Asset Protection

Four Tools of Financial Education PDF Print E-mail
Written by Lee Phillips   
Monday, 01 March 2010 16:42

The Most Important Financial Tools that Every Investor Needs to Secure Their Assets

Just like a house, you can't build a financial fortune from the roof down. You need to build a foundation first.

Have you ever noticed that some people seem to have wealth flow to them? Yes, some professions tend to pay more than others, but in every field, those with the most wealth are the ones that have a legal foundation already in place.

This foundation is set up using an understanding of the legal strategies associated with wealth accumulation. Unfortunately, many people are "taken to the cleaners" by less-than-competent lawyers who fail to educate their clients.

The basic foundation of wealth consists of four legal tools. If you understand the tools and know how to use them, your chances for success are much better. If you and/or your parents don't have the four tools already, it is time to get moving. It's worth every effort you make and every dime you spend getting the foundation in place. Here's a basic overview of the four tools:

Testamentary Will
Everyone needs a will. Even if you have a revocable trust, you need a will. The will names the personal representative (the executor or executrix). A family member, who is geographically near the bulk of your estate, has good business sense, and can be fair with your heirs, is the person you are looking for. It is basically malpractice for the attorney to name himself or herself as the personal representative.

The will names the guardian for your minor children. If you have minor children or grandchildren, you had better see to it immediately that a guardian is named in the parent's will. The will should put restrictions on the guardians. Most wills simply state, "John and Mary guardians to my minor children." You can do better than that. Coach the judge in your will. It should read, "John and Mary; provided they raise the children in our family home where the children are living at the time of my death." "John and Mary; provided they are still happily married and harmoniously living together." "Grandma and Grandpa; provided they have the health to take care of the kids." "Grandma and Grandpa; provided they don't sell the kids." You get the picture.

If you already have a will and don't have a living trust, you will have to get a new will which goes along with your living trust. It is called a "pour over will," because it "pours" all of your property, not already in the trust, into the trust for ultimate distribution after your death. The living trust is the next part of the foundation.

Living Revocable Trust
The living trust allows an estate to avoid probate, get twice the estate tax exclusion, and provide for a smooth transfer of property. It is definitely worth having for most families. Yes, there is a big argument in the legal profession between the standard will and probate guys and the living trust "hawkers." I come down in favor of the living trust, but I think it is your decision. In Protecting Your Financial Future, I go through the pros and cons in detail. Frank Sinatra was called the "Chairman of the Board," and he knew how to handle money. His living trust provided his estate with total privacy, much to the media's chagrin, even though on a $130+ million estate the financial impact of the trust was only a few hundred thousand dollars.

The problem with the trusts is not with the trust, but the lawyer and user of the trust. The trust has to be maintained, and it has to "own" all of your estate. It isn't hard to manage, but the lawyer never takes the time to teach you how to do the management, and you can't afford to pay the lawyer to do it for you. As a result, a majority of people who get a living trust don't get the benefits they could from the trust. The living trust will "overlap" with a durable power of attorney.

Durable Power of Attorney
Durable powers of attorney allow an individual to control the property of a person who is unable to control their own property. As a physician, you know that people of all ages, not just old people, fall victim and are rendered unable to control their business life. A good living trust will have a provision that automatically lets a successor trustee manage trust property if you, acting as trustee, become incompetent. The durable power of attorney lets the person of your choice manage all of your other business affairs when you can't do it. Power doesn't transfer from you until the criteria outlined in the document are met, then there is an automatic transfer of power. This prevents messy court proceedings that are required to name a guardian/conservator for an incompetent individual.

The emotional and financial drain of a court proceeding when a family member has an accident or gets sick is the last thing the family needs at that time. The durable power of attorney prevents all of the legal problems at a time of crisis in the family, when a family member becomes incompetent.
Many powers of attorney include a section which addressed an individual's instructions and desires for their health care. This is a durable power of attorney for health care, which appoints an "agent" and grants them power to interface with the medical industry. You may not have a hard time getting what you want in a hospital, but it will be very frustrating for your spouse or children if you are the one who suddenly becomes unable to direct your own medical care. The durable power of attorney for health care can be part of the document entitled durable power of attorney or it can be a separate document. It deals only with the medical treatment, not the right to die, which is addressed in a living will.

