0:02
OK, today, we’re going to talk about something so fascinating, OK?
0:07
This is what I call, isolating risk, or isolating financial risk.
0:12
And I want to cover these topics, because I find myself discussing this one-on-one with many people throughout the week, and I thought I’d just put them all together.
0:21
Then, we’ll just just cover it, and then, when we do a live call, we can talk about, you know, any questions or specific examples.
0:28
My point here, was to try to include just about every situation that I normally deal with, so the first way to isolate risk in financial matters is to identify what the risk is. Let’s describe it. So, here’s a very common one.
0:46
I’m, I’m a human being. I go out in the world and do things.
0:49
I get into contracts, I borrow money and sometimes I can’t pay the debt, Right?
0:53
Maybe I Whatever happens, maybe something happens and someone sued me, Maybe there’s an insurance claim against me, and they want more money. There’s all kinds of things that can happen, OK?
1:05
So, liabilities that I may have as I go through life, what attached to things that I have the right to spend or sell. It’s very simple.
1:17
So I don’t want to have the things in my name where I have the right or the exclusive right to spend or sell things.
1:25
Um, because if I have those rights then if my liability turns into a judgement lien or someone, some creditor gets authority over me to collect money from me.
1:39
He can take it from me.
1:41
But under order of the court, especially if it’s held by a third party, like a bank, right, Or my car, I mean, my car can be taken. Typically cars aren’t taken. Unless there’s a collateral loan against them, it’s very difficult, an unlikely that someone with an unsecured claim even the IRS would take your car. The IRS can take your car.
2:00
A creditor can take your car. They’re unlikely to do it.
2:04
So I just, No, that’s one example we’re going to get to here.
2:08
So, so what we are doing is that there are several methods here.
2:12
The first method is where property has a title.
2:15
And the title shows that I have the exclusive right to sell the property, like a vehicle, for example, or a bank account where I have the exclusive right to spend the money.
2:25
Now, the exclusive right, I can still have it if my spouse is on the account as well.
2:29
Now there are some exceptions to this, but typically if a husband and wife are seiners on a bank account and owners of the account and only the husband has a debt problem, the top the whole amount of money in the account can be taken for the husband’s debt.
2:45
Yeah.
2:46
Now, we avoid that by changing the property rights through a structure.
2:50
That’s really the only way to do it, OK, But here’s an example So I’m gonna list you a list, a few things here.
2:56
So we’ve got Private Equity in stock, right? So for example, let’s say I own part of a company and my partner owns the other part and we’re running a business. That’s private equity, OK. It’s not in the stock market typically.
3:09
We can change that in name.
3:12
This is what I mean by isolating risk, financial risk, through changing the title, the name in which the property is held.
3:21
If I change the name, then it’s not my name anymore, It’s out of my title, I’ve separated my interest there.
3:27
Now, it requires then, further investigation to try to attach my interest, even though the title is in a different name.
3:35
So, we’ll get to that. But private equity.
3:37
Or you could use a Stock Transfer Agreement to change your interest. In a company that’s a private company that’s not publicly traded, That has maybe yourself, and your partner, or five owners or something like that.
3:49
You can do that with a stock transfer agreement, which are very easy to find. You can find this on the Internet.
3:54
You can get one from an attorney, their form, like their form documents, their standard agreements, and you can in their modify the agreement so that so that identifies that your transfer of the stock interest, your conveyance at the stock is limited to only estate planning purposes. Now you can also do this for a company like a re-organization.
4:13
OK, you can transfer the title of the ownership, so in my private stock interests, I can transfer it to an LLC, for example, but my best example I like to use, I can also do it in a trust but I can I can convey that stock ownership with a contract.
4:28
So that I’ve documented the manner in which the stock was conveyed and how it’s held at this time.
4:34
And I don’t have a tax liability for doing that because I’ve done it well while the title has changed.
4:41
But the beneficial interests have remained the same.
4:44
And one way that beneficial interest remained the same as if I do it for estate planning purposes.
4:49
There are other methods, OK. And so, you have stock, that would be on the stock market, right? So let’s say you have a stock trading account.
4:57
You buy and sell stock, and you want to change it. So this is a very good example. Many people want to know how to do this.
5:03
So, let’s say I have a personal account on a stock, exchange, and I’m earning dividends and I don’t want that anymore, I want that to be transferred to an estate planning method, like an LLC or a trust of some kind. Well, just make sure that when you contact the Stock Trading Service, make sure that the account manager, or his boss, or her boss knows how to do this, make sure you get confirmation.
5:26
You want the Stock title.
5:29
It’s transferred from your name as the account holder.
5:31
That’s the title, the account holders name. Whoever the account holder is, is the title, owner of the property in the account. So, that person owns all the stock, OK?
