the stock side is an a cat, which is an acronym basically meaning to transfer the shares to the new account.
I tried that with two different brokerages in the last couple of months Kevin, and it didn't work with either of them. I don't know why it didn't. But what ended up happening was they didn't understand what we were asking for. So we then said in in kind distribution and we got it done.
Gotcha. Okay. Well, you can I was just adding that as an as an end because most of them if they have a head on their shoulders should understand what an a cat it's it's a specialized form that the that the brokerages have to be able to transfer the app asides from one brokerage to another because they effectively are like a holding firm, you know, their administrator just like a, an IRA or other stuff are,
what I think happens is, I think you can use the a cap term and get the a cap form if you're moving to a different broker. But if you're keeping it in the same brokerage, and you're moving from a personal account to a trust account, the only way I've managed to get it done is within kind distribution, not within a cap.
Anyway, so that gets the stock soon. What needs to happen with the vehicles the house and the contents of the house?
Bill of Sale,
what value
to $10 for the home?
Fine, David. Okay, sorry about that, go ahead.
$10 for the home, consideration what to notice what a home, and then the vehicles would be the Kelley Blue Book.
value, the
REIT retail value, yes.
So on the deed, for the transfer of the personal residence to the personal trust, it would use $10 An other good and valuable consideration, but what value would go on the bill of sale for the primary residence?
Fair market value,
or as close as you can get to remember that you can take basis, meaning what you paid for it plus any improvements you put into it. And as long as you've lived there for at least two out of the last five years, the Federal homestead exemption of 250,000 per person can be added to the basis. So you've got an extra 500,000 to play with. But if the gain in the house is more than 500,000. Well, you may have a gift tax to deal with. Because it cannot be conveyed at less than fair market value. And you're correct Samantha on the vehicles. It's a bill of sale, and a vehicle transfer form done at Kelley Blue Book value. And then the last bill of sale is for home furnishings, including all of the appliances, just use the home in home inventory worksheet in the conveyances folder. It has lots of details that you can choose to put in it, including make make manufacture and serial number, you don't need all of that detail as an attachment to a bill of sale. However, if you take the time to complete all of that detail, then you can also use that same inventory worksheet does send your insurance company so that in the event you ever did have a loss, everything would be fully documented in a way that could influence what insurance gives you for it. Sometimes I even recommend taking pictures of each piece of furniture, each piece of electronics, each collectible, so that you can add that picture into each line item in the home inventory worksheet. And, man for insurance purposes, that's a very good thing to have. Now, for the moment to just get everything into the trust, you don't have to fill in all those details, just giving me an exhibit on a bill of sale. And you're going to add up the values of everything to get a total value on the bill of sale. But there's no reason why you can't go back after that. And add the detail in so that you can send a copy of your insurance company. And that completes everything for you. Yay. Awesome. Thank you. And it's just operating out of the chills from that point forward. Very cool. Any comments or questions?
Did we mention him? I know you said sending the list to the insurance but we talked about having this the insurance for the furniture and all that in the trust name. Did you say that?
Yeah, that's what the home inventory worksheet does.
Oh, okay. So that's why you just giving that to them. They wouldn't know to transfer. Okay, I just wanted to make sure Okay,
that's enough. attachment to a bill of sale or an exhibit to a bill of sales a better way to exhibit
yeah exhibit. Okay.
There's one more step his foundation
I forgot about the foundation. Go for it, Kevin.
Oh, he would need to, you know, obviously execute the foundation and then also get in contact with I forget the gentleman's name off the top my head right now. But Charles super Charles Yeah, if you've never so we can actually then fill out work with him to fill out the required forms so that he gets his nonprofit designation?
Yep. Charles will help you do that, when you're ready, you just give him a call. And he will help you complete the 1923 a copy of it is in your foundations binder. So you'll see what kind of info you're gonna have to put together for him. Before you do that, you should have already opened your foundation bank account. And you may even decide to move funds into the foundation before you seek determination. Do you have to other than the nominal amount just to open the account? No. Thank you, Gavin. That's was a good point. I we almost forgot about that. Okay, any other questions, comments?
If he's unaware that then his wife who's the W two can now start putting her 30% into the foundation?
Yeah, good point. And you can choose how you want to do that. You can do that. Every time she gets paycheck, you can do that once a month, once a quarter, or even once a year. You haven't on March 5 of 2023. To make contributions to the foundation, that are up to 30% of your adjusted gross income from 2022. And it still counts as a deduction on your 2022 tax return. Likewise, how much can you donate from the personal trust for business trust if he chooses to 100% 100% of sales? Yeah. Yeah, up to 100%. of income, not of corpus of income. So for example, we didn't talk about as small credit repair that he makes money on. That's a separate division at number 21, if you will, in the business trust. And the credit repair income is going to be active income, not passive income. So if he chooses to, he can take that portion that would end up getting taxed at the end of the year, it usually comes out to 12 to 18% of the net profit, he can take that and donate it either from the business trust or from the personal trust. Most the time it comes out better to do it through the personal trust, donate donated to the foundation. And now you don't have to get a 1099 for the active income because there won't be any it'll be 100% deductible or pass converted to passive income through an equipment and IP lease. Okay, I think we are done with Todd. Thank you, Todd. You're welcome hanging out near the others. Sure. Thank you. So next, let's deal with Lauren. is still here alone?
Yes. I'm still here.
Nice. Hi. Hi. So you have a personal trust and the foundation Correct?
I do.
You also have a business trust, do you not?
I don't think so.
I don't know why. But you did. Just left so I can't ask him.
I don't think so. I just got it just got the grinder a couple days ago. So I agree.
There is a business trust for Lauren.
I thought so. Oh, okay. You may not have completed your trust approval form on it. So that's probably why you don't have a trust binder for it. They are separate trusts. So let's talk about where things were at when you first got started. And if it's okay, I want to go over the whole scenario. So imagine this goes back a couple of months. And it's the day after you got your new client questionnaire.
Okay. Let's see my husband. See, where do I start my husband and I are separating are separated. And we had a house that we were living in, in Palo Alto. He bought it for $120,000, something like that 40 years ago.
And that's for 00. Guys.
Yeah. Yeah. And it was a two bedroom with barely a kitchen and a two car garage. And he and his ex wife added on to it, and built a two story part made part of the structure two story and made it a four bedroom, three bath. And then we remodeled 10 years ago, and put in all new beds and a new kitchen. So it was very nice, beautiful location. And we, when we decided to sell the house, we listed it at 4.5 5 million. So we had a lot of we had a mold problem in the house that was pretty severe, and we had to put like a million dollars into it. So we are base cost basis was up quite a bit from his original purchase. But still, we had a lot of capital gains that we were dealing with. At this point, Lou introduced us to Gina and we had a konsult. And we thought based on the concept, we could just transfer the property at base value to the trust but learn later we couldn't do that. So you Gina and her team of CPAs came up with the idea of transferring the my half of the property to an LLC a real estate LLC that would then convert it to a rental and then we could transfer it to the trust at face value.
