Updated: Jul 4, 2020
Attorney Brian Bradley explains how to protect your assets in this episode of the Passive Cash Flow Podcast.
Brian Bradley was selected to Lawyers of Distinction List three years in a row (2018- 2020), Super Lawyers Rising Star List 2015, nominated to America's Top 100 High Stakes Litigators List and nominated to the 2017 Law Firm 500 Award. Brian is a Asset Protection Attorney and Advanced Strategic Estate Planning Attorney for Self-Made Entrepreneurs, Business Owners, Doctors, Real Estate Investors and HNW Families.
Brian also works as a Chief Knowledge Officer (CKO) helping other businesses maximize their value, manage intellectual capital and knowledge, identify and integrate new products, and integrate technology.
Brian has been featured on top podcasts shows such as:
- White Coat Investors Ep. 132
- The Freedom Formula For Physicians
- Next Level Physicians Ep. 33
- Docs Outside The Box
- Simple Passive CashFlow Ep. 188
- Old Dog’s Real Estate Network Ep 395
- Multifamily + Marketing Ep 171
- Best Advice Ever Ep. 1,811 & 2,077
- Cash Flow Diary
- Fearless Freedom Dr. G.
- Financial Gravity Ep. 131
- Money Savage E. 421 & 544
- Lifetime Cashflow through Real Estate
- Real Estate Investing for Cash Flow
- The Business Credit & Finance Show Episode 318
- Investing in the U.S. Ep. 186
- House Dudes Ep. 133
- Elevate Ep. 16
- The Real Estate Syndication Show Ep. 431
- Everything Real Estate Investing
- RFB Real Estate for Breakfast
- The Art Of Passive Income
- The DJE Podcast Ep. 51
- The Lean Law firm Ep. 55
- Passive Wealth Strategies
- Ideas that make an Impact
- The Real Estate Way to Wealth and Freedom Ep. 298
- Millennial Investing
The Passive Cash Flow Podcast is for beginner or experienced investors. Subscribe today to learn how you can diversify out of the stock market, own a part of an apartment building & start earning Passive Cash Flow!
Peoples Capital Group has been helping passive investors build wealth in NJ real estate for 10 years. Visit www.PeoplesCapitalGroup.com to find out if you qualify to start earning passive income and pay less taxes via investing in real estate. IRA's and 401K's are accepted.
Aaron Fragnito: All right, ladies and gentlemen, welcome to the Passive Cash Flow Podcast. We have an amazing guest. On today's episode, we have Brian Bradley, we're going to talk about asset protection. We're going to talk about how to protect your money, how to structure that asset and make sure that your hard-earned capital is protected here on the Passive Cash Flow Podcast. Sit tight and get ready for another episode.
Aaron: All right, listeners. Thanks for joining us here in the Passive Cash Flow Podcast. I'm your host Aaron Fragnito, a co-owner of Peoples Capital Group. We focus on buying apartment buildings in New Jersey with passive investors. You can learn more on peoplescapitalgroup.com. Let's introduce our amazing guest here today, Brian Bradley. Brian, say hello here, introduce yourself to the Passive Cash Flow Podcast.
Brian Bradley: Thanks, Aaron, for having me on and putting this podcast together. It's a big topic, but it's necessary, especially for people trying to get passive cashflow investments and properties. I hope this stuff we talk about today helps them out. Like you said, I'm an asset protection attorney. I was a ranked super lawyer rising star list, a lawyer distinction list three years in a row, nominated to the top 100 high stake litigators list and top 500 law firm award.
I also help consult other law firms on maximizing their value and technology integration beyond my asset protection practice. I write for the Oregon State Bar on higher levels of asset protection. In our practice, my practice focuses on higher net worth clients who just about turning that million-dollar mark who are probably accredited investors and looking to protect their wealth and protect their assets and level the playing field.
Aaron: That's incredible. That's why I wanted to have you on here, Brian, because you're obviously very established, very experienced with-- Part of this asset class that is so important is protection. A lot of people worry about returns and worry about who gets paid this or that but really, at the end of the day, the most important thing is how the asset is structured, how your hard-earned capital is protected, because, as we know, rule number one is don't lose money. A lot of that starts with having the right asset protection. What exactly is asset protection?
