Pride Can Be Expensive – Own Nothing, Control Everything | 439

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Control Everything

On today’s episode of Tax Hacker Tuesday, Tim Berry and Matt Theriault teach you how to own nothing and control everything. Learn the difference between control and ownership, the disadvantages of ownership, and how to switch from being the owner to the controller without losing anything.

Control Everything

What You Will Learn About Pride Can Be Expensive – Own Nothing, Control Everything:

  • The difference between control and ownership
  • How to be like billionaires who own nothing (but at a $100,000 level)
  • The disadvantages of ownership
  • Why you should reconsider your desires to control everything
  • How to switch from being the owner to the controller without losing anything
  • Tax code nuances you can take advantage of if you’re not related to the owner of the corporation

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Transcript:

Speaker 1: This is Theriault Media. Did you know that up to 50% of your lifetime income will be wiped out by taxes? What if you could stop this madness? Isn’t it about time you play on a level playing field with the wealthiest 1%? Now you can.

Tim Berry, attorney-at-law shares here each and every week current tactics and strategies that anyone can implement to hack the tax code, protect your assets and keep what’s rightfully yours. It’s time for Tax Hacker Tuesday.

Matt Theriault: Hello and welcome to the Epic Real Estate Investing show. It is Tax Hacker Tuesday with my attorney and friend, Mr. Tim Berry. Tim, how are you?

Tim Berry: I am doing fantastic Matt. Yourself?

Matt: I didn’t ask how you’re looking Tim, I asked how you’re feeling.

Tim: No, I’m looking marvelous.

Matt: Yes. On Mondays here at Epic, we show you new and creating ways as well as time-honored ways of making money using real estate. Then on Tuesdays, Tim shows you how to keep it. He’s got all the answers, I’ve got all the questions. So you can listen in to mine and listen to him answer, or if you have a question yourself for Tim, you can go to taxhacker.com/questions and post it there.

Matt: Alrighty, so today what do we got on the docket? God, that was the legalese, wasn’t it?

Tim: That was. That was impressive Matt, very impressive.

Matt: We’re talking about the difference between control and ownership. And I’ve seen movies, specifically, I’m thinking Law and Order, where he’s a billionaire but he doesn’t own a thing, right?

Tim: Uh-huh.

Matt: So how do you do that? And could you have to be a billionaire to make that worthwhile, or can you do that at a much lower level, like $100,000 a year guy?

Tim: No. I would suggest that everybody should have control versus ownership. That’s a super big thing because going back to the billionaire control versus ownership, hey, that’s cool. If he doesn’t have ownership, that means the bad guys, if he ever gets in trouble, they can’t take it away from him if he doesn’t own it. And yet if he controls it and then from a tax viewpoint, if he controls the tax flows, that’s priceless right there. And that’s a big, big, big distinction that most people don’t get.

Most people they’re caught into the ego and the pride of, “I own this corporation. I’m the 100% shareholder, I’m the 51% shareholder.” And I’m thinking, who gives a damn about the ownership? And excuse my language there. Who cares who’s the actual owner of the thing? Let’s talk about a) are you getting asset protection by having the 100% ownership? You’re not. And then b) are you getting any tax savings by having the 100% ownership? And you’re not. In fact, there’s all sort of neat tax things that are wiped out if you’re the owner of some company.

Matt: Got it. So pride of ownership can be expensive is what you’re saying. That’s what I’m hearing.

Tim: That’s a fantastic way to put it. Pride of ownership can be very expensive.

Matt: Okay. So how do we switch from being an owner of something to being the controller of something without losing anything?

Tim: Well, let’s talk about LLC, simple example. Let’s say that I own 100% of the LLC and I’m the manager of the LLC. Okay, that means that I’m in control of the LLC and I also have ownership which can be taken away. Now, let’s compare that with somebody else owns the LLC. Let’s say it’s a key employee of mine or a business partner, they own 100% of that LLC but I’m the manager of that LLC.

And let’s say that we wrote inside the operating agreement that I can’t be removed as manager for the next 10 years. Do you want to have control over that thing? Yeah. I control the cash flows. Now I can direct certain investments, certain deals to go to me and yet the other person has the ownership. So if I get involved in the lawsuit, bad guys can’t touch it. I’m protected.

And yet at the same time, if I have control over that thing, even if the bad guys take it away from this other person, if I can divert the cash flows, give myself a salary, give myself royalties, give myself interest, etcetera so forth, what do I care? That just doesn’t matter. That’s control versus ownership.

Matt: Okay. So let me play devil’s advocate.

Tim: Sure.

Matt: On a previous episode, if we want to keep the bad guys away, we need to understand that the bad guys have all the same rights as we do.

Tim: Yeah.

