Mark Perlberg:
I’m super excited to introduce this upcoming webinar/podcast with Lou Brown. He dives into tax advantage strategies with selling and renting out single family homes in a way that he does it to make it profitable, easy, and fun. We also talk about trusts and all the amazing things that you can do with trusts for asset protection and tax strategies. Lou is a man on a mission, creating change and providing affordable housing, doing it in a way that creates success, profitability, and tax saving, and has so much wonderful insight on trusts. This is a strategy we will be introducing to some of our clients that are going to be more and more relevant over time, bonus appreciation phases out and their profitability grows. Tune in, you’re going to love this talk, lots of value and subscribe to the podcast and the webinar for more great insight.
All right guys, I am joined by Lou Brown. He has lots of expertise and experience in a variety of areas of real estate and also in trusts and trusts tax strategies. He coaches on real estate and advises on topics relating to real estate and trusts and entity structure and opportunities that will not only help you build a successful real estate business, but also some strategies to reduce your taxes and create asset protection with trusts. So we have a whole lot of stuff that Lou and I can riff on today. We could probably have multiple episodes, but I’ll respect your time, Lou, I really, really appreciate your time today. And let’s start off, Lou, let’s get a quick introduction to you to start off, tell us a little bit about yourself in 60 seconds or less.
Lou Brown:
Well Mark, thank you for the opportunity. I love real estate, I love trusts. It’s something that you and I hold a lot of close kinship on. And I’ve been buying, holding and selling real estate now for over 40 years. Bought my first house when I was 18 years old. I was able to buy that house by taking over the existing financing on the property, I’ve done that ever since. I’ve never been to the bank, I’ve never qualified for a loan on a single family or small multi-family property. I discovered that the seller could be the bank when you structure it correctly, and so as a result I’ve continued to do that way. Also, I’ve developed hotels, land, I’ve bought land, divided it into lots of condominiums. I’ve done a lot of things. And I love, love, love single family homes. I think there’s so much wealth and so much protection and safety in single family homes and there’s so much we can do with them, that I created a program called the Path to Home Ownership, where we help deserving families, regardless of credit or financial background, to end up with home ownership.
So in the evolution of that, I actually created a brand called Certified Affordable Housing Provider, where I show real estate entrepreneurs how they can get in the business, do the business, and now I have licensees all across America and in fact, in other parts of the world that are doing exactly that, they’re helping deserving families end up with home ownership and actually becoming the bank for them as well. So there’s a lot of financial side to what we do and tax strategies for sure, because we’re taking all the elements that are available in real estate and putting it together under one brand and offering the Path to Home Ownership also is an amazing path to tax savings and path to zero taxes as well.
Mark Perlberg:
Amazing. So what’s interesting, what you told me about right here, well first I want to share just some of the things that I’ve found for some of our clients. So we do have a lot of early professionals and there’s something called a professional mortgage for your first time you buy a home. And so if you are a CPA, a pilot or a nurse practitioner, a lawyer or a doctor, they say that you have the credentials and education to show that you are capable or will be capable to hold a mortgage. While you may not qualify or have the down payment, you can get a home with zero money down and zero PMI. You don’t even have to go through the VA loan or anything like that. So that’s a good opportunity. And then there’s NACA, N-A-C-A, but that takes a lot of work and commitment from what I hear.
Lou Brown:
And cost.
Mark Perlberg:
Yeah, I hear it takes a lot of energy. If you could go through it, you’d be all right. But it is, from what I hear from a handful of people, it is a lot, a lot of work to go through NACA, right?
Lou Brown:
Yeah. Ours is a lot easier and NACA is very expensive as well, in terms of there’s a burden put upon the seller to have to eat a lot of those costs. So we do it a different way. We’re actually helping deserving families to get into home ownership, then while they’re living with us, we’re helping them build their credit, build their down payment, and eventually when they get good enough credit or down payment, they can get a new loan from the bank if they choose to, or they can remain in our in-house financing program and we’ll finance them for the next 40 years.
Mark Perlberg:
So that’s really cool. What I’ve found is for so many people, just getting that first mortgage is so hard, and especially in New York City where a lot of my family is, that you have to come up with 20% down, in New York, you can’t get anything decent for under a quarter million dollars. And if you have a normal salary, it’s really hard to come up with $50,000 living in that city. So it’s great to see that there are opportunities out there and just getting that first home creates a whole world of opportunities as you build your equity, it’s just amazing what other doors that’s going to open.
