Epic Real Estate Investing - Pride Can Be Expensive - Own Nothing, Control Everything | 439

Episode Date: August 7, 2018

On today's episode of Tax Hacker Tuesday, Tim Berry and Matt Theriault teach you how to own nothing and control everything. Learn the difference between control and ownership, the disadvantages of ownership, and how to switch from being the owner to the controller without losing anything. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. Did you know that up to 50% of your lifetime income will be wiped out by taxes? What if you could stop this madness? Isn't it about time you play on a level playing field with the wealthiest 1%? Now you can. Tim Berry, attorney at law, shares here each and every week current tactics and strategies that anyone can implement to hack the tax code. Protect your assets and keep what's rightfully yours.

It's time. for Tax Hacker Tuesday. Hello and welcome to the Epic Real Estate Investing Show. It is Tax Hacker Tuesday with my attorney and friend, Mr. Tim. Barry. Tim, how are you? I am doing fantastic, Matt, yourself. I didn't ask how you were looking, Tim.

I asked how you were feeling. I'm looking marvelous. Yes. On Monday's here at Epic, we show you new and creative ways as well as time on our ways of making money using real estate. And then on Tuesday's Tim shows you how to keep it. He's got all the answers. I've got all the questions.

So you can listen into mine and listen to him an answer. Or if you have a question yourself or Tim, you can go to tax hacker.com ford slash questions and post it there. All righty. So today, what do we got on the docket? Oh, that was the legal ease, wasn't it? That was. That was impressive, man.

Very impressive. We were talking about the difference between control and ownership. And I've seen movies. Specifically, I'm thinking law and order where he's a billionaire, but he doesn't own a thing. Right? Uh-huh. So how do you do that? And could you have to be a billionaire to make that worthwhile or can you do that at a much lower level, like $100,000 a year guy?

No, I would suggest that everybody should have control versus ownership. That's a super big thing. All right. Going back to, you know, the billionaire control versus ownership, hey, that's cool. If he doesn't have ownership, that means the bad guys, if he ever gets in trouble, they can't take it away from him if he doesn't own it. And yet if he controls it and then from a tax viewpoint, if he controls it, if he controls, controls the tax flows, that's priceless right there. And that's a big, big, big distinction that most people don't get. Most people, they're caught into the ego and the pride of, I own this

corporation. I'm the 100% shareholder. I'm the 51% shareholder. And I'm thinking, who gives a damn about the ownership? And excuse my language there. Who cares who's the actual owner of the thing? Let's talk about, A, are you getting asset protection by having that 100% ownership? You're not. and then B, are you getting any tax savings by having that 100% ownership and you're not? In fact, there's all sorts of neat tax things that are wiped out if you're the owner of some company. Got it. So pride of ownership can be expensive is what you're saying. That's what I'm here.

That's a fantastic way to put it. Pride of ownership can be very expensive. Okay. So how do we switch from being an owner of something to being the controller of something without losing anything? Well, let's talk about an LLC, simple example. Let's say that I own 100% of the LLC and am the manager of the LLC. Okay, that means that I'm in control of the LLC and I also have ownership which can be taken away. Now let's compare that with somebody else owns the LLC.

Let's say it's a key employee of mine or a business partner. They own 100% of that LLC, but I'm the manager of that LLC. And let's say that we wrote inside the operating agreement that I can't. be removed as manager for the next 10 years. Do we have control over that thing? Yeah, I control the cash flows. Now I can direct certain investments, certain deals to go to me, and yet the other person has the ownership. So if I get involved in a lawsuit, bad guys can't touch it. I'm protected. And yet at the same time, if I have control over that thing, even if the bad guys take it away from this other person, if I can divert the cash flows, give myself a salary, give myself royalties, give myself

interest, et cetera, so forth, what do I care? It just doesn't matter. That's control versus ownership. Okay. So let me play devil's advocate. Sure. On a previous episode, if we want to keep the bad guys away, we need to understand that the bad guys have all the same rights as we do. Yep. So if you get sued, can the bad guys take management control over the LLC? No, they can't take management rights. The only thing the bad guys can take is economic rights. They can't take management rights. So we're protected there. And by the way, with this example, I would still have the LLC wrapped up inside of a trust just because I do that with everything and I don't trust anybody with the other assets,

