#94: Legal Asset Protection Tools

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Today’s guest Douglass Lodmell is Managing Partner of Lodmell & Lodmell, P.C., one of the nation’s leading Asset protection Law Firms. Originally from Geneva, Switzerland, Douglass stood out at an early age as one of the brightest minds of his generation. Douglass’ law firm is responsible for protecting over $4 Billion in client assets. Douglass spends much of his time teaching, speaking, and leading thousands of business owners, corporate executives, investors, and other professionals who have often worked most of their lives to accumulate a wealth of various types, including real estate and securities.

Asset Protection works by removing the economic incentive for a person, and that person’s attorney to pursue you in a court of law. The best way to protect your assets is to take legal steps to make you unattractive to potential predators. Since 1997, Lodmell & Lodmell has helped to protect and preserve the assets and wealth of thousands of clients nationwide.

In this episode, we’re discussing…

•        [2:09] What they focus on and what the firm primary does to help people

•        [4:33] Understanding where asset protection came from

•        [7:30] When you can start thinking about asset protection

•        [9:21] Tools that can be used and different types of trust

•        [13:10] What asset management is, how it works, and the advantages

•        [15:43] What can you put in your assets?

•        [19:20] What about personal assets? How they are protected in a trust and how all these works

•        [22:12] What is the bridge trust and how does it work

•        [25: 07] Offshore protection

•        [35: 47] When to change the LLC into a holding company
  
  

Douglass Top Tip’s

•        “The trust is still a major component, it's still the biggest component of an asset protection plan, from their things like corporations, and eventually limited, limited partnerships first, and then eventually limited liability companies came along. And we started using those to augment and to bolster the concept of a trust”

•        “LLC really is a great place to start. I was just on the phone with some clients. They're just starting out there. It's two partners, they're going to buy a house together, to rent an Airbnb and so forth. They're both going to put $50,000 down. What they need is an LLC, this protects them from each other, it protects their creditors from the house. And it's an opportunity to make a really clear agreement about what happens if one dies, etc.

•        “A holding company sits on top of the LLC and can have as many LLC underneath it as the client needs. And a holding company can be either another LLC, or I actually prefer us using something called a limited partnership. A limited partnership has the exact same statutory protection as an LLC, meaning that a creditor can't go in and foreclose on the underlying assets. But it has a distinction between the general partnership interest and the limited partnership interest”

•        “There's a principal law, you always want to use something statutorily if you can, and then if you can't, then you, you draft it. So, when we get to the third tool, which is that asset protection trust, the limited partnership is ideal. And that's really why I like it, is because, if you're starting at where you're going to end up, which is with an asset protection trust at the top, then the holding company being a limited partnership is better, in my opinion, it works better”

•        “An asset management, a limited partnership. But it can be used exactly like a Family Limited Partnership, which is the FLP. So, it does double duty, it protects assets, and you can add your children in there, you can start to do gifting in there. Certainly, if you have $20 million assets, we definitely want to be talking about gifting and adding family members, the asset protection trust is absolutely appropriate”

•        “I'm actually a fan of simplicity as few LLCs as we need one holding company unless we need a second one, and that's rarely done we need a second one, and then straight to the asset protection trust. Focus on having the strongest tool at the top and get that in there sooner rather than later. Your CPA will thank you because we're talking about, just one tax return. Because if you make an LLC, a single member, and that single member is the holding company, that LLC is disregarded for tax purposes, and doesn't have to file its own tax return”

•        “Anything risky will be in an LLC before it goes into the holding company. But once it's in that LLC, then it's free to go into the holding company. The cash stocks, bonds, investments, coins, cryptocurrency, none of that is risky. And it can go directly into the holding company, the limited partnership, that asset management limited partnership”

•        “So, what you end up with, pretty simple, the holding company is holding all the safe stuff directly. And then it's holding all the membership interest in the risky LLC. We keep it simple, but we've got everything protected, and also isolated. If you got a property and has a mold claim, and it starts to explode, it LLC, we can cut it off and it doesn't affect the rest of the assets”

•        “I tell clients, they need to budget at least $10,000 a year to maintain a fully foreign trust. And ideally, you'd set up an offshore bank account and you'd have at least some if not most of your assets offshore. So that's kind of the one side of the equation. The other side is this domestic asset protection trust that it's now available in 19 US states. The advantage of that is that it's domestic. It's doesn't have the foreign trust compliance requirements”

