Brian Bradley (00:03:19):

And I got really tired of seeing people losing everything after the fact when we could have done something better beforehand to help preserve their wealth. We just really are living in a fascinating time right now, we’re seeing laws and policies drastically change every day, people getting sued and being sued that normally wouldn’t be getting sued. So I just realized protecting your assets, your wealth and your legacy and your retirement is more important now than ever. And a lot of people just have these false sense of security. And I feel where it comes from, this false sense, is people thinking that they don’t need to do anything and just ride lady luck, or that they think that their insurance will always cover them, which it won’t.

Brian Bradley (00:03:59):

It’s important to have. You need good insurance, but we’re getting more and more clients with claims that are just radically in excess of their insurance coverage. And especially like real estate, I have some clients where there’s this Jersey doctor, just a California doctor, owns a Jersey property, just got sued for a wrongful death suit because he ended up renting out his place to a gang member unknown, and there was a party fight broke out, someone got shot and killed. So it’s things like that you just can’t protect yourself from with insurance, to where it’s like, “Okay, here’s a doomsday lawsuit, then what?”

Brian Bradley (00:04:31):

Or the next problem, people forget to level up their insurance as their wealth grows, or they think an umbrella policy is going to cover them and just cover the rest of it, and that’s not what it does, it doesn’t provide that, it just provides excess extra coverage with the same loopholes and exit strategies. Or a big one that we’re going to break down is, people think that their family estate plan known as a revocable living trust will protect them, which they can’t, they aren’t designed to, they only come into effect when you die to avoid probates. Or a really big conception that I know we’re going to break down a lot here for your listeners is the LLC.

Brian Bradley (00:05:06):

They think that it’s a one-stop silver bullet, but they missed a first word, first letter limited, they tell you straight up in the name. I see a lot of these, and I know we’re going to break all these down. And so being in the legal system, the sad thing is that, if you look around, the legal system’s broken, we’re just a Sue Happy Nirvana. And so what we do is we just provide peace of mind and lifestyle preservation and really focus on just how collectable you are. And within our network, we’re now protecting collectively over $5 billion worth of assets, and I represent clients nationally.

Robert Leonard (00:05:39):

A lot of people listening to the show today are new investors, or maybe not even investors yet, they just want to become investors or trying to learn how. They might be thinking, “Well, I don’t have assets. I don’t really have much to protect yet.” So when should a beginning investor start to think about asset protection? When does it start to become important? And how should they start thinking about it when they’re very new to real estate?

Brian Bradley (00:06:03):

Yeah. That’s a great question. I think you need to think about it just like in any business, you need to start thinking about protecting what you’re going to have from the moment you decide, “Hey, I’m going to start a business. Hey, I’m going to go buy something,” that’s when problems start. And especially when you’re new and you’re beginning, that’s when most of the problems start, and when you’re getting sued and you’re greenhorn and you’re just investing in real estate and you’re adding liability, one lawsuit like a mold issue, you’re going to be completely wiped out or the Jersey issue, or if you’re going into like a short-term rental.

Brian Bradley (00:06:35):

There’s this case in Louisiana, a judgment came down where the landlord was renting not to a short-term renter, a short-term renter was getting plowed all day long, most people party in Airbnb stuff anyways. And the guy dumb drunk decided to do what dumb drunks do. He was pounding bottles of whiskey all day long at 2:00 in the morning, decided to run out the back balcony. He did a head dive and a shallow pond on the property, broke neck, became a paraplegic, sued the owner and got an $11 million judgment on it. And so that can be you from the first property.

Brian Bradley (00:07:07):

And so I always say, if you’re, if you’re going to start investing in something, you, first thing you start thinking about your levels of protection, but don’t go for the Taj Mahal, you’re not there yet. So you start different foundation levels, be like LLCs and insurance. Then you level up as you grow, limited partnership. Then you level up as you grow to ask the protection trust. And so, as you’re starting out, you just need to realize, you may not think that you’re wealthy, but the person renting your property does.

Robert Leonard (00:07:34):

Let’s talk about LLCs because one of the most common things that I see new investors say when they’re getting into real estate is that they need an LLC to start investing. But when you actually go to start investing with an LLC, especially if you’re new, you usually start with smaller properties, you’re not getting into that commercial debt yet. So you can’t usually get a loan to an LLC. So you run into this dynamic of, “I want the protection of an LLC, but I can’t get financing to an LLC. So what do I do?” So to talk to us a bit about LLCs and how investing in real estate for new investors and how to think about it.

Brian Bradley (00:08:04):

Yeah. I’ll break down the positives of LLCs first, and then we can do some of the stuff you’re not being told about them. But the first part of it like funding, I would generally say, get the funding in your own personal name, you’re going to get a better rate. And then we just transfer it out of your personal name into the LLC later on. But when it comes to asset protection, like I said, we have different layers. I’m from the mountains, I’m from Lake Tahoe, so we get lots of snow. I live in Oregon now, we have really cold dampness. And so we just learn how to dress in layers.

Brian Bradley (00:08:33):

The first layer as your base layer is generally going to be made from merino wool and it sits on your skin, and this is going to be your LLC. And so the LLC, the limit liability company is a great first layer, and it’s the entry place to start, it’s the foundation, along with insurance. We then build from here as you grow and your risk grows. Now, LLCs are great asset holding companies and they have some charging order protections that don’t allow the creditor, the person suing you to seize that asset of that entity. They limit a creditor’s access to a a charge against you, the member or the partner of that LLC, to the interest only in it.

Brian Bradley (00:09:15):

In theory, because then you’re piercing the corporate veil and we’ll get into why their weak after this. They’re great for real estate for holding the real estate in and just getting it out of your personal name. Something is better than nothing. And so we place things in them that have keys and can go boom, things that can hurt people and things that you need to go get insurance for, like rental properties, airplanes, yachts, things like that. You can place all your risky assets into an LLC, but you want to separate asset holdings from operations and operate your business dealings like your contracting out of another LLC called an operating company.

Brian Bradley (00:09:52):

So if you’re just considering this first entry level protection, maybe you’re just starting out. You’re new to your investing world, your net worth is under $500,000 and you have zero to two units, this is where you start. But by using LLCs, what you’re doing is limiting some of your personal liability and separating ownership use and control. And if you’re trying to just protect a few assets and monies limited and tight right now, the LLC and insurance is a great place to start. We just have a lot of misconceptions about them that you’re just not told.

Robert Leonard (00:10:24):

You mentioned that you could purchase the property in your personal name and then just transfer it to an LLC. Are you talking about doing a quick claim deed?

Brian Bradley (00:10:31):

Any type of deed, basically, like quick claim deed, warranty deed. We just deed it out of your personal name. The mortgage will stay in your name and then we just transfer the title out of your name into the LLC.

Robert Leonard (00:10:41):

When you do that, I’ve heard that being a very common approach, I’ve even done it myself, are you worried about the due-on-sale clause that a lot of mortgages have?

