Bruce will be talking a lot about asset protection and tax mitigation through trusts. He and his team not only follow their advice, they help others set up the proper structures in their investing businesses too. There are many different trusts, which one is best for real estate investors? Learn that and more in this episode! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“I can’t say they won’t sue you, but I can say they won’t be able to collect from you” – Bruce Mack
Bruce Mack Real Estate Background:
- Owner and founder of Platinum Financing Group
- Helps business owners achieve financial freedom and helps them find the right funding option for their business
- Has been involved with over $92,000,000 in transactions
- Based in Woodland Hills, CA
- Say hi to him at https://www.platinumfinancinggroup.com/
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TRANSCRIPTION
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff.
With us today, Bruce Mack. How are you doing, Bruce?
Bruce Mack: Fantastic. Thanks for asking.
Joe Fairless: My pleasure. I wanna know how you’re doing, so that we set the stage right out of the gate. A little bit about Bruce – he is the owner and founder of Platinum Financing Group. He helps business owners achieve financial freedom and helps them find the right funding option for their own business. He’s been involved in over 92 million dollars in transactions. He’s based in Woodland Hills, California. With that being said, Bruce, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Bruce Mack: Sure. Again, licensed financial advisor. I am an active and have been an active real estate investor [unintelligible [00:02:58].03] period of time. I bought, rehabbed and flipped 160 properties. We had three teams, 28 employees, and we were going like a house of fire. So I understand what it is when it comes to real estate investing, and it’s really my life’s mission to help people from a financial perspective not only attain their goals, but to protect their assets… Because there are so many people that are predatory, and unfortunately, I’m seeing about 50% of the folks that are real estate investors, at one point in time or another, they’re getting involved with a lawsuit from somebody who wanted to take the hard work that they worked so hard for and put it into their backpocket, unfortunate as it may be.
Joe Fairless: So how do you do that?
Bruce Mack: Great question. I’ve been on the quest for the Holy Grail of trusts for decades, and I’ve been involved with trusts and working in the capacity to see what’s the absolute best trust that’s out there. And what I came to find out was that entry-level trust is a living trust, and you may have heard of it who are on this call, and you may actually have a living trust; that’s a non-grantor trust, and it is good for two reasons. Reason number one – for probate avoidance, and it does a good job at that. Reason number two, for directing from the hereafter where you want your assets to go, who you want your heirs to be. But unfortunately, when it comes to asset protection, there isn’t any, because it is a grantor lease, and it doesn’t have the type of clauses that it needs to and provisions in it for asset protection… And certainly, the other ideal aspect of a properly constructed trust like the one that we have, which is a proprietary and copyrighted document, there is not tax mitigation capabilities or components to that trust as well.
So further research took me to finding about land trusts, which many of you may have heard of, and potentially even have some of your properties in. The land trust idea is not a bad idea. It’s a glorified [unintelligible [00:05:16].21] and it can help. The idea of a land trust is to take the property, and therefore at the recorder’s office your name is not on it, therefore if a predatory lawyer is trying to find you, ideally they can’t, because you’re not on title. However, unfortunately, good lawyers do good research, and they do many more things other than utilizing, say, LexisNexis, and these types of asset search kinds of tools, and they’re gonna find you, they’re gonna tie you to the property, and unfortunately they’re gonna go after you..
The third thing that I’ve also seen is a lot of people mistakenly think that an LLC or a one LLC for one property is a great idea, because you’re gonna contain the virus. Usually though, at the end of the day I come to find out that most LLCs are what we call tightly-held or closely-held entities. They’re held by you, you and a partner, or you, your partner and your wife, which may be your partner as well. But the case is that the unfortunate reality is that the alter-ego approach to piercing the corporate veil can be invoked, and once that is proved to be the case, that you are literally hiding behind the corporate shield and it was really you masquerading as you, as crazy as this may sound, if that corporate veil can be pierced, then the assets can be gotten, and this fallacy of one asset per one entity invokes the ability to shield all of your assets is also quite nonsensical… Because they can’t go after other entities; they can come after you for future wages and earnings, and this can all become a horrible, horrible scenario.
