Money Rehab with Nicole Lapin - Legal Loopholes the Rich Use To Get Richer— and You Can Too!

Episode Date: December 5, 2023

Former President Trump is currently facing several charges of financial crimes, including fraud. These allegations are full of examples of what not to do, but the legal versions of what Trump was attempting are tried and true strategies the rich use to get richer. Nicole shares these perfectly legal loopholes— and yes, you can try these at home with no fines or mug shots!

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. it's time for some money rehab. When you filed your taxes for the first time, you thought you were going to jail, right? I think we all felt that way. There are so many complex rules when it comes to our money, and we are all anxious about getting it wrong or going to jail, or more likely getting slapped with a huge fine. On the show, sometimes I talk about

loopholes, perfectly legal ways to save here and there, but even those can be anxiety-provoking because we don't want to cross the line from a loophole to, you know, fraud. And one person who's had mixed success walking this line is former President Donald Trump. As you have definitely heard by now, Trump has a bunch of charges against him for all sorts of alleged crimes. But today, I'm going to focus in on just the financial crimes so that you can hear the mistakes he made and how you can actually take advantage of the loopholes he has long tried to exploit. First, a little bit of background. The charges we're talking about are the ones filed in New York. The allegation is that Trump falsified the values of various properties by between $1.9 billion and $3.6 billion

over about a decade starting in 2011. In the first stage of the trial back in October, the judge found Trump and his corporation guilty of overvaluing his personal apartment in Trump Tower by falsifying the square footage and by overvaluing the price of Mar-a-Lago. There are six remaining counts of fraud on the table, including insurance fraud. The claim is that Trump and his organization manipulated the value of various properties so that he could get better rates on insurance and more favorable terms on loans. If Trump is found guilty, he would be on the hook for $250 million in fines. Plus, Trump and his sons would be banned from operating businesses in New York, and Trump and

the Trump Organization could be banned from engaging in commercial real estate transactions, period. Trump has spent much of the case complaining about the judge and his law clerk. Like many states, judges in New York are elected. The judge in Trump's civil case is a registered Democrat. The judge's law clerk also ran for a judgeship as a Democrat and during her campaign donated to Democratic causes. Trump has been blasting the judge and the law clerk, claiming that they're conspiring against him going so far as asking for a mistrial. The claims got so wild that the judge placed a gag order on Trump. It might seem a little unhinged to disrespect the judge who was deciding your fate in a trial,

but this is classic Trump after all. Trump's general strategy for legal proceedings is admit nothing and escalate everything. Trump has been litigious for longer than many of us have been alive. Before his election in 2016, Trump had been involved in well over 3,000 legal actions. This is a huge number for an individual or even a corporation. To put that in perspective, he's on the level of what the Catholic Church and BP Oil have when it comes to lawsuits. This number is so large, in part because when Trump is sued, he often countersues. This strategy first emerged around a 1970s lawsuit against the Trump Organization for Racist Housing Practices. He countersued and then set into place a pattern

that would define the next 50 years of his life. But lawsuits aren't the only place where Trump makes use of the court system. Trump has attempted, again with mixed success, to use loopholes that typically only the uber-wealthy know. And like I said, sometimes it crosses the line into just plain fraud. But here are some perfectly legal things you too can do to take advantage of the rules of the wealth game. Number one, play with other people's money. Generally speaking, Trump limits the amount of his personal funds he puts toward his business projects. Instead, he boldly borrows money, gets outside capital, and in a particularly sketchy move, encourages his employees to invest Atlantic City casinos a huge amount of grief as many of them invested their retirement accounts almost completely in the only individual stock offered, shares of Trump hotels and casino resorts.

A money rehab tip I have said many times and it's worth repeating. Don't invest your entire retirement fund in one company. Diversify, diversify, diversify. That is the only way you minimize your risk if something goes wrong. Now, of course, I'm not suggesting you bankrupt your employees or take advantage of them ever. Instead, the lesson here is to look for alternative sources of funding for your business beyond your own pocket and get creative. The amount you can personally contribute has a maximum, right? You can't spend more than you actually have.