Brian Bradley (00:10:49):

Never. I think that’s just a salesmanship for people to go and try to sell land trust at the end of the day. So we have for decades over 3000 clients, most of my clients have hundreds of millions of dollars. We’re dealing with over probably close to six billion worth of real estate we have to deal with over decades with hundreds of attorneys in our network. No one’s ever seen a bank call a note due simply because you transferred the asset out of your personal name into your LLC. I think I’ve only had two conversations with the bank.

Brian Bradley (00:11:17):

And same with, I talked to all of our affiliate attorneys, and this is hundreds in every state, no one’s ever seen it. No one’s ever can even find a case law of it happening because the banks aren’t going to rock the boat. If you’re paying your mortgage and you’re just transferring it from your name into your LLC, they may just ask a question, “Hey, what are you doing?” “Putting it in my LLC for asset protection purposes.” The conversation generally stops there if they’re even going to call. Where an issue does happen is, if you did that transfer, the bank notices it, and guess what? You’re not paying your mortgage.

Brian Bradley (00:11:47):

Well, now it’s going to be called not because of the transfer, but because you’re defaulted on your mortgage and now they’re just going to foreclose on you because you’re not paying your bills

Robert Leonard (00:11:54):

For someone who is a new real estate investor that’s listening to the show, let’s say they have one, two, three, maybe four properties, does every property have to have its own LLC to get that protection?

Brian Bradley (00:12:06):

It’s a good question. It depends on the state and the value and the equity in the asset. I think it’s overkill to say let’s just do one LLC per property. In some places like the Midwest, you can have a lot of properties under $100,000, and so it comes to a balancing act between how much equity do we want to put in and how much risks do we want to put into one LLC? So you won’t want to separate out risk as much as possible, but not over stuff, if that makes sense, an LLC with too much equity. And so it’s a balancing act. So what we want to do is balance the number of units in one LLC to the amount of unprotected equity that someone can get out of it.

Brian Bradley (00:12:49):

Generally, rule of thumb, we say like 500,000 of equity or four units. Sometimes that just can’t be done. Like let’s say you’re investing in California, almost everything’s almost a million dollar property in California, take the West Coast, East Coast. At that point, then we’ll have to say maybe two units and put the cap at 1.2 million. It just depends at that point on the client’s comfort level, the perceived amount of risk, what the insurance is, and how it we’re actually dealing with. And so then we just have to come up with a comfortable balancing act.

Robert Leonard (00:13:19):

If someone does have multiple LLCs, can they just have one operating or property management LLC, or do they need multiple?

Brian Bradley (00:13:27):

Yeah, that’s a great question. I would hold those LLCs into a limited partnership, but combine them. We can break down a limited partnership a little bit later, but what you would want to do is eventually separate out that management company and just let it exist on its own. Because management companies shouldn’t own anything, but all they are is risk. So it’s your big red danger button. And you want to separate that risk as far away from the assets as possible and have it own nothing. What will get sued would eventually be that operating company and that operating company should have no assets held.

Robert Leonard (00:13:59):

So the property management company essentially, could that manage properties for other people that aren’t even you, could you do it? Or do you have to have separate operating entities for that too?

Brian Bradley (00:14:11):

Are you talking about if you are a property manager and you’re just managing other people’s assets?

Robert Leonard (00:14:17):

Let’s just say you’re a newer investor, you own a couple properties, you do this strategy you’re talking about, you put those in one LLC, and then you create an operating LLC. Could you have like your friend use the same operating LLC for management.

Brian Bradley (00:14:30):

No, I would not because then you’re mixing other people’s liabilities with your own assets. If you’re going to go that way, just think about it, you don’t want to combine other people’s risks into your own assets, so I would protect your assets and operate them through your limited partnership. And then if you’re going to create management company with your buddies and go manage other people’s properties, then that’s a separate joint venture, that’s a separate business, so treat it like that.

Robert Leonard (00:14:52):

What are people not talking about with LLCs?

Brian Bradley (00:14:55):

Yeah. That’s a great question. So there’s some really big misconceptions with LLC. Even though I love LLCs and we use them to place risky assets in them like real estate and investment properties, we use them to segregate, like we were talking about assets in and put car collections in, or your yachts or your airplanes. This is a great first layer of protection, but everything has kryptonite, and if you talk to Superman, kryptonite’s not good. The LLCs lack on efficiency. So just remember that there are what’s called maybe protection and it says it straight up, like I said before, in the name, first word, first letter, limited. They don’t even hide this fact, it’s limited.

Brian Bradley (00:15:34):

And we have decades of case law that exist around the fact. This is where the term piercing the corporate veil comes into play, meaning holding you personally liable, breaking through the charging order protection and through the operating agreements, no matter how well they’re written. Now, this is where I do want to spend some time talking about these negatives that you’re just not told with the LLCs so that your listeners then understand the limitations and the need to layer as you grow. LLCs are not silver bullet werewolf’s lairs. People think for some reason you create an LLC and you’re just good to go.

Brian Bradley (00:16:08):

For a real estate, we generally use the state that the asset is located in. I see some people recommend using other states that are good for LLCs like Wyoming and Delaware and Nevada to physically hold real estate in. The reality is that, it’s okay, there’s nothing wrong with that, but if you have an investment property, let’s just say in Tennessee, because everyone’s going to Tennessee right now, so I’m just going to use Tennessee as an example, and in is held in a Wyoming LLC or a Delaware LLC, it’s fine. But if you’re sued through that Tennessee property and you have a lawsuit against that LLC in Tennessee, you can be very certain that the Tennessee court is going to apply Tennessee law to that LLC holding Tennessee real estate, not Wyoming or Delaware law.

Brian Bradley (00:16:52):

So if you think that you can buy another state or jurisdiction’s better laws by having an out-of-state LLC own an in-state asset, I don’t think that’s true at all. And you can’t be certain about that either, and lack of certainty is not good, especially when you’re getting sued. We typically just say, use the LLC that the asset is in the state that the asset is in. Another problem generally is that most clients come to me with 15 LLCs, and they’re all single-member LLCs, and they’re all disregarded entities, and they’re all on the client’s personal name as the member.

Brian Bradley (00:17:26):

Now, we have a problem from an asset protection standpoint because the courts have a tendency to disregard those single member LLCs held by an individual meaning you. And CPAs tend to set up LLCs as disregarded entities for tax purposes. That’s great for taxes, but is bad for lawsuits. So you need to remember that, tax mitigation and asset protection are completely different. Another issue here is, CPAs set up S-corps for real estate, and that’s another bad thing to do, especially when it comes to real estate. And the reason is because S-corps have shares, and those shares can be frozen and seized by a judge.

Brian Bradley (00:18:04):

And I actually get this a lot, if you come to me with real estate in an S-corp, but let’s say you have $100 million worth of real estate all within one S-Corp. Well, it can be other assets like truck beds or medical equipment, gym equipment, whatever the business is that you’re in that owns something. From a liability and asset protection standpoint, it’s not good. We prefer to move those assets out of the S-corp, but we wouldn’t want to do that at that point without you having to pay a huge tax recapture feed to the IRS, most people just won’t have that type of cash sitting around. So now we’re just stuck, we really can’t do anything.

