February 10, 2019

JF1622: How To Leave Behind A Legacy & Set Up Heirs For Success #SkillSetSunday with Aaron Chapman


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Theo Hicks: Hi, Best Ever listeners, and welcome to the best real estate investing advice ever show. I’m your host for today, Theo Hicks, as Joe is traveling to Texas right now to look at some apartment deals. Today I’m speaking with a returning guest, Aaron Chapman. Aaron, how are you doing today?

Aaron Chapman: Not too bad, Theo. What’s happening with you, brother?

Theo Hicks: I’m doing great, cannot complain… Although I’m in Florida, and today is pretty cold. I could see my breath outside; that was unexpected.

Aaron Chapman: I like it when that’s happening, especially after I brush my teeth. Then I know for a fact it’s the weather and not me.

Theo Hicks: [laughs] There you go. Today is Sunday, so it is Skillset Sunday. We’re going to talk about a specific skill that can help you with your real estate business… And I’m really looking forward to this conversation today, because we’re going to be talking about legacy. A very common thing – that I’ve heard at least – is that the father makes the business, the son maintains the business, and the grandson loses the business… And obviously, the dad set out to set a legacy for his family, but in the end, in doing so, he kind of ruined his family, because the business was lost within two generations.

So in this podcast we’re going to be talking about how to properly leave a legacy for your children and actually set them up for success. That is going to be the discussion today. Before we get into that, a little bit more about Aaron’s background. He’s a 21-year veteran of real estate investment finance; he is ranked in the top 1% of the industry, and number 12 out of tens of thousands of others nationally for transactions closed. He is based in Mesa, Arizona. As I mentioned, he’s a returning guest, so check out his first episode, which is episode 1537, “Grow a huge real estate business by helping others get what they want.” To say hi to him, you can go to aaronbchapman.com.

Before we get into the meat of the  conversation, can you tell us a little bit about what you’ve been focused on since your last interview?

Aaron Chapman: Well, of course my focus as a business structure on the day-to-day basis is helping individuals to accomplish what they want to in their real estate business. Those that are just getting into it, they’ve been reading things online, they’ve been listening to Joe’s podcasts and trying to figure out “How do I go about this? I love that education piece.” That’s what keeps me doing what I do, is having that conversation with people to help them start structuring not just their business, but their mind, get their mind wrapped around the fact that they’re the CEO of a startup real estate investment business, and that there is a way to take that mindset and turn it into a monetary value, and then understand the multi-faceted revenue generated by real estate, and it’s just about cash-on-cash returns, it’s not just about cap rates, there’s so much more there; it’s really an infinite return when they get their head wrapped around it and they realize that I want to be part of their team. I’m looking to be the virtual CFO of their business, help them to look at things from different angles to build that business properly. So that’s my biggest focus – to keep myself out there to an extent that I’m working with more and more investors, and we’re blessed to have a business that generates 700 units a year in actual closed business. That’s what puts me at rank number twelve in units closed in my entire industry, of all the people that are in it, tens of thousands of licensed loan originators.

But the one thing that’s been really getting my attention a lot lately is the fact  that I hear a lot of people getting involved in this business, who develop their real estate business because they want not only to retire themselves, they wanna create that vehicle that will help them to leave their daily job, but they wanna leave a legacy for their family, they wanna leave a legacy for their kids… And then end result that I hear people doing is kind of like we talked about earlier in the introduction – a man creates a business, brings his son up in it, because he watches his dad do all that, and then by the time the grandson gets it, it gets destroyed. We’ve seen that happen in history with kingdoms, pharaohs, kings, you name it. You can look backwards into history where somewhere within a matter of 1-2 generations what was created was actually a very solid, and a big foundation [unintelligible [00:05:43].03] got obliterated by one squandering what was available to them, because they never earned it. They grew up in it, and always had all the benefits of life, and they didn’t realize what it took to keep it, and they definitely didn’t know what it took to earn it. So with all those ideas that [unintelligible [00:06:02].03] and I find myself traveling a lot. I’m in the air at least 2-3 times a month; I got a letter from American Airlines, who I fly mostly, that says that — it’s almost like a congratulatory letter saying that I had traveled enough miles to circle the globe three times over a calendar year (2017). And it was really alarming to me I spent that much time in the air, but – and it was all within continental U.S. – I took that time to really spitball how do I do the same, leave a legacy? Because all the ideas I’d heard before of what legacy might be left very big holes in my mind.