Lou Brown:
Well, they’ve done the studies and they say that people who are renters, their net worth is around $5,000 and people who are buyers, are owners, their net worth is $250,000. So there’s a great divide between those that rent and those that buy. So we really encourage that. I was raised in apartments, I was raised by a single mom, immigrant to this country, who came over on the Queen Mary, she was a war bride and everything was going to be great and ended up just being the two of us against the world. And I was raised in apartments until I bought my first house when I was 18 years old. And I can tell you, it was one of the best decisions I have ever made in my life because that really got me on the trajectory to be able to build wealth and it is a truly amazing vehicle. I don’t know anything that comes close to real estate in truly building safe, secure wealth.
Mark Perlberg:
So do you help families purchase properties with zero money down, low money down? What’s the process?
Lou Brown:
No, we don’t do no money down. However, we do have a VIP, well might call it a house on layaway program, where people can join us with little funds and then every pay period, give us more build up on our VIP program, until they earn or build up enough for their option to purchase a property. So an option to purchase costs about 3.7% of the value of the property. We give them up to three years to buy. While they’re living there, we also credit them every month $100 towards the purchase of the home every month that they pay on time. So we’re helping them build up their down payment. And then when they do exercise their option to buy, we’ll take that original option fee amount and credit it to the purchase of the home as well.
So we’re really giving them an ability to build up that money while they’re living with us. And then when they get to 10%, we convert them to our in-house financing program, 10% of the value of the property, based upon the option that they signed with us, and that number becomes the value of the property at that time. And then we require 10%, which we deduct their original option fee and their rent credits from.
Mark Perlberg:
Nice. Well, I mean, that sounds really helpful for someone just starting off. Then I think about this from your perspective here, when you compare this to just selling a home outright, that’s ordinary income when you’re flipping a property, but if you make them your tenant first, you have a fixed asset and the disposition is now a capital gains asset. And once we convert ordinary income into capital gains income, you’re going to have so many more opportunities to defer or eliminate the tax liabilities in that. And we’ll talk about how you can do that within a trust in a little bit. But there’s also obviously the obvious answers are the 1031 exchange is another option, but we’ll talk about some things that’ll maybe put the 1031 to shame.
Lou Brown:
That’s also known as pain and suffering, is a 1031 tax deferred exchange. We actually have developed a tax strategy that I think you’ll appreciate as a tax advisor. So we have four levels to our program, it’s rent, rent to own, in-house financing and cash sale. So in the tax code arena, well rent and rent to own, that gives you depreciation write offs. Well, a lot of tax advisors say you ought to do straight line method, which is 27 and a half years. I don’t say that. I say a house is made up of component parts and the IRS lets you write off those component parts over five, seven and 15 years. So we componentize the house, also known as cost segregation, and we take those component parts and write them off a lot faster. So that creates a loss, that creates big losses. Now let’s go into the next arena, which is the in-house financing.
And as you know, that now can be spread over many, many years. So your capital gain is spread over many years. And in that arena, you’re only taking your gain as you receive it, so it’s spread out over a long time. You can use those losses in your rent and rent to own portfolio to offset the gains, which is now ordinary income, in your long term portfolio and long term note acquisition portfolio. And then finally, when those folks get good enough credit, good enough down payment and pay you off, now you have cashed out. When you cash out, of course, that’s ordinary income and all of the capital gain and everything would be due then. However, you’ve got this big pot of money, losses from your rent and rent to own that you can offset that ordinary income gain and zero out your taxes, and then any other money as it’s coming in. Imagine that going into a vehicle, that defers the gain forever, literally forever, not only your lifetime, your children’s lifetime, your grandchildren’s lifetime, and even plus 21 years before it becomes taxable.
Mark Perlberg:
Yeah, so I mean, those are all really awesome opportunities. And you know what else is awesome, is you don’t need real estate professional tax status to use depreciation to offset capital gains from your rental portfolio. So these are some tax strategies, even if you have a W2 and this is your side hustle, you could still use the losses from your cost seg to offset capital gains from your rental portfolio. And now let’s say you are using, you have rep status and you use your depreciation to bring you in a $0 tax bracket, married filing joint, roughly your first $80,000 of capital gains is untaxed at the federal level. So if you get some cap gains and you spread it out, instead of recognizing that gain all year one, you break it out into a five-year installment sale, now you have the opportunity to have that.
It’s kind of like a capital gains standard deduction that eats it up year after year after year and can potentially eliminate a good chunk of capital gains tax, drive it into the lower capital gains or $0 cap gains bracket. And here’s a little extra bonus that I learned from Dominique Molina of the CTC, called the reverse wash sale. If you find yourself in a $0 cap bracket with all these strategies and with cost seg, and you have some stock that’s at a higher value than you bought it at, why not sell it and buy it back at a higher basis? So let’s say you do that a few years, every year you could potentially add $80,000 to basis and eliminate $80,000 of taxable capital gains in the future. Lots of cool things when we combine different elements of strategies and look at all your sources of income and assets.