5:40
You want the stock conveyed over to your next thing, like an LLC.
5:46
But you do not want the stock liquidated first if it gets sold.
5:51
There’s a tax liability, it’s, it’s your weight, your, your, your defeating the purpose here.
5:55
So make sure they understand that they’re changing the ownership of the stock in name only, OK?
6:03
The equitable ownership, in name only, so they can convey it. I don’t care what their accounting is, but their accounting. I don’t care how they’re going to do it.
6:10
But in the end, it has to show that there was no disposition of the asset in your name and that merely that title, the equitable title was transferred from your name to the LLC.
6:22
And if they have to say in their documents that it was done for a state planning purposes then fine.
6:27
Just make sure that it’s not the property is not disposed of the stock is not sold first.
6:32
So that’s, that’s one thing you can do.
6:35
If you don’t like the, the tax treatment of the current, the way you’re currently owning stock, even if it’s in an S corp, you can change it in this method. OK, now I wouldn’t say going from an S corp to an LLC with a different tax treatment is for estate planning, maybe it would be.
6:52
Maybe you could just say that is because the beneficial interest remained the same, which they would and you just want a different tax treatment. I suppose you could do it that way.
6:59
You could also just, not that you have to justify it with somebody or explain yourself, but people are going to ask you why you’re doing this. And, you can’t just say, My accountant told me to do it.
7:09
My CPA told me to do it, or I’m doing it, because I need to re-organize my company.
7:17
So anyways, stokke, private equity vault’s third party vaults where you might have gold, same thing. Here’s how you do that for the vaults.
7:26
Let’s say I have my name as the account holder on a vault and I own gold, and I want to sell the gold in the Vault servers will gladly sell it, buy it back from me even, and put the dollars in my account, or wire the money where I tell them to wire the money. Well, then, they’re only going to wire it to my name.
7:41
So I need to make sure that the account holder for the Vault service is not my name anymore. I wanted to change it to an LLC, which is a pass-through. I can have a different tax treatment.
7:50
So the way I would do that is, probably, open a new Vault account, then have the Vault service, and hopefully, you’re using an allocated, Vault storage, Have the service, move the property over there. Again, make sure they understand. It’s not a disposition.
8:07
There’s no 1099 now, when I When I transfer something like that, I’m going to give the Vault a W nine, an EIN certification, showing the EIN for the account holder, assuming that default service is going to send a 1099 or some sort of document showing that. I may have sold precious metals and and I sold it in the name of the LLC OK as the signer.
8:34
So the W nine is simply an EIN certification or verification method that you’re certifying the correctness of the EIN in relation to its association being assigned to the LLC. That’s the new account holder.
8:48
And you’re doing that under penalty of perjury, and you’re also saying that the company, the LLC is not subject to backup withholding.
8:56
This is going to transfer the obligation or liability on the third party default service.
9:01
Or, the stock trading account, this is another, I would do this also for the stock OK, if I’m going through my stockbroker and I make this change also, again, I would use a W nine in that situation because I want the other party to be liable to make its records correct.
9:15
I don’t want there to be a mistake that later on, I don’t find out until I get an erroneous 10 99, where let’s say, the trust or LLC I’m using to do this with has my SSN on there by mistake. Now I’ve got big problems. I gotta fix that, OK. I don’t want to deal with that.
9:30
So I want to make sure that the INS certainly assign incorrectly accounted for so that when or if any 10 ninety nine’s are issued, it goes to correctly to the entity that I’m using, OK, the LLC.
9:47
Private equity Stock transfer agreements.
9:50
those are with third parties.
9:52
Stock on public, you know, public stock exchanges vaults and crypto exchanges exactly the same thing.
9:57
Crypto exchanges are just like gold, just like Balt Services, OK.
10:01
It seems like they have more disclosure requirements, but still, it’s the same thing.
10:05
The property being held is literally defined as property, so as gold, so astok, everything else.
10:12
Mining contracts, same thing, but ask yourself, this is what I always ask if you guys tell me, asked me what a mighty contract.
10:17
I always ask you, how, How is the compensation being paid out? How is the interest being paid out? How are the dividends being paid out? Are they paid as a fraction of?
10:26
or in The Species of coin, OK, and not dollars.
10:32
So if you invested Bitcoin, It’s kinda nice if you get paid in Bitcoin There’s no tax consequence there.
10:38
If you invested Bitcoin and you get dollars, OK, I would just recommend using a pass-through use your LLC, So if you’re in that situation, know what it is that you’re gonna get. What is the thing? Where’s your risk, OK? You want to isolate that risk?
10:52
What am I getting back Bitcoin or dollars? Remember?
10:55
dollars are being taxed coins are not being taxed.
11:00
Same with collateral loans against crypto coins Did you put up coins for collateral and take up dollar loan?