Living Will
A living will directs the doctors to keep you alive or pull the plug. You need one and so does the rest of your family. The best place to get one is in your hospital. Hospitals give them away free, and the hospitals like to see their own document rather than the 30 page beautiful, very expensive document you get from your lawyer.

These four legal documents form the basic foundation for all wealthy people. They are always there. They are what I call the "basic tools of wealth." Use them, and it will be worth every effort you make and every dime you spend.

Attorney Lee R. Phillips is a Counselor of the United States Supreme Court. He has three university degrees-BS, MS, JD - and has held licenses in real estate, mortgage brokering, securities, and life insurance, as well as being a registered investment advisor. Lee is nationally recognized in the fields of business structure, asset protection, financial planning and estate planning. He is the founder of LegaLees Corporation, a company specializing in solving asset protection and tax problems for high net worth individuals.


Making Money With the Law PDF Print E-mail
Written by Lee Phillips   
Monday, 01 March 2010 16:26

Why the Rich Get Richer and How You can too By Using the Law

Your ability to make money on business and real estate deals is directly related to your knowledge of the law. Whether it is structuring the deal or trimming the tax burdens, the law can turn a bad deal into a good deal and a good deal into a great deal. In fact, if you use the law to leverage what you do, you can make money faster than you ever thought possible. In a professional practice, you don't need to work harder, use the law to leverage what you do to make more money. No more work - no more time - no more risk, just more money to spend!

Not only can you get ahead financially a lot faster, using the law, when problems strike, you can keep what you have worked your whole life for. In today's society, if you don't take the opportunity to protect yourself and your assets, somebody is going to take your assets away from you. It might be the government, the IRS, the lawyers, your tenants, your partners, your patients, or any one of a dozen other problems you face, but somebody is going to take your hard-earned money away from you, unless you protect it.

You undoubtedly hope and pray that you won't have a lead paint problem, get sued by a tenant, or have the lawyers come after you for some insignificant reason. You do more than just hope and pray that you won't lose your household property to a common thief. You lock your doors, put security lights around your house, and set up alarm systems. Your financial investments and real estate investments are a lot more valuable than your household property. Have you done anything to protect those assets from the thieves that could take them away from you through a legal or financial attack?

The legal system is the most powerful system we have in our nation today. When you get sued, you are going to spend every dime you've got just defending the lawsuit. Either that or you lose. That is the way the system is set up. The biggest mistake you're going to make in your financial careers is to say that you don't have enough to worry about yet. It doesn't matter how much or how little you have, in today's lawsuit happy society, you had better worry about how to protect your assets, or they will be taken away from you.

If you are going to protect your assets, you need to be able to identify the financial threats you face. The sad part is, the general public doesn't even know what the threats look like, and they certainly don't have a clue how to protect themselves from those threats. The first thing you have to do is identify the threats, and then you have to systematically eliminate them.

The IRS is one of the major threats you face. Your tax payments over your lifetime could dwarf your mortgage payments, your medical expenses, the retirement money you stoke away, and the cost of sending your kids to college--all combined. Taxes are by far the biggest constant drain on your financial resources. If you know the tax laws, can you make money? Certainly! You can cut 10 - 15 - or even 25% off your tax bill every year. Think about it. How much would a 25% reduction in your taxes be worth to you just this year?

You attend seminars, practice improvement fairs, scour the real estate market, and do everything else you can think of to find a way so that you can make more money. The irony of it all is, if you learn the rules of law and to use various legal structures, you can make more money in everything you do. You don't have to change what you are doing now. All you have to do is change your position in the law. Think about the rich people you know. It doesn't matter what they are doing, they use the tax laws and all the other laws to their advantage and they make money. You can do that, just like they do. But, you have to have a legal foundation to build on.

You can't build a house from the roof down. What do you have to build first? The foundation! You can't build a financial fortune from the roof down either. You've got to have the foundation first. If you study the wealthy, you will find that every one of them has a legal foundation that they have built their wealth upon, and they have legal shields around their property to protect it from attacks.

The reason you don't have a legal foundation and shields around your property is because of the cost, time and frustration. If you have a lawyer set up such a shield, it will cost many thousands of dollars, and you probably won't really get the protection you want. The process isn't hard, but the lawyers make it very complicated to "protect their turf." Most successful people learn that they have to understand what the opportunities in the law are, and they actually end up doing a lot of the "legal work" for themselves. Every wealthy person makes use of certain legal tools and principles. If you want to be rich, you have to learn to use the legal tools that the rich use.