And you had to move out of the residence and lease an apartment we did physically move into it and get a driver's license address change so that it reflected your address as the apartment not as the house. Right? Because otherwise we couldn't legally say that it was a rental right and we had to go so far as to even post an ad on Craigslist, didn't you? Yes. Showing that it was being or have allows was available direct. So then put it up on the market in the name of your husband and the LLC. And what happened
actually, I had it was on the market in our personal names at first and then we were I was wrestling with the with this approach. I wasn't entirely comfortable that we ended up having these two different title companies because our first buyer pulled out and then our realtor hustled and got another buyer who had actually made an offer on the house but lost it she came up a couple 100,000 So we agreed to sell to her for all cash with a closing like 10 days which was great. So the house is sold now. But we I I was uncomfortable with whether or not the rental concept would fly and I ended up deciding not to transfer the property to the LLC. And I transferred it that just from me. I mean I we sold it as Michonne Lauren Burton husband and wife. So the LP did not end up being part of the equation.
But you have a foundation so you You could still reduce the tax liability by 30% by taking 30% of your AGI and donating it to the foundation, before March 5 of next year. And what version did you end up getting? On the game?
It's like 1.1 million, something like that. 1.2.
Okay, let's just make the numbers easy and say it's 1.2. Okay, 30 30% of 1.2 would be 360,000. At any time between now and March 5, you get what? 360,000 in the foundation, and it is $1 for dollar reduction of the adjusted gross income that you're gonna get taxed on. That's huge. Lon, it would take it from 1.2 down to 840,000. Okay. That's a big deal.
Yes, I mean, I can also subtract off the base value. And the marriage deduction.
Yes, you can do that. Because that will get you to your adjusted gross income anyway. So figure out what the AGI is. Okay. And 30% of that amount is what's gonna get donated to the foundation. Your goal is to use this money primarily to get into real estate investing, right?
Yes, I will use certainly a chunk of it. But hang on, I don't understand the AGI. Is it all income capital gains plus my husband's salary?
depends upon whether you're filing married filing joint or married filing separate. If you're doing married, filing separate, then his income goes on his tax return not on yours. Okay, okay. You're better off this year, doing married filing separate. So that you don't have to worry about taxes on his income.
Okay. All right.
So now, if you want to use the monies, for purposes of real estate investing, can she use the monies that she's going to donate to her foundation to help her with real estate investing? Anyone?
I would think so.
I would think so to what would the best way be to do that?
Should it come from the phone? Should it go into the foundation first, and then we should move funds from the patient to whatever does she has to move? 5%?
She has to spend 5%? Yes, in 2023 2022. But in 2023, she'll have to spend 5%, of whatever she puts in. So that is true. That's doing the same. Say that, again,
is spending and investing the same?
They are not? They're not?
Because I'm thinking in the foundation, she should use that money to invest in real estate to create should,
she should I totally agree. And the best way of doing that is to set up a joint venture between the foundation and the division of the business trust. Here's the reason. In the personal trust, there are beneficiaries. There's no way for the foundation to become a beneficiary and a specific portion of the corpus of the personal trust. But in the business trust their interest holders, not beneficiaries. There's still the same thing that just called something else. And because interest holders have units of beneficial interest, and there are four different kinds of units, you could issue a Class B four units of beneficial interest to the foundation to protect it as a security interest up to a certain amount for the loan that it makes That division of the business trust, so that it can then invest in real estate. Whether it's putting up 100% of the money, or whether it's putting up just the downpayment money is up to you, you can do it either way. But let's say you put 300,000 into the foundation, to reduce your tax liability in 2022. You could put 100,000 in Division number 200,000, and division number 300,000, and division number 423, and four as a down payment on three different properties. Now that 100,000, for each one has been used through a joint venture in a way that will get the foundation and interest payment of three and a half percent, or 3500 bucks, set, right. I think that's right, each year, and you're now collecting rent and lease income, you don't pay any share of the net profit to the foundation, you just make an interest only payment each year 20 years down the road, when you go to sell those properties, the interest that the foundation had in the loan of 100,000 gets repaid to the foundation, it's as simple as that. That's going to be way better than getting money from any other source because the interest rate can be so low. So that's awesome. And it's a way to use that money. Even though you had to donate it to the foundation. Now, make sure that you do leave some monies in there, if there was 300,000, you'd want 15,000 of it set aside to be used on either fringe benefits, like it could pay for your food, it could do a site visit or a family retreat. Or it can be used for actually doing good, because you've got that 5% expenditure rule in the foundation annually. Love that. Yeah, so easy, and a great way to get started on your real estate investing portfolio. Because he goes
rich in on what you can spend about 5% on
any fringe benefits. Which includes family retreats, quarterly, and unlimited number of site visits, which means you go on vacation. And while you're there, you go out looking for good works that your foundation can do. That's a site visit. Or if at mealtime, you're either thinking about or planning or researching good works that the foundation can do, then your meals can be paid for by the Foundation. Foundation could pay for a life insurance policy for any of the founders or trustees. We went through a litany of different fringe benefits that the foundation can provide. And of course, it can still be used to do good work, too. It's up to you as the founder and Trustee how you want to use that money. But each year you do have to spend 5% on something. It's just the IRS is way of making sure that you're not hoarding everything in the foundation and not doing what it was intended to do as a tax exempt organization. And five percents nothing,
Gina? Yes. One thing I would like to do is work together with other foundations and do an alliance of foundations that could help with downpayment assistance in terms of like matching funds. So let's say that a single mother of three comes to us and she's got $5,000 But when she needs his $10,000 for a rent to own plant, then perhaps the alliance of foundations could come in for the other 5000 and with a payback schedule, that the money can come back to the foundations. How does that sound?
That's awesome. And it can be done both ways. Foundations are grantmaking associated shins, so they could issue a grant for the 5000. Or they can issue a loan for the 5000. If it's done as a loan, keep in mind that there is a tax on investment income in a foundation, it's not a large tax, it's like 1% of the
growth. Yes, 1.38%.
Thank you.
And we all need to I don't know, I said, we all somebody needs to investigate the Gates Foundation, because I saw that they have billions running through and they paid like $9 in taxes. So I don't know how they're escaping this 1.38%. But they it's only
on investments. Yeah, only on investment income, nothing else.
So is if the foundation takes its money and invests in something and receives interest income or capital gains?
Yeah, any kind of income on investment.
And Bill Gates and Warren Buffett, they exchange their 5%. Because obviously, someone needs to do something with their 5%. And someone has, you know, scenario they create, and they exchange a 5%. So what do you really lose? Goodbye point.
Depends upon his foundations got more money in it?
Well, it's also an underscore for what we're doing together, right. We're all learning together, we're also creating these foundations, each of us and the opportunity for each of us to work with other foundations.
Well, that's, to me, that's the number one biggest reason for an alliance of foundations to be created. To help with the 5%, I'll pay you you pay me we can have that happening. We can have things like loans for downpayment and a matching program that you're gonna go set up, I'll set up the Alliance, you go set that part up?
What if the alliance was called the path to homeownership Alliance or a path to homeownership foundation Alliance?
That would limit it to homeownership stuff. And I think that's thinking small because I think with the number of foundations we're going to have, it's going to get bigger than that.
Pull alliances
that again,
multiple alliances maybe could be any. You know,
I'm gonna go check. I am pretty sure I still own ie alliances.com and.org. I'll double check that it stood for everyone's Alliance, which is really what the alliance would be about. So if I still own the domain names, I'll set up e alliances Foundation. And that can be the alliance of foundations. Oh,
call it an alliance for better America.