Brian: That's a great thing because it's a big misconception. I think people aren't even used to the term because it's not even a term that we really used until modern times. Asset protection is not traditional estate planning, it's modern estate planning. What we're doing is placing a legal barrier between your assets and your potential creditors. That's it. It's just like a barrier, like a safe that you hold your gold or your guns in.
Anything of value, like your real estate investments, you want to put behind the barrier so that it's not easy to attach a lien to or be reached or attacked with lawsuits. Now for people who grew up with a more old school mindset where lawsuits really were never an issue, back about 40 years ago, you could essentially have everything in your own personal name or in a family trust.
That was acceptable back then and you could get away with it about 30 years ago, but over the last 40 years, the litigation landscape has just completely changed. It's now become an actual billion-dollar business or industry with a B. Things that didn't happen in the past and that were allowed to happen in the past like contingency fee lawyers or law firm advertising are commonplace. Now law firms are simply just profit-driven businesses.
Asset protection, when done right, is your modern best bet and attempt to actually level the playing field by using all the different legal tools that we have, like business entities and asset protection trust. What this does is make it very hard for creditors to collect on you. At the end of the day, you can't stop somebody from suing you. That's not how our legal system is set up. What you can do something about is actually control how collectible you are and what jurisdiction you set these up in.
Aaron: Sure, absolutely. I'm always amazed by how many real estate investors because a lot of active real estate investors contact us to get into the passive side of the business, and work less and make more. A lot of times, they actually own their properties in their names. These are people with millions of dollars of assets. It's incredible the amount of risk you're taking on and how easy it is to go online and start an LLC.
Obviously, if you want to end up the operating agreement, there's more to it, but just starting a basic LLC really is easy, there's a lot more detail to it and there's obviously trusts and more in-depth assets. These days, it's pretty easy to get a basic LLC started and start some level of asset protection, which is great. Of course, we own all of our properties in different LLCs as well. What have you really seen that's changed over the last 30 years with the legal system, with assets?
Brian: A great concept as it relates to even just LLCs is the principle of legal versus practical authority. It's a really big point that needs to be understood with LLCs and it's the difference between how court systems actually work. The reality is that a judge can and does do whatever a judge wants. Let's say you have an LLC or an LP in some specific state like Nevada or Delaware or Wyoming, wherever it's going to be established at, generally, they're going to be governed by the state statutes that they're created in.
What this means is that if you own an asset and you put it into a Nevada LLC, an exclusive remedy for that is going to be the charging order. You hope that the judgment doesn't exceed what's inside that LLC. That's all great in practicality and in theory, but that's not how things actually work in the real world. One, if you are a California resident, let's say, and you have a Wyoming or Delaware LLC and your assets not in Delaware or Wyoming, where are you going to be sued from? Wherever that asset's at. Not in Delaware or Wyoming.
Delaware is not going to take their personal injury and tort and damage laws and bring them into another state. No, you're going to be using the state where the property is that you're getting sued out of, and the damage happened. That's a big misconception about that. Like I was saying, what practical authority is, is the power a judge actually has to make decisions.
The judge has very broad powers to reaching your assets, including seizing them, placing liens on them, foreclosing them, order of the sheriff sales, clearing title, even wage garnishment. The problem is, judges even without legal authority to do this, they have a superpower called the court of equity. They do these things by exercising this practical authority or this superpower. This can be done in direct contradiction to the established case law and statutes.
The result is that judge's practical authority just took your assets with no legal authority. This is what we're combating now, that's our modern legal system. The solution is to hinder a judge's practical authority over your assets, so that they can't circumvent the legal process, and to also put you in a stronger position of negotiating to bring the other party to the table when you-- Put you in a position of strength. We do this with LLCs and really we do this strictly-- The power comes from asset protection trust.
Aaron: That's incredible. I've talked to a lot of people that might spend $20,000 or $30,000 on an education package in real estate and they come out of those classes and courses and they're saying that you should start an LLC in Nevada or Delaware for the different benefits, you can't pierce it. I've talked to high-powered experienced attorneys such as yourself in this side of the business and they say, "No, if you're doing all your transactions in New Jersey, as we do here at Peoples Capital Group, starting a Delaware Nevada LLC, those laws aren't going to apply. New Jersey law will apply so you might as well start new jersey LLC."