Lou Brown:
Yes, it’s like throwing everything in the basket and kind of sifting and sorting and seeing what falls out the bottom with proper planning. And that’s one of the reasons we created the Path to Home Ownership the way we did, because we’re helping people and that’s a wonderful thing, and we do that on purpose, with purpose. In fact, our mission is to transform lives through affordable housing, to empower families and individuals to enjoy the American dream of home ownership. Now with that mission, imagine that as your business model and you’re helping people, meanwhile, you’re attracting a whole lot of different folks that are deserving families and they would love to have home ownership. However, due to circumstances, maybe they had a setback, a medical setback, breakups, breakdowns, all kinds of things happen to human beings during their lifetime. I say that we’re beings and bodies on a journey and we’re here to learn whatever it is we’re here to learn.
And so based upon that experience that a lot of people have had, we’re able to step in and help them. And so different people come to us at different stages in their life and their spectrum, given that, we’re able to serve them. And it’s an amazing tax model because of the fact that we’re taking different parts of the tax code and we’re putting it all together. So the rental depreciation, the cost segregation, the installment sale, and then the cash sale, using these offsets puts us in that zero or hopefully lower tax world.
Mark Perlberg:
Yeah. This may be the point in our conversation where a lot of the casual people may have dropped off when I was talking about taxes for a little long, the last point. But what I really find interesting here is that you said your favorite type of asset is single family rentals. Because what I’ve found a lot of investors in my network say, is that they’re not a fan of single family rentals because it takes a while to close on the asset, in the same amount of time, you could close on a multi-family or you could do a short-term rental vacation home that’ll cash flow twice as much. But my guess here, why it works for you, is if you’re doing this with lease to own, you’re going to get tenants who really respect the property if they intend to turn in into their homes, but I’ve heard some horror stories on tenants abusing single family homes. Can you enlighten me and the audience on why you love single family homes so much?
Lou Brown:
Well, think about it, when that person is moving in, they’re giving me a big hunk of money and from tax, from an income standpoint as a landlord, and I certainly have been a landlord and we certainly have done multi-family properties and all that sort of thing, so it’s not a foreign matter to me, but all those people, when they moved in, they gave me something called a security deposit that I had to put in the bank and tell them what bank it was in and what account number it was in. And in some states, you even have to pay interest on that money. And you can’t spend it, you can’t do anything with it. As opposed to an option, when I get an option fee in or a down payment in, that money is mine to spend, so I can recycle that money, I can reinvest that money, put it into more assets, making more money.
So definitely it’s the attraction of getting that big fat down payment when they move in and getting that monthly payment month after month after month after month after month that they’re living there. It’s like getting a monthly dividend instead of a quarterly or an annual dividend, we get monthly dividends on our assets. And then I’ve got a caretaker, exactly as you pointed out, I’ve got a caretaker living in that property, improving that property. Mark, it would shock you what a lot of our residents have done, brand new flooring, new lighting, new ceiling fans, countertops, sinks, faucets, they’re fixing it up for themselves. They’re fixing it up as their own property. You never find renters doing that, or extremely rarely do you find them putting any of their own money into a property.
Now we’re doing something different, we’re getting these people into the properties and then we’re keeping them there. We’re giving them an opportunity, we’re working with them while they’re there. In fact, if they have less than perfect credit, we’re putting them into credit restoration, we’re educating them. We have a twice a month meeting with our clients, from an education standpoint, to help them. So definitely there’s a big commitment on our part to see them win at this game and when they win, we win.
Mark Perlberg:
So it’s always great when we have models like that and even Groucho woke up for this because he’s so excited, my cat. And to my understanding also, when you get these down payments, these options, it’s not taxable income until you, it’s treated as a credit of the purchaser when you close on the sale. So it also has tax advantages as well, in that you’re getting access to additional cash before you’re actually paying taxes on it, because it’s going to count as a credit towards the purchase of that property when that takes place.
Lou Brown:
Well Mark, you put your finger on another tax benefit. That’s a great one, and it is exactly correct. When you get an option fee in, well, that option fee is not taxable until they either exercise their option to buy or they don’t exercise their option to buy. So as a result, you’ve got that money and you’re using that money and you’re making money off that money and it’s not even taxable till a later date.
Mark Perlberg:
Yeah, so just another awesome advantage there. Have you ever done anything with this model in, I’m wondering if you’ve taken advantage of qualified opportunity zones with this as well?