•        “And so, for most of my clients, I'd say 95%, the bridge trust, when they hit that million-dollar mark of net equity, is the right choice. And then for about 5%, they meet those other two criteria, they're either wanting to nest a good amount of money, or their risk profile is so high that we want to just go straight offshore”

•        “Where we put the bridge trust is as the majority limited partner, which would be above and owning the majority, like 98%, of that limited partnership Holding Company of that asset management, limited partnership Holding Company, which is holding all your assets, all your liquid assets, all your safe assets directly. And then it's also holding all the LLC interest that you have for all the risky assets. So basically, all your assets are in the holding company, and then, in turn, all in the trust. So, we've got the protection”

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Mike Stohler
What if you could be doing something smarter with your money that creates income. Now, if you're wanting to get ahead financially, and enjoy greater freedom of choice, if you want a comfortable retirement, and you know you'll have more choices, if you can do more with your money. Now, if you've wondered who else is creating ways to make their money work for them, and you want actionable ideas, with honest pros and cons, and no fluff. Welcome to the richer geek podcast. We're here helping people find creative ways to build wealth and financial freedom. I'm Mike Stoller, and in this podcast, you'll hear from others who are already doing these things, and learn how you can.

All right, everybody, welcome back to another great episode of the Richard geek. We're welcoming, welcoming Douglass Lodmell. And we're excited to have him on and he's going to talk about some asset protection. I know a lot of you are asking questions about when and where and how. And all that. So welcome, Douglas. How you doing?

Douglass Lodmell Thanks, Mike. I'm doing great. Good.

Mike Stohler You're staying out of the heat.

Douglass Lodmell
Yeah, actually, I'm in Colorado for the summer. So out of the heat of Scottsdale. Yeah, it's 117. Down there something.

Mike Stohler
Yeah, yeah, that's where I met. Yeah. You know, I still golf in the heat, but, boy, crazy. Well, that's what they submitted. I'm both I think, yeah, yeah. But I did just get back from the vacation in Wisconsin golfing. Oh, nice. So that was nice. But you that is when I appreciate the dry heat. Yeah, right. Yeah, Arizona's not so bad. Really. It's it's not. So anyway, we're going to talk about asset protection. Tell us about yourself and your firm. And what you guys do?.

Douglass Lodmell
Sure, sure, I'm the managing partner of LOD, non LOD Mal. We're an asset protection law firm, that's all we do is asset protection. We've been doing it for 20. Since 1997, almost 25 years now. My partner is my father, Gary, he really started this. And, you know, we focus on helping people protect their assets, primarily from lawsuits. But you know, it really is almost anything that could affect your wealth. So, you know, we've worked with a lot of real estate folks, we work with a lot of entrepreneurs, a lot of business owners, and there's lots of nuances to all of it. And, you know, over the past 25 years, 25 years ago, we said, I'm an asset protection attorney, people really didn't even know what that was. I mean, it was really like, Okay, what does that mean? Today, everyone knows what it is. And asset protection is really kind of come of age, it's a thing now, the problem when something kind of hits that tipping point is that the amount of misinformation is is massive, and filtering through all that can get very confusing if you're the consumer. You're trying to figure out what what's the wheat, and what's the chaff. And so hopefully on this, we can we can help everybody who's listening really kind of sort out what's, you know, what the real story is, with all these different things, you hear about offshore trusts and LLCs and holding companies and you know, how do they all fit together? And when do you need him? All those things matter? And it's all it's all very confusing until you get it figured out

Mike Stohler
what it is, and even when, you know, there's a lot of attorneys out there that can draw things up. Sure. But that's all they do. You know, you know, I'm sitting with a lot of different asset protection things that someone said I needed. And I had, you know, here it is, yeah, good luck. Okay. But, you know, what can I put, you know, it's like, how does it work? You know, so we're going to let's, let's first get into asset protection has been around for a long time, I figure ever since someone made a lot of money, they wanted to protect their assets. That was kind of the beginning of when people you know, I'm sure it goes back to the Rockefeller trusts and all those different things with with the flps and things like that, but where did it start?