Yeah, like that, too.
I want to say that again,
I'd like to clarify something. All of the fringe benefits that you mentioned, do they count towards the 5%? Or are they absolutely
do? It? That's the beautiful part about it. Right? Yeah. So there's so many ways of getting that 5% Spend until your foundation is ginormous, like a Bill Gates or Warren Buffett, you're not gonna have any problems with the 5% spending role. It just not. It's easy to do.
So life insurance is bought in the name of the foundation is the owner and then you know, the trustee is the is the insured. You can you're I'm trying to figure out if you're getting a deduction and not having to pay tax when you receive the proceeds as well. I think
Foundation has to be the beneficiary if it's also the owner.
Yes, they'll go into so there would be no tax when you receive the money and you get to effectively deduct the payments as you go along.
From the 5% expenditure rule. Yes.
So Gina, that one the owner is the foundation in A fishery is the foundation, but the insured is the trustee that are right there, right?
That is correct. Okay. That's it.
Yeah, I was just gonna say yes, the trustee needs to be the insured or CO trustee. You have a particular president or some key person. There's also making decisions in the trust or helping or the trust with the foundation. Any key people involved in the foundation, you can put a key man policy.
Sound into trustees any board of directors?
Yeah, when John D. Rockefeller established his trust, I kind of refer to it as the Rockefeller strategy. He put a life insurance policy on every one every beneficiary, also, we put one on sell the largest policy he could get the trust owned it trust has beneficiary, the thinking was just perpetuate for multiple generations. So that is a amazing strategy for future generation wealth building.
And absolutely is both for the personal trust as well as the foundation.
Each trust Yeah, until he reached the maximum insurability for each person, but you can do it for the business trust, beneficial trust foundation makes a huge difference. Big Impact.
Universal
had to be universal.
I would use a permanent policy, I mean term, there's no cash value, that
wouldn't be a term policy, at a minimum, whole life, but my preference would be an indexed universal life. Absolutely. wills are
amazing. There's a couple of whole life companies that that do really well. But if if somebody has a high net worth, seriously, consider premium financing. Yes, you can get a much bigger policy with a very small outlay relative to the amount of policy. So at the end of the day, you create not just a life insurance policy, but you know, 10 1215 years, you'll generally start to have a large sum of cash that you can pull from. And there's different strategies to do that as well. So they're for future retirement, income replacement strategies or whatever. There's not a better scenario, once people actually understand what life insurance can do. Everybody asks the same question, why didn't somebody tell me this before?
anybody's interested in exploring what that could look like within your personal trust your business trust or your charitable trust, reach out to Ben Ben has licensed in 26 states at the moment. And he can certainly put together a presentation to show you exactly what it could mean to you. We also have access to premium financed ie wells, which means you're not having to pay 100% of the premium. If you're going to use a premium finance product, then it is better to use an islet which means an irrevocable life insurance trust
will not recommend that right now Gina, at all. Because the plans that we're seeing right now for the Biden administration, they tried it when Biden first took office is to clawback all grantor trust eyelets our grant port for us to specialties, premium financing, it has to be a grantor trust. And we're gonna see those clawback into the estates and he will pay taxes on that life insurance policy. I would serve a single purpose LLC.
Okay, I'm gonna send you the eyelet that we've created chain, okay, because it is designed specifically for having the personal trust or the business trust as the beneficiary. And I believe it will get around some of the clawback stuff that's been proposed
with the first thing it's going to have to get around is the bank financing. And we
we have four banks. But I'll send it over to you.
Yeah, sounds great. Sounds great.
But anyway, if anybody's interested in life insurance and what it can do for you, regardless of which trust you want it in, talk to Ben. So going back to Lauren for a minute. I don't know how he got off on all these tangents, but the foundation that's how we did it. For you, Lauren, it's really simple to implement your personal trust. And although you have a business trust, you really don't need the business trust yet. You're used for the business trust is when you're ready to start expanding your real estate. And you're gonna start getting into real estate investments. That's the time you want to start utilizing the business trust. So I'm gonna leave that to the side for the moment not only talked about the personal trust and what needs to be done to implement it.
Okay, but let me understand that. So I can use the business trust in order to have divisions to put my properties in. So will that help me? Have it appear as though they're held by different owners? It will, okay, great, thank you.
And it will allow you to make use of the funds in your foundation to get monies to buy the real estate with, it shouldn't really do a lot of that in your personal trust, because you can't give units of beneficial interest to the foundation in the same way that you can in the business trust. So, since the residence is now gone, we've already talked about how the foundation is going to help mitigate taxes on that. All we've got to work with right this minute and correct me if I'm wrong, is a lease on an apartment, a vehicle, home furnishings and some jewelry? Am I missing anything on?
I have an IRA that I have to decide what to do with?
And are you over the age of 59 and a half?
I am?
Are you 72 yet?
No, well,
okay, so who's got a recommendation on the IRA
he could potentially do a Roth on that, if you wanted, there's a couple of different options you might have would recommend seeing what what the current situation looks like. But that may be an option. Totally.
Or she can start taking the money out and transferring it to either the the foundation or the trust.
And I would do some of both to help mitigate the taxes. If you stay under 200,000, in income on your 1040 return, you're gonna stay at about a 22% tax rate. If you go over that, you're gonna jump up into the 30 to 35% tax rate. So you could look at starting to take chunks out of the IRA, converting them, so they'll show up on your 1040 return. But then take a third of what you took out 30% and donate it to the Foundation, and the balance of it sell to the personal trust, and then grow it from there, whether it's in real estate every time you take a chunk out, buy another property, or any other kind of investment you want. Because it's all gonna grow tax deferred within the trust structure. We're continuing to let it grow in the IRA, you're eventually going to have to take that money out and it's gonna get taxed on the growth. Which is why Shane talked about converting it to a Roth.
Okay, if I convert it to a Roth than any gain is, is mine.
Correct? With no taxes?
Yeah, I would try to do I would step it out. Depending on the size of it, I would step it out. And proportion figure out what your income is going to be figured out, then we can kind of make sure you stay in the lowest bracket and still donate into your foundations. We make sure to minimize your taxes that you have there.
Yeah. Thanks, guys. So that deals with the IRA. Other than the IRA, Did I miss any other assets? Nope. Okay, so what else does she need to do to implement the personal trust for the lease on her residence? For vehicle?
D, a bill of sale for both the home and the
vehicles. It's not a home. It's an apartment that she's renting.
Oh, whether you sum up the one okay.
The home is already sold to a third party. Right? I'm not sure what she does. We're an apartment. And assignment of lease.
Oh, okay. So the trust takes care of the lease.