11:08
Well, OK, know what that is?
11:11
And if it’s a risk you need a pass through to deal with, and you certainly use an LLC or trust in a pass through way with an EIN And my recommendation is include your W nine.
11:21
Same thing with Staking, OK?
11:22
All these uses we get into land now. So land, real estate, titles, and equity stripping, using deeds, and mortgages, and other liens. And I just did a video on this.
11:32
So it makes us explain, so I could take land or real estate.
11:35
Pretty much the same thing and I can transfer the tidal width.
11:39
A quick claim deed again, I go out in the world. I do things. I might have liabilities.
11:43
If someone gets a judgement against me and I have interest in real estate that may attached to the equity in the property.
11:50
If I want to avoid that, I will simply record a Quitclaim deed in the county or taxing jurisdiction where they property is situated and it would separate that property from myself.
12:03
OK, and you guys know the different strategies I have. I’m not going to get into that too much. I can also.
12:11
OK, so how do I do Elaine? I go get a lien document such as a mortgage or trust deed.
12:17
I complete it.
12:18
All the missing information with correct information. I put the legal description. I put actual loan terms. I calculate those with software or algebra if I’m inclined.
12:28
I can then record it now, I can also use a judgement Lien. I’ll give you a quick story.
12:32
I used a additionally one time to strip the equity from someone who owns some commercial real estate was a strip mall, and he was selling it, but he had lots of creditors, and they hadn’t obtained a judgement lien against him.
12:43
So, we just did that first. We did a friendly judgement lien against him for a quarter million dollars.
12:48
By the time he sold the property, there were four other additional names from creditors, the banks, like Discover, Citibank, things like that.
12:53
Well, at the closing, the first lienholder got all the cash from the equity which amounted to around $170,000.
13:00
Well, none of the other creditors got anything because there was no money left over, and the first lienholder, which was his company, got the cash.
13:07
Then no one was the wiser.
13:10
No one said anything, so it was a very flic clean way to move equity, transfer equity, and defeat claims. And we did it before the claims were filed in court. Now.
13:20
I’ve done it during that and after before the lien was recorded. And you can’t get away with that, even though, technically, it’s a fraudulent conveyance.
13:29
So just keep that in mind.
13:30
They don’t do anything. Frederick advanced. Nobody’s going to do anything. It’s too expensive.
13:34
So you have also, just like I was explaining with counts, accounts, they’re somewhat liquid like vaults, and cash bank accounts, things like that.
13:44
You also have third party payment processors that create Receivables for you.
13:49
So if you’re running up and e-bay website, or you’re selling things, and you’re getting PayPal payments, and you have receivables, merchant processor, or PayPal.
13:57
PayPal is a, is an escrow service, by the way.
14:00
So it’ll process the funds and send them to you, right?
14:02
So if you individually have a liability, like a Judgement Lien and someone’s actually trying to collect and you have PayPal that owes you money from sales you made that company, that creditor can take that money, especially the IRS.
14:14
It’s very easy for the IRS to send a letter and take money that PayPal’s owes you.
14:19
So, here’s how you avoid that risk.
14:21
You pay pebble, do this if PayPal will not do this, and I’ve done this before, so I can tell you the PayPal, well, some will not do it this way.
14:30
You would just open a new account, maybe with your same merchant processor, and then just move everything over to that account. Again, use your W nine. But with PayPal, you can actually convert your personal account to a corporate account.
14:42
I would recommend a limited liability company. Beneficial interest a the same, given new W nine for the LLC account holder. I’m no longer to calendar with PayPal, my LLC is, and then that would separate any claims. So that way, if someone has a claim, even the IRS has a claim against me, could not touch the paper.
15:00
money that’s being paid for my business activities, but yet is being paid in a different title, the LLC, OK?
15:09
Any merchant account, PayPal’s one of them And the guarantor is still the same, in most cases you will still be the guarantor. The difference is that the account holder is the LLC.
15:22
OK, all right.
15:24
Vehicles vessel’s an aircraft, these are know what they are with titles. And those titles are registered with the Department of Transportation. Ultimately Department, the Department of Motor Vehicles, OK. These are not necessarily large financial risk, or not financial risk, large, necessarily.
15:40
I mean, meaning that creditors don’t try to take them and sell them.
15:45
They can, and they’re more likely to do that if you file a bankruptcy.
15:50
They’re less likely, if you don’t do anything like that, don’t follow bankruptcy.
15:54
If a creditor takes a vehicle which is common, more common than the others, then to get it back to recover the vehicle without payment, you would simply go record a lien on the title.
16:06
They’re not going to do much if the vehicle already has a lien on the title.