But when it comes to outside sources of credit, you're only limited by your imagination and ability to convince potential investors. But I will say that accepting outside sources of funding can have drawbacks. If you take a personal loan from, say, your rich Aunt Sally, you're going to have to listen to her business advice for the rest of your life. Taking money from venture capitalists can also limit your future returns if they have a deal that claims too large a share of your profits or equity. But investing isn't the only way to raise outside capital. You can also find money with fewer strings attached through a crowdfunding campaign on

sites like Kickstarter or iFundWomen or business grants. You'll need to, of course, read the fine print always, but it is worth your time. Getting that extra infusion of cash is a great way to expand your business. Number two, structure your business to protect yourself. One of Trump's best tricks is branding his business with his name while limiting his personal liability. This gives the illusion of him being one with the brand, but legally he is not. Because of this structure, he's protected from most debt or lawsuits associated with the business. And again, his brands do incur a lot of lawsuits. While Trump

does employ an extensive network of attorneys to create a clear division between the liabilities of the Trump organization and his personal wealth, you too can employ that same strategy for very little money by setting up your company correctly from day one. There are a couple of ways to do this, and the best one will depend on the size of your business and the number of founders or owners involved. The simplest structure is the LLC. I know you've seen those letters after a company's name before, and they stand for Limited Liability Company. This is a business structure that, well, structures your business as an entity completely separate from you, with its own name,

its own kind of social security number or EIN number, tax liabilities, and more. The exact rules vary by state, but it's a pretty easy process to create an LLC. You name your company, you file the paperwork, and you go on your merry way, knowing that you are safe from personal liability. If you expect your company to grow very large one day, you might want to employ other corporate structures. But what's most important here is that you protect yourself from personal liability from day one and have a clear line separating your personal assets from your business assets. Number three, keep bankruptcy in your back pocket. Now, this final tip only

works if you have correctly structured your business so that it is a separate legal entity from you. Trump's casinos in New Jersey were beset by problems from the jump. The loans involved had very high interest rates and the overall cost of building them was astronomical, setting up a situation where they were always going to struggle to be profitable or just break even. The interest alone on the loans was so high that in 1991, interest by itself was $18.4 million on a single payment. That's actually when Trump's dad sent a lawyer to a casino to buy $3 million, famously, in poker chips to help his son out. dollars famously in poker chips to help his son out. Outside factors like the legalization of gambling in neighboring Pennsylvania and the 2008 recession further hammered the casinos.

The casino company filed for bankruptcy several times, using each bankruptcy to escape its debt. While Trump did personally take some financial losses during the various bankruptcy proceedings, he still managed to sail through with the bulk of his personal wealth intact. Hopefully, every business you own will be successful, but there are black swan events, recessions, for example, that are just unpredictable by definition. If your business hits the point of a no profitable return, you shouldn't fear using corporate bankruptcy to close your business and erase your debts. Yes, you will have to get a good lawyer. And yes, it is awful and stressful,

and no one wants to think about having to go through that. But if you do need an escape hatch in business, know that it does exist in bankruptcy. Trump has been known for the art of a deal for a reason. He has always managed to get the best deal for himself. This comes down to limiting his liabilities by using other people's money, structuring his companies correctly, and being willing to declare bankruptcy when things go wrong. And those are all lessons in business that anyone can duplicate. Legally. For today's tip, you can take straight to the bank. If you're looking at any sort of passive income, consider the benefits of setting up an LLC.

It's a must-have if you own an investment property that you rent out or have a side hustle where you're collecting profits while also exposing yourself to any sort of debt or risk of lawsuit. Having that legal shield could potentially save you a ton of money and even give you some tax love. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Levoy. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have

your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.