Yeah. Okay. And then the vehicle is a bill of sale for motor vehicles, the specialized form of Bill of Sale, and then the vehicle transfer form. And you don't even need to record those at the BMV. You fill them out, you execute them, it's conveyed at Kelley Blue Book value less any loan that you might still have, which would be done on an assignment of note. If you're leasing, it would be another assignment of lease for the vehicle. And you can just hang on to those until you're ready to get a new car. At that point, if you're trading it in, then just bring the paperwork with you to the dealership and they'll handle it for you, then the new car gets purchased in the name of the personal trust. If you're dealing with just a third party outright, like we had recently with another client, then you're just gonna record it the BMV at the same time they're recording for the sale going to them. Either way, it's really easy. And then it's just a matter of continuing to operate under the personal trust. And when you get to the point of starting to buy your investment properties. That's when we need to finalize your business trust. Any questions, comments, concerns or anything to add? Gina? Yes,
you're saying that there's no need to change the title to the vehicle? Is that correct?
Correct. As long as you do the bill of sale for motor vehicles and the vehicle transfer form. So it's executed. It's as good as in the trust at that point. You only record you can record if you choose to. But you don't have to record until you're ready to get a new vehicle.
Okay, so sort of like a real estate deed. It's created when it's uttered, and therefore it's unaware, we don't really
correct. Now there are a couple of insurance companies that may insist that in order for the trust to be named insured, that it must be recorded, just depends upon the insurance company, the bigger ones don't usually require it. Like I had progressive when I did my assignment of lease and Bill of Sale on my Lexus a couple of years ago, and I didn't need to have it recorded.
Our county here in Tennessee actually has a form, that if you're setting up a family trust, you can fill the form out. And it'll change the name of the owner of the vehicle, the moment of the family trust without counting it as a sale,
nice look in
your local area that may be available.
If you're gonna do that, still do the bill of sale for a motor vehicle in addition to because it needs to be treated as a sale, going into a non grantor trust. So you don't invalidate the non grantor status of your trust. I believe that form is created specific to living trusts.
The one here doesn't ask and it doesn't ask you to specify so nice. I didn't bring it up
but just be aware you should also do the Bill of Sale Shane. So yes, yeah, definitely the purpose is it needs to be a sale. And I had
a client that actually owns an aeroplane and the FAA allowed him to actually do do the exact same process with his airplane without having to get recertified and so for Wow,
that's awesome. Yeah. So
wherever you live, and I had somebody telling me that their local property assessor's office, actually allowed the same thing with a home. Just check into that before you make a final decision on what somebody wants to do be it definitely always fill out your demand note your bill of sale and so forth.
Yeah, absolutely. Okay, any other things to add for Lauren? So yeah, Lauren, it's really straightforward for where you're at. Very simple as compared to the situation with Todd, and all the documents that he had to create. So Randy, are you home now? Yes, I'm home. Yay. So imagine you were just getting Started with the trusts. You have a personal trust you have a business trust. What do you have predating the trust so that they can tell you what they do from a structure and implementation standpoint.
All right, very good. We have businesses that are in LLCs. And we're in partnership. So there's at least two members. In every LLC, we have nine LLCs, which consist of businesses and real estate. And other than that, I've got some income. My wife has income through Social Security, through passive real estate investments, and business note where we sold a business. And then we have income coming in as distributions from the existing businesses that we have.
And for the real estate, that is not part of the nine LLCs. How are you holding that real estate?
Well, actually, the real estate is we have seven businesses. And those are all in LLCs. And then we have real estate that's held in LLCs, as well, how many properties? Those are two commercial properties,
any residential,
and then we have a residence as well, that's in our name that needs to be put into the trust into our personal trust. Okay. So when we tried to get it in the personal trust, so when we're dealing with the credit union, it just got to be so complicated, and we're running out of time to get the deal done on the refinance. So we just put it in your personal name, and then that would be a transfer, which we haven't done yet.
So are you running any income through their trust yet?
No, I've only transferred money from our personal account into our personal trust account.
Okay, so Brian, since you are on the call list, you were earlier, you want to help guide what needs to be done for Randy, let me make sure he's still here.
I'm back. Now my computer froze. So I just had to restart it. So I missed I missed everything Randy said so far.
Okay, so Randy has seven businesses that are running in LLCs. And then he has two other LLC is being used for real estate investments consisting of two commercial properties. And they also have a personal residence, and none of it is going through either the business trust or the personal trust at this point.
Right? Are our biggest hurdle right now is that the LLC is at the operating entities. We've got a lot of depreciation in there. So we have zero basis and those LLCs. And we're trying to get that ultimately into the business trust. So we anticipate at some point creating some sort of fair value, we're going to have to do these one or two at a time to avoid to avoid taking their income up too high. But initially, that's, that's something that we need to plan around.
So what if the operating businesses in the LLCs? What if they were to convey through an income distribution of equity to Randy and his wife, Kathy, and we pick a number to do that, that is going to have a small amount of tax. As long as Randy and Kathy step down as trustees and trust protector and become beneficiaries. They're allowed to sell at whatever price they want, even if it's nowhere near what fair market value would be. So what if those assets for each business got sold at say $10,000 to the personal trust, that total of $70,000 worth of quote unquote, income from the income distribution of equity? What would that do?
Not much. Yeah, that's an opportunity. We're happy to take that and in this situation, it would be all of them will have multiple members so other family members as well. So we can we can do the same and can transfer to their personal trust on those LLC, but the entire Attention. The intention of this big picture from the Randy's perspective was we wanted to try to eliminate the LLC fee and the LLC. Additional additional tax that's included on each one of these LLCs. So wouldn't that keep them around in that scenario?
Not if you're doing an income and distribution of equity to Randy and Kathy, and then to the other partner, which is usually Scott, I think right. And then they turn around and convey it that same value to their personal trust. And then their personal trust conveys to the business trust division for that operating business. Now, the business is in all seven LLC is for everyone to understand. They are what are called solo solo solo salons. They are a franchise and the way that this works, they are leasing space to nail techs who run their business out of the real estate that is owned by one of these LLCs
nail techs, your stylist estheticians.
So because it's rent Mollison comm it can be treated as passive income, correct? Brian?
You Yeah, it's always been, it's always been done that way. If you read the franchise agreements, they actually call it a trade or business. But we've, we've seen 50 of these tax returns, and all of them previous CPAs, even the franchise and is considering it to be rental activity. So that's how we've been, we've been considering it all along.
In which case, you could convey those assets directly to the division of a business trust, instead of having to go through the personal trust. But there's two parts to it. I do ideally, it would be good if Randy Kathy, and Scott could end up with the value of the assets getting added to a demand note in their personal trust. So they have something they can take out of the personal trust without getting taxed, which is why I would do the bills of sale going as an income distribution of equity from the LLC to Randy Scott, and Kathy, in whatever proportion, their membership is in the LLC, then each of them would convey their interest in the assets to the personal trust. And the personal trust would convey to the business trust, I would do that on all of the hard assets that are held in those LLCs, including the franchise agreement. And then for the real estate. See, that's so valuable. I would do the same with the real estate. Now with the
with operating companies, often we're getting we're getting about we're actually we're getting 100% of the assets that are being qualified leasehold improvements. So, in those entities, there's not a lot everything, everything's depreciable has a zero tax basis for the federal purposes and cash, we could you know, it's equal value. So we could, we could take care of that. But so in that situation, potentially and those ones, maybe it is easier just to go straight to the business trust if we're not going to get a demand note out of it unless we create income to them personally, which I sounds like we're not trying to do
it. Yeah, I'm okay with it. Either way, if you're gonna go straight to the business trust, it has to be a sale, and $0 There's no consideration for the sale. So maybe it's conveyed to the $1,000 that split between Randy and Kathy and Scott and his wife. So it's not a huge tax consequence. It's enough to have consideration for the contract.