Brian Bradley (00:18:38):

And this could have all been avoided if the planning was set up properly from the beginning to allow you to properly grow. But to get back to being disregarded, what an LLC being disregarded means is that the IRS is not taxing your business separate from you, it passes through to you personally. And because of this, they’re basically worthless for asset protection liability issues, because that liability also passes directly through to you. But don’t get me wrong, I still use them, but as that base layer foundation entry position, then we build and layer the strength above it to clean that up.

Brian Bradley (00:19:13):

The second big misconception with LLCs is, where do we even just go to set these things up? And you’re like, do you go to Delaware or Texas, Wyoming, Nevada? And you hear about all these states, and some of these states have privacy, and so you’re like, “I’m just going to go do that.” Well, it really just comes down to an issue of, what are you holding and where are you holding it at? But I think we covered that pretty well. But just realize that, let’s say for example, it’s California real estate and you set up a Wyoming LLC, and then you bring it to California by holding a key piece of California real estate in it, and now the client’s paying California franchise tax because they are a resident of California.

Brian Bradley (00:19:52):

What has just happened is that you converted that Wyoming LLC to a California LLC because you’re doing business in the state of California. That’s the state the asset is in, that’s the state that injury or damage occurred in. It’s going to be that state’s laws that apply. And once you do that, you did this fancy legal term called unveiled yourself of the privileges and laws of that state, and given that state the jurisdiction over your out-of-state, LLC, then it’s just a matter of piercing the corporate veil. But then we get like the big kahuna misconception, which is anonymity.

Robert Leonard (00:20:26):

Before we go into an anonymity, I want to talk about two things you mentioned, the disregarded NDs and then also using the different states. So first, disregarded entity we’ll touch on that really quick. What is the point of an entity if you’re not going to get the protection if you’re using disregarded?

Brian Bradley (00:20:41):

Yeah, it’s a good question. Eventually, you want to, as you grow, have those LLCs owned by a limited partnership, a second layer up. When they’re disregarded those K-1s, those tax returns flow up and into that limited partnership. So now you only have one tax file. So what you’re doing is scaling and growing and setting up the LLCs so that they flow into a limited partner ownership or that second management company. If they’re not disregarded, they can’t flow into that limited partnership, so you actually want them disregarded for tax purposes so that we can connect the second layer too.

Robert Leonard (00:21:19):

And you talked a lot about the different states, that actually applies very closely to me because I live in New Hampshire, I invest almost exclusively in Texas. I’ve thought a lot about this and I’ve also studied a lot about how a lot of businesses, big businesses are registered in Delaware, but they might be headquartered somewhere else. Talk to us a little bit about, are they doing that for tax benefits? Are they doing that for asset protection? Do they have other things set up that makes that important? Why are so many companies registered in Delaware or Nevada and operate somewhere else?

Brian Bradley (00:21:48):

It’s a great question, and this is where the problem that’s not being explained comes, real estate is completely different. LLCs are not used as a business entity to… Let’s say you and I, Rob and Brian decide like, “Hey man, let’s go create a widget company and go sell widgets.” That’s an actual business. We can and incorporate in Wyoming and Delaware and create our operating agreements and all of that, and then if our business falls apart, we’ll get the benefits of our operating agreement being applied no matter what state we’re in, that’s an actual business that we’re running and operating.

Brian Bradley (00:22:23):

Real estate though, we’re not operating through that LLC, we are just using the LLC to hold passively the real estate and not operate through. So it is essentially just an extension of you. And so that is the big distinction that people aren’t being told of, real estate is just different, it’s not a business, you’re not running any type of business through that LLC, they’re just used as holding companies to separate the title away from you in case and when you get sued.

Robert Leonard (00:22:52):

Yeah. That’s a really interesting and important distinction. I’ve studied this a little bit. I’m not a lawyer by any means, but I had never even heard that before, the distinction between a business versus real estate. We talked about the operating companies, could the operating company be in, say, Delaware?

Brian Bradley (00:23:07):

I would talk to your CPA at that point, because just a matter of maintenance costs and things like that. I would say pick a good state, a good state that has like charging order protection around that management company, especially if it’s going to be you and somebody else when you’re partnering up with somebody, because then you just have a straight business with another business partner. And then for that management company that’s purely a management company, I would say go to like Wyoming or Delaware or Nevada, and use one of those states for that. Just realize, when the real estate is getting sued from like a personal injury standpoint, you’re just going to be paying double maintenance tax, and you already converted it to that state because you’re paying franchise tax. So just keep it simple.

Brian Bradley (00:23:44):

This going to be those state laws that apply when you’re getting sued through the real estate.

Robert Leonard (00:23:48):

Talk to us a bit about the anonymity of it and how it plays with LLC, I can’t even say the word, and real estate investing.

Brian Bradley (00:23:57):

The thought here with anonymity is that you can just create an anonymous Wyoming LLC and just disappear and can never be found, and that you the LLC member’s name is not available to the public and you can just completely avoid or ghost a lawsuit. This is just completely false, but this is what you’re hearing on investment groups and summits and what you’re being told from salesmen promoters and even some attorneys who just don’t specialize in asset protect. So these people do these big long talks on hiding assets and special operating agreements. And I’m using the word special and air quotes here. And though they may not technically be lying, if you get a judgment against you and you get called into a debtor’s examination in court, you are the one that’s going to have to tell them, you are the weak link in this line of secrecy.

Brian Bradley (00:24:48):

So under oath, you’re going to have to tell them that, “Yeah, I set up a Wyoming LLC,” and now your privacy plan has just exploded, you just exploded your own plan. Privacy is fine, but secrecy and hiding assets is not. Wyoming LLCs have their place in asset protection and in the world of asset protection as a first line of defense for business owners, for privacy, not placing yourselves at risk of harm or harassment, like somebody getting mad at Rob because I don’t like my landlord and I’m going to go egg your house. It’s a privacy mechanism before lawsuits start.

Brian Bradley (00:25:25):

But this doesn’t mean that your identity can’t be easily found or that when LLC is sued that you won’t be legally required to appear and defend yourself and your LLC in court, because if you don’t show up, you’re going to get a default judgment against you. Wyoming and Delaware LLCs, and out-of-state LLCs require personal agents of service. Their sole job is to serve you and tell you, “Hey, congratulations, you just got sued, now go and defend yourself.” The simple reality is that once a lawsuit is filed, the discovery process of litigation begins and you’ll be served and you’ll be subpoenaed and forced into court.

Brian Bradley (00:25:59):

And what’s even worse is that if you want secrecy to even work, also known as lying under oath, you’re going to have to tell the court that you don’t own anything, and then that’s just a one-way ticket to jail. An example of this is what I mentioned above that very shortly after judgment’s entered against a person, creditors have the legal right to demand information about the assets you own and the courts enforces this right very broadly. So at this point in litigation, the only way to keep an asset anonymous or secret is to lie about them and commit perjury. We don’t advocate for hiding. We just prefer to have a full disclosure of a proper asset protection plan and just set it up properly to work.