I know this because I myself was sued for $175,000; it was an unfortunate situation, and it just couldn’t have and/or wouldn’t have happened if I had the type of trust that I am aware of, and that we work with the real estate clients on a day-to-day basis to protect their assets. So the component of having a trust absolutely negates, iron-clad, the ability for a lien or a judgment to attach to you at any time whatsoever. I can’t say that they’re not gonna sue you, but I can say that they’re not going to be able to collect from you, and/or invade the trust to attach that asset and take that asset away from you, which is a bold statement and true with the provisions that we have and in the type of trust.
And then there’s the other component, and actually I wanted to take a breath and ask you, Joe – did you wanna jump in for a second? Because I wanted to transition to the other aspect of the trust, which is the tax mitigation position, and the stand of the information that is relative to that.
Joe Fairless: What’s the name of this trust that you’re referring to?
Bruce Mack: We call it the Titanium Asset Protection Trust.
Joe Fairless: What a name! The Titanium Asset Protection Trust. Okay, so I’m not a lawyer. I’m not an asset protection lawyer. Are you a lawyer?
Bruce Mack: I’m not a lawyer. I’m a licensed financial advisor.
Joe Fairless: Okay, you’re a licensed financial advisor.
Bruce Mack: Yes.
Joe Fairless: What would a typical asset protection lawyer call your Titanium Asset Protection Trust?
Bruce Mack: My gosh. They may say a bunch of things, but there are a multitude of provisions that are in there, and the trust was granted 58 copyrights. So they might say some nasty words because they cannot copyright the trust, and the copyrights were granted going back to 1999. There are [unintelligible [00:09:18].05] provisions, non-grantor provisions, [unintelligible [00:09:21].01] provisions and a number of other provisions that are in the trust that give it the absolute impenetrable strength that it’s got, along with the fact that the IRS code 643 has been woven into the fabric of the trust, and as such there are huge tax advantages… And there’s an irrevocability clause I should also mention. That irrevocability clause is one of the pieces that adds the tensile strength of the ability to crack into it. But irrevocability does not mean that you can’t modify it, meaning should you wish to change the beneficiaries, and/or change trustees at any time, you can, with the stroke of a pen. But the other pieces, that IRS 643 has been woven into the fabric of the trust, which offers huge tax advantages for investors.
Joe Fairless: So what approach would you give listeners who are hearing this and they’re like “Wow, this sounds great… But I’m not a lawyer. I don’t know how to validate this and make sure that it is what it’s intended to do, or what Bruce is saying.” Because if a lawyer looks at it, they’re going to see all these copyrights, and they may or may not be able to give advice on “Yes, this is the way to go.” Is that the best way for someone to do their due diligence on if this is right for them, to just have their lawyer look at it?
Bruce Mack: You know, that’s a question I get asked all the time. We went one step further. The law firm that I work with has an opinion letter; we’re delighted to furnish that to any individual when we do a consult with them. And in the opinion letter it also says if there was any issues, they’re willing to take on and shoulder the defense. So that 19-odd years with 30,000 trust clients, not having had, with all the tax preparers that we work with, having had one audit with the trust, speaks volumes as to the integrity and as to the viability that this trust is really something special that the law firm is willing to put the reputation in and the money where their mouth is.
Joe Fairless: And you were able to do that by having them draft if, and then they approved it as a result of them working with you and drafting it [unintelligible [00:11:49].26]
Bruce Mack: Exactly. I have a distribution agreement with the law firm. Most people know that I cannot remarket and sell – nor would I – law work. That’s a big no-no; I could get a major slap on the wrists, and I don’t. Rather, what I am involved with is marketing and selling of the copyrights, which is a totally permissible act. And as such, I consult with potential clients, I go through a presentation, talk to them about the different components of the trust, including the tax advantage components, and then we move forward from there, get the trust paid for, and then the law firm actually drafts the trust… And then we get them with one of our tax professionals. And we’ve got enrolled agents with the IRS on staff, tax attorneys, we have CPAs… We have a plethora of people, and then those people actually do the day-to-day consulting with the client for one full year if they have any questions, along with doing the tax work; doing the 1040, the 1041, or whatever the other necessary tax work is for the client. So it’s all-inclusive for the client.
Joe Fairless: Yeah, that sounds really intriguing… And you’ve obviously talked about this before, but I’m glad that you talked about the other types of trusts – the living trust, the land trust, and the LLC, and the pros and cons for each of those… And I’m sure a lot of the LLC owners have had a wake-up call for the easy-to-pierce-the-corporate-veil part, because it absolutely it is easy to pierce that corporate veil. There’s all sorts of things that you are likely doing that would allow someone to pierce that corporate veil.