etc., so forth. But now it's going to be that other person who's the owner of that, and I'm still controlling the cash flows. And from a tax view point, let me just toss out a couple things on a tax view point. I was talking to somebody earlier today. They pay for the kids' private education. There's a little part of the tax code that says a corporation can pay the first 5250 of an employee's tuition tax-free. What's 5-250? $5,000? Yeah, $5,250. So that's a deduction for the corporation, and yet it's not taxable to the person who got that 5-250. Challenge is they can't get that if they're related to a 5% or greater owner of the corporation. Okay. Okay. Okay. So if I own my 50% of the corporation, my kids can't benefit from that deduction.

But if my key employee, my good buddy is the owner of the corporation and my kids work for their company, now they can benefit from that $5,250 tax deduction or credit, if you will. Does that make sense? Yes, yes. And there's all sorts of little nuances in the tax code that it's written so that the owners of the corporation can't take. advantage of it, but if you're not related to an owner of the corporation, you can take advantage of it. Mm-hmm. And I imagine in the operating agreement, this puts serious limitations on what the owner

can even do with the LLC. Oh yeah, you can. You can put all sorts of limitations. And we haven't really talked about the restricted deed concepts and all that stuff, but we could apply the same language that we do with restricted deeds saying that somebody can have the authority to yank that away from that person. as well. So there's ways to have protections written inside the operating agreement. Yes. Got it. I'm just thinking like if you have the, your employee owning 100%,

like, but in the operating agreement, the nuances there to where 100% of the benefit is essentially yours as a manager. Yeah. Well, let's not say 100%. They still have to get some benefit. Otherwise, it'll be a sham transaction, all that other stuff. But, you know, if you're making out like a bandit, that's a wrong phrase to use. If you're getting the good, I can recognize that after you said it. Yeah. So, but if you're getting a lot of benefit, why not share the wealth a little bit with someone else? Okay.

What would be a share where it wouldn't be unlooked at or frowned upon? You know, it just really all depends upon the situation. Let's say they get 10% of the profits, 15, whatever. It just depends on the situation. Here's the other cool thing. What if they're an employee and they typically make 50, 60, 70,000 dollars a year? Now you set them up inside their own corporation. This corporation makes, I don't know, a hundred thousand a year.

But now you're able to draw out a lot of employee benefits out of it to the tune of, let's say, 40, 50,000. They still end up making 50,000 off of it. And this is where they're getting paid their quote unquote salary. But you've got all sorts of neat little executive benefits off to the side completely tax-free. Got it. So own nothing, control everything is kind of the ambition here. Yeah, that's the ambition. All right.

And primarily that's done with fancy LLCs and trusts. Yeah, it's just done with the corporations LLC's trust, some sort of entity. Yeah. Don't try this at home. That's a big one. Yeah, kids don't try this at home. All right, super. Whenever you're ready to have Tim customize a tax hacker blueprint for you,

which includes really good asset protection consulting, just like what we talked about today inside of that. that if it's right for you. And so you can minimize the amount of the harder income you send to Uncle Sam, minimize the amount of hardered income that the bad guys have access to. You can go to tax hacker.com, download Tim's free book to help you navigate the new tax plan. And then after you've done that, you'll have the opportunity to schedule some time with Tim.

And either he or one of his team members will get on the phone with you for a short five to 10 minute call to assess your situation and then just tell them, I want my tax hacker blueprint and then they'll take it from there. They'll know exactly what to do. All righty, Tim. Any last words on controlling versus ownership? I can't think of any, sir. All righty.

You're so thorough. I love it. Again, if you have any questions for Tim, you can go to tax hacker.com for questions and just post it there. We'll read it here right live on the show and Tim will answer live on the show. So that's it for Tim and myself. We'll see you next week for another episode of Tax Hacker Tuesday on the Epic Real Estate Investing Show.

That's it for today as we dream of a tax system that works just for you. But until then, you have Tim Barry. See you next Tuesday for another episode of Tax Hacker Tuesday. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.