Brian: That hit the the nail on the head. Our rule of thumb is wherever the assets going to be held, that's where you create your base layer LLC because that's what's going to hold it, that's the state, that the asset's in and that's where the lawsuits coming. There's no point of going out because you're not going to get the benefits of another state's personal injury and tort damage laws.
Aaron: Right, exactly. Okay, good. I got the right legal advice for a high cost, but it's worth every dollar. Absolutely. Always worth every dollar. Absolutely. Okay, great. Talk a little bit about maybe the road map to asset protection, just as far as a general guideline, if you're in this situation, you might be looking for this type of asset. I personally always-- I'm a young man building my real estate portfolio. I'm curious about trusts and when I might want to start looking at putting some assets in trusts. I know we're bunching a few questions together here. I'm a little bit curious about that road map there.
Brian: Yes. A good road map is you're just starting out, so you don't have an asset or you have one or two units. Start with an LLC. Don't go pay for the Taj Mahal. You're not ready for the Taj Mahal yet. Unless you're a doctor who has a really high salary, and you're going to accelerate to a million-dollar net worth really fast, start off basic. You're going to have insurance, have as much insurance as you can.
Understand that insurance has limits to it, and I wouldn't solely rely on insurance to cover you for big claims, that's not what they're there for. They're going to find legal wiggle room through fraud and intentional act arguments to turn their back on you and run, so you need something else. Entry-level, start with a good LLC. As you start growing, you're going to start separating your assets out into more LLCs because if one asset explodes and goes boom--
You can't stop an asset from exploding but you can stop it trickling into other ones. You hit a mid-tier, you got about 500,000 net worth, you're doing really good investing. You haven't turned the corner yet of being a high net worth individual, but you have enough to lose. That's where you incorporate an asset management limited partnership. You want to be able to take all those LLCs that own your assets and your real estate and put them into one easy, manageable company.
What that does is it separates ownership out from your management of the company, and it allows flexibility for us to eventually add an asset protection trust to it. The asset protection trust will own that management company. Your LLCs will own all your assets, you'll be managing the asset management limited partnership, and then you'll just be doing one tax planning.
All those came ones flow straight through the limited partnership. It simplifies it so your CPA doesn't hate you and then it makes it easy for you to manage with a single bank account attached to that management company. Then as you turn that million-dollar net worth mark, you come in with the big guns, the asset protection trust, which then owns that management company.
Aaron: Very good. Okay, yes. That's similar to how our structure is. Every property we buy, we start a new LLC and we may have different passive partners in that LLC. Seth, my business partner, and I own our shares of the LLC in Peoples Capital Group LLC where our monies flow from our other flips and apartment buildings that create passive cash flow. Of course, we've been guided to one day to move up to a trust level as well. That's great. So far all of your legal advice has matched the legal advice I've gotten here in New Jersey. Excellent setup. Final question. Asset protection trusts. You talked a little bit about that. What exactly is that, and who might need that?
Brian: Yes, so asset protection trust is a trust. Not all trusts are created equal. This is not a revocable living trust, this is going to be completely different. A revocable living trust has no protection. It's just, you die hopefully many decades from now, it just says, who are my assets going to? Avoiding probate and helping you with death taxes. They're not going to protect your assets.
An asset protection trust is a specific trust that you stick your assets in that actually have teeth to protect you from creditors while you're living and going to be sued. The big distinction of them is they can be domestic or foreign. We're really seeing a weakening of purely domestic asset protection trusts. Even if you go to Nevada and you have a Nevada asset protection firm create a Nevada asset protection trust for you, they are even saying, if you really want to have strong protection, you need to have an offshore component to it also now.
It's specifically because we're having a lot of cases come in that are piercing domestic asset protection trusts and weakening them, even if you live in that state. An asset protection trust is what's called, I'm going to give you some really geeky language, a self-settled spendthrift trust and they are a grantor trust. What that means is it's created by you, for you as your own beneficiary, and you retain some power and control over it, and they are irrevocable.