Bruce Mack: I couldn’t agree with you more, Joe… Including, unfortunately — I’ve taken a look at tons of LLCs; about 50% of them are easily pierceable, even without going into this whole ultra-ego and facade scenario, just on the fact that they’re not exercising the correct corporate governance of the LLC, which is a requirement, to keep your records and keep them up to date, and have your minutes, and this and that, and so on and so forth. They’re not doing it, and boom – you’re going to court and you don’t have your LLC up to snuff, you’re done.
Joe Fairless: What else that you work on would be relevant for us to talk about?
Bruce Mack: Well, briefly let me talk about the tax implications, and then I’ll scoot over to that other piece. There’s a tax component which is huge to the trust, and that’s for tax deferral. Most of us are getting hit with long-term and short-term capital gains because we may be flippers, and even if we’re a buy and hold, at some point in time we wanna sell. And usually, most people these days are either contemplating taking [unintelligible [00:14:46].06] and getting the long or short-term capital gains, or they’re doing a 1031 exchange and they’re trying to defer it out, but that’s unfortunately a hamster on a treadmill type of an approach, because you have to stay on it, otherwise you get hit with the tax. Ours is very different, because of the perpetuitous tax deferral component.
We don’t use 1031 exchanges, and/or need to. And when you’re selling properties, we have the ability – because of IRS 643 – to defer out the taxes, as well as the rental and lease income. This is a huge component, guys… In perpetuity. In perpetuity means that the tax does not become due until the trust distributes, and the trust distributes 21 years after the last of the beneficiary’s and the beneficiary’s heirs decease. So I am talking about a huge opportunity for real estate investors to be able to have more access to more cash, because on an annualized basis they’re paying less in tax, because it’s deferred out in perpetuity. And this is the other part of the value proposition of the trust.
But moving from there, we also have our other division. We really have two divisions – we have our trust division and we have our financing division. Our financing division specializes in doing unique types of financing. One of them would be we have a revolving lines of credit program, which features 0% APR for up to 21 months, and it’s a stated program, and there’s no collateralization, so you don’t need to tie up a property or do cross-collateralization.
We have our term loan program, which [unintelligible [00:16:37].06] anywhere from $1,000 to $50,000 and you can stack those; it’s FICO-driven product. Again, it’s not asset-based or asset-driven program.
Then we also have an IRA and 401K rollover program that is very different than your traditional self-directed [unintelligible [00:16:55].19] capabilities. We have checkbook capabilities, but we have the ability because it is a hybrid of one of those programs, where the person does not have the self-dealing restrictions that they normally have imposed on them with their traditional IRA or 401K rollover. You can work with your family, and likewise, you can also do and take on recourse loans with this type of structure with our business directed retirement account… Which again, is a huge win, because in a normal self-directed environment you can only take on a non-recourse loan, and many, many banks — there’s only a few out there that will even do non-recourse loans, and if they do, they’re at higher APRs, as well as the fact that they are also unfortunately only gonna lend you about 50% of value.
So this is another huge win. If you have an IRA or a 401K and it’s rollable, or it’s been rolled to one of the third-party administrators, and you would like to be able to free up that money to be able to use the money for any business purpose – not just highly defined ones like real estate or stocks and bonds, but any business purpose – then this is something else that might be of interest for us to have a discussion on, because it’s a great program and it’s worked for many, many of our clients.
Joe Fairless: What’s the downside to it, relative to the other programs that’s typically used?
Bruce Mack: There really isn’t any downside to it, other than getting it set up. We have our [unintelligible [00:18:30].01] attorney, and they do have checkbook capabilities… So there’s really no downside. There’s a $110 monthly administration cost, but you’re gonna have an administration cost in any event if you’ve got a self-directed. They usually take a percentage of how much you’ve got in there, on annualized fees… So I’m scratching my head on that one in order to come up with a negative. I’d like to, but I can’t, and I haven’t for years, so we keep utilizing and going back to the [unintelligible [00:19:01].14] phenomenal, phenomenal program for clients.
Joe Fairless: Well, taking a step back and just assessing based on your overall experience as a advisor, as well as an investor, what is your best real estate investing advice ever?