My personal belief is that the greatest legacy is not to leave legacy and net worth, but to leave wealth and knowledge and experience. I quote a lot to people “Good judgment comes from experience, and experience comes from bad judgment.” So the experienced gained by verification of truth, through what seems like contiguous errors throughout our lives, has a way of correcting one’s path and  illuminating one’s foundational and financial principles.

What I figured was the most way I could secure and ensure these principles are known and endure is not to just tell my kids and my family, but to live them and put each member of my family in a central role in the daily execution of that whole thought process. So what I did was I developed a trust. Just a normal trust — and I’m still going through all the legals on it with my attorney to ensure we button up all the details of it, but the generalities is this… All my assets go in the trust, and then we used the infinite banking philosophy to fuel this. You guys probably have had people on the show for that, correct?

Theo Hicks: Is that with the life insurance?

Aaron Chapman: Correct. I know I’ve heard that, but then again, you listen to so many shows, you’re like “Who is which anymore…?”, because we listen to so much going on out there… But I have a very close friend who also actually introduced me to yourselves, and kind of made it possible for me to get on the first show – it’s Gary, who does this life insurance, and he does it for me and my family. So what we did is we created six policies – one for me, one for my wife, and one for each of my children. And what it dominoed into was we’re using my policy – I can pull a large sum out of it to fund my investments… And I wanted it to just not be my decision, because eventually these investments are to be taken over by the legacy, by the children. So rather than me just deciding what I should be purchasing, I had my children get involved in the last few purchases we did.

We had to look at the proformas, we had to do a Zoom call with whoever was presenting on it, whoever was making this potential option available, and they had to answer questions with my kids. And it was a really cool opportunity for both sides – one for my children to ask those questions and understand the process a little bit more, and not just get it from dad, and then two, for the person providing the potential investment to be able to refine their presentation at a level that would be understandable to somebody as young as 12 years old. My children range from 12 to 21.

Then what was also very cool was to see the lights turn on in each of their minds as they start seeing what was possible. Then the final benefit is I could tell the person who is gonna be talking to my kids to remember there’s a special place in hell for anybody who lies to kids, so we’ve got that as another protective piece. But how that evolved from that was not just their involvement in understanding the acquisition of the investments and where to put our money too, but also them coming to the knowledge that the requirement for their involvement in this trust – they’re not just gonna be handed a bunch of money or properties or wealth or my death benefit from those life insurance policies when I pass; they have to be qualified beneficiaries of our trust. How I’ve done that is their life insurance policies were purchased by me and put into the trust, and they have a certain requirement as far as the amount of money that has to be put back into them every month – or actually every year, but they have to set it aside every month. It really comes as $5,000/year per child.

Well, that $5,000 equals out to about between $416-$417 a month that they would have to save. The requirement is they have to set aside that amount, $5,000/year or 10% of their income, whichever is greater. That is what makes them a qualified beneficiary, and that has to be done for the rest of their life.

When my kids heard that, it was kind of a shock to them, because when you think about that, $416-$417/month is a lot of money for anybody, not so much kids just now starting jobs and starting life. You can look at the majority of the population; if you tell them “You’ve gotta save $417/month”, that can be difficult for many people. But they had to look at their expenses and their income and decide that it was worth it.

One of my children, my 17-year-old asked me “Why can’t I just save that for myself and just put it in my own bank account and not be involved?” Well, let’s take a look at that. We actually had Gary on a Zoom call, my insurance guy, who did this whole introduction with us; he was there to witness this conversation… And we did the numbers, and that $416 and change actually ended up being somewhere in the range of about $105,000 over a 21-year window. We used 21 years because that’s when I could potentially retire according to the way that the trust is written, at 65. So 21 years from now they will have saved $105,000 in the principal part of it. Any interest that they’d generate, of course, through any bank accounts is gonna be minimal, as we know… And then you throw in inflation.

I started talking with them about the inflation and where the dollar’s value will be 21 years from now, and every year till then, even if it maintains just the 2% that that government claims it is – which we all know it’s higher than that – they have lost money by leaving it in that bank account, because there’s no bank account outpacing inflation.

Well, then we turned it to Gary, and we said “Gary, can you take a look at them doing $5,000/year into this policy, and what that compound effect will be with that interest growing the cash value of that, and tell me what that would look like 21 years from now?” He went and he scrolled down, and it was over $600,000 per policy, just for those $5,000 policies. That was a  very big a-ha moment for the kids, when they realized it’s stretch, it will be tough to set aside $414-$417/month, but then they realized what the power is behind that – it was just a game-changer for them. If I was gonna have them, say, add that all up, it was over 2.4 million dollars that they would have in cash value between just those four children. I said “So that’s the shared policies. Now, I’m settings aside tens of thousands of dollars every year, so does your mom, so can you imagine what those cash values will be? And then we’re also looking at buying multiple different investments every year with these family meetings, as far as real estate investments is concerned, lending investments are concerned, and other types of things; possibly buying notes, or whatever else. Can you imagine what that will do?”