16:09
So as I said, that the vehicles are low risk vessels, you know, boats, low risk. Again, you can control the title with a lean. Ideas go to the DMV and record a lean, I think, with vessels at the Coast Guard, if I remember correctly.
16:22
Aircraft, I don’t know, Probably, that would be what the F, F.
16:31
Why is it? the FAA, Federal Aviation Authority, OK? Possibly.
16:35
Ultimately, it’s the Department of Transportation, I believe, so, Um, one more thing I want to mention about these types of things.
16:44
Aircraft, especially aircraft, and vessel’s, if you want to buy something like that, there’s a service, I mentioned this before, I forget what the acronym stands for.
16:53
But you’ll find its website at O C R a dot com, okra dot com, …
17:00
dot com, works with high net worth individuals, businesses, and it can create a budget for a large purchase of a vessel or aircraft.
17:13
Probably a vehicle too if you ask them.
17:15
They will help you flag it. They will help you get insurance, they will help you crew it. They will help you with your maintenance schedules. Your, they’ll write a whole budget that tells you how much it will cost to operate those, and usually a vessel is a liability. It’s almost never going to make money, OK?
17:30
There are those that make money but anyways.
17:33
So, just keep that in mind.
17:35
That is another way to manage risk if you have large vessel or aircraft that you want to purchase and use yourself. Or maybe you want to go in with a group of people. Which is a cool idea. If you bring in a few people and you have like a time sharing type of thing and you don’t have to put up all the money for it, this is a great way to go.
17:53
I would have, oh, CRA or someone else who can do this, write up the budget.
17:58
Then have a broker, find you the thing you want, and then get it funded, OK, under that budget, that way, you can isolate. You can already have the captain, the crew. You can get the qualifications. You can interview them.
18:12
You can even have help doing that. So there’s a lot more to it than just going out and picking out a boat, buying it. OK, a 26 foot boat, I’m talking about a yacht.
18:19
A big, big purchase, OK?
18:21
All right, so let’s get into, we were just talking about titles.
18:24
We were, I was explaining about using an LLC or a trust to hold the title to become the Title holder property.
18:31
There’s another way to do it. You can also We did I mentioned a little bit about Stripping Equity in this example. I’m going to talk about debt management. I’m going to use debt to manage risk. This is a different type of risk. The other type of risk are we’re dealing with here.
18:43
It’s not so much from a third party creditor.
18:45
It’s more about lost opportunities or the poor use of capital.
18:52
So, cash into liabilities is a risk unto itself. Cash into liabilities is usually going to give you a negative cash flow. Like, for example, if I pay cash for my house, I’m definitely gonna lose money on that deal.
19:03
Now, I pretty much have to pay money for a house, OK, So, it’s a normal thing, but why not make it to where I lose less?
19:11
And the way I do that is, I borrow money against it. How much money at 25 to 50%? That’s just what I’m saying.
19:17
You do, it’s comfortable if you have, if you buy a house for cash in the purchase, that house is.
19:24
So, the price of that is so small compared to your net worth that you don’t care, It’s so minuscule, then it doesn’t matter. Pay cash for the house and go on with your life.
19:34
But if the purchase of the house is like, let’s say, a 25th of your net worth, which I think is high, or it’s a 10th of your net worth, then maybe you shouldn’t pay cash for it.
19:45
So, whether you get a loan to buy the house or a loan after you acquire the title, you still should get a loan to some extent on the property. Even if you have bad credit, you will find someone to give you a 25% loan and then have a plan on what to do with that credit money, OK?
19:58
That loan money, know, the difference between a liability, something that’s going to cost you money on a regular basis is a liability. An asset is something that’s going to usually make you money and most and most times, OK, buying a house is not your asset. It may be the county’s asset and maybe the lenders asset.
20:17
It’s not yours buying a house that you live in, buying your neighbor’s house and leasing it back to him, That could be an asset for you.
20:26
An asset should have more debt than you would have for a liability. That’s just speaking generally.
20:32
So for an asset, I would go up to 75%, maybe 80% debt.
20:37
It depends on what I’m doing.
20:39
Depends on what I have the stomach for. It depends on what I have the qualifications for, what I have the expertise for. It depends if my partner objects, OK. How much did I should put on an asset?
20:50
But more generally than putting debt on a liability.
20:55
So liability costs money, negative return assets or cash flow, hopefully get you a positive return.
21:02
There are non performing assets, I’ll use that term loosely. Gold is one of them.
21:08
Be minimal on those.
21:10
And short-term, the older you are, maybe the more heavily you want to get into non performing assets, Because the less risk you want to take, that’s something you have to figure out.
21:21
Another way to manage risk is by using credit, of course, in a way where you’re going to build up a credit file for the business, and a great tool for that is Dun and Bradstreet, and I have a video on how to build credit. You guys can watch that, if you haven’t already. Basically, I show you how to do list yourself dot net.