Lou Brown:
That’s another whole level that absolutely could be done. There’s 8,800 opportunities zones around the country. They came in during the Trump administration, they did some amazing things in communities all over, to really give them an opportunity to have a better life in those kind of communities, and that was under Dr. Ben Carson. And oh my gosh, what great opportunities that presented for investors as well, because we can come into those areas, it’s a 10-year span and basically you invest in that area for 10 years and you have no capital gains.
Mark Perlberg:
Yeah. And it’s like a supercharged Roth IRA, someone will say, because you keep it for 10 years and then any gain after that, is untaxed and you have a lot more control and flexibility and you don’t have to wait until you’re 59 and a half, with a Roth. And you can invest in businesses and QOZs and even oil and gas mining wells as a strategy in QOZs, which can be part of your elimination reduction of the deferred cap gains. We talked about that in our last webinar, titled Tax Advantage Investments, with Chase [inaudible 00:21:28], which was a lot of fun. But we can riff on this forever and maybe we’ll go back to some of these strategies. But what I’m most excited to talk to you about now is having to do with trusts and trust tax strategies and asset protection strategies with trusts. So there’s so many ways, when you understand how the tax code works with trusts, that almost anyone who pays a decent amount of taxes, so let’s say you are paying more than $0 in taxes after all these strategies.
So let’s say you have a high paying W2 job and you’re like a normal person paying more than $20,000 in taxes. Now we’re with our clients to implement some trusts, and one of the reasons why our practice is diving into this strategy is because with bonus depreciation phasing out by 20% of every year, it’s going to get harder and harder to use cost seg to bring you down to a $0 tax bracket. And our clients are getting more successful, they’ve already front loaded the depreciation on their rentals with the cost segs, and they’re maybe running out of time to manage more. So we have some potential tax liabilities and we’re looking to use trusts. And then we’re going to even integrate that with college financial planning with our clients.
And by the way, Ron Carruthers, I was talking to him last night, he says, hi, he’s an awesome dude. He’s coming on in two weeks, on the 15th, to talk about college planning and we can use trusts and integrate that with a college financial planning to take assets out of the names of the clients and help them qualify for more aid and financing from universities, by putting the assets out of their name and therefore having more advantageous results when they apply for college tuition and financing. So just so many cool things to do here.
Lou Brown:
I’m glad you brought up the subject of trusts, Mark, because I date back to 1982 learning about trusts, and it was the government that forced me to learn about trusts. They passed a law called the Garn-St. Germaine Federal Depository Institutions Act of 1982. Now, backstory is I was able to buy my first property at 18 years old by taking over the existing financing on the property. It’s called an NENQ Loan, non-escalating, non-qualifying loan. And for $45, you could step in and take over someone else’s financing. It was perfect, it was wonderful. And we know that the banking industry is the banking industry and all Congress is bought and paid for by the banking industry. So what did they do? They passed a law that put an end to that. They were allowed legally to put the due upon sale clause in the mortgage. So everybody, when they read paragraph 17 or wherever it is in your mortgage, due upon sale, when you sell your home, you have to pay off the loan.
So I got to reading that law and what did I find? 1701J3D6C, way down in the law. I found exceptions. And one of the exceptions is when someone places their own property into their own trust, for estate planning purposes, the lender is prohibited from calling the loan due. Now here, fast-forward over 40 years later, that’s still in effect. Isn’t that interesting? So in other words, there was a reason they put that loophole in there. Why? Because congresspeople, of course, when they adopt trusts and they might buy their property and then later want to put it in trusts, they don’t want the lender to have the power to call this loan due upon sale.
So sure enough, here we are, we’re in this learning phase, and I realize that when a seller places their property in trust for estate planning purposes, when they use a particular type of trust, so I teach a thing called land trusts and land trusts convert real estate into personal property interests. In other words, in a land trust, you have an interest in the avails and proceeds which may flow from the trust. So what happens is your interest in a property held in a land trust is only personal property. So imagine that a personal property trust comes along and purchases that beneficial interest. So I figured all that out years ago, I’ve been teaching people that for over 40 years now, and it’s the funnest thing ever because when you learn that, number one, you can do that yourself when you’ve got the right paperwork, and I’ve got a whole system that I teach around what to do and how to do it, provide the paperwork on digitized so people can do their own.
And then what happens is you’ve now got this wonderful asset that you did not have to go to the bank, you did not have to qualify for loans, and you’ve got the benefit of the income off of it, the down payment money, and eventually when people pay you off, it’s a beautiful thing. So that’s really where I started with, was a very low cost, easy to use trust that really made a whole lot of sense. However, the land trust and personal property trust have no tax benefits. So then when people find themselves with W2 income, 1099 income, they’ve got these big hunks of money coming in on an annual basis and they want to offset that, I had to find another vehicle. And Mark, we certainly did, didn’t we?