Whatever you are doing today, if you understand the laws, you can make more money. Think about it. The rich make money at whatever they do. And, the rich just get richer. One of the major reasons they can do this is their use of legal techniques and structures. Their use of the laws puts them on the fast track to riches and lets them protect what they already have. Your use of the laws will do the same things for you.

Attorney Lee R. Phillips is a Counselor of the United States Supreme Court. He has three university degrees-BS, MS, JD - and has held licenses in real estate, mortgage brokering, securities, and life insurance, as well as being a registered investment advisor. Lee is nationally recognized in the fields of business structure, asset protection, financial planning and estate planning. He is the founder of LegaLees Corporation, a company specializing in solving asset protection and tax problems for high net worth individuals.


How To Combine Financing, IRA's and 1031 Exchanges PDF Print E-mail
Written by Al Aiello   
Friday, 26 February 2010 16:48

Savvy Tips That Every Investor Should Know and Use To Save on Taxes

Below are three vehicles that can increase the wealth of the real estate entrepreneur.

Seller Financing

Seller Financing is where the owner of the property provides the financing by taking back the "paper" on the property. Because of its many buyer advantages, seller financing often results in a quicker sale at top market dollar. For investors, seller financing allows the deferral of capital gain's taxes via installment sale reporting under IRS Section 453. (However, an installment note does not qualify for a 1031-exchange.)

The Self Directed IRA

A Self-Directed IRA (SDIRA) is just like any other IRA (regular or Roth), SEP or Keogh, except that you decide where to invest the funds, as opposed to some institution. Compared to conventional retirement accounts, your range of options is much broader with a gourmet variety of high-yielding investments of your choice. With an SDIRA you can take just about all taxable investments and convert them into tax-deferred investments. For example, you can make loans and receive the interest income free of taxes.

The 1031 Tax-Free Exhange

A 1031 Tax-Free Exchange (or rollover) is a technique that allows you to defer taxes on the sale of your investment property by acquiring another investment property within certain IRS requirements. Under Section 1031, owners of investment real estate do not have to pay taxes when they dispose of their property -- not even if it has doubled or tripled in value -- so long as they rollover their property into other investment real estate. In fact, the exchange is usually not a direct swap, and in most cases will appear quite similar to a traditional sale and purchase. The main difference is that you pay no taxes on the profit.

Now let's combine all three of these money-making vehicles into one big super play.

That is, combine the SDIRA with the 1031-exchange and seller financing, but without installment sale reporting under Section 453. Here, you still offer selling financing but cash out by having your SDIRA lend the buyer the cash to buy the property. The buyer would then come to the settlement table with all cash (instead of a note). All of the cash could then be placed into the exchange escrow account and qualifies for the 1031 exchange. (Note: An installment note does not qualify for a 1031-exchange, but cash does.)


JR owns an investment property free & clear that can sell anywhere from $90,000 to $100,000. JR's RE agent tells JR that by holding the financing, the property will sell quicker and for the full price of $100,000. At a $100,000 price the outright sale of the property would result in a realized gain of $70,000 which would result in $21,000 in taxes on the sale. But JR does not want to pay these nasty taxes and does not want to hold any "paper" (which does not qualify for a 1031-exchange). Instead, she wants all cash to escrow in a 1031 tax-free exchange and use the cash to buy a superior property. With the 1031, JR will totally avoid paying $21,000 in taxes, which she can use as a down payment for superior property. Assume that JR has over $100,000 in her IRA's.

The Solution for JR:

1. SELLER FINANCING - JR will provide $90,000 seller financing to the buyer and therefore get the full price of $100,000. Assume that the buyer has $10,000 to put down.

2. SDIRA - JR will provide the financing, not by holding the "paper," but by lending the (unrelated) buyer $90,000 cash from her SDIRA (10%, 30 yrs, 7 yr. balloon). The buyer executes a note and a mortgage on the $90,000 financing with the buyer as the mortgagor and JR as the mortgagee. (We'll come back to the SDIRA shortly.)