Brian Bradley (00:26:39):

So for assets that are real estate, again, just use the state that the real estate is located in, because, again, you’re not gaining anything by using another state, you’re just doubling your maintenance cost. You can’t buy another state’s laws for out-of-state assets. So just keep it simple and then add layers to that protection system as you grow. Just remember, the weakness with LLCs that it’s just may-be protection. So there’s a lot of uncertainty and uncertainty is not good especially when strength and power is important. So as you grow and accumulate more assets and more LLCs, you want to scale up to a limited partnership to start consolidating all.

Robert Leonard (00:27:19):

Before we get into limited partnerships, which we’ll talk about next, I have a question about where to go to actually get this all set up. I study Charlie Munger a lot. And one of Charlie Munger’s biggest thing is to study incentives. And so I know before I even ask this question, this is what you do for a living, so you’re incentivized in a way to say, “You need to go through an attorney.” But with that in mind, there are so many services on line that I can’t even think of a name. And I don’t want to put any names out there that you could get an LLC in 10 minutes or whatever, they’re super cheap. Do we need an attorney to do this for us? Can we do it online? And if we do need an attorney, how do we find them? How do we know if they’re a good one? Do they have to be in our state? Talk us through, how do we find the right process for us?

Brian Bradley (00:28:02):

Yeah. The reason you want an attorney to do this would be the same reason why you want to go to a doctor when you’re sick. You’re not a doctor, and so you’re not going to be able to create the LLCs with defined detail that need to be done in operating agreements and then connect it to the limited partnership and then have the proper structure for the limited partnership, even in asset protection trust, which is very strong protection because you don’t know the details. And when you’re getting sued, the attorney who’s there to destroy your life is looking for one single word to completely disassemble this, or you didn’t fund it properly.

Brian Bradley (00:28:37):

There’s so much legal details that have to get done to properly create even the base structure and how you fund it that if one thing’s done wrong, your veil’s pierced, if you operate incorrectly, your veil’s pierced, if you commingle and don’t have a good accounting, your veil is pierced. And so by being cheap, and I hate to use that word, cheap, but it is what it is. What is it, penny wise, dollar stupid, you saved 100 bucks or 1,000 bucks, and then you’re going to lose $100,000 down the line in a lawsuit because you chose to create something cheap from the beginning and you get what you pay for.

Brian Bradley (00:29:11):

And so the only thing you really care about your asset protection structure is what? Have it work and be effective when you’re getting sued in courts. That’s the only thing that matters at that point. And so I don’t think if you’re going to sit there on Google and try to create a business and entity or talk to a non attorney legal solution provider, we’ll just call it. If you ask them what’s your legal advice and they can’t give you a legal opinion, I would not recommend listening to what they have to say. Because at the end of the day, when you’re getting sued and it’s all your money on the line and the other attorney across the bar from you is trying to completely destroy you and take everything from you, that’s when you need this stuff to work.

Brian Bradley (00:29:50):

And so the way I would go about finding an attorney of it is, just start researching asset protection attorneys, but go on their websites and see what people write about them, see what their reviews are about them before you call them. Find out what areas of practice do they practice in. Are they really a real estate attorney who does deals and dabbles in asset protection? Or are they just an asset protection attorney? Are they a business attorney who doesn’t do much about asset protection and just drafts contracts and closes deals? Because at this level. you need a specialist for asset protection to actually work. And what happens is, most attorneys will go and do a different area of practice, like estate planning, drafting wills and trusts.

Brian Bradley (00:30:33):

That’s not asset protection, that’s after-life planning. They take a CLD course, a continuing legal education course and one seminar and they learn a very, very minute base level education on something because they realize they can go and sell something else, another product and service and make some more money out of it. But they don’t understand the detail about how it works and how to properly do it. So what you should be looking for before you start making calls are, is this basically all this attorney does. It would just be like you needing brain surgery. You’re not going to go to a general doc and say, “Hey, cut open my skull and operate on my brain,” you’re going to go to a neurosurgeon.

Robert Leonard (00:31:07):

I know it’s going to vary significantly from person to person, deal to deal, situation to situation, but give us a general idea, what is the cost of something what we’ve been talking about, especially if you hire an attorney? What are we looking at? Are we looking at 500 to 1,000? Are we looking at 5,000 to 10,000? Just give me a general range or idea of what somebody might have to spend for this.

Brian Bradley (00:31:27):

Just the base level foundation, I would say factor in, I would say on average $1,000 per LLC and then go get insurance, and that’s going to vary. As you scale up, let’s say you’re going to then need a second layer, a limited partnership, you’re going to probably spend around, I’d say on average, $6,000 for limited partnership. And then asset protection trust will vary depending on how strong they need to be for the client. It can be anywhere from like 10,000 to 50,000, depending on if you’re purely domestic to purely foreign or a hybrid in the middle. And so it just depends on what the client’s needs are going to be at that level.

Robert Leonard (00:32:04):

When it comes to using an attorney for this kind of thing, is there any type of protection or backup for us as someone who hired the attorney if the attorney did something wrong in court? Let’s just say you do get sued, you go to court and the other attorney finds that your attorney did something wrong and so therefore that one word that you mentioned was missing because your attorney made an mistake, is there any protection for you as the asset owner or is that you’re just out of luck?

Brian Bradley (00:32:30):

It depends on the error at the end of the day. You can then go ahead and try to sue your attorney, but remember a lawsuit, someone’s always going to lose. And it just comes with the territory. Depends on how egregious the error and mistake was. So I say, yes, and then you can go through like your ethical bar, the state bar and file a complaint. If it was really bad, they’ll review it. Or you can go and talk to a malpractice attorney and then they can look over and say like, “You just lost because you lost, it wasn’t really that determining on that issue.” That’s how that would lie on in there.

Robert Leonard (00:33:03):

I was just thinking more along the lines of, you were told that you set it up the right way, everything was done and you got caught on a technicality, not actually what you were being sued about, something like that.

Brian Bradley (00:33:13):

Yeah. I would just say I would have it reviewed if it was that big of a loss, then I would definitely go and have reviewed by another attorney and then go through your options from there.

Robert Leonard (00:33:23):

What if somebody listening is an investor already, they own a couple properties, but they’re still pretty small and they’ve already done some of this. They didn’t necessarily maybe do it the right way or they did it themselves, or they didn’t hire an attorney, is it too late for them or how do they go about that?

Brian Bradley (00:33:37):

No, that’s when you call people like us. Most of people come to me with like 15 messed up LLCs and millions of dollars worth of assets, just all scattered like a massive mess. And thus our job is to clean up the mess. And generally, I’m not looking so much about the LLCs because I’m going to merge those into an easier flow, limited partnership to manage it. Because for us, like when it gets into higher levels of protections, the foundation stuff, I’m not really that worried about. It’s the second and third layers where the magic really starts happening. So we’ll just clean up a little bit of the LLCs and then the really big issue is just get those into the limited partnership and then see what other pieces they’re missing to help manage their lives a little bit better.

Robert Leonard (00:34:17):

And the last thing I want to chat about real quick before we get into limited partnerships, that next layer of protection is house hacking because I’m actually writing a book on house hacking right now, I just signed a book deal with Simon & Schuster, and I recommend this strategy to a lot of people. So I want to talk a bit about how asset protection, LLCs, things like that come into play with house hacking.