Douglass Lodmell
Yeah, I mean, that's a really good question. It's a really helpful thing to to understand where asset protection came from. It really did come from the the original, even English common law, respected and had the concept of a trust. And trusts are very powerful because the Rockefellers and the vanderbilts and all the the families that had wealth, when they gave their money away, the smart ones gave it in trust, and so with they do is they create a trust and they say, Okay, this is for my kids, it's for my grandkids, even my great grandkids, but I don't want them to just blow it. And so I'm going to put some provisions around it that say, they can get it under these circumstances, but not under these circumstances, or they can get on allowance for this. But if they want the principle, they have to come up with meet these requirements. And by the way, I don't want your their creditors to get it and I don't want their ex spouses to get it. And those concepts ended up becoming known as spendthrift provisions because a spendthrift is somebody who can't hold on to money. They're spendthrift they just they just go through money like water. Well, spendthrift provisions are provisions in a trust document, which protect that person from their own spend thriftiness, their own inability to hold on to invest properly and manage money, which a lot of wealthy kids and grandkids had that problem, they grew up with money, and it was just, you know, they just couldn't, they didn't make it. So they didn't, they didn't take care of it. So Spencer provisions in that concept of a trust, that was really the beginning of asset protection. And, and you'll see later in the podcast, when we get to today's tools, the trust is still a major component, it's still the biggest component of an asset protection plan, from their things like corporations, and eventually limited, limited partnerships first, and then eventually limited liability companies came along. And we started using those to augment and to bolster the concept of a trust. And then ultimately, this concept of a trust was expanded to be able to include yourself. So when the vanderbilts set up a trust for kids and grandkids, that was fine, but they weren't ever allowed to set up a trust for themselves. And they probably never thought of it, they can manage their own money. Well, today in an asset protection trust, that's exactly what we're doing. We're setting up a trust for ourselves, we're actually making and adding those all powerful spendthrift provision. So it's, it's pretty amazing what we can do today with with asset protection, and in particular, with an asset protection trust,

Mike Stohler
okay, and now, you don't have to have their wealth, no thinking about asset protection. So before we get into the different types, you know, let's talk about a lot of our listeners are in the tech world and make a lot of money. They may do some type of passive investing, they may get an LLC, because the maybe the general partner said, Hey, if you're gonna invest with me, let's do a an LLC. Yeah. And so when can you start thinking about asset protection?

Douglass Lodmell
Yeah, Mike, that's really an important question. And the answer is you should start thinking about it, the minute you're doing any kind of investing, even your first one, your first $50,000 downpayment, on a rental home, or $50,000 investment in a syndication, you should start thinking about it, are you going to need all the sophisticated tools at that time? No, but thinking about it, understanding it, knowing what your game plan is, and when you need to add those tools is really critical. I have a philosophy start at the end. If I'm buying a house, I look at the highest end houses and I worked my way down, I don't look at at where I think I want to be and try to work my way up. I think that holds true with anything and everything in life, start at the end where you see yourself, and then work your way back to where you are today. Because you've built now the mindset and the strategy to actually get there. So the answer is start thinking about it immediately. And, and understand where you're going.

Mike Stohler
Now, so let's start talking about some of the tools that we can use. And, you know, everyone knows, LLC, yeah. And now everyone is starting to learn that an LLC is a good start. Right protects you from some things. But then what's the next step? up? You know, you have you have a Will you have a trust, and then there are different types of trusts. So where, you know, let's talk about some of the some of the things we can do now..

Douglass Lodmell
Sure, So LLC really is a great place to start. So I was just on the phone with some clients. They're they're just starting out the there. It's it's two partners, they're going to buy a house together, they're going to rent an Airbnb and so forth. They're both going to put $50,000 down What they need is an LLC, This protects them from each other, it protects the their creditors that you know the from from the house. And it's an opportunity for to make a really clear agreement about what happens if one dies, etc. And because they're each investing 50,000 for a total of 100,000. That's really all they need. They don't need a holding company on top of that. It's going to do all The job they need. And that's, and that's where they're going to begin. And that's where a lot of people would begin. Once you get up, let's say that that this client does it with another person or on their own, and they start doing two or three LLCs. With $50,000 each in it. Now we start looking at something called a holding company. And a holding company sits on top of the LLC, and can have as many LLC underneath it as the client needs. And a holding company can be either another LLC, or I actually prefer us using something called a limited partnership. Now limited partnership has the exact same statutory protection as an LLC, meaning that a creditor can't go in and foreclose on the underlying assets. But it has a distinction between the general partnership interest and the limited partnership interest. And it's a little bit older of a tool they were around before the LLCs. Even today, a lot of real estate syndication deals will still use limited partnerships, because they like that distinction between the general partner, which is the controlling partner, and the limited partner, which is the non-controlling partner. In an LLC, if you want to make that structure work, you'd have to you'd have to do it through the operating agreement by creating different classes of membership interest, but in a limited partnership, it's automatic, the statute lays it out. And there's a principle law, you always want to use something statutorily if you can, and then if you can't, then you you, you draft it. So um, and and when we get to the third tool, which is that asset protection trust, the limited partnership is ideal. And that's really why I like it, is because again, if you're starting at where you're going to end up, which is with a an asset protection trust at the top, then the holding company being a limited partnership is better, in my opinion, it works better. And I use a specific jurisdiction for that holding company. I like Arizona, because of the laws there because of the maintenance requirements there, which are almost none. And because of some of the unique pieces of a statute, again, mainly connected to how we connect that asset protection trust. So so I would Yeah, you know, that's kind of the LLC, then the holding company is the next step.