Okay, why didn't Why did I think in the training calls in the past that we were gonna have to do it at some fair value.
The only thing we have to do it fair market value is that a primary residence and if any of the LLC is have taken an S corp election as corpse cannot convey it anything less than fair market value. Are any of these S corp elections?
No, they're all tense.
Thank God that out a lot.
So then Gina, would we collapse the LLC after we've done the conveyances?
Yes, we gotta get everything out of them first. Now, do you have payroll on any of the LLC? S? No,
no payroll, but one of the issues is we have loans. So we have negative negative basis, but we have at risk basis. So that's in some of these, you know, understand that, where will you will, we've been able to take losses and let their capital accounts go negative, potentially, we have a loan that they're guaranteed for a million bucks. And, and so we're working those loans down, they've come down significantly over over the last couple of years. But there's still some that's still an issue to deal
with there.
We did take out SBA loans through COVID. So but if no, on five of the five of the nine.
I don't think you're gonna be able to collapse the LLCs until those loans are paid back.
We might, we might have to pay those, you know, aggregate funds, and then pay off one or two that we want to collapse
that you could do, they'll have to look at the terms of the long, Brian, to determine whether it's required that the LLC still be kept intact. If it is, do not collapse those entities not until it's paid back.
Yeah, we've we wouldn't, we'd have to leave them open. We don't want to disclose any of this change to the SP excited about
it. After they move some of the assets out could could the LLC by each other. help relax?
Maybe depends on the alone.
Yeah, even if we did that that wouldn't get us around having to pay California Franchise Tax Board.
No, I agree. I'm just trying to basically see about limiting the number of LLCs you have?
No, I see. Move it into one or two. Then you're saying yeah,
basically mergers. So basically, you're doing business mergers,
its potential, but I think the big issue is if we've had it underneath the amounts for personal guarantees, and combining all those together would take us above those amounts. And then when they look into the ask when they look into the companies, and they see that we've moved all those assets, which would be even worse, probably best just to avoid it.
I don't really agree on on that.
Can you answer one question for me on even in the business trust, it sounded like from previous calls, that we would still be filing a state tax return for each one of the divisions and in pain, California State Tax appropriately. That sounds right.
Well, the only reason the divisions would have to file a California state tax return, is it the business trust, or the divisions did something to volunteer to be a California taxpayer? If it doesn't do anything to volunteer to be a California taxpayer, then No, you wouldn't be filing or paying California taxes?
Well, what do you think on some of them have personal property tax exemptions, but they still have to renew it each year and have all the all the underlying tenants signup form, suggesting that they're all business owners, and then another handful of our pain that that the tax and reporting, and another handful of them just haven't been on the radar. So I think wouldn't that be the trigger there?
Maybe, but maybe not. Hang on one second. I gotta grab this call. I'll be right back guys.
Brian,
yeah,
yeah. You're you're talking about each of the licensees reporting their own income.
From the divisions Well, was it was from previous calls, people may have been on not necessarily advisor calls, just q&a calls I've listened to sometimes when they had to do the personal property affidavits. The state knows your location knows that you're there. So it's a matter of if they need you to report you're not going to be reporting under the LLC anymore. You're recording under trust. So then that division will then talk to the Franchise Tax Board potentially that they would be looking for it Tax Return from somebody paying personal property taxes a business?
Can California Franchise Tax Board tax a trust like the DUA, LLC or a corporation? Sure, they can. Well, I thought Jr was saying it was volunteer. So that means, basically remaining anonymous, but I think Brian's, and because our licensees are reporting theirs, that they can tie it into
ours, not not necessarily your licensees, just if you have a personal property, account with the county, in that county knows your location and knows that you have assets there and knows that you've previously been paying tax on it. Potentially you close the LLC and you roll into this trust. And now that the department may not recognize that you're this new tenant there, but I'm not sure that you're changing over. It's just, it's a little convoluted, because I don't know exactly what you're going to change over to the trust, you're probably not going to go and offer up to change your your leases, probably not going to change your franchise agreements with the franchise and potentially your loans, either you just you just be assigning all that stuff to the trust.
Or I guess ultimately, if we go from nine LLC to one trust, they can only get their their California Franchise Tax Board payment annual payment on the trust not nine LLCs. Right.
Yeah, it's just just a matter of if we have to report our income from from the activity or not.
I see you're saying to California,
well, even though it'd be better, right, because over 500,000, then we have to pay more on the income. So if the trust had, let's say, let's say the trust had 4 million in income, right?
It's, that's, I don't know. But it's a Pastor Randy. So one thing you have to remember is it's the individual divisions that we're talking about. And then you can get to write off a lot of that stuff in the individual in your personal trust, because all of that income is passing through to the personal trust. But Brian, I think the I know where you're going, but it's only the real estate, but then you're paying real estate property tax for that particular location concept you were talking about. But then the challenge becomes only if there's an actual if you were if Randy was ever audited at that particular location, but the likelihood of that I think would be small, but I'll let Gina sort of comment on the on the division piece. Okay.
Yeah, that's true, it'd be small. The risk. So the only
thing that's transferring what I, the point that I was trying to make is, is that there's a distinction between property tax and a business. So his business effectively has gone away. But he's still a Landal, land home holder, and he basically is now a landlord. And the only thing they're taxing is basically the rent. You know, if at all possible. But I think since it's going to be reported at the federal level that state shouldn't have, have a say, if you know,
there's the business gone, it seems like business, we're still doing business as soulless lawn Studios is just held in the trust.
It is, but that's a completely different entity. And it can be done a couple of different ways. So one is you leave the LLC is intact. We convey the assets to the division, and we set up a professional services agreement between the two. But honestly, I don't see any need for that. There's only a couple of reasons for keeping the LLC intact, and tying it to both the business trust and the personal trust. The first is payroll, you don't have payroll. So that's not a need. Second is if there's any licensing requirements, well, you don't have licensing requirements, the individuals renting from you have licensing requirements. So that's not a need. And the last is if there's any other contractual reason for keeping the LLC open, for example, would solo SLon have an issue? If they were going to have the franchise agreement conveyed from the LLC to a division of the business trust? I don't No, I don't think so. Yeah, as long as that's not an issue, those are the only reasons for or if the SBA loan requires the LLC to be kept open. So to me, it's better to just ditch the LLC once the SBA loans are paid off and operate strictly out of the business Trust, which is a completely different taxpayer than the current operating entity, the operating entity is legitimately going to be shut down. And the new taxpayer, the business trust division, is that going to take over operating? In that case, unless it does something to volunteer to be taxed by California, there really isn't a reason to file or pay at the state level only at the federal level. It is volunteering to file and pay at the federal level, by virtue of the fact that it must have an EIN number. In California, one of the things that can sometimes cause someone to volunteer is if you sell a piece of real estate. In California, there's this stupid rule that says the closing agent must withhold I think it's three and a half percent of the profit. It's around there. Kevin, correct me if I'm wrong, but the only way you can get that back, is by filing a California tax return. If you go after a California tax return to get that three and a half percent back because a piece of property was sold, I assure you that is volunteering for the new entity, do be its California taxpayer. In which case from that point on, you're going to have to file and pay
or what a DBA filing because for us here in California, that actually then reports to the Franchise Tax Board.