Brian Bradley (00:34:39):

Yeah. That’s a great question. The issue with house hacking is you live in it, and so you don’t want to transfer it out of your name and do an LLC or any business entity, because eventually when you go down the line to sell it, because you’re not going to be in it forever, you lose a $250,000 of tax credit, home ownership benefits, and all of that because it’s no longer your personal residence, it’s owned by an LLC. And that’s a heck of a lot of money to just throw away to the wind. And so you need to realize there’s a benefit of being a homeowner and having that home tax benefit in your name. And then I think to recoup that you have to transfer the asset back.

Brian Bradley (00:35:13):

It’s either two out of five consecutive years or three out of five consecutive years. Most people when they sell a property, it’s a quick decision like, “Hey, babe, it’s time to scale up.” Or like, “Let’s catch or recycle this into something else.” You make that within a couple of month’s decision or you have a job changing, you need to get going, you just lost $250,000. And so when it comes to house hacking, insurance is going to be where you’re going to be lying with that.

Robert Leonard (00:35:38):

Let’s say you own a duplex with one extra unit, could you get by with just insurance? Is insurance enough in that case?

Brian Bradley (00:35:45):

Yeah, it depends. And then at that point it just depends on the type of lawsuit. If it was a massive mold claim, if someone got sick and died, no, you’re going to get wiped out. You just hope that the insurance amount will cover at all. If it doesn’t, unfortunately then no. Or if you had a glass of wine or a beer and you’re driving down the street and someone ran a red light and you t-boned them and someone died, would your insurance cover you for that? No, because you were intoxicated. Not drunk, but you had alcohol in your system, and so then they’re going to go into intentional wrongdoing arguments and wiggle out of the insurance coverage.

Robert Leonard (00:36:19):

You’ve mentioned mold a couple times and I actually have a friend who got very, very, very sick. She rented an apartment and her landlord apparently didn’t know, or whatever the case is, I don’t want to go into that details, but she didn’t know that there was mold there. She got very, very sick, almost died from it and big lawsuit and she won. And of course, her being my friend, I’m glad that it worked out in her favor, but me being a real estate investor, I panic a little bit and think like, “What do I need to do to not be that guy? And how do I protect myself?” So talk to us a little bit, I guess, about mold and what do we do in that case?

Brian Bradley (00:36:56):

I would just make sure you do your property and mitigate your damage. At the end of the day, in those type of things, the asset protection planning would help you from collectability of losing the lawsuit, not from preventing the lawsuit. Asset protection won’t necessarily prevent you from being sued, especially in really big issues like that. It’s a matter of how strong it’s a system when it comes to mold, I would just say, do two inspections a year and especially in heavy areas where you know mold is going to be coming in, or if you live in a really damp area like Oregon, or when I was living out in Michigan and we were living in Lake Michigan, had to deal with a $40 million mold claim of an apartment complex.

Brian Bradley (00:37:34):

And so you just mitigate your damage and do property inspection to make sure then if you will do get sued on those things, you weren’t negligent because you didn’t do the inspections and you weren’t checking it out. Also, you’re going to mitigate how much you’re going to have to pay. So I would just do mitigation strategies from there, as well as any other potential negligent things that can happen. That’s why you maintain your property at the end of the day, because what you’re doing is one form of asset protection and damage mitigation.

Robert Leonard (00:38:01):

If you did have a case like this and you had the right asset protection in place with that limit, the damage you had from a mold claim, is a mold claim so serious that it would even go past any asset protection that you’ve done?

Brian Bradley (00:38:13):

You can have the worst case in the world, like someone died from it, that’s where the highest levels of asset protection like the Bridge Trust or a fully formed asset protection trust comes into play because at that point, it doesn’t matter. The whole reason you set up those levels of asset protection and trust are to protect you from doomsday, clean out lawsuits like that to where, “Okay, great. This is a massively bad lawsuit, I am going to lose everything,” you just break the Bridge and move the equity to like the Cook Islands. And at that point, you’re uncollectable legally. And that’s why they’re the strongest trust on the world for like 40 years, global gold standard.

Brian Bradley (00:38:51):

So at that point, once the other party knows that you have a potential Cook Islands Trust in play, generally they walk away or they’ll take a penny on the dollar and just go because then they realize even the IRS, the government, the man can’t win cases in the Cook Islands and get money out of it.

Robert Leonard (00:39:08):

We’re going to talk about that in a bit. Let’s work our way there. Let’s start with limited partnerships. You’ve mentioned quite a few times, tell us what exactly they are, how they differ from LLCs and why you use them as a second layer of protection.

Brian Bradley (00:39:21):

Yeah, absolutely. It’s a great question. And the limited partnership comes into play around 450,000 to 700,000 of unprotected net assets. And generally, you have four different properties and possibly investing in multiple states along with personal stocks and some crypto. And you need to realize crypto is an asset, it’s defined by the IRS as a property, the exchanges have to be protected. So it’s just not an asset that doesn’t exist. Just like a little FYI on that. Limited partnerships, it’s similar to an LLC in that it has a layer of protection around it to limit your liability, and they have some charging order protection and built-in statutory privacy.

Brian Bradley (00:40:04):

This mid-layer is your holding company and it’s this mid-layer where you do actually want to use one of those states that has really good protection around the LLCs like Arizona, Nevada, Wyoming, or Delaware. This mid-layer protection should be a multi-member entity. Whereas that base layer LLC that we just talked about can and will be a single member LLC in most cases at that base level layer, that single member LLC is going to be disregarded for tax purposes remember, but as you stage and grow your protection, you want it disregarded for tax purposes because when you, a client come to me with 15 pieces of real estate and like 10 LLCs, we don’t want you to have 10 separate tax returns.

Brian Bradley (00:40:51):

So by making those base layer LLCs single member LLCs, it helps with tax filing when we add this mid-layer limited partnership, because all those K1s flow directly through to that management company. So it’s just one tax return filing, and having just one tax return is really important for clients. But the limited partnership is a step up from an LLC since it also works really well as an asset holding company because it has two different classes of ownerships that LLCs just don’t have. Limited partnerships have a general partnership interest and a limited partnership interest. So think of it as like a split personality.

Brian Bradley (00:41:33):

The GP is the controlling interest, and that’s going to be typically you the client that gives you control of your assets to keep investing and managing the assets that are held in that portion of it. The limited minority partnership to LP is your asset protection Bridge Trust, and that’s the ownership interest. So that’s where you separate out management of assets from ownership of the limited partnership. And so, by dividing it up like this, you get a separation of ownership and control. And remember, asset protection is about separation strength and power. You just cannot get this with an LLC.

Brian Bradley (00:42:10):

But unfortunately, I see this a lot with clients having that second layer of protection being another LLC or a Wyoming LLC and not a limited partnership. We use an Arizona limited partnership as the starting point for clients at this mid-layer, like that second layer holding company, and then we’ll add that Bridge Trust to it for the actual strong asset protection component. One of the main reasons we use Arizona specifically for the limited partnership is because of this code section ARS Section 29-333. This section specifically allows for limited partnership to make what’s called unilateral withdrawal from the limited partnership on a predefined event like lawsuits.