And then you’ve got the generation below us required to bring in $5,000/year, or 10% of their income, whichever is greater, to continue to build this up. So we as an entire family are working together for one central goal; nobody ever gets to touch the principal though. I don’t know how the legals work on all that, my attorney is still working on that, but the principal always stays intact. When the time to retire comes, they’ll only have access to interest that is created, provided they have participated in not only the monetary building of it – the 5k/year or 10%, whichever is greater – and we have to have a monthly meeting to reconcile that, and we’re already doing those, but they also have to be part of the board who votes.

Then once it gets bigger, a couple generations in they’re gonna probably have to designate somebody to vote as a proxy, as a board member, because a board can only have so many people or it’ll become just a madhouse. So there’s gonna be a heavy structure for this, and my belief is if we can start that process now, with everybody I work with – and my goal is to have this built, have it arranged, have it created with all the legal necessity; it will be a bloodline, dynasty-style trust, to keep it within the bloodline, and if I can get everybody I work with to do this, can you imagine what the world’s landscape will look like for generations to come, when right now we have nothing but fear of what the next generation will bring, because they’re not being taught anything but theory; there’s no real practical application of any subject that I’m seeing in the schools today. But if we can employ this -and I work with thousands of investors – my goal is to take it to all  of them and say “Here you go. Just talk to my attorney, let him scratch out the name, put yours in, and pay him whatever that little fee is, and let’s just move forward. Let’s change the world’s landscape financially.”

Theo Hicks: That’s a wonderful strategy, and you went into extreme detail on exactly what one needs to do to get started, with numbers and everything. A couple follow-up questions –  you mentioned family meetings; is that something that you do on a weekly basis?

Aaron Chapman: At least once a month. Now, we’ve got four kids; one’s a sixth grade, one’s a senior in high school, and two are working, one lives outside the home – it makes it tough to get everybody on the same page; you can’t always get all parties there at once, so we try and have at least once a month. It’s either a Sunday or a Monday, because that’s the days my son is off work. He works for FedEx, loading airplanes, which I’m just damn proud of him; he’s doing very, very well… And we’re able to get us all together and I’m trying to schedule calls  ahead of time with people that have investment opportunities out there, so they can interview them, as we meet about the goals coming forth for the next month, and where we sit today as our current structure – I’m also working that out as part of the package to be handed out, as “Here’s how the meeting structure will be.” We’re figuring that out right now.

Right now if we just get together, that’s a good thing. We get to talk about what we want to have happen, and then we’re gonna reconcile the income that we have, and we’re gonna reconcile the assets that we have now, what are the expenses… We’re gonna treat like a full-on business, and all my income right now is really what’s fueling that business, because I need to fuel it as much as I possibly can, because I’m the one retiring first. And I was planning on doing that anyway, I was planning on creating that for myself anyway, so by 65 I could question whether or not I wanted to really hang up my headset and not be involved in this anymore, but what I’ve found is I don’t see me quitting doing what I do. I just keep evolving this into being further and further hands-off on the nuts and bolts of my day-to-day, but more on the creation of the mindset for those who I work with. That’s what gets me excited about what I do and gets me to the office every single day, is the lives that we’re changing every time I get on the phone.

So the way I figured — I don’t know that I’m gonna retire. I figured “If I’m coming to the grave, I’m coming in hot and I’m gonna work all the way through…” But I’m gonna use the majority of my energy to keep fueling the future, so when I do decide to stop, I will have an enormous amount that will continue to create the daily living expenses to be handled and then whatever it is I wanna do, and I don’t ever look to take more than half of whatever interest is generated by the trust. That’s what I wanna be able to live off of, and very comfortably off of half… So when my children reach that same age, they can only take half of whatever is being generated at their time, so the other is left there to keep building it. They have to be able to divide that equally amongst them, so each will only get an eighth of whatever the interest is… And then of course when they pass, and when I pass, our deaths’ benefit is gonna come and fuel even more, put a big chunk in there to compensate for that half of interest that did not grow because we were living off of that.

We also don’t wanna take it out just to take it out. If I don’t the half interest, I leave it in there, keep it growing there; why take the money if I don’t need it, right?