21:36
That’s a website, you’re listing your business name with its actual business location on what’s called the 411 Directory for businesses.
21:46
The reason why you do that is you Donna Bradstreet, Dun and Bradstreet is like Equifax for businesses.
21:52
Denver Street will use list yourself dot net too.
21:57
Find new business listings and they’ll contact you though. their sales agents will contact you and offer you credit services, which are pretty good. In my opinion, I’ve rarely used them. Some of my clients have. They said they’re good.
22:09
So, you have to decide if that’s what you want to do the way business credit works, Dun and Bradstreet is not something you would use to buy real estate with, OK.
22:20
Now like a real estate investor so with Dun and Bradstreet building a credit file in 3 to 6 months to get you reasonably 20 to $60,000 in unsecured credit without a personal guarantee, that’s your objective.
22:33
Requires 3 or 4, not less and not more.
22:38
Net 30 suppliers’ Net 30 just means a supplier will sell you a product on credit and expect you to pay within 30 days.
22:47
So again, I have a video on how to do all this.
22:49
That is another way to offset risk. So what that means is, I can run a business, let’s say a 711.
22:56
Or I have suppliers, and I’m buying supplies.
22:59
And if I don’t have credit, yeah, if I don’t have credit, then I’m going to pay for those supplier supplies that I put on my shelf, and my 7, 11 on my grocery store, I’m going to pay for those with the cash from my grocery store, OK?
23:15
Instead of using my cache for something else, are making money with it.
23:20
I’m avoiding, uh, a situation, instead of expanding on what I’m doing. OK, I’m not going forward I’m kind of staying still, I’m stagnating, OK.
23:29
If I’m using my cash to pay for something, when I could use the supplier’s cache, this is what I’m talking about.
23:36
The supplier’s cash now. You don’t need Dun and Bradstreet for this.
23:39
You can contact your supplier and say Hey, when you guys, when you guys deliver me beer on a, you know fourth of July weekend, can I have it on net 30 terms?
23:49
And can you bring me more beer?
23:52
Give me some extra 20, 25% more supply, and you may get net 30 terms that way just because of the situation, just because your relationship with that supplier, but if you want that on a regular basis or you want to be able to get it just by having a net 30 supplier justified doing it for you, he can look at your Dun and Bradstreet score. It also shows intelligence.
24:11
It shows that you know what you’re doing, right?
24:13
If you have a decent Dun and Bradstreet score so you can use that score and make sure that your Net 30 supplier will report to Dun and Bradstreet.
24:21
So you would use your Dun and Bradstreet score or your negotiating skills to get Net 30 terms.
24:26
And whenever you get Net 30 terms, be sure that the Net 30 supplier is reporting to Dun and Bradstreet has an account with Dun and Bradstreet.
24:34
it’s a membership is what it’s called.
24:35
And Equifax Equifax has a business side that works just like Dun and Bradstreet. They have a consumer side and business side.
24:42
I believe TransUnion does also they probably all do.
24:46
When it comes to real estate, you definitely want to use other people’s money and sometimes resources to acquire real estate.
24:53
You can do that starting with the seller, and one of the ways you do that is with an options contract, you offer the seller to purchase it at a date in the future, and it’s always negotiable, and then sometimes you have to put some money down and sometimes it’s not refundable so, you have to negotiate that.
25:09
I’m not going to go into too much detail on the strategies, but you can use, for real estate, you want to use the seller’s money.
25:16
Meaning get a loan from the seller.
25:17
He’ll wait to get money later or you can go to a note buyer that you can write a note.
25:23
And the note buyer will tell you what the terms are before you even do the transaction and see if you even qualify see what see what’s needed, right? Maybe you need certain money down, maybe the assorted guarantor, things like that.
25:34
So for real estate you want to use the seller.
25:37
You want to use a hard money lender a note buyer. Maybe an example of that hard money lenders aren’t necessarily note buyers. You can also use a bank.
25:45
You can use a Commercial Lender. It depends on what you’re buying.
25:48
If you’re buying real estate, that’s an asset like a shopping mall, you’ll be have a better chance getting a commercial loan.
25:56
You might have to be the personal guarantor for awhile.
25:59
But make sure you write yourself out of the contract after a couple of years and a short term, and maybe it requires you to replace the guarantor.
26:06
You’re geared to relationship with something else. Maybe it’s going to be a larger deposit. Maybe it’s going to be another asset. You just have to kind of work that out.
26:14
But you do always want to use debt money when you’re acquiring assets.
26:20
That’s how you do it. These are, this is a summary of how you do it.
26:22
I know there’s like Take a two year college course to go to all the detail, But we don’t really need that to be successful, OK?