Brian Bradley (00:42:53):

And this is specific unique to Arizona, and it becomes very handy when we connect that third layer asset protection trust to limited partnership because it allows the trust to disconnect from the holding company during that duress and demand the assets legally from that doomsday lawsuit, and then just disappear and be gone with it. And this just can’t be done with an LLC. And some of the other specific reasons I prefer an Arizona limited partnership over Wyoming LLC, or any other ones at this second layer are you have exclusive charging order protections to Arizona as the only remedy for creditors of a partnership.

Brian Bradley (00:43:30):

You have an actual statutory distinction between general partners and limited partnerships. This is by statute. This is better than LLCs because LLCs can only do this by an operating agreement that the courts will have to interpret. So now you’re left at a court interpretation and judge interpretation. And then again, we have ARS Section 29-333 that lets us do that unilateral withdrawal. This just cannot be done at all with LLCs without now exposing you to a fraudulent transfer argument. And then Arizona doesn’t require listing the limited partnerships. So you only need to list the GP, the general partner.

Brian Bradley (00:44:07):

So by their nature, limited partners have privacy. And then for tax filing purposes, your limited partnership cannot be a disregarded entity, but LLCs with just one member automatically considered a disregarded entity. And remember, being disregarded is not good for liability issues and lawsuits. And so you just have so many additional protection mechanisms statutorily built in the limited partnerships. It really is the combination of the two working together, the limited partnership and the asset protection trust that we start capitalizing on.

Robert Leonard (00:44:40):

At the very beginning of your answer there, you mentioned the threshold where limited partnerships start to become worthwhile. And is that in the equity that you have in properties or is that just the value of the properties?

Brian Bradley (00:44:53):

Great. Good question. It’s always going to be unprotected equity, because if you’re getting sued, let’s say it’s a million-dollar property. If I own it outright and have 100% equity, I’m worth a million dollars. If I have a mortgage on it and I only own 20% of it, I really can only be corrected on what I own, which is the equity value, the $200,000. So that’s all I’m worth. And so we’re always looking at equity value and then unprotected net assets. For example, I would not include into your net worth a calculation like 401(k)s and IRAs because those have exemption status.

Robert Leonard (00:45:29):

I know this is probably to an attorney like you seems like a dumb question or even a dumb thought, but for somebody like me or even real estate investors who don’t study this, they can’t collect on a property’s value if you have a mortgage. They can’t collect that amount that you owe as well, it’s strictly that equity piece.

Brian Bradley (00:45:47):

That’s where they start going into the other things that you owe. The first place you look when you’re getting sued is you look for easy access first. So it’s always cash on hand. How much do they have in the checking account, savings account? From there, what are, what else do they own? Then let’s say it’s an excess of the cash on hand that you have, then we’re going to go into what’s your equity in your house? Now, we’re adding the amount to the total. So if it’s a million dollar judgment, I’m going to take from the checking account savings account, I’m going to take the equity from your house. Of course, you just sell your house.

Brian Bradley (00:46:18):

Now, let’s say we still don’t add up to the amount. Now, I’m going to go into personal brokerage accounts. I’m going to go into what crypto do you own? What real estate investments do you own? And we’re going to start fore-selling all of that to the equaled amount of the damage.

Robert Leonard (00:46:32):

If you have the right asset protection in place, does it stop at that equity that you have in that one property?

Brian Bradley (00:46:36):

If you have the right asset protection in place, it just completely stops. Again, asset protection is looking on collectability. So at the end of the day, I don’t want you to pay a penny.

Robert Leonard (00:46:47):

What other types of assets, you mentioned, 401(k)s and IRAs, that are not collectable.

Brian Bradley (00:46:54):

These are going to be exemption planning and they’re going to be different from federal to different states. And so I think this would be just like, what’s the difference between, I guess, exemptions versus, what’s the word I’m looking for, asset protection. It would be a great question for that. And so our two biggest tools that we have are exemption planning and asset protection planning, like LLCs, limited partnerships, trust. What exemption planning refer to is the type of protection we get from state and federal laws that exempts assets from creditors, the creditor is valid, the claim is valid, the lawsuit is valid, the judgment is valid, but just this asset is just not something that they can collect on.

Brian Bradley (00:47:36):

So a few examples are homestead exemptions, like in Florida, 100% homestead exemption, ERISA, 401(k) plans, which are federally protected, IRA plans which are going to be state protected. So they’re going to vary from state to state on the amount that’s exempted, same with life insurance and annuities, and there’s going to be a state differential from that. And then some assets through bankruptcy. And the way most exemptions are used is through bankruptcy. So it has some limitations and we really need to think about if you even want to or qualify to declare bankruptcy.

Brian Bradley (00:48:10):

Now, asset protection planning is different, it does not rely on state and federal statutes to say, “Hey, these are exempt.” It just uses legal tools to limit the access of the asset to a creditor. And these are spend thrift trust, charge order protection entities like LLCs and limited partnerships or locked up, unreachable assets. So for example, while the asset is locked up let’s say by debt, so some debt can be good from an asset protection standpoint because there’s no access to the cash and that’s what creditors are after. So now, you’re going to probably be asking, okay, so which one is better? Exemption planning or asset protection planning?

Brian Bradley (00:48:50):

You may be looking at exemption status and thinking like, “Okay, this looks better, so why not just do exemption planning all the time?” But the drawback with exemption planning is that it can’t just be arbitrarily expanded, meaning you can’t just say, “Okay, great your state has all these exemptions, let’s just move and convert all the assets into them.” And it’s really hard and almost impossible to convert 100% of a client’s assets into an exemption status. So then you still need additional planning. The best practice procedure on this would be to maximize exemption planning first, like investing in 401(k)s and things like that, and then move on to asset protection planning for the non-exempt asset, and then combine a domestic and offshore trust with a hybrid trust, which we can break down if we got time later on for a really strong protection.

Robert Leonard (00:49:40):

It sounds to me like the states that people live in actually could matter a lot more than people think. I think a lot of times people are like, “This is a cool to live.”

Brian Bradley (00:49:47):

Absolutely. Think of O.J. Simpson, most people know who O.J. Simpson is, even if you don’t watch follow football, people know the story. And so here you have retired NFL player who gets charged criminally for murdering his wife and her boyfriend. He’s found not guilty. The family sues him civilly for a wrongful death, loses the case, but he was never able to be collected on because his mansion was the Florida mansion, a fully 100% exempted. And the rest of his assets were federally ERISA protected exempt because it was his NFL pension plan. And so he was never able to be collected on. And so if you go to another state like California, he would be SOL.

Robert Leonard (00:50:32):

That’s interesting. I had never given that thought, like where I live, I just think, “Oh, my family, friends live here, there’s cool beaches, mountains,” whatever, all the things people like to think about, not this kind of stuff.