Mark Perlberg:
Yes, we did.
Lou Brown:
You want me to talk about that?
Mark Perlberg:
Yeah, yeah. Oh, absolutely. And we’re going to be, this year, we’re going to be doing a lot of it with our clients. We’re super excited. But take it away, let’s get into it.
Lou Brown:
So what I found was that a lot of my people were becoming very, very successful with real real estate. I’ve been teaching since 1986. And so sure enough, I found that when that was occurring, then sure enough, they would use up their depreciation, they would use up their other tax vehicles, and they would end up making money there. Then I had other people joining me, they were professionals, they were dentists, physicians, I’ve got CPAs, I’ve got every tax professional, attorneys, I’ve got all kinds of folks that joined us, and they’ve got this ordinary income coming their way, like a freight train, that they got to pay for every year. And so I was looking at that and I’ve looked at different kinds of trusts and everybody needs to understand there’s about 30 different kinds of trusts. So when you hear the word trust, that doesn’t necessarily mean you know what you’re talking about.
And the same is true with professionals that say the word trust, well, there’s other vehicles out there that they are not familiar with. So when you take this information back to your tax professional or others in your world, they may never have heard of this before. And they may even question it to say, “Well, if it’s that good, why haven’t I heard about it before?” Well, there’s things that are suppressed, and if you’re like me, conspiracy theorist 101, I know for a fact that things are suppressed and information is not allowed to be out there for the general public. However, it’s available for all of us if we find out about it. Well, sure enough, I’ve found about this amazing vehicle, which is, I call it a dissing trust. I really call it the elite trust because it’s what the elites use. And what this type of trust allows you to do is it’s discretionary, meaning that the trustee of the trust can declare any money that comes into the trust as corpus to the trust.
And that means that all of that money, whether it’s the sale of a property or income from a property, all of that money can come in and be claimed as corpus to the trust. What that means is no taxes, baby, the taxes are deferred, not that they’re for free, they’re deferred until 21 years past the death of the final beneficiary, whenever that might be. So literally generations to come can avoid the taxation on the capital gain corpus. So surely when I recognized and realized that, I realized that we had an amazing vehicle here to work with. And seeing is believing, there’s actually a place on a 1041, so everybody else files a 1040, but trusts file a 1041 tax return. Well, sure enough, right there in the document is the place that you can put this deferral. So I love that, and as I’ve gotten deeper and deeper into this, Mark, it’s been an amazing journey. And I’ve been using [inaudible 00:31:08] I’m into my fifth year, and I’ve been teaching others how to use these.
So remember, I’ve been doing the land trust and personal property trust since 1983, but now to tie in with this new entity that was very hidden, that’s actually been around since before the IRS was invented and created as a tax collection agency. What happened before then is the JP Morgans, the Kennedys, the Rockefellers, all of them created this vehicle. So this vehicle actually has this carve out in the tax code to support it because it’s been here before the IRS got here.
Mark Perlberg:
So couple questions now because there is a tax rate for trusts. So how do we take a trust and a complex trust that has its own tax brackets, how do we make it a tax deferred vehicle?
Lou Brown:
Well, it’s simply to declare the income as corpus to the trust. So that’s where the deferral occurs. So you’re exactly right, there’s taxation, however, there’s deferral of that taxation. So that’s the short story.
Mark Perlberg:
And now another question I have here. So what’s interesting here is that if you’re thinking about putting real estate into a trust, real estate typically operates at a loss. Obviously when you have gains and potential capital gains, not so much. But have you ever had an instance where you’re evaluating, you have real estate here that will, let’s say you’ve front loaded depreciation with the cost seg, and it’s generating taxable profits at this point, you could put it into this trust and this deferred tax vehicle. But do you know if there’s any recapture? So let’s say we’ve written off through depreciation a good chunk, is there any recapture in that transaction?
Lou Brown:
Well, that’s where the cost seg is so good because there’s no recapture of the cost seg, except the part that you haven’t used yet. But other than that, there’s no recapture of that. So that’s one way that you lower the overall gain on the property. Now, the rest of the story though is that you’re not gifting or giving this property to the trust. You’re actually selling it to the trust. So when you sell it to the trust, the trust doesn’t have any money today, it just got started. So what can the trust give you? It can give you financing tool, so it can give you a note back. So you personally, let’s say you personally were selling your property to the trust, then you receive back from the trust a note and it’s a note with interest accruing so that at any time that you might need some money from the trust, you go to the trust and say, “Give me some money.”