Bruce Mack: Wow… What’s my best real estate investing advice ever… To take your deals if you’re a newer investor – take all of your deals to not one, but two people that you highly respect and trust, that are more seasoned real estate investors, and have them tell you why they don’t like the deal, or what is it in the deal that might not work, so that you’re fully apprised and assessed of what it is that you’re looking at, and you don’t have what I would call the financial stardust in your eyes, and are going into the deal without knowing what the potential downsides are. If you do that and you hear those negatives and you flesh them out and you still like the deal, then by all means, proceed forward with the deal.
Joe Fairless: Wonderful advice. I hadn’t heard that. I love that approach. The taking it to two people – I was like “Okay…”, and have them look at the deal… No, no, no. You said “Why they don’t like the deal, and why the deal might not work.” I love framing it that way. Thanks for sharing that.
Bruce Mack: Absolutely.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Bruce Mack: Alright, let’s rock!
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Break: [00:20:40].08] to [00:21:41].13]
Joe Fairless: Best ever book you’ve recently read?
Bruce Mack: Oh, my gosh… So many. One-Minute Manager.
Joe Fairless: What’s a mistake you’ve made in business?
Bruce Mack: Not having a trust and protecting my assets, because I got my butt sued, and boy, did it hurt financially.
Joe Fairless: Did you lose that 175k?
Bruce Mack: I lost the 175k.
Joe Fairless: What happened?
Bruce Mack: I was doing a lot of pre-foreclosures. I was in the Vegas Metroplex. I had a door-knocker who actually was a previous client, who got an equity split and he was out there, pounding the pavement. We found a guy who was a couple weeks away from losing his house; he brought him over to the office, we signed the paperwork, did the tabletop closing… Everything was great, and then I got sued. In the points and authorities the guy alleged – are you ready for this?
Joe Fairless: Yeah…
Bruce Mack: That he was kidnapped, and he was incarcerated and was being held at our office under duress, and that he was also drunk as a skunk.
Joe Fairless: Huh.
Bruce Mack: I had to obligate myself during this time to keep the mortgage payments current, because of course it would have flipped into foreclosure and then Lord knows, it would have been a multi-million-dollar suit… I had to pay the gardener, I had to pay the pool guy, I had to pay the utilities, and I had to deal with this trauma which was the mental anguish of this was worse than the financial anguish, which would have not been there had I had a trust, and this whole thing could have gone away.
Joe Fairless: Hm. What’s the best ever deal you’ve done?
Bruce Mack: Oh, my gosh… Other than some apartment buildings where I was able to receive in excess of a half a million dollars, two very quick deals come to mind. One was a design build… When I was living in Las Vegas I bought the dirt, designed the house (it was a 7,500 sq.ft. house) and did a turnkey for 1.2 million dollars, lived in the house for a couple of years and sold it for 3.4. So it was a really good payday.
And from rehab and flips, on an equity split from a distressed homeowner we turned over $150,000 upon a property, and were able to pay out similarly to the other party, as well as save the guy’s bacon from foreclosure.
Joe Fairless: Best ever way you like to give back to the community?
Bruce Mack: By helping people and educating them, so that they truly can experience financial freedom in all ways, shapes and forms.
Joe Fairless: Best ever way the listeners can get in touch with you and learn more about what you’re doing.
Bruce Mack: Sure. You can email me, bruce@platinumtrustgroup.com. I’m fearful, but I love to talk to people. And should you wish to, I’ll give you my direct line. Please use it, but I also like to put a caveat – please don’t abuse it. My direct line is 702-371-2345. Likely, your best solution is to get onto platinumtrustgroup.com and book an appointment for a complementary consultation. I’m delighted to sit down and learn about you, learn about your situation and see how we can save your assets, and also help you potentially with it some tax advantages that we’re aware of, that we would like to tell you about.
Joe Fairless: Well, Bruce, thank you for sharing what you and your team have come up with. The Titanium Asset Protection Trust – very intriguing. And also talking through the pros and cons for the other trusts or other entity structures, as well as the tax benefits that you mentioned, and then the best ever advice – regardless of if you’re looking for asset protection, if you’re a real estate investor, take the deals to two people who are more seasoned and ask them what they don’t like about them, what in the deal might not work. That’s a great way to have a litmus test for your deals built into it.
Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.
Bruce Mack: Thanks so much, Joe, and I really appreciate the opportunity to come on the show today.