26:30
All right, what I would suggest that you do if you’re asking me for steps, OK, John, great. You can say words into a video. Yeah, I can see your notes. Now, what? Here are some action steps.
26:40
Without actually committing to anything, go get a copy of a typical commerical lease agreement.
26:48
This is a loan application.
26:50
Check it out. Look what’s there.
26:53
You’re going to be surprised at what you find.
26:55
You’re going to be surprised at what obligations you have, and what businesses will tolerate, just to have a commercial space, and then you’ll see that it’s manageable.
27:04
Do that before you try, before you try to get into a deal.
27:08
Also, go to a Commercial Lender or find yourself a commercial loan application, and ask what the underwriting rules are. Ask what the underwriting criteria are for a commercial loan.
27:19
And the question is going to be probably in response alone for what?
27:23
and a great example is a strip mall, or I wouldn’t say an airport, I wouldn’t try to buy an airport, I would try to buy a strip mall, OK. Easy enough.
27:33
You want to buy a shop in the strip mall, maybe? just want to lease that space.
27:37
Check it out. See what’s needed.
27:39
Once you see what’s needed, Then you go back and fix up your situation. If you don’t know how to fix up your situation, of course, you can call me.
27:46
And a lot of times, someone just asked me yesterday, How to do something?
27:49
You know, what I told her, I said, OK, this, this, and this, but I don’t know the rest Let’s get to a business broker Because brokers have resources, I’m gonna go to a broker.
27:57
I know things, but I’m still gonna go to a broker Don’t forget about the broker the professional that has access to tools, OK, knows people.
28:07
Now, we get into a little ask another aspect of isolating risk.
28:11
So let me review, We can isolate risk by changing the title.
28:15
What we’re doing there is we’re changing someone’s right to spend money or sell property and that right is exclusive and we’re making it not exclusive over making it not exclusive to him, but only to the innocent party.
28:33
You’ve heard me say this many different ways over the years, in my videos, if you’ve been following me that long.
28:38
Then, we talk about managing risk through acquiring debt.
28:43
Debt is not risky if it’s done properly.
28:46
Just like, cooking your meal in your house with a very dangerous stove that has electricity, that can kill you.
28:53
We don’t see that as dangerous because we learned how to manage it, right.
28:57
The same thing with fire.
28:59
Same thing with pudding.
29:01
Dangerous chemicals on your lawn, OK, we’re surrounded by danger all the time. Same thing with driving on the inter-state 55 miles an hour on a two lane highway. You’re actually driving 110 miles an hour every time you pass somebody.
29:12
That’s pretty scary.
29:14
We don’t, we’re not scared, right? Well, the same thing with money. Money is not scary. It’s a tool like Milan or I can hurt somebody with a lawnmower. I can hurt somebody with money.
29:23
It’s, I’ve seen it happen, I’m sure you guys have witnessed that.
29:26
So, no need to be afraid of it.
29:29
Let’s just manage it, OK? We can manage it with debt, you should have debt. You gotta be intelligent. You gotta be an intelligent investor.
29:37
You’re gonna make a lot of money, debt will help you get leverage. Now for that. Here’s what I like to say is the moral aspect. What’s gonna happen 20 years from now?
29:45
It’s easy for me to think I’m sending some kind of genius and make $10 million, then retire live off of that money, and still have $10 million later, because I’m smart.
29:55
Then put it my will and say, Give my $10 million to my son.
29:59
Whoops, I forgot to talk to my son about what to do with $10 million. In fact, I forgot to talk to them about what to do with $100,000.
30:06
And I forgot to talk to him about the possibility of using his intelligence, and planning, and strategies to make his first $100,000 all by himself.
30:16
My problem.
30:17
Because, I want my children or my son to benefit happily from money. I’m going to leave him. But if he is not educated on the use of money, it could kill him.
30:29
OK, This, this is serious stuff.
30:33
So it’s not the best thing in the world to leave someone a bunch of money they’re not used to dealing with.
30:39
So the way I look at it is like this: If my son knows how to use money, then what does, what’s the difference between $100,000 or one million dollars? It might be the time value of money. Maybe he can make more money faster with a million dollars.
30:56
But with $100,000, I’m sure he could live with that and do quite well if he has $100,000 to start with in today’s money.
31:04
So, he should be competent to some extent, on what to do. So, what I might be willing to do is give him $100,000. I don’t think that’s a problem with maybe some suggestions, right? But I wouldn’t give him, probably $10 million, maybe not even a million dollars, But what I would tell them is, here’s $100,000.
31:22
If you are able to, somehow, whether you use $100,000 or not, in the next three years, if you’re able to create $100,000 for yourself. I’ll give you another $100,000. I’ll match it. If you make a million dollars in certain amount of time, I will match it.