Mike Stohler
So once you get into, for instance, if our listeners get big enough, we have, I have two hotels, a dozen homes, multifamily, or once you start getting out, now you have 15 $20 million worth of assets, you have liabilities that are different than hotels, and they may be in the homes. That's where that the asset protection trust comes in, or do you? Is there something else now that we need to? I want to protect myself from someone slipping on the sidewalk? or doing something like that. But I also want to protect my family, you know, my personal wealth, my homes? Is that where we get into the different type of trust? Or do we need to then get into maybe an FLP? You know, that type of limited partnership?

Douglass Lodmell
Yeah, yeah. So that's a again, really good point. So the LLC, the holding company, the limited partnership, I call it an asset management, limited partnership. But it can be used exactly like a family Limited Partnership, which is the FLP you mentioned. So it does double duty, it protects assets, and it can it can plan, you can add your children in there, you can start to do gifting in there. Certainly if you have $20 million assets, we definitely want to be talking about gifting and adding family members, the asset protection trust is absolutely appropriate. The reality is is the asset protection trust is appropriate at about a million dollars of protectable net worth. So you might have $5 million of assets $4 million a liability, that means you have a million dollars of net equity. So we start adding that asset protection trust when we hit that million dollars of net equity. So so not just the gross value, but the net value after you subtract the debt. And then the limited partnership definitely before that. And in my school of thought we that limited partnership is the holding company. So I believe in simplicity. I want as few moving parts as I can get. I don't there are some attorneys out there that love complication. I'm not sure why. And maybe they feel like they charge more. They're doing more of a job if they make it complicated, or somehow it's stronger if no one can understand it. But my experience has been if my clients don't understand what they have, they're not going to hang on to it. They're going to get pushback from their CPA, you know, and in a legal sense. There have been cases where judges have looked at things just said no one in their right mind would do something this complicated. I'm just gonna I can't understand it. I'm throwing it all out. I'm gonna just pretend it doesn't Because it's just too complicated. So I'm not a fan of unlimited complication, I'm actually a fan of simplicity as few LLCs as we need one holding company unless we need a second one, and that's rarely do we need a second one, and then straight to the asset protection trust. So let's focus on having the strongest tool at the top and get that in there sooner rather than later. And not, you know, layers and layers and layers of complication. Your CPA will thank you, by the way, because we're talking about, in most cases, just one tax return. Because if you make an LLC, a single member, and that single member is the holding company, that LLC is disregarded for tax purposes, and doesn't have to file its own tax return.

Mike Stohler
Yeah, it's, it's funny, I have, you know, personal situations where you go in and buy a hotel, and then I'm like, you know, how many LLC’s do you want me to have? Right, right. Okay, wait a second. You have one that holds the loan, and then you have one where the limited partners and then mine and then the management company? All right, right. And they're all owned by the holding company. And then it's, even the bankers are like, Okay, I'm gonna have to look at it, they're gonna draw a tree. Now, you know, to see how we're all this is and, and yes, and you will listeners, like the simplicity, because when you get the CPA bill, yeah. And you're like, Okay, and they're like, uh, well, you have all these LLCs. And, right now, we got to do it, we have to do it. Now, when we get into trust, and then flps, and the different ways of the protection, what can What can I put in my assets? You know, there's one theory out there that says, like, within the FLP, there can't be any loans attached. So it's only things that are maybe like, paid off that you can protect? Or is it?