Bradley: Note, it can be created domestically in only 17 states. And that's part of the limitation of purely domestic ones is if you're not, for example, a Nevada resident using a Nevada asset protection trust, let's say you're in California, you're having case law come out that's saying, "We're not giving you any benefits of that because you're not a resident of Nevada." There's only 17 states that have these. If you're not in one of the 17 states and you're going to go spend money on that, you wasted a bunch of money and have a false sense of security.
Then even in residents, those courts now, for example, Alaska resident, there's a case having an Alaska asset protection trust, and they pierced it. Because of our Constitution, the full faith and credit clause, we're having a weakening of domestic asset protection trust. The really strong ones, foreign asset protection trust, and the Cook Islands have what's called statutory non-recognition is, "Even if you have a five million judgment against you, go pound sand. We're not recognizing it here."
You have to be sued here in the Cook Islands with a one-year statute of limitations, prove your case beyond a reasonable doubt, the murder standard. The plaintiff suing you has to front all the court costs. If they lose, they pay. If you're proving a case beyond a reasonable doubt, most likely they're going to lose and they've got to get into that court system within a year. By the time they even realize they have to see you there, it's already too late.
With the power of statutory non-recognition, it's going to be virtually impossible to win a lawsuit there, collect a judgment on it, but they're really expensive. What you can do is called a bridge trust. Marry the two together, have a domestic plan classified as foreign, and then you're going to be paying less in upfront costs, you're going to be having lower maintenance fees. The benefit of this bridge trust is you have the power and strength of the Cook Islands in your back pocket, if and when you ever need it. Whenever you're sued, what you do is you drop the IRS domestic compliance and automatically, the trust is now purely classified as a foreign Cook Island trust.
Aaron: Wow. [crosstalk] That is cool. I think I've seen that in the movies and stuff. That's where they go to protect their assets, high net worth individuals and whatnot. That's interesting. Now, my net worth is about $2 million at this point. Would I be at that point where I want to start looking at a bridge trust or--
Brian: Absolutely, great question. You'll be surprised. Generally, our biggest client profile is the net worth between 500,000 and 1.2 million. That's because most people, it takes a really long time to make that amount of net worth, but one lawsuit can completely wipe that level out, and the likelihood of rebuilding that is going to be really hard over time. Those are the ones that are looking to want this level of protection.
That level of protection with a bridge trust and a management company, general cost is around $29,000 as an upfront cost. When you look at different firms across the board, that's about the average pricing of it with $2,100 annual maintenance fee. If you're protecting a million or more in assets, when you weigh the cost and benefit analysis of it, that's where most of our client profile falls into.
Aaron: Yes, absolutely. Very interesting. All right. Well, maybe we'll have to talk offline about that a little more, but very interesting stuff. I love what you had to say today. How can people contact you if they're interested in learning more?
Brian: Yes, they can jump on my website, www.btblegal.com. We have tons of educational videos on there and pamphlets and brochures. Because for me it's all about educating people for you to make a decision. They can email me, Brian, B-R-I-A-N@btblegal.com and I don't mind, I do free consultations. I used to charge, but I don't because I just want people to get good education and advice. Even if you want to shop around. Don't be afraid to talk to lawyers. The problem is most lawyers won't do a free consultation. I want you to just have a good platform and foundation of education before you make a decision.
Aaron: No, I appreciate that. That's really good. It's so important, such an important part of everyone's business. I'm so amazed at how people can be great at building wealth and making money, but the complicated legal side of it, the more the protection of the assets is not always there.
Brian: It's human nature. It's like, "I'm going to go create my will," and then how many people will? It's like, 'I'm 65 and I still never got it done." It's the same thing with building wealth. You just want to keep building, building, building. "I'll get to the protection. I don't need it yet. I'm not being sued," but when you are being sued, it's too late. You got to do it beforehand, but it's just human nature. You don't ever want to think about the downside.
Aaron: Yes, absolutely. Well, thank you so much, Brian, for coming on. I'm glad we had you. We learned a wealth of information today. Thank you, everyone, for listening to the Passive Cash Flow Podcast. Please hit that subscribe button for a new episode every Friday and also check us out at peoplescapitalgroup.com if you want to learn more about investing passively in real estate. Enjoy your day.