Brian Bradley (00:50:42):

One of the first things I ask when a client calls, like, “What state do you live in?” Because I need to start sorting through what are all my different options that I have for you

Robert Leonard (00:50:53):

In the O. J. example, is it able to go back? At the time, he was in the NFL and he lived in Florida. If he ends up moving in the future, let’s just say he moved to California, and then he gets a bond equity in California, can they then go after him then?

Brian Bradley (00:51:11):

Yeah, that judgment will be sitting there. If he started getting other assets like non-exempt statuses, then they can start peeling that. And so, it just is where you’re going to go from the future, but he was not collectable on that because all his assets were held in exempt statuses. So he had this massive judgment against him that just couldn’t be collected on because of the exemption status of everything that he owned.

Robert Leonard (00:51:32):

And when we talk about limited partnerships, you have to have, I know this is probably a funny question, but you have to have two people?

Brian Bradley (00:51:39):

You do. You have to have two people. And so generally it would be like spouse, husband and wife. If you don’t, then it would be like, find a sibling or a parent. And then to give them a 1% ownership interest on the LP side so it won’t affect their taxes or their liability, because it’s completely passive, but you do need two people.

Robert Leonard (00:51:58):

And how about series LLCs before we get into trust? I’m curious about series LLCs because it’s one of the most common things that comes up in my search. And again, I don’t know anything about this kind of stuff and that’s just something that’s always been-

Brian Bradley (00:52:10):

Yeah. That’s a great question. It’s the same as an LLC. It is what it is. At the end of the day, a series LLC is in LLC until you start creating little children underneath it. And the idea is to break them up into separate little segregated LLCs underneath so that if a property A explodes, it doesn’t affect property B. The problem with this, is one, it’s the new kid in school. So there’s no case law on are these sub children going to be exercised how they theoretically should be in a lawsuit? And then the other big problem here is, let’s say you live in California, California doesn’t recognize a series LLC. So not all states recognize them, only a very small amount of states recognize and have series LLC statutes.

Brian Bradley (00:52:56):

So unless you the client and the asset both exist in a series LLC friendly state, I would not use or recommend a series LLC, because if you get sued from a state that does not recognize them, you will not get the benefit from them. And so that’s where we have to understand is will I use them? Yes, in a limited capacity and all the elements that I need to check off the box have to exist for me to be comfortable using it because they’re not accepted everywhere, and there’s no case law even on them. So in the realm of a lawsuit, lack of certainty is very dangerous. And so when I’m protecting people’s assets, I don’t want to say, “Let’s gamble and maybe it’ll work and maybe not.”

Brian Bradley (00:53:40):

I want to say like, “I can tell you for certainty, here’s 40 years of case law up to the Supreme Court. This will work.” A series LLC I can say like, “Well, if you money’s cheap and you want to gamble, lets roll the dice.”

Robert Leonard (00:53:52):

So a series LLC would not be a replacement for a limited partnership?

Brian Bradley (00:53:56):

No. I would use it as a foundational piece. So I would use it as a foundation, and then the limited partnership would own the series LLC.

Robert Leonard (00:54:06):

We’ve talked a lot about LLCs and all of that, but you’ve talked about trust too. So let’s get into some of the asset protection trust and some other trust as well. First, breakdown what a living revocable trust is and does it protect somebody’s assets?

Brian Bradley (00:54:21):

That’s a great question. No, it doesn’t. They’re not designed to, so they can’t. A revocable living trust is simply a trust to avoid probate, death taxes, name your beneficiaries, so the assets get to whoever you’re going give them when you do pass, and they only come to effect when you die. And it’s really just naming your medical directives and your financial directives. They’re completely different types of trust. And they’re just not designed to work as an asset protection trust. And so what an asset protection trust is… Let me just backtrack on this, the standard 101 trust that everybody’s familiar with from the ’60s is this revocable living trust.

Brian Bradley (00:55:00):

From there, you have higher levels of trust and they’re called asset protection trust. And so I want to spend a little bit of time here breaking down the three types, and after this, I think you and your listeners will probably know more than 99% of most attorneys out there about asset protection trust. And so these really came in about the early 1980s, and asset protection is what’s called a self-settle protection trust. So all self-settle means is that you are creating it for yourself. So they are for you, by you, as your own beneficiary. And they have the very important benefit provisions in them. This lets you protect your assets while you’re actually living from creditors and not having their relinquish control of your assets.

Brian Bradley (00:55:46):

The difference is they allow you to protect the assets not just for your grandkids, but for yourself, which you weren’t allowed to do in the past. And they have those benefit provisions that allow you to protect your assets from creditors and they’re the actual teeth behind the trust. And for those to work, the trust has to be not revocable, but irrevocable. So they’re very different type of trust. And now, this is where the fun really starts to happen. There’s two major school of thoughts, the international and the domestic, that you can go and set them up here in the United States or offshore. And I’m going to talk about them both through a historical context. And it’s very important if you’re going to understand how trust work and why a hybrid Bridge Trust works, the way that it works to understand the basic concepts of them both.

Brian Bradley (00:56:34):

Now, the difference with asset protection trust really comes down to just where do you set them up in? Do you go offshore? You go domestic? Do we do this hybrid? And for the historical context, the offshore trust came first in 1984 in the famous Cook Islands, they created the first statutory trust. I like and choose to Cook Islands if and one is applicable just because they have the best home court advantage. Why is the best? Is because asset protection is what these trusts on the Cook Islands statues were specifically drafted for. And the power of the foreign offshore trust is that it has statutory non-recognition of any other jurisdictional court orders in the world, including the United States.

Brian Bradley (00:57:17):

What this means is that if you have a judgment against you in the United States and they took it down to the Cook Islands because they see Cook Island’s trust is in play, your US judgment is completely worthless there. It literally has no value whatsoever. Statutorily, the Cook Islands are prohibited from recognizing it. If somebody wants to sue your trust in the Cook Islands, they would have to start their case all over from scratch, the person suing you would have to prove their case beyond a reasonable doubt. That’s the murder standard, the highest legal standard in the world, the 99% sure standard.

Brian Bradley (00:57:51):

You can’t get a contingency fee attorney to represent you because they’re not allowed down there. It’s unethical on the Cook Islands, just like it used to be unethical here in the United States, but that got changed in the ’60s. The claim meaning the a lawsuit’s not amendable, meaning that once you file your complaint, that’s it, you can’t change it or amend it after discovery like you can in the United States. The person suing you will have to front the entire court costs and then fly in a judge from New Zealand. And if you lose, you pay. And this is one of the single worst things that we don’t have in the United States, that the loser does not need to pay the legal fees and costs of the winner.

Brian Bradley (00:58:30):

So if you get sued by somebody for a completely bogus reason, just a complete frivolous lawsuit and you spend $200,000 defending yourself in legal fees, and then finally the court throws that lawsuit out, you’re still out $200,000. That person that sued you is not going to be given the bill because in our legal system, in the United States, that would discourage lawsuits. And our legal system is run by trial lawyers who don’t want to discourage lawsuits, not to mention the statute of limitations is short. It’s most likely already run because there’s only one year for a one-year statute of limitations.