Douglass Lodmell
Yeah, I mean, I, the way I see it is I separate things into risky assets, things like real estate, boats, airplanes, cars, anything with a door, a key lock, you know, anybody can slip on it, it's risky. It can burn down it's risky. And safe assets. And safe assets are cash, stocks, bonds, cryptocurrency, you know, nobody can trip and fall on your bond account and sue you because they tripped on your bond account. So that's the big distinguisher. If it's risky, I want to put it in an LLC first, because an LLC does exactly what the name implies, limits the liability. So we'll take a risky rental property, we'll put it in an LLC. And we might put two or three rental properties in there. So if you only have $50,000 of equity in each rental property, I'm okay with putting three or four or five of them in one LLC. If you've got a shopping center, a strip mall that has a million dollars of equity that demands its own LLC, you wouldn't want to mix that in with the rental property. So we determine how many LLC are needed. And every time one of my clients buys a new asset. They call me and go Doug, on my new asset, and we talk about it and we say, Okay, well, is there an existing LLC, we should add it to? Or does it need a new LLC. And again, I'm trying to keep it simple. They're trying to keep it simple, the accountants trying to keep it simple. If we can add it to an existing one, we will, if it really needs its own, we'll do that. So anything risky will be in an LLC before it goes into the holding company. But once it's in that LLC, then it's free to go into the holding company. The cash stocks, bonds, investments, coins, cryptocurrency, none of that is risky. And it can go directly into the holding company, the limited partnership, that asset management limited partnership. So what you end up with, again, pretty simple, the holding company is holding all the safe stuff directly. And then it's holding all the membership interest in the risky LLC. And in that way, again, we keep it simple, but we've got everything protected, and also isolated. So if you got a property and has a mold claim, and it starts to explode, well, it's in its LLC, we can cut it off and it doesn't affect the rest of the assets.

Mike Stohler
Now how about my personal assets? Because then I want to protect from liability if anything were to happen, because I know when an attorney gets a case, they'll say, Okay, how easy is it going to be for me to sue this person? Right? What do they have? Is it worth my time? If they look at all right, well, okay, he has a million dollar personal house, he has a house in Colorado or you know, second house somewhere. Okay, those are assets that are worth some things. He has two or three cars he has, you know, the personal stuff now can I put Protect my personal stuff in the can I put it in a trust? Or within the FLP? Where they're the attorneys like, oh, now, you know, it's gonna be too hard for me to break into that.

Douglass Lodmell
Yeah, yeah, that's exactly we're gonna do so. So your personal stuff is going to go into either the holding company, or it's going to go into an LLC underneath the holding company. So like your second home in Colorado might need to be under an LLC underneath the holding company, so we got to protect it, but it's, it's still available for you. Your primary residence, excuse me, is is different and unique because it has a couple of benefits. It has tax free capital gain when you sell it, so you don't want to mess that up. That's a freebie. And if you're married, that's 500,000 bucks, at least as of today, right? It has home mortgage interest deduction, so that's another freebie doesn't have to offset any income, you just get it and and then you've got a homestead exemption. So if you're in a state like Florida or Texas, that homestead exemption is unlimited. So we don't want to mess that up. When you put an asset like your primary residence into an LLC. There's now a question mark as to whether it's really your primary residence, or is it an investment property. And so the primary residence is the one asset that we treat very differently. And it goes directly into that asset protection trust. So just what you said it goes right into the trust, that trust set up properly is going to be a grant or trust. And what that means is that it does not affect those three benefits we just talked about the tax free capital gain the home mortgage interest deduction and the homestead exemption. But we're also protecting the equity in the home. So where I run into this a lot is California, up, everybody's got a ton of equity because the property's gone up there. I mean, a little tiny three bedroom home is, you know, million and a half bucks. So everything is very expensive there. And so people end up with a lot of equity in their primary residence, not knowing how to protect it. Well, we protect it with that asset protection trust. And in particular, a type of asset protection trust called the bridge trust, and we can talk about that if you'd like.

Mike Stohler
Sure. Absolutely. Yeah. You know, we're wanting to talk about all the things that and we can talk about the bridge trust now. What is the mortgage companies? How do they are they going to say, well, when you just put something in a trust, and you know, can you do that? And