And now you’ve got the money, if you needed any. And you’re going to be shocked that I can’t really come up with a good reason why I would need money out of the trust, when the trust pretty much is going to own everything. Imagine that the trust owns your personal residence, it owns vehicles, it owns everything. And to describe it to people, I say, have you ever heard of the Kennedy compound, where all the Kennedy clan all have homes up in Hyannis, Massachusetts. And what they do is all of those homes are owned by the trust, and those vehicles are owned by the trust. And they were smart enough, Joseph Kennedy, he was smart enough to say, “Look, I don’t know who my kids are going to marry, who they’re not going to marry, who’s going to sue who, what’s going to happen, who they’re going to intermarry? There’s going to be other families and all that sort of thing involved. I don’t want to put my work at risk, so therefore I’m going to make these kids beneficiaries, but they cannot touch the money. They cannot touch the money.”
So in other words, the money continues, it continues to make money, and we make the kids beneficiaries. Well, the kids are going to benefit from that for years to come. So just imagine that that opportunity just continues and continues and continues for generations to come and the money is protected.
Mark Perlberg:
Amazing. Now what I’m wondering is do trusts sometimes serve for some folks as an alternative to a prenuptial agreement?
Lou Brown:
Absolutely, 100%. Imagine that the assets are already in the trust and now you get married. Well, that has nothing to do with this. What happened before the marriage has nothing to do with marital assets. So what we actually created inside the elite trust, is what we call a sub trusts. So the kids, when they get married and they start creating their own assets and their own life, well they can, and inside their sub trust, they can protect their assets. So they got the benefit of whatever comes down from the primary trust or the mother trust, so to speak, it comes down, and then the beneficiaries also can have their own trusts for their own world.
Mark Perlberg:
And then another cool thing that I mean … and then there there’s also abilities to create charitable deductions with the private family foundation, where we’re donating our assets to a trust that’s dedicated for charity. And there’s the opportunity to reduce your taxes by 60% of AGI. Is that right?
Lou Brown:
So you’re just going to do it all at once, aren’t you, Mark? We’re just going to get into the whole myriad of things.
Mark Perlberg:
[inaudible 00:37:15].
Lou Brown:
You wouldn’t do that, would you? Now, the truly wealthy in this country, they have a tax dodge extraordinaire, and we always think of them as really good do-gooders because oh my gosh, they’ve got these foundations and these foundations are building wings on hospitals and they’re building buildings at colleges and universities, and they’re donating this, that and the other thing. Oh my gosh, what a tax dodge. Because what really happens in the real world is any money that’s declared as AGI, adjusted gross income, well they can donate 30% of that AGI to their own foundation, and it’s called a private family foundation. And that private family foundation, oh my goodness, they’ve got to travel the world over and the whole family’s got to go to select the next project.
And of course the foundation has to pay for all of that travel and pay to bring people in from all over the country and around the world to participate in that journey. And then there’s another 30% that can be donated to a public charity. Well, guess what? You can become your own public charity as well. So there’s just many ways that the wealthy, and we’ve heard this said for so many years, the wealthy just don’t pay taxes, but we really didn’t know how or why. Well, yeah, now you know how and why. They’ve got the combination of the elite trust, plus they’ve got the foundation and there’s just no good reason for them to pay taxes. And by the way, when you look up some of these foundations like the Gates Foundation for example, and the Buffett Foundation, and The Pew Foundation and the Ford Foundation and the Clinton Foundation, and what you do, you actually look at their tax returns and what do you find? 0.0 taxes on those foundations.
Mark Perlberg:
Yeah. And what’s cool is not only … so there’s amazing things and obviously you want to work with your advisor and some of our clients, we’re working on this with after tax season, some of our clients we’ve brought to a $0 AGI with other strategies. So they’re not quite ready for the trust strategy yet, but it’s on the horizon
Lou Brown:
You mean foundation strategy.
Mark Perlberg:
Yeah, I mean, so trusts for other reasons, maybe for asset protection and things like that. And so you know, have your reverse corporate veil, even though your assets are in your LLC, what if you get in a car accident? What if you have whatever or some sort of fictitious lawsuit against you and you are the owner of those assets? So in the reverse, the trust can help you protect your LLCs assets from being seized. So there’s this whole other world of asset protection where the trust comes in as well.
Lou Brown:
Exactly. So that’s another reason why you want to do this. I say that there’s about 30 reasons to do trusts over any other entity, corporations, LLCs, limited partnerships, because trusts can deliver things that other entities cannot. So we delve into things like probate. Probate is a thing that every dead person, that’s the result of every dead person, the opportunity for probate. And if they left a will, that’s a guarantee for probate. If they left assets in an LLC or corporation, that’s a guarantee for probate.