Since they are not getting monies directly from a consumer. They're getting money from other business owners. I would not ever recommend doing a fictitious name filing in California. For the business trust, if the administrative address is South Dakota, then at most get a South Dakota DBA. You're not get a California DBA.
That brings up the question I was texting with you last week, I was I was attempting to do the DBA in South Dakota. And the DBA. First one you do is that the business trusts DBA business trust that one sets up but you have to you have to list yourself as an individual owner, then when you go to do a division and do the DBA from the business trust, it doesn't allow you to use the business ID of the initial one, it gives you a caution a red sign that says that says a DBA cannot be cannot be the owner of a secondary DBA in that state. So it didn't allow me to proceed. Then I went and looked at all those states available names when you just type in business trust and see what comes up. There's about 50 of them that are active, not many. And none of our clients didn't appear to be and there was one or two clients that have tried to do it this way and just left it that way anyway, just using themselves as individual for owner for both DBAs. You think that that's reasonable, and that will still hold muster that you attempted to to use that as your administrative situs that might
work. And I will tell you that have no issues in Florida doing it. And when you're doing the search on business trust, what it's coming back telling you does not apply to our business trusts. That is referring to statutory business trusts which is very different than a contractual business trust. Not the same at all.
But when you just look search by DBAs and wouldn't it have business trust in the naming like ours like you have to name business trust in the name that's how I was looking it up.
So you don't have to have business trust in the name just has to end with the word Trust.
And their their system was was interesting. Looking at all the underlying documents. Some of them were the statute trust that they did set up that way. Others set up as a corporation. And they were, they were crossing out the word Corporation in writing, in the words business trust, whoever was preparing these forum and staying in South Dakota. So it was it was interesting to see those ones done that way and a lot more from the 90s and 2000.
That's weird. South Dakota is one of the few states that has a statutory business trust. And I know from having looked into it, that a lot of times when you go to do filings in South Dakota, it's assuming a South Dakota statutory business trust, that's why it was making you fill out that certification of trust form. That's for South Dakota statutory business trust, that does not apply to our trust at all. Right? Okay, it's a very different beast. So you can do are certain because I've done it in Florida with no problem. And only my initial filing for abundance group trust DBA abundance group trust, used the sole proprietor name with it. Right. In the others, it was using the document ID number from the initial filing. And it works just fine without it suggesting that I had to do something because it was a statutory business trust.
If anybody gets that done once put a case study for showing how to do it. That'd be great. Because I, I feel like I spent a lot of time and I understand exactly what you're saying it wasn't allowing for them to do in South Dakota. And if it doesn't, what's our opportunities? Can we change our sides to Florida, like, like you have and
not changing your site is changing your administrative address? And yes, you can. Right. Okay. So the reason that we recommended using South Dakota as an administrative address is because it does have a statutory business trust. There is a ton of South Dakota case law, especially at the Supreme Court level that deals with the business trusts that are statutory in South Dakota. Our trust is so similar to a statutory South Dakota business trust, that I think that could be helpful in the event of a lawsuit. If you're not as concerned about that, there's no reason why your administrative address couldn't be in any of the other 49 states. I just don't think it's a good idea to make it California.
Well, here, I tuned in on this piece on DBAs. But I did I catch that we could or should have independent administrative addresses for each division.
Now it'd be for the overall business trust.
Okay, got that. That's what I thought. Thanks.
But there will be an address used in both the certification of trust the articles of formation, and the operational rules for each division, not equivalent of an administrative address, as in the one listed for a governing lodge choice in the overall business trust, but it does require an administrative address. It's just used to identify that division.
Should that address be different for each division?
It can, doesn't have to be but it can. What might be
some drivers to have that address different and thinking okay, can't wait to see if maybe, if you're in a JV in one division, maybe the JV mailings need to go to someplace separate that occurs to me
that's a good idea. Very good idea.
Okay. All right. Thanks.
Yep. Hey, Gina just a question that's been coming up and you might I might have missed it when you're opening a brick and motor with a business trust is it more difficult because like they have that salon solo salon isn't isn't a required to have some type of like they gotta go and I guess in short, this certificate of trust takes care of the articles of organization so they can open up or if they were starting from scratch with a business trust, open up a brick and mortar.
They can do a brick and mortar in a division
in a division okay? So because Okay, so when you do it in Division, you You're not doing it in a business trust, you're doing it in the Division of the business trust in the division gets a DBA. So then that's why you're able to show like, articles or organization or whatever goes with the DBA. So that you can open it up in a state. Is that correct?
Yes. But most brick and mortars are going to have payroll. And what happens if there's payroll? Taxes. You don't want the business trust acting as a fiduciary. Right? Right. So because you don't want that to happen, you're going to open an entity, and then you're going to tie that entity to both the business trust and the personal trust if you can do it as an LLC. So it may turn out that you do the LLC filing first. And then when you go to do the DBA, you can do the DBA, and use the LLC s filing as the identifier. So you don't have to say it's a sole proprietorship. In that case, you then have revenues going into the LLC, in most cases, there's a professional services agreement between the LLC and the business trust division, that says 95% of the net, after payroll and expenses belongs to the business trust division. Then you also named the personal trust as a 90% limited partner in the LLC, or you get the LLC in Wyoming or Tennessee and just make the trust the personal trust a member and it's the sole member, one or the other, either one, whichever way the client wants to do it.
And so you're thinking of a, like a, from a brick and mortar standpoint, you're thinking of what might be required in a locality as a business license. Right. Right. Right. That's what I figured. Yeah.
Which is another reason for having the LLC.
Right. Okay. Okay. Thank you.
Yeah. Kevin, we should really create new versions of the money flow article. Yeah, I agree. One that uses what we're talking about here with an LLC because of payroll. Another that maybe does an S corp, you know, a couple different ways of doing the structure or even one that includes the foundation the business just in the personal trusts we have a whole Trifecta example. Yep, no, I agree. So going back to Randy I'm looking up South Dakota fictitious name filings real quick. Let me just look at this article.
Legal Zoom a file a fictitious name filing in South Dakota for 99 bucks
while you're looking at that, oh, look at my I took a screenshot of the air it said DBAs cannot own another DBA please enter a valid non DBA business ID so that that was where my hang up was
so maybe in your case, you do a division showing an LLC as the owner because in your case you're gonna keep the LLC anyway right well, no, actually, we'd like to collapse those LLC. No, I was talking to Brian about his case.
Oh, no, no, same thing. It was all gonna operate out of the business trust
Gotcha. Huh. Okay.
The only work the only thing they're gonna let you do is just put the individual as the owner, it was it was it.
Okay, we could do that again and list the trustee. The main divisional trustee.