Douglass Lodmell
Yep, yep. So so that's a really good question. So, um, when re vocable of interest first came out in the 60s, they became really popular again, especially in California, where their statutory probate fees for lawyers that start at 3%. And so people wanted to put all their assets in these revocable trusts. And when they started putting their homes in there, the bank said, Oh, no, no, you can't do that. And, and they said, Well, why not? It's just a grantor trust. It's the type of trust where it's not I'm not really changing anything. It's still mine. And so what happened is that Congress actually passed an act called the Garn Saint Germain act. And what that says is that a bank cannot resist or object or call your loan, if you put it into a grantor trust. So putting your home into the bridge trust does not trigger your mortgage clause at all, because of Garn Saint Germain, because it's a grant or trust. And that's important. Also, your investment properties, they might have the mortgages on them and and so some people call me they'll already have five or six investment properties, and they've never put them in LLCs. In that case, we Garn Saint Germain doesn't apply, because they're not going into a trust, they're going into an LLC. So you really have a couple of choices, you ask your bank for permission, and you tell them what you're doing. And usually the bank will come back and go, Well, great, yeah, we're happy to do that, but we're gonna bump bump your rate by half percent, because now it's commercial loan, or you just go ahead and transfer it, because it doesn't affect the mortgage on the bank still has every right to that client, you know, to the thing. And yes, you are creating a situation where the bank technically has the ability to call your note. But in doing this, in the past 25 years, I have had only two clients ever call me and say, Hey, the bank objected And in both cases, the bank ultimately gave the permission. So it's not really been a problem. And most time, we just recommend clients go ahead and make the transfer into the LLC without without worrying about the bank.

Mike Stohler
Yeah, cuz banks aren't in the business of being landlords, right? You know, so now, they don't want your property. They don't want your property. And that's one of the biggest questions that I get is well, Wayman, my bank, we can't transfer the name into an LLC, because my bank will call it do and I'm like, What are the chances they, they want the payment?

Douglass Lodmell
that as long as you're not past due, if you're if you're, if you're not making your payment, yeah, for sure. But if you're making your payment, they're not even going to look, they won't even know that you made the transfer. And again, you know, even if they notice, all you say is hey, I've did this for In my planning purposes, my attorneys recommended and then you deal with it at that point. And again, it's very rare that I've had any clients have to deal with that.

Mike Stohler
Yeah, I think the only time that they would ever do it is if the interest rates went up to 12%. All right, yeah. There, they start going through saying, who's gonna start going through? Yeah, that's possible. And let's all call them Do you know, because yeah, we don't want these three, three and a half percent loans. That's right. So let's pray that that doesn't happen. Yeah, let's plan for lots of reasons. Exactly. Now, something that's very interesting that I know your firm does is offshore protection, right. Well, before we get into that, let's get into you said the bridge trust.

Douglass Lodmell
Well, you actually, it's a great segue, because they're all connected. Yeah. So. So the best way to understand asset protection trust is to understand that the concept of it is just like the trust that Vanderbilt Rockefeller used, which is a trust that is set up with spendthrift provisions, which limited creditors access to those assets. That's the key. But what makes an asset protection trust unique is that it is a grantor trust, meaning it's set up by you, for you. It's self settled, and you're your own beneficiary. And so that's what makes it unique. And you have those Spencer provisions in there. So before 1984, you couldn't do this kind of trust anywhere in the world, there was no jurisdiction that said, Hey, you can set up a Vanderbilt style. You know, spendthrift trust for yourself. It just didn't exist. And in 1984, a little country called the Cook Islands, passed a statute, which specifically allowed for you to set up a spendthrift trust for yourself with yourself as the beneficiary. And that was kind of revolutionary. I mean, it was a big deal. And a lot of attorneys in the US thought, Oh, my God, this is never going to fly us people shouldn't do this. They're, you know, the courts are going to deny that it's applicable here. So, it was done only offshore for for about 10 15 years, there was only available offshore. Um, then, in 1989, or 1998 Alaska said, Hey, why are we sending all this business offshore, it's just a statute, we can pass a statute allowing for the same thing. So Alaska passed the statute allowed for the same thing. And then Nevada civil, we're not going to be left behind or passing a statute. And Wyoming said, we're not left behind in Delaware. And so now today, we actually have 19 US states that have passed a domestic form of an asset protection trust. So here's where all the confusion lies, Mike, this is the whole deal.