Theo Hicks: Exactly. What age do you think people should start doing this? Not for them, but for their kids.

Aaron Chapman: I don’t think there’s a reason that they shouldn’t start now. It’s probably something you have to talk to your life insurance specialist. I always recommend Gary Pinkerton over at Paradigm Life, for people to talk to him, because he’s just a very intelligent man and he cares a lot… But he would be able to possibly help in that answer, too… But the earliest you could put life insurance on somebody… I’m thinking — if I knew about this before, I would have put $1,000 on each of them when they were born, if I could. Well, if I’d been paying on that, now that my son is 21, can you imagine what would be there right now in cash value? Because $1,000 does not require a lot of upkeep. That’s a $1,000 policy as your first purchase, and with these infinite banking type policies probably $900 would have been available to use at that time, so I never would have lost anything. You just have to pay the premiums every year, which is probably pennies compared to what I’m paying now, and it would have made all the difference in the world.

So I would say anybody who’s potentially thinking whatsoever about legacy, look at this, because the money is still available to you [unintelligible [00:18:23].20] Investigate it, understand it. I’m not a life insurance salesman, I don’t know enough about it to say what it will do. I just am going from the perspective of “This is what I’m doing” and “This is why I’m excited.” I’m literally spitting in the phone when I’m telling people about this because of how excited I get about it, and the potential for the future.

In fact, it was one of the most awesome things I had this week – I got up early one morning and I was working out, and I got a text from Gary at like [5:30] in the morning. He’s over on the East Coast. And he said something — I don’t have my phone in front of me, because I put it away when I’m on these podcasts, but he said something to the effect of “I wish we all could have somebody so young asking such intelligent questions. You should be very proud.” And as I looked up, he shot me a screenshot of his phone where we had had a family meeting the night before, and we were talking about how to manage multiple properties, and I had mentioned how Gary has quite a few, and there was another client that my daughter brought up that also has quite a few, who’s a friend of the family… And I said, “Well, you guys should reach out to them, talk to them. We’ll set up a meeting where you can talk to them and ask them about their structure and how they go about managing this, so we have a better idea, so we’re not having to reinvent the wheel, just take the best from others.” And literally, my 12-year-old Maggie texted Gary right there saying “Sorry it’s late, but I have some questions for you” and hammered out all the questions out to him.

One, I thought it was just absolutely awesome that she’d be confident enough in Gary to ask that question… A 12-year-old, for crap’s sake. And then for Gary to be gracious enough to answer her questions, and then to forward it on to me. It literally brought  a tear to my eye that my children are thinking that way even at 12 years old. And what she asked was extremely intelligent, and it tells me that there is a good solid chance my legacy will not only be secure, but it will endure.

Theo Hicks: Exactly. The key to this strategy is the people aspect, and making sure that you’re – training is not the right word, but maybe it is – your siblings and your significant other to think in the long-term… Because it definitely is a long-term strategy, which is probably why most people are hesitant of doing it, because you’re not gonna see that — as you mentioned when you were giving examples, you’re not gonna see that massive increase in value for decades… But just thinking about more than just yourself, thinking about your children, your grandchildren, their grandchildren, and setting them up for success, but also making sure they actually have to earn it, rather than just giving it away to them, which is kind of the key to this entire strategy.

Aaron Chapman: Exactly. And one of the things about it that makes it easier to endure the long haul that this is – this is definitely a marathon approach – is the monthly meetings, or bi-weekly, whatever timeframe you set that up… Is to go back and review where you’re at today. One, it’s a solid bond-builder with your kids. People talk about the time with their children, whether it’s out playing catch, or whatever – I get all that; you definitely want that. But talk about an awesome relationship is to let your kids into your financial mind is a big deal… And I open up the books. They look at all, they get to see what I make, they get to see what’s going on… And the really interesting thing about cracking open the books of what my income is, was my kids were like “Well, why do we live in this house? Why don’t we have a little mansion, or something like that?” And I started cracking up and said “Because I’m not gonna pay that kind of money so you get to break everything in that. You guys are gonna break everything here and I’ll move into the mansion later.”