Yeah, that's what I did. On on, on Randy's on Um, it sounds like this. This is where I come back to sounds like, sounds like we're, the benefit of this whole opportunity would be, well, Jesus, if I'm Randy, wouldn't I? Wouldn't I start all these businesses under one LLC? Take all the federal and depreciation at that point, then then play musical chairs at some other point down the road and move these into the business trust as in kind distributions through through the process of us personally, then all sudden, we get the benefit of a million dollars of depreciation. I mean, that sounds like that's an opportunity and that's available
understand what the million dollars
we go, we go and build one of these out. Okay, so a new one, you're seeing a new one, right? Brian? Yeah, we build a new one out, take first year UIP, depreciation 100%, we have 800,000 of write off on his personal return, then I can go and turn and through form and fashion doing it the right way can can get this into the business trust in kind at zero basis, we would have captured all that depreciation on the on the personal level on the tax side of things. But we would have already also stuck it into the business trust now future revenues generating from the rents will be tax free. Plus, we got to utilize the depreciation for other personal income
tax deferred, not tax free,
tax deferred.
But you've got to have some consideration in order for the sale to be valid.
Yeah, the $1,000 we're discussing,
oh, yeah, that sounds like a good plan. So you're gonna open the LLC initially?
Well, maybe we maybe we get down to all the debts are consolidated, we have one and we just, we just leave one open, that's when we continue to start new, new new locations under. And then as as they get a year or two old start producing revenue, we move them over,
which is what we just did for this. So instead of forming a new LLC for this last real estate acquisition that we have one of the solar businesses located in, we just put that in the existing solar LLC. As you know, I guess we put that in a reef didn't rebrand. So
yeah, that taking the big picture, is it? Is it a concern that we'd have to be playing musical chairs multiple times within 10 years? They we've done it three or four times is that A is that a concern and a risk, from your standpoint
it is. The more frequently you do it, the more risk it has.
So although that sounds like a great plan, if we can start them directly in the business trust for new ones, get let's get lenders on board there. That's the safest and easiest way to get going.
It really is. Because otherwise, until it's fully in the business trust, all future income is going to be at risk in the event of a lawsuit.
Now for Randy, here's what I don't want to see happen. Randy's had his trusts for a long time at this point. And not utilizing the tax mitigation benefits is ridiculous given what he had to spend to get these trusts in place because all of his family, they all have personal trusts, and they have the one business trust. Now, we cannot go backwards, Randy, and capture past income into the trust. That would be too much of a risk. In my opinion. This is as good a reason as any, for you to set up a foundation. And Brian take a look at what the tax liabilities gonna look like on the income from the first eight months of this year. If we set up a foundation, you could take 30% of that income donated to the foundation and it's $1 for dollar reduction of the AGI and your 1040 return. So yes, you've gotten a lot of deductions because of the real estate investing portion of your business but If it was still be good to get everything put in in a way that it can become tax exempt immediately. So that you take that donation and put it into the foundation, reduce your taxable income, your AGI by 30%. And then get everything else into the trust's so that it stops the tax bill from happening moving forward. Even if it's not done 100%, perfect. Even if you still have your LLC is intact, get something done, and don't let it go past October 1. All it would require, all it would require is in the business trust, are going to have a separate division for each of the seven operating businesses. That's not that hard. For now you do articles of formation and a certification of trust. You decide now, do you want to have just one bank account for the overall business trust? If that's true, then great no problem. If you decide that I forgot what the first option was just now. I'm so tired.
That a separate bank account for each other?
Yes. If you decide or for each division, you can do it that way. If you want just one bank account for the overall business trust, you can do that do you just have to make that decision up front? That dictates what Brian does with your bookkeeping. I think it's gonna be easier to set up a business Trust Bank account at prime Alliance. And then ask for sub accounts, one for each division. That will make it really easy from a bookkeeping perspective. They're still all tied together, you just have one login to get to everything. But I still think that's gonna make it a lot easier. Then just go get all those bank accounts open, then start working on the conveyance documents. Even if you need a little hand holding to help you with that. Just let your trusted advisor know and just get it moving forward. Don't accept the field ever. Make sense?
Would that be Barry who's who's going to be the trust advisor to help me with
it probably will be Barry and Barry's not available it will be Julie. There's not that much that you really have to do. As we're talking a total of nine divisions, that's it. Seven of them are going to have the exact same operational roles, just a different name of the division. Everything else stays the same.
Well, then do I still need to do the decanting from the platinum to the abundance?
Now No, we cannot be can't from pot to abundance for the business trust. Because unfortunately, although in it, it says that it's a non grantor trust, it is very much not a non grantor trust that is not self settled. It is a self settled trust. So it's a good thing that you didn't ever use that trust. There's no taxes that have been deferred in it. So we're just gonna start clean with a new tax ID number. At the end of the year. If Brian's gonna be the one to do the taxes, then he needs to go in and shut down the old LLC at the end of the year. But I wouldn't do that today.
Okay, because with the Platinum, we had 2020 and 2021 for returns that still have to be reconciled.
That you didn't have any income flowing through them. Correct? Correct. So all you have to do is a zero sum tax return. That's easy, because there's no income going through it.
All returns? Yeah, exactly.
I would do that sooner rather than later.
Okay, you got that Brian?
Yeah, wasn't the idea. If he had your trust in 2021, that even though he didn't record with the state that we would have wanted to have played musical chairs and potentially can They this personal residence and probably created demand notes that there would we need to be showing any of that on there and showing the interest accrual on there anything like that, if that was the case we were going to have, initially I thought Dave Phillips was going to prepare the initial thrust tax returns, and I was going to be able to carry them on from there.
Well, I have Dave Phillips prepare the initial year that actually has income. If there's no income for 2020 or 2021. It's just a $0. tax return. You can do that. You don't need Dave. So it's just a $0. Tax Free, John. Okay.
If you do need, Ryan needs to be a tax advisor.
Brian is here because he is a tax advisor.
I mean, on your team,
on my dear Oh, tax advisor and how to trust advisor he's here because he's gonna be a trusted advisor. I'd love to have Brian as a tax advisor to Well, let's take one step at a time, right, Brian?
Agreed. As of now, I'm just supporting Randy and his and his crew. And until I get completely comfortable with everything's going on. That is the goal down the road. But I'm happy. I love being a part all this and learning.
I'm thrilled that you're here. So I would do those two returns sooner rather than later, Brian, there's no penalties or anything because there's no income, there's no tax liability. So just do the zero sum tax returns. Now, I don't remember what day Ben used as inception date for the new business trust. Whatever that day is, we can backdate all the commands is to the day after the EIN number was created. That's not hard to do.
So
get started with documenting the assets and liabilities that need to get conveyed by using the purchase of assets and liabilities form. You know where that is? Right, Brian?
Yeah, I have that.
Maybe you can help by going through last year's tax returns for the LLCs. And actually put together an initial purchase of assets and liabilities spreadsheet Randy can add to it. And that way, there's at least a starting point for a discussion on getting the conveyance is done.
Okay, we can do that.
I just think it's ridiculous for Randy didn't have the trust as long as he has, and him to go even one more quarter without getting income flowing through the trusts. Because that's where the tax magic happens.
Okay, but that comes down to that issue than a genome or we've got to we've got to convey those assets and distributions from those LLCs to the trust. So you said we can do that irregardless of whether we collapse the LLC are not
correct. Okay. Just pick the number and be consistent. It's really all you need to do. Okay. And then, for the personal trust, it's a very straightforward thing. Primary residence goes in, yours in Kathy's cars go in. Home Furnishings go in, jewelry goes in. If you have any brokerage accounts, which I think you do have those go in as well.