Mark Perlberg:
Pain in the neck for us, by the way, to do additional return when it’s in probate. I’m sorry, go on.
Lou Brown:
I’m sorry?
Mark Perlberg:
To do the additional estate return when it’s in probate is a pain in the neck.
Lou Brown:
Yeah, there you go. And another thing which can be avoided when you own property in trust, any of your properties, hopefully all of your property and your money too, when that’s in trust, it avoids probate. And of course, probate is the process by which we take the assets of a dead person and give it to the rightful living heirs, whomever that might be. But that’s got to be sorted out by a court, attorneys, filings, judgments, pleadings, all kinds of stuff. And you’ve got the expense of that, the delay of that, the upsets, the breakdowns, the family responsibilities, somebody’s going to be burdened with having to deal with this. Everybody else thinks they’re stealing and all they’re doing is just tearing their hair out, trying to deal with the assets and trying to deal with it. All of that can be avoided 100% by putting your assets into trust.
So what happens is at death, the trust already says who the beneficiary is going to be. So if you’re the primary beneficiary, it immediately instantly at the death goes to the rightful living heirs. And so that is done through the probate, excuse me, through the trustee process, no probate is necessary, no filings with the court is necessary, no refiling of deeds and titles to vehicles. All of that is eliminated when you’ve already done it by placing it into trust and then saying who you want to get it. That’s exactly what the judge does, so there’s no need for a judge, courts, delays, expenses, attorneys or anything, so there’s yet another reason for trusts. And then Mark, as you pointed out, asset protection, it is a big thing. We know that, at least my belief is that our legal system is flawed and there’s winners and losers and sometimes the winners shouldn’t have been the winners and the losers should not have been the losers, and that’s because of our flawed legal system.
So what I’ve found is the smarter thing to do is get your assets into a tank. Just think about a tank, if a mortar shell goes off next to a tank, the tank might rock a little bit, but it does not blow up. And we’ve got other vehicles out here in the world, LLCs, corporations, limited partnerships, weak trusts that people can easily blow up using the court system. This trust is another whole thing. So it has spin thrift provisions in there, which think about Teddy Kennedy, think about Mary Jo Kopechne. Think about there was a murder, death, whatever you want to call it, and what happened was they didn’t go after him criminally, but the Kopechne family went after him civilly. What did they get? They got a big fat judgment against Teddy Kennedy. Were they able to collect? No, at all. Why? Because all the assets were in this trust, this type of trust. And so they went after him personally, he didn’t own anything, so they weren’t able to collect on their big fat, multimillion dollar judgment.
And by the way, OJ, same deal. So we start to remember stories from our past and start to realize, oh my gosh, this has been around for a long time, I just didn’t know about it.
Mark Perlberg:
Yes. And what else is cool, and correct me if I’m wrong, but to my understanding, even with the trust and going through and not only do you get to avoid probate, but you still see the tax advantages of the step-up basis in the property. And as an additional advantage here, let’s say you were on the fence on whether or not to do a cost seg this year or next year for your client, and so we’ve done this actually, where the client passed away, even though after the date of the death, we were still able to run a cost seg on the client’s tax return. So we saw the benefits of the [inaudible 00:45:23] depreciation on that client’s 1040 and then it went to right away to be inherited by the heirs. And that basis went right back up to fair market value onto the 1040s and income statements of the heirs who inherited the property.
Lou Brown:
Yes, correct. So that’s the cool thing about having assets in this type of vehicle because what happens is it passes from generation to generation and the kids, they just have their own personal tax returns that might not show a lot, if you know what I mean.
Mark Perlberg:
Yeah, I think they were trying to go against this. I mean, it’s just insane when you talk about generational wealth with real estate, I don’t know of anything that’s so much more powerful. I mean there’s tons of strategies out there, but when you have a portfolio of stocks or other types of vehicles, C-Corp stock isn’t going to get that step up to fair market value, nor is S-Corp stock. But your ownership of that real estate, that you’ve been using depreciation to offset the profits year after year, and then right when your heirs inherit it, the depreciation starts all over again from step one again.
Lou Brown:
It’s a beautiful thing. And so you think about what you’re trying to accomplish in life, you’ve worked hard, you want to keep what you’ve got, you don’t want frivolous lawsuits to be able to take everything that you’ve already earned. And I equate it to there’s somebody that’s completely broke and they run into you and you’ve got a claim against them, what can you get? Absolutely nothing. So this, to me, levels the playing field because nobody ought to be able to get nothing out of anybody if they didn’t work for it. And so I think work for it and protect yourself.