Brian Bradley (00:59:04):

But the drawback, because remember like I said, everything has kryptonite, the cost is going to be high. Generally, these type of trusts are anywhere from 35 to $40,000, $50,000 to set up, and for you to be purely foreign trust, you now have a lot of IRS reporting compliance and disclosures to file every year, as well as FATCA account compliance and disclosing a full balance sheet disclosure. So that’s a hard tool to swallow for a lot of people. And so many clients are just not comfortable with that. So while we have the most effective trust in the world by far, it’s not something that we usually are starting out with because of the fact that we have all these drawbacks, which then goes to the second option, the domestic asset protection trust.

Brian Bradley (00:59:47):

The domestic trust came into play about 10 years later in Alaska, then not to be outdone, and now we have Wyoming, Delaware and Nevada followed suit. And now we have about 19 states with domestic asset protection trust statues. So the states are jumping on board saying that our legal system is now a threat, and that things need to get done to protect your assets. And so asset protection of the United States is very valid. So asset protection as a concept is very important to understand that it’s valid, how you do it is really where it gets important. The issue with the purely domestic asset protect trust is that we live in the United States of America. We have a constitution, we have Article IV, Section 1, which is the full faith and credit clause.

Brian Bradley (01:00:30):

This clause provides that every state must grant full faith and credit to the jurisdictional proceedings of every other state. This means that for example, Nevada can pass an asset protection statute, but it can’t ignore a California or Washington or Florida court order. So where the Cook Islands can just throw that California judgment in the trash, Nevada can’t, Nevada has to respect it constitutionally. And now courts are just simply ignoring the choice of law clause. The legal landscape is shifting again, and failure means breach and assets are lost. So this is just completely unacceptable.

Brian Bradley (01:01:05):

And so because of the case law that we’re seeing, I’m not a big fan of a purely domestic asset protection trust or just anything purely domestic without a built in offshore component. And that comes into the hybrid option, which is called a Bridge Trust. And so I prefer a Bridge Trust for 95% of all of our clients. It’s a hybrid like a hybrid car, combining the best of the domestic and the best of the foreign components. And what we’re doing is just combining the best of both. It’s been around for over 28 years, and at the end of the date, it’s a fully registered foreign offshore asset protection trust with all those 40 years’ worth of case law.

Brian Bradley (01:01:45):

So it is fully registered offshore from day one with an offshore trustee, they’re sitting there in standby in case you need them, but we build the Bridge back for the IRS and for IRS purposes because the IRS them will classify that trust as a domestic trust by complying with this section USC Section 7701. And so it’s like having two passports. You can have your Swiss passport and the US passport. And as long as you have your US passport, the US will always consider you a US resident. So because of that Bridge, as long as we have our compliance, we stay classified domestically.

Brian Bradley (01:02:22):

And what this means is that the trust is cheaper, the setup is more flexible, and you have none of all those annoying IRS compliances and no IRS tax filings and disclosures at all because the trust is actually a US grant towards trust. But you now get the power of offshore trust if and when you ever need it because it’s now in your toolbox. And so during a big state of duress, like a doomsday lawsuit, your attorney would declare a state of duress and we would break the compliance IRS Bridge by removing you as the trustee. And so now you have the full strength of the offshore Cook Islands trust because of that.

Brian Bradley (01:02:58):

And so that’s where the true flexibility comes into play. And then the costs are going to be more reasonable. So now you have the most efficient trust, the easiest one to maintain, as well as one that’s going to be reasonable on cost.

Robert Leonard (01:03:12):

What do those costs look like instead?

Brian Bradley (01:03:16):

To set up a fully foreign trust, you’re generally going to be looking at like 50,000, versus a Bridge Trust, you’re going to be looking around like 20 and 3,000. The annual maintenance of fully foreign trust is generally about 10,000. We tell people like average about 10,000 a year, plus you’re going to have the fact to IRS compliance and your other disclosure IRS compliance. Those are not cheap and it’s really time consuming for your CPA to do those. You don’t have those IRS disclosures at all with the trust being domesticated. So FACTA compliance is out, 1035s and 1035As don’t exist. The annual maintenance cost for a Bridge Trust is generally like $2,600 a year. So it’s a lot cheaper.

Brian Bradley (01:03:58):

It’s still an investment, but the investment works out when they say you have about a million dollars or more of unprotected assets and you have a high risk profession, like either a full time real estate investor, doctor, surgeon, CPA, lawyer, plus real estate.

Robert Leonard (01:04:13):

Would you say that the Cook Islands are like Delaware in a sense, to use an analogy how like all these businesses?

Brian Bradley (01:04:21):

Yeah, I think that’s pretty fair. They’re the best when it comes to asset protection because that’s all that they do, they don’t have other, and they don’t dabble in taxes. So there’s no tax issues where you’re going to get red flag. So all they do is maintain the statutes for compliance and asset protection trust. They don’t have any other industry, so there’s no other agreements with the US or EU, European Union. There’s no trade agreements there because they have no other trade. They don’t have sugar, they’re not doing tourism, there’s no black pearls, white pearls. That’s all that they do.

Robert Leonard (01:04:53):

There’s no tourism, so you can’t go to the Cook Islands?

Brian Bradley (01:04:56):

You can go there, but you just don’t go there for a vacation. That’s not their service. They don’t have a service industry for it.

Robert Leonard (01:05:02):

Yeah. I’d never heard of it.

Brian Bradley (01:05:03):

Yeah. You don’t go there. There’s some hotels like little mom and pop places there, but that’s not what… Their literally whole soul business and economy is based around very strong asset protection trust.

Robert Leonard (01:05:16):

Have you ever been there?

Brian Bradley (01:05:18):

No, but I should go out. Our offshore trustee SouthPac keeps asking me to come out, but if I ever have to meet up, I just go like, “Let’s meet in New Zealand,” and go there, because it’s just too time consuming. Like I said, that’s one of their hurdles, statutory hurdles is getting there.

Robert Leonard (01:05:33):

Yeah. I pulled it up on the map.

Brian Bradley (01:05:33):

You have to physically try the case there in the Cook Islands, and flying a judge from New Zealand and try to find one of their local attorneys to represent you.

Robert Leonard (01:05:43):

I guess on the bright side, you’d have a pretty cool place to stay while the case is going on, but I looked it up on the map, it’s out in the middle of nowhere. Brian, I’ve had a great time on this call, my brain hurts to be honest, it’s been fascinating to learn about all this stuff. And there’s a bunch more that we could talk about. So we’ll have to get you back on the show. Before we wrap up, where can everybody go to find you?

Brian Bradley (01:06:06):

They can jump on my website, www.btblegal.com. And I use it more as educational resource with a lot of case law and frequently asked questions and videos.

Robert Leonard (01:06:17):

Awesome. I will be sure to put a link to all your resources in the show notes below for anybody that’s interested in checking them out. Thanks so much for joining me.

Brian Bradley (01:06:25):

No problem. Thanks for having me on, and I had a great time.

Robert Leonard (01:06:28):

All right guys, that’s all I had for this week’s episode of Real Estate Investing. I’ll see you again next week.

Outro (01:06:34):

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