Now, I did collapse a Roth IRA and I moved that money into the personal trust. So is that going to be considered income for 2021?
And when did you do it?
I gotta look at it. I think it was in 2021.
year of age, that's all good.
Roth Roth IRA distributions are totally not taxable. You've already paid the tax on those.
Is not sure if it's
not right or wrong for sure. Oh, it
is for sure. Yes.
That is the novel was 2022 or 2021. It was a lot of
I honestly don't think you have a ton of work to do on conveyances. And the reason I suggested contacting Julie Overbury Julie can help you get those conveyances done. Thank you Billy? I'll give her a minute to
unmute. Yes. So secondly, that
I think it would be good for you and Brian to work together. Okay, if Brian can pull last year's tax return and start putting together the list of purchase of assets and liabilities, then you could help oversee Brian getting all of the conveyances ready, so that by October 1 income could flow through those divisions. Oh, my gosh, I would feel so good about it if that could happen. Okay. And we'll figure out what the number is, Randy, whatever 30% of the AGI on your 1040 return is, will take up to that amount by March 5, and donate it to the foundation. So we're at least getting some tax mitigation done for 2022. All right, that covers a lot better than nothing.
Yeah, our saving grace these last few years have just been that we continue to keep building and building and building and because building, we've wiped out current income from depreciation. So yeah, I agree with you trying to want to get a go and just just didn't necessarily want to be the one in charge of the technical conveyance just just from experience.
Well, Julie is very much an expert at that stuff. She's who I call and I've got questions. Then, if necessary, from a tax perspective, so called David. So you're in good hands, Brian. Okay, questions. For Randy. I think it's a good plan to Randy. And your residents, you don't have more than 500,000 in gain in it. Do you know? Okay, good. Then we're golden there,
too. I would like to add what an incredible learning story everyone has provided us today.
That's why I had clients actual clients come in to talk today.
It was it was an it was a great learning. Scenario. Thank you so much for doing that.
You know, that was a really good idea. Well, we
learned that when we got done with the personal trusts, and brought people in to tell us, you know, Joel came in that day, and a couple others. And there's gonna be one more case study day at the end of the course. Because there is no learning that exceeds case studies, to do it with real people and real data. And not me saying, Okay, here's a fix and reo. Look at all the nuances that happen with both Lauren. And with Randy, and even with Todd with all tenants in common. Or tenants by the entirety, rather, that was awesome. You guys got to hear things that I would never have dreamed up. So thank you to everybody that came in and allowed us to make you guinea pigs today was very helpful. Go ahead and
do it. But thank you very much, Tina.
Definitely, thank you, we get to see nuances with individual clients that we see things like this.
Absolutely. And Shane, I'm gonna tap you for the next one. You've got real life clients using the trust that we could potentially bring in, get them to canted into the abundance group trust, and have them on our next group call that we do case studies for. So if you want to pull in a couple of people, that would be fine with me. Okay. And it can either be you giving us the scenario or them I'm okay with it either way. But I'm telling you a couple slots. That's next car.
Yeah, I'll see what what I can get pulled together.
Awesome. On our next call, next week, we're going to be talking about foundations. And I am going to put together instructions for foundations because we don't have that completed yet. But first, before I do that, I'm going to finish the first set of operational roles. Who's got takeaways for me today?
It was amazing. Pen was running on over here. The takeaway was a learning about the franchise and not the licensing format for my mindset. I'm not sure if anybody else picked it up. So I'll yield on that.
Yeah, awesome. Oh, that was good. Who else? Any other takeaways?
I think it's always a good view to be able to see how things are in different states, I think we get more, I personally get set on two or three states that I'm mainly deal with, and then getting to hear the different options and so forth. It's really eye opening.
We went through our customer list, when we were getting Ben licensed as an insurance guy for life, health and annuities. And we went through the customer list, and better than 95% of the clients were in 26 states. So we've concentrated on those 26 states. But my gosh, that's 26 different sets of rules. We just touch the tip of the iceberg today. In dealing with that, for for Randy The one thing that is imperative, it didn't mention he's California. And when we do get to the point of conveying any of the real estate, it all requires Randy or Randy, Kathy, and Scott as beneficiaries, so that they don't end up getting reassessed for property tax purposes. So he has no choice but to play musical chairs, if for no other reason than that. Now, most of the properties, you haven't own that long. So if we didn't do that, Randy is not going to cost you a whole bunch of money. But on things that you've owned for more than a year or two, it can make a substantial difference in the property taxes in Raleigh. So playing musical chairs is essential for you. Just because you're in California.
That's where to go. Yeah, we've got one that have at least a million and a half dollars in capital gain.
Yeah, but this is what property tax. So I always think, right you, we have to look at who the current owners of that LLC are, that owns that property. And those individuals need to be the sole beneficiaries of the division. At the time we convey, just to make sure that when it does get recorded, it's not going to be treated as a reassessment of property taxes. If you've got a million and a half gain, you probably are gonna have a substantial hike in property taxes on that property. If we do it wrong, so we got to make sure we do it right. And Julie will absolutely guide Brian to do it. Right.
Yep. So we got to get a hold of Julian didn't get a meeting set up for that.
Brown take care of that. Okay, let Brian and Julie Have at it. And I'll bring you in as necessary.
Perfectly come back to the California pre corps for all of his properties. Don't file for this sale into trust,
I would absolutely never file another P court if I can't help it. I pay my $20 filing fee. And Julie has a special way of doing the deeds. So she has instead of attaching the certification of trust as an exhibit to the P Corp. Right in the deed, she references it as an exhibit to the deed. So now there's no need to have the P Corp filed in order to show the assessor that hey, there's no change in beneficial interest, which is awesome for 20 bucks.
Oh my god. It's amazing.
We spent so much time on Pete core.
I know what is P core preliminary change of ownership record. Okay. And it's a form that's unique to California and no other state has it. But it's very convoluted. And to get it completed in a way that doesn't have negative consequences can sometimes be a little tricky. So, so much better to just pay a $20 filing fee, have the certification of just as an exhibit to the deed and be done with it. Then it can't be construed incorrectly by anybody, including the IRS in the event of an audit.
Yeah, that's great. That's almost
exactly, exactly. It's a little bitty loophole, but it works. And I've had many, many clients do it successfully now so I know it will work. Any other takeaways?
Well, the power of masterminding is my takeaway. It's amazing.
It is a great takeaway. Thank you, Randy. Very A very good takeaway. And I am so glad that I opened the trust advisor calls up to any clients, because look how many people are here getting the trust advisor training, which is a totally different kind of training that is in the podcasts, because we're focusing on the why and actual case studies, which are not in the actual training podcasts that clients get. So thank you. Thank you. Thank you, everybody, for joining us. We'll be back tomorrow and Friday this week. With personal trusts. We do not have a call next Monday in honor of Labor Day. And next Tuesday, we'll be back starting on our foundation training, hoping to have instructions done by that. Have a great week, everybody if I don't see you on any other calls
you to Jenna. Thank you.
Thanks. Thanks to all our guinea pig clients today. I really appreciate you guys.