And I don’t mean to teach this in any form or fashion as a way to get away with something. I’m just saying that when frivolous people are out there definitely using the system in order to collect, I want to be very cautious and think in advance that they could be out to get me sooner or later, and therefore I want to make sure that I’m out of the line of fire. You look up and you don’t find anything, that’s the way you ought to look on public record, they can’t find anything in your name worth having. So if everything has been sold to the trust and you don’t own it anymore, to me, that’s the perfect place to be.
Mark Perlberg:
Awesome. You have so many projects with the real estate, with the stuff that you’re helping out with the trust. And I look through your site and there’s just so many resources for people either looking for affordable housing, looking to get into real estate, looking for tax strategies. Where can people go to learn more about the stuff that you’re working on?
Lou Brown:
Definitely streetsmartinvestor.com, streetsmartinvestor.com. You want to know more about becoming a certified affordable housing provider, you can go to certifiedaffordablehousingprovider.com. And also you can get my book Doing Good While Doing Well, it’s getdoinggoodbook.com. You can get a free copy of my international Amazon bestseller right there at getdoinggoodbook.com. And that tells you more stories from our licensees from all over the country, many of which have adopted this type of trust in their world, because they’ve evolved. They started with me, with no properties and now they’re not only millionaires but multimillionaires and they needed a vehicle like this. So I’m very pleased that I was able to learn it and bring it to them and pleased that I was able to be an expert in trusts because the government forced me to.
So it’s kind of a pay it forward thing, where I can share it with other folks. And by the way, those folks that are not ready for the elite trust, we still have the land trust and the personal property trusts, and certainly I started all my folks with the land trust and personal property trust. But I’ll leave you with these words, do not own anything in your own name in this country, period. That is the worst place you can be, from a liability, from an asset protection, from a probate standpoint, is to own things in your own name. And encourage your parents and your grandparents to also get their assets into trust. Because who’s that going to help? That’s help you because you’re the one that’s going to have to deal with that probate, pain and suffering, expenses, delay and costs that could be avoided just because you paid attention to this podcast today that Mark is providing to you.
So very smart on your part to be here. I have a full-blown webinar that teaches land trust and personal property trusts, as well as the elite trust. And Mark is going to put those links here as well. So definitely love to have you explore and educate yourself, learn more, and I would love to see you at one of my upcoming events.
Mark Perlberg:
Awesome. So tell us what you do outside of work, what are some of the other things in the world of Lou Brown?
Lou Brown:
So I have a son and a daughter and a foster daughter, and I love spending time with them. And I have a granddaughter now and a new one on the way. Very, very happy, from my son. So life is good, I spend time with them. Honestly, my work is my hobby, I love what I do and so I spend a lot of time with my licensees. We have weekly meetings together and I’m supporting and helping them grow their businesses. I do coaching and training and consulting. So as a result of that, it keeps me very busy at something that I absolutely love.
Mark Perlberg:
Awesome. And do you have maybe an ask of the audience or is there a big goal you’re working on?
Lou Brown:
Well, absolutely. I’m just one single person and I believe that we can transform housing in America. I know for a fact that we have transformed many lives. Harvard has done the studies on people that grow up in apartments versus in homes and kids that grow up in homes go on to a better life, they go on to higher education, they go on to more income and they go on to more stable relationships, and that’s a Harvard study that proves that. So it just goes on to show that you are making a difference in other people’s lives when you help them to obtain home ownership. So it is a vision, dream, desire and goal of what I do. And definitely I love teaching others how to build businesses, doing exactly the same thing. So my ask is just to explore. We have a one-day training called Wealth Builder Workshop, wealthbuilderworkshop.online, where you can join me for a whole dollar, for a whole day.
And there you can learn more about what we do and how we do it. We do teach trusts there, as well as finding the buyer before you even buy the property. So we’re looking for these type of folks that want to be served by us, and then we go about finding a property that will match their situation, making a nice equity in between, arbitrage, where you’re making some income on an ongoing basis from that asset, a big fat down payment, monthly income, and then a big fat payment when they pay you off and give you an opportunity to defer the taxes on that forever. So love just teaching that whole process and would love to have you come join us. Our 800 number is 1800 578 8580, that’s 1800 578 8580. Look forward to seeing you in the future.
Mark Perlberg:
Awesome. So lots of great information there. Lou, I really, really appreciate this conversation, getting your perspective on this stuff and a unique perspective and a thoughtful perspective in hearing about your mission. And success is not a zero-sum game, so when you can be successful by helping other people, is always just a wonderful and gratifying experience. So hopefully you’ve inspired some of our listeners to do some wonderful things and we’re really excited to share this to everyone and thanks again for showing everything you got.
Lou Brown:
All right, brother. Well, thank you for the opportunity as well. And I always say good luck, good health, and may God bless, have a great day.