31:37
You will be able to access that million dollars that’s in my state or in my trust, or however I have it set up, I know we talk about this a little bit, I don’t wanna get into that too much today.
31:48
one way, I suggest managing risk in terms of the moral aspect of using money and property value is if you want to leave money and property to your heirs or a partner or somebody, do it through matching funds.
32:03
So that way, it that person has to work and exercise some knowledge, and take some risk on his own, and get to a level of financial net worth before he gets rewarded with matching funds from you or from your net worth.
32:16
That’s one way I would suggest looking at it.
32:19
Another way is, if I felt like, OK, my, my children are competent, and I’m happy with what I believe is their understanding of what to do with a million dollars, maybe I’ll leave one million dollars. But I’m not going to leave them $25 million because I don’t believe?
32:33
from their knowledge and my comfort with what I understand that they’re able to do, I don’t think that $25 million really is needed to enrich their lives. More than one million dollars will already do.
32:44
That’s the way I think of it.
32:45
I mean, who needs $25 million today?
32:49
If you had a million You couldn’t do, you know, what are you gonna do Waste more of it? I don’t, I don’t see.
32:54
I mean, heck, maybe you want to buy something incredible, I don’t know That that’s just my attitude on it when it comes to leaving money and things for your family and errors, so Matching funds is what I, call it.
33:06
The other thing, that I mentioned quite frequently is taking that $25 million for example, and Putting it into a contract, OK?
33:14
Funding a contract, or funding a business with the $25 million that that business does a thing for me that appeals to my, Um, sense of wanting to make the world a better place. So I think that I could take $25 million and make the world a better place. if I do this 1, 2, 3 thing, OK, how do heck do I do that?
33:35
Well, maybe I buy a business or I, I set up a company and I put money in it and it does a thing, and that thing would benefit society, I’m not saying it has to be philanthropic. It could be.
33:47
But that thing, whatever I put the 25 million into, should make money, whether or not it’s considered profit, it should make money, because I want it to be sustainable. I want to be around for 100 years. And I want you to I want to point something out to you.
34:02
The people that have destroyed our society, in my opinion, ended up destroyed.
34:06
It, have destroyed it through the school system. And they’ve done that through what are called endowment contracts.
34:12
OK, the Vanderbilts, Especially the Rockefellers, the Morgan Chase type people OK, at JP Morgan on these guys, They set up and down contracts with their well, two, manipulate the school system into what we’re seeing today. Where do you think all that money came from?
34:27
John Johns Hopkins University, same thing. Don’t get me started on that subject.
34:32
So, endowment contracts have been used too.
34:36
What do you call it?
34:38
Change our culture into something that really is not good. In my opinion for the future. It’s immoral.
34:46
I think we can use endowment contracts to restore it.
34:51
Maybe I’m naive.
34:52
Just look it up.
34:53
Look at the possibility of using endowment contracts, OK, to do something that socially Beneficial to people 20 40, 60, 8100 years from now, OK.
35:06
Now, one last thing.
35:07
And I know this seems more like a summary, and we can talk about this because I know some of you are going to say, OK, John, what kind of terms, what kind of terms, well, I will share this one with you. And I do have terms. I have written this up.
35:18
I just want to share this concept with you.
35:20
And I will tell you that I have to confess I was being lazy and naive long time ago, about 20 years ago, and it resulted in me possibly losing millions of dollars.
35:33
I guess you could say, I did lose millions of dollars.
35:36
But, it cost me $100,000 to recover it, so I put an end to it. The hard way after the fact and I said, I suffered that loss.
35:46
And I have to call it tuition to this day.
35:49
And I, And all that was paid an attorney fees, OK.
35:53
So, Yeah. I’ve hired Attornies before, and she and she was a good attorney. She was really good, and we had a laugh at the end of it. when I, when I walked in with my last check for about $15,000, and she says, You know, you could have avoided this $100,000 cost of litigation.
36:07
If you just had, you know, contacting me before this deal, you did this joint venture.
36:12
And it will costume era costume maybe $500, OK, but that’s basically almost free In light of what you just experienced and we both laugh, and I said, Yeah, well, that’s tuition, but doing that did save me millions of dollars in a preserved, a lot of things I had built. OK, so anyways, enough of that.
36:28
So what I’m about to tell you comes from that learning. That’s my tuition. I’m happy to share with you. So what we came up with is this.
36:35
My attorney said, Look.
36:36
one of the things that you’ll find useful is a non-compete agreement in a in a clause, or just that agreement itself when you’re collaborating with people, other businesses, people that have your capacity or ability, OK. You don’t need to do with everybody or people that you want to have them under a contract and divest them of liability for disclosing your relationship, OK? Give them plausible deniability. This is another reason to have a non-compete agreement. So the person you’re working with can tell someone else to go pound sand, because he’s already under agreement. That way, there’s more security in your arrangement, OK, more trust, let’s just say.