3. 1031 TAX-FREE EXCHANGE - Instead of a non-qualifying note, the buyer then comes to the settlement table with all qualifying cash of $100,000 ($10,000 down payment and the mortgage of $90,000). With no property debt and selling expenses of $7,000, the net cash proceeds are $93,000, which are escrowed via the 1031. To complete the 1031 tax-free rollover, JR uses the $93,000 as a 30% DP and acquires a replacement property for $310,000, or 3 times more than the property she sold via the exchange. The higher priced property is in a much better location, with a much higher appreciation-rate and is generating substantially more cash flow than JR's former property.

>>BACK TO THE SDIRA - In the meantime JR's SDIRA is collecting monthly payments of $790 on the buyer's note. Most of this payment is interest, but all tax-free. PLUS: The final balloon payment in 7 years will also not be taxed, PLUS: JR can sell all or part of her note for a tax-free profit within her SDIRA. From the full or partial sale of the note, her SDIRA can use the proceeds to buy & flip a bargain property for a quick tax-free profit; lend money at high tax-free, interest rates; invest in stocks; buy a business; flip an assignable agreement and just repeat the TAX-FREE MONEY-MAKING MACHINE!

A Recap of JR's Big Super Play:

Via seller financing, sold the property quicker at top market dollar.

Yet, still cashed out via the SDIRA mortgage-loan to the buyer.

Via 1031, paid NO taxes on the entire cash profit from the sale.

Via 1031, has new property with more appreciation & cash flow.

Via SDIRA, pays NO taxes on all income from the mortgage.

Her SDIRA can reinvest the tax-free income from the mortgage, into more tax-free income.

TAX ALERT: Some practitioners take the position that the above SDIRA loan to your buyer is a "prohibited" transaction. The author disagrees provided that the buyer is an unrelated party and the transaction is truly arms-length and not a sham. Nevertheless, if the transaction is considered to be a "prohibited" transaction, then there can be costly penalties. Check with competent counsel.

TAX TIP FOR ABOVE: Use another unrelated person's SDIRA for the buyer loan, if the above alert is a concern. For further discussion, see Creating Tax-Free Wealth With Self-Directed IRA's.

The above are excerpts from The Real Estate Investor's Goldmine of Brilliant Tax Strategies, A Tax Reduction System And Special Forms Software Package, by Albert Aiello.

How to Write Off Expenditures to Reap Huge Tax Savings PDF Print E-mail
Written by Al Aiello   
Friday, 26 February 2010 16:38

How Real Estate Investors Can Reap Huge Tax Savings

There are three major tax-saving benefits of classifying expenditures as repairs rather than capital improvements. One of them is immediate tax savings. For example, the owner of a rental property is in a 31% tax bracket and pays $20,000 as a repair is an immediate deduction which is worth $6,200 in tax savings. But if the $20,000 is capital "punishment" it must be written off over 27-1/2 years = an annual deduction of about $720 year = tax savings of only about $200 in the first year. A difference in immediate tax savings of $6,000! These tax savings could be used as an immediate source of down payment monies for other income-producing real estate.

There are over 60 tax saving ideas to convert capital improvements into fully deductible repairs! Let me share some of them with you.


Just as a big forest is made of many smaller separate trees, so is an extensive plan of improvements made up of a series of smaller, separate repairs. That is, much work resulting in the "permanent improvement" to a property, in essence, consists of a series of "separate repairs". Such repairs could be immediately deductible if documented separately. Otherwise they will lose their nature as repairs if they are part of a general plan of improvement or reconditioning.

You therefore need to componentize or fractionalize the large expenditures into a larger number of smaller, separate jobs. It helps if each job is done separately & independently, over more than one year. Do this with separate invoices and separate contracts for each job. This is what the tax court said in Cobleigh, TC Memo, 1956-261.


Use such words as: "repairs", "prevent damage", "patch", "temporary", "incidental", "minor", "fix", "piecemeal", "annual", "less than a year", "decorating", "painting", "small", etc. Also, the prefix "re" is effective. For example, "repaint", "repatch", "repaper", "recoat", "resurface", "redo", etc. These have been in the taxpayer's favor in deciding that expenditures were repairs.

Do the above and put more tax dollars in your pocket!

The above are excerpts from The Real Estate Investor's Goldmine of Brilliant Tax Strategies, by Albert Aiello. The specially designed forms on disk enable RE entrepreneurs to document, with tax law citations, large write-offs of repairs and reap huge tax savings.


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