And we're going to clear it all up right now. So offshore, when we're talking about an offshore asset protection trust, we're talking about a tax neutral, grant or trust, but it is foreign. And so the advantages of it are that when you have a foreign asset protection trust with an offshore trustee in that jurisdiction, the protection is is is 100. Out of 100, it's the highest we can get you know, it's 99.99%. It's incredibly strong, because that the trust is offshore, the control of the trust is offshore. And ideally, the assets themselves are also offshore in a Swiss bank account. So that's the gold standard. That's the going to the nth degree in the offshore world. The downside of that is that as you can imagine, is fairly expensive. You have trustees fees to pay. Plus, it requires a fair amount of IRS compliance. Because if you have a foreign trust, the IRS treats you differently than if you have a domestic trust. And they make you file something called a 3520. And then annually, the 3520 a. And these are pretty complete forms full balance sheet disclosure of all the trust the trust assets, all the partners of the trust, up to and including a copy of the trust. So it's a pretty big deal. And there's no extra tax, but it is compliance. So I tell clients, they need to budget at least $10,000 a year to maintain a fully foreign trust. And ideally, you'd set up an offshore bank account and you'd have at least some if not most of your assets offshore. So that's that's kind of the one side of the equation. The other side is this domestic asset protection trusts that it's now available in 19 US states. The advantage of that is that it's domestic. So it's doesn't have the foreign trust compliance requirements. But you still have to have a trustee in that jurisdiction, they'd still have to be in control of the assets. And it's less expensive to set up and it's less expensive to maintain it's probably only four or $5,000 a year to maintain that type of trust. However, the downside of the domestic trust is that in the case law since 1990 They haven't held up particularly well. We've had a lot of failures of those trusts. And the reason is that it's still in the US. And we have something called article four section one of the Constitution, which says that the states must grant full faith and credit to the laws and judicial proceedings of the other states. So if you get a judgment in California, and you take it to Texas, or vice versa, they have to domesticate the judgment, they have to put it in the court system, they have to respect it. If you take a judgment from California down to the Cook Islands, it's worth zero down there, you it has no respect, Cook Islands is statutorily prohibited from recognizing a jurisdiction from any other country. So, so the domestic ones are easier to use, but haven't proven to be as safe. So here's the deal. If you are either exceedingly wealthy, and you want to nest a 10, or $20 million in an offshore trust, that's a good use for an offshore trust, if you are have an exceedingly high risk profile, and and you're really taking a ton of risk. That's another good reason for an offshore trust. But the average investor, you know, entrepreneur, they really don't need an offshore trust, and it's probably much more than they want to pay for, and they want to maintain. However, the domestic trust isn't really a great option, because they haven't worked so well. This is where the bridge trust comes in. And what the bridge trust is, is it's a hybrid between an offshore and domestic trust. So it starts its life as an offshore asset protection trusts registered offshore, but then it's bridged back. And for the purposes of the US compliance, it's treated as a domestic trust. So it basically gets to be treated with a simple tax equation, no 3520, I make the clients, the trustees of that trust, so they get direct control of the trust. And then we have the offshore Trust Company in a standby role. So it's really kind of the ideal structure, you get all the benefits of the offshore if we have to use it, and the 2% of the time that my clients call me, and that really is the right move is to cross that bridge, the other 98% of the time, we're just treated like a domestic trust, no special tax reporting, no Ei N, no tax return for the trust, it's just treated as a simple domestic grant or trust. And so for most of my clients, I'd say 95%, the bridge trust, when they hit that million dollar mark of net equity, is the right choice. And then for about 5%, they meet those other two criteria, they're either wanting to nest a good amount of money, or their risk profile is so high that we want to just go straight offshore,

Mike Stohler
where does the bridge trust stack on I have my LLC, I have my holding company, I have my family revocable trust. Also, we may have an FLP,

Douglass Lodmell
while the FLP is the holding companies in our in our models. Yep. So so where we put the the bridge trust is as the majority limited partner, which would be above and owning the majority, like 98%, of that limited partnership Holding Company of that asset management, limited partnership Holding Company, which is holding all your assets, all your liquid assets, all your safe assets directly. And then it's also holding all the LLC interest that you have for all the risky assets. So basically, all your assets are in the holding company, and then in turn, all in the trust. So we've got the protection, and then the estate planning trust sits down and off to the side. And then at your death, the bridge trust will look down to the estate planning trust and make the transition and pour into the estate planning trust.

Mike Stohler
You know, listeners, you know, if you're listening to this, this is why you have professionals. It's it seems, you know, complicated, like there's a lot of levels, but I know with your decades of experience, it's not you do it all the time. Yeah. So you know, listeners if you are starting to I know some of our listeners are working full time but they own a business outside of you know and it could be convenience store could be exercise facilities, barf, you know, facilities, online business of online marketing businesses, and you know, they're they're branching out, you know, that is when you need to sit there and say, Okay, how can I protect myself from lawsuits because we are in the society of, of lawsuits. I mean, everyone, that's what people do this for a living. They go around and try to sue them. Um, you know, I've had that with multifamily. And it's particular, you know, in the hotels with, with just silliness. Yeah, but but it costs me money. Yeah. You know. And so I need to know, and my, you know, the listeners need to know, how can I protect it? So, everybody, once you start getting multiples of things, that's when you need to sit there and say, okay, you know, now at first you want the LLC, and then you want at least this right, Douglas, you want at least the family trust?