37:11
So you have a non-compete agreement.
37:13
Now, this is what she explained to me with liquidated damages. Now remember, one of the first things I try to avoid with clients, and looking at their risk portfolio, let’s call it, is avoiding the costs of litigation. If I can do that, I’m almost gonna avoid costs of almost every other type of meaningful risk.
37:31
So what she told me is, with a liquidated damages clause in the contract that says, basically it’s, it concludes a dollar amount and damages for X and Delta, a different dollar amount and damages for Y, or whatever. It’s calculated in the contract, or it’s stated in the contract under certain conditions, right?
37:49
So if I end up in court, my cost of litigation will go way down because I don’t need a lot of Discovery and evidentiary findings and the Court’s approval to establish how much money my claim is worth, or to prove that my claim is worth what I said it was in the complaint, right? If I have liquidated damages in the contract, I gotta prove as the validity of the contract.
38:13
And we’re off and running. So yeah, I still gotta pay money for that.
38:16
So here’s another way to even possibly further reduce costs of litigation.
38:23
Or discourage a party from violating the non-compete agreement in the first place. Again, this is where we want to be. We don’t want to have to dispute things. We want to have fun, and, and run our business. And if someone wants to be stupid about something, and think he’s cheating us, you know, a lot of times, I’d just say, fine, go right ahead.
38:40
And then I don’t deal with them anymore, OK? No. Life’s too short for that stuff.
38:47
In the liquidated damages clause what I’ve developed over the years.
38:50
And it’s not always a matter of contract, sometimes I just do it by how I interact with people, how I explain it to them, how I set up the permissions, on how we’re organizing our venture. So we’re talking about a joint venture.
39:03
This is my sphere of where I operate, joint ventures, OK?
39:08
What I’m describing here is what I like to call an imputed joint venture agreement, and imputed joint venture agreement, the amputation of such an agreement comes from behaving in a way that would give rise to the agreement by default.
39:24
So if I tell you that I don’t want you to compete with me, and I say in the contract, if you do compete with me However, you owe me $100,000. That’s called liquidated damages.
39:34
If, then, I say, Maybe I want to say you still owe me $100,000, but let’s just say I want to be a little more sophisticated, and I say, If you do compete with me, well, then, great.
39:46
Um, I am entitled to X percent of your operations, and we are then partners in that new venture because I kinda want it to succeed.
39:58
If you have the, the wherewithal too.
40:02
Go ahead and copy with me and take it on and do it yourself without me and exclude me.
40:07
Then, hey, I kinda like that And if you’re successful, I want a piece of the action.
40:14
OK, and sometimes I’m entitled to it, and sometimes I’m not, so, it just depends, but I want to make myself entitled to it and we’ll make it part of the agreement. So it’s a very short clause. It’s like maybe it’s a few paragraphs and I may publish that. It might be in another video. I did this for a client recently.
40:30
And so I’m sure it’s going to wind up in one of my videos. So anyways, I just wanted to share these things with you.
40:36
These are, there are three categories here of isolating financial risk.
40:39
one is changing the name of it. Who owns it? Who has the right? The exclusive right to spend or sell it.
40:45
We do this with titles.
40:48
OK, it brings us back to that question of, what’s in a name? you ever hear that before?
40:53
Could be everything, could be everything, OK? Debt management is a great way to manage risk. Bankers will even tell you this if they’re gonna be honest. Great, way to manage risk! You want to have debt.
41:03
We need debt, that’s just our economy. I think it’s always going to be that way. The other thing, the third aspect here, is, has to do with morality.
41:13
Morality, being what happens in the future, What happens in the next generation?
41:17
How does it affect my progeny? What happens to my children? What happens to my friends? What happens to my good name?
41:22
What if I don’t have children? What happens to my good name? Yeah, that guy was rich. He died last year.
41:28
What do you do with all this money?
41:30
Oh, he had a great big mansion that’s all he did with his money.
41:33
That’s boring.
41:35
He didn’t do anything that’s still going on.
41:36
It’s still affecting people, right?
41:39
So that’s what I am concerned about with no money, and managing it, and looking at, in terms of risk, titles.
41:49
And the moral aspect, what happens in the future? What am I going to do with it? What kind of leverage do I have?
41:53
How can I positively influence people? So, I hope this has given you guys some more insight and ways of understanding what to do. I know a lot of you guys are already millionaire’s, Congratulations. It’s kinda cool.
42:05
And it gets really fun. It doesn’t mean you don’t have a job. It actually just means you have a different job. So that’s what I’ve found over the years.
42:11
All right, well, thanks for watching.