So it’s just kind of interesting the dynamic that comes when you start cracking open those books, but then that also makes them conscious about the saving aspect of it, because they get to look at the future. When you have a person like Gary there to illustrate what that future looks like, and we can spitball that future together, your spending habits become better. You decide “Do we really wanna go to dinner tonight as a family, or do we wanna eat in?” and we wanna look at our portfolio and talk about that. Now, it’s not sexy, of course. You definitely wanna set aside and budget going out and spending that time together as a family, going to Disneyland, but it’s not so impulsive anymore; it changes the impulsiveness… Because humans are really subject to several things – we’re subject to impulse, because we’ll just do crazy things on a whim. We’re also subject to habit, and it was written by Og Mandino that you need to create good habits and become their slave. This is one of those good habits. It’s not only going to really secure the impulse part of you, that human nature and suppress that more because you have this kind of habit, but now you have created the habit and you do become a slave to good habits, because you’re gonna have a habit of some sort; you might as well make it a healthy habit, whether it be working out, and also good financial habits, and you create those with your children, too. That also helps you to set those goals and stretch because it’s easier to stretch on a goal when you’ve got multiple people pulling for the same goal. It dominoes into other things. “What am I reading? Why am I reading that?” and I have my children read the same thing, so we’re all speaking on the same plain and have a very similar language when it comes to these things.

So it’s multi-faceted. It’s not just about the trust, it’s not just about the future. It also helps relationships, it sets good habits, and it puts us in a bond that really is different than any other opportunity you’re ever gonna have with your children as far as bond building, because this will endure forever. It’s not gonna be “Remember those days, dad, when we used to have time to go play basketball together?” It’s not like this is gonna go away. This is gonna be an enduring meeting that we’re gonna have throughout our entire lives, monthly. With technology being what it is, we’re gonna have the meeting — if we’re on different sides of the earth we can have the meeting together, so it’s a beautiful thing.

Theo Hicks: Well, Aaron, this is an amazing Skillset Sunday. This is a great skill that literally anyone can apply to their lives, even if they really don’t have a family and they don’t plan on having a family, they can still apply this with themselves or their significant other, themselves and their friends… Also it sounds like it’s best applied to the family.

Just to kind of summarize what we went over – it was definitely a lot, so relisten to this podcast and apply these lessons. Essentially, what you’re doing is you’re setting up a trust, all of your assets go into this trust, and you are using the infinite banking life insurance to fuel this trust. You’ve got six policies, one policy for each of your family, which you use to actually fund your investments, but the key here is that your kids have to actually be qualified to earn that money, and right now that qualification is $5,000/year or 10% of their income, whichever is higher. That’s for the rest of their lives. Even when they get to the point where they can access those funds, they’re only touching the interest, while that principle remains to continue to grow that legacy.

You talked about the family meetings that occur once a month, and the multiple benefits of that. The biggest one, at least for me, was that bond you get with your family that you can’t really get any other ways… Plus I’m sure it’s nice to have super-smart kids that are asking really smart questions. Then you mentioned during these meetings — you’re updating it and changing it, but it sounds like you talk about what’s currently going on financially for everyone, and it’s an opportunity for your kids to learn and grow.

Aaron Chapman: Yeah, you’ve pretty much kept the whole thing. Now, there’s other little strategies we’re using within it, so that is the big, huge overview – the ability to take those funds and ensure you’re putting it somewhere, and ensure that you’ve got the next purchase coming up, and where to borrow it… We’re still learning all those things; we’ve found a pretty good system on that that I’d love to share with folks when we get that opportunity to have those one-on-one conversations.

The other part of it is you don’t have to think of this, you don’t have to figure this out. I’m doing it now. Because like I’ve just said before, the good judgment comes from experience, and experience comes from bad judgment. I am exercising the judgment, albeit I pray that it’s all good judgment, but I’m sure we’re gonna step on something, I’m sure we’re gonna make a mistake, and we’re gonna learn from it, and I’m gonna use that as a way to help build this out, so people have an outline, a format to start doing this for themselves. You don’t have to reinvent this wheel, let me get the wheel done. Let me get it built.

I’m paying my  attorneys and others to get this all completely done to where I can hand this off to folks when I’m working with them, and help them build their investment business and their legacy all together, because I am very concerned about the future generations coming up… And I want my children to be secure, and I want everybody else to be secure. There’s no reason why we shouldn’t be. I really think what it boils down to is the majority of people don’t have enough faith in themselves and their capability, but once we’ve built the framework, and you can literally start with baby steps and see how that future’s gonna be, I think that there can be just a little bit more faith in what their future is gonna be than what they have right now.

Theo Hicks: Exactly. Again, I appreciate you coming on the show. Very informative and also very inspiring. Make sure you check out aaronbchapman.com to learn more about this strategy. Aaron, have a best ever day, and we’ll talk to you soon.

Aaron Chapman: Much appreciated, Theo.


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