Matt: So if you get sued, can the bad guys take management control over the LLC?

Tim: No. They can’t management rights. The only thing the bad guys can take is economic rights. They can’t take the management rights. So we’re protected there. And by the way, with this example, I would still have the LLC wrapped up inside of a trust just because I do that with everything and I don’t trust anybody with the other assets, etcetera so forth.

But now, it’s going to be that other person who’s the owner of that and I’m still controlling the cash flows. And from a tax viewpoint, let me just toss out a couple of things around tax viewpoint. Just talking to somebody earlier today, they pay for the kids’ private education. There’s a little part of the tax code that says a corporation can pay the first 5,250 of an employee’s tuition, tax-free.

Matt: So what’s 5250? $5,000?

Tim: Yeah, $5,250.

Matt: Okay.

Tim: So that’s a deduction for the corporation and yet it’s not taxable to the person who got that 5,250. Challenge is, they can’t get that if they’re related to a 5% or greater owner of the corporation. So if I own my 50% of the corporation, my kids can’t benefit from that deduction. But if my key employee, my good buddy is the owner of the corporation and my kids work for their company, now they can benefit from that 5,250, from that 5,250 dollar tax deduction or credit if you will. Does that make sense?

Matt: Yes.

Tim: And there are all sorts of new ounces in the tax codes that it’s written so that the owners of the corporation can’t take advantage of it. But if you’re not related to the owner of the corporation, you can take advantage of it.

Matt: And I imagine in the operating agreement this puts serious limitations on what the owner can even do with the LLC.

Tim: Oh yeah, you can. You can put all sorts of limitations. And we haven’t really talked about the restricted deed concepts and all that stuff, but we could apply the same language that we do with restricted deeds. Saying that somebody can have the authority to yank that away from that person as well. So there are ways to have protections written inside the operating agreement.

Matt: Yes, that. I mean ’cause I was just thinking like if you have your employee owning 100% but in the operating agreement with the new ounces, there to where 100% of the benefit is essentially yours as manager.

Tim: Yeah. Well, let’s not say 100%. They still have to get some benefit otherwise it’ll be a sham transaction and all that other stuff. But if you’re making out like a bandit … That’s a wrong phrase to use. If you’re getting a good …[00:06:55]

Matt: I’m glad you recognized that after you said it.

Tim: Yeah. So but if you’re getting a lot of benefits, why not share the wealth a little bit with someone else?

Matt: Okay. What would be a share where it wouldn’t be looked at or frowned upon?

Tim: Just really all depends upon the situation. Let’s say they get 10% of the profits, 15, whatever, it just depends on the situation. Here’s the other cool thing, what if they’re an employee and they typically make 50, 60, $70,000 a year? Now you set ’em up inside their own corporation. This corporation makes, I don’t know, 100,000 a year.

Tim: But now you’re able to draw out a lot of employee benefits out of it to the tune of, let’s say, 40, 50,000. They still end up making 50,000 off of it, and this is where they’re getting paid their ‘salary’. But you’ve got all sorts of neat little executive benefits off to the side completely tax-free.

Matt: Got it. So own nothing, control everything is the ambition here.

Tim: Yeah, that’s the ambition.

Matt: Alright. And primarily that’s done with fancy LLC and trust.

Tim: That is just done with the corporations, LLCs, trust. Some sort of entity.

Matt: Okay. Don’t try this at home.

Tim: That’s a big one. Yeah, kids don’t try this at home.

Matt: Alright, super. Whenever you’re ready to have Tim customize a Tax Hacker Blueprint for you of which includes really good asset protection consulting just like what we talked about today inside of that if it’s right for you. So you can minimize the amount of the hard-earned income you sent to Uncle Sam, minimize the amount of hard-earned income that the bad guys have access to, you can go taxhacker.com download Tim’s free book to help you navigate the new tax plan. And then after you’ve done that, you’ll have the opportunity to schedule some time with Tim. And either he or one of his team members will get on the phone with you for a short five to 10-minute call to assess your situation. And then just tell them, “I want my Tax Hacker Blueprint.” And then they’ll take it from there, they’ll know exactly what to do.

Matt: Alrighty Tim, any last words on controlling verse ownership?

Tim: I can’t think of any sir.

Matt: Alrighty. You’re so thorough, I love it. Again, if you have any questions for Tim, you can go to taxhacker.com/questions and just post it there. We’ll read it here live on the show and Tim will answer live on the show.

Matt: So that’s it for Tim and myself, we’ll see you next week for another episode of Tax Hacker Tuesday on the Epic Real Estate Investing show.

Speaker 1: That’s it for today, as we dream of a tax system that works just for you. But until then, you have Tim Bery. See you next Tuesday for another episode of Tax Hacker Tuesday.