Douglass Lodmell
Well, yeah, so your your revocable living, trust that as your estate plan, you want that and the LLC, those would be the first two things you'd set up

Mike Stohler
and the LLC. And then as you grow a little bit, you have to have that holding company. Yep. that protects. That's the big umbrella. Yeah.

Douglass Lodmell
And I would think about that at around $250,000, the holding company of protectable. Again, not not grow, so you might have the main dogs with a property. But if your equity is not 250, then you're you're not quite there. So at about 250 of equity that you can protect, start thinking about the holding company.

Mike Stohler
Yeah. And, you know, for those listeners, that you may have all of this, is it set up? You know, I'm talking to the listeners, is it set up properly? I have a bunch of things, but I have no clue what's in it, or if I filled it out correctly, or, you know, or if it's in the right order, I just was told by people like Douglas, this is what you need, you know, they give me a 40 page document. And I'm like, Okay, now what, you know what goes in it? And did I do anything wrong? Exactly. And you know, if you go in this situation where you're being sued, believe me, the other attorneys gonna be smarter than you. And he's going to look to see if you did things correctly see if there's any holes in it. Yeah. So it's very important everyone. Get with Douglas get with LOD Mel is firm. And just see if you did it right. Or, you know, get a consultation with him just to see if answer any questions just to see if you need anything like that. And yeah,

Douglass Lodmell
yeah, and I make this the best advice is just just get a console, understand what you have and where it sits and in the big picture of things. And if it's right, good, you'll know you'll feel more confident about it. If it's not, you get the chance to correct it.

Mike Stohler
Yeah. Well, Douglas, it's been wonderful having you on. It's been very enlightening and educational. And everyone, I hope you have learned something today. And again, if you have any questions, he is there now how can if they have questions, how can they find you? What is your website? What is?

Douglass Lodmell
Yeah, so if you go to gmail.com, ello, D me Ll calm, you can see a lot of videos, there's something called the key concepts of asset protection down at the bottom of that page. It's a series of videos, I really recommend you watch that. You can also just email me, my name is doug@gmail.com. That's my direct email if you have a question or if you want to set up a console, or you can just call my office 602 to 302014. We're in Scottsdale, Arizona, and about most of our clients are all over the country. We work with any anybody in any state, we work all over the country. And and I'm happy to give a console and just help you see where you're at. For Mike's listeners, I won't charge anything for that. So just just say, Hey, I heard you on the podcast, the Richard geek. And I'd love to set up a call. So Mike, appreciate it. It's really been nice to be here and great to talk.

Mike Stohler
Yes, sir. Appreciate it. And thank you and have fun. Much cooler fun. Right, Colorado, right? Yeah, for another couple of weeks. There you go. Take care.

Thanks for tuning in to the Richard King Podcast, where we're helping others find creative ways to build wealth, and financial freedom. For today's show notes, including all the links and resources from our show, and more information about our guests, visit us at www.therichergeek.com slash podcast. And don't forget to jump over to Apple podcasts, Google Play Stitcher, or wherever you get your podcasts and hit the subscribe button. share with others who could benefit from listening and leave a rating and review to get the podcast in front of more eyes. I appreciate you and thanks for listening.

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ABOUT DOUGLASS LODMELL

DOUGLASS LODMELL is Managing Partner of Lodmell & Lodmell, P.C., one of the nation’s leading Asset Protection Law Firms. Originally from Geneva, Switzerland, Douglass stood out at an early age as one of the brightest minds of his generation. His capacity to make the complex simple allowed him to excel during law school, receiving the Jacobs Burns Medal, an award given to the single student with the highest GPA. He completed his Legal Master’s (LL.M.) in taxation at the nation’s leading tax program, New York University School of Law. Today, Douglass’ law firm is responsible for protecting over $4 Billion in client assets. Douglass spends much of his time teaching, speaking, and leading thousands of business owners, corporate executives, investors, and other professionals who have often worked most of their lives to accumulate a wealth of various types, including real estate and securities. Douglass is also the author of the book The Lawsuit Lottery: The Hijacking of Justice in America.