JF1814: How to Asset Manage A Newly Acquired Apartment Syndication Deal Part 9 of 10 | Syndication School with Theo Hicks

Investor distribution FAQ. That’s the topic for today’s Syndication School, I don’t think I need to explain much more about what’s inside this value packed episode. Without further ado, hit play and learn the next step of the apartment syndication process.  If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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“You pay the preferred return to investors, after that, the profits get split”


Free Document:



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Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.

Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.


Theo Hicks: Hi, Best Ever listeners. Welcome back to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I am your host, Theo Hicks.

Each week we air two podcast episodes – now they’re also in video form as well, on YouTube – that are part of a larger podcast or video series that’s focused on a specific aspect of the apartment syndication investment strategy. For all of these series we offer some sort of PDF document, an Excel template, a PowerPoint presentation template, some sort of resource for you to download for free. All of these free documents, as well as past and future Syndication School series can be found at SyndicationSchool.com.

This week and this episode is going to be a continuation of a series entitled “How to asset-manage a newly-acquired apartment syndication deal.” This is part nine. This is gonna be a ten-part series, so we’re gonna end it in the next episode that we do for the Syndication School. If you haven’t done so already, I highly recommend listening to parts one through eight. Again, those are available at SyndicationSchool.com.

The episodes for this series can be seen as a standalone after you go through parts one through three. So at the very least listen to parts one through three, where you learned the top ten asset management duties – the ten things that you need to do in order to execute the business plan successfully after you’ve closed and before you sell. So that’s parts one through three.

Then in parts four through eight we went into more details on those ten asset management duties. In part four we discussed in more detail how to maintain the economic occupancy – the rate of paying residents – and we went over 19 different ways to market your rental listings and make sure that you are attracting the right residents to your property.

Parts five and six were all about the property management company. In part five we talked about some tips on how to effectively manage a property management company… Because in  reality, one of the main duties of the asset manager is to manage the property management company who’s actually at the property on a daily basis.

Then in part six we talked about what happens if you’ve determined that your property management company is not doing what they’re supposed to be doing, and what they’re supposed to be doing we discussed in that episode as well. If that happens and you need to fire them, how to go about doing that so that the transition from the old management company to the new management company is as smooth as possible.

Then in parts seven and eight we focused even more on how to maintain that economic occupancy, because at the end of the day the economic occupancy is going to determine how much money you can distribute to your investors.

So in part seven we talked about how you can attract high-quality residents to your apartment community, and then in part eight we talked about some resident appreciation ideas for how you can actually retain these high-quality residents once you’ve attracted them and gotten them into the actual building.

In this episode, part nine, we’re going to go over some questions that you might have about distributing the money to your investors. So we’re gonna go over eight different questions that you might have, or eight frequently asked questions that we received about the logistics and how to go about distributing your money to your investors.

And for the purposes of this episode, we’re going to assume that the structure you have with your passive investors is a preferred return and then a profit split. We’re gonna assume that you have an 8% preferred return, and then after that the remaining profits are split 70/30; 70% of the profits go to the limited partners or the investors, 30% go to you, the GP. Just because I’m gonna use some examples and some numbers, and I don’t want to have to give a million different calculations, we’re gonna assume 8% preferred return, 70/30 split.

Now, we’re not gonna talk about how to structure the actual partnership, so why we’ve selected this 8%, 70/30. That’s in a previous episode, where we’ve talked about creating your team, attracting investors, setting up the compensation structure, and at this point in the process your passive investors have already agreed to the compensation structure, because they’ve invested their money in the deal. The deal is closed, and now they are getting their distribution, so here are some things you should think about, or questions you might have about how to actually go about distributing the money to your investors. Again, these are eight questions.

Number one is “How do you know if you can make a distribution?” First you have to know where the distributions come from. The distributions come out of the cashflow. The cashflow is calculated by essentially all of the income, minus all of the operating expenses, so things like maintenance and repairs, payroll costs, paying the property management company, taxes, insurance etc. We talked about during the underwriting section. And then the debt service as well is taken out of the income; it’s the monthly payment to your lender for the loan, to service the debt. That cashflow number should be calculated for you automatically on your profit & loss statement that is provided to you by your management company. Then below that they might have some non-operating expenses, like any interest that’s accrued and the asset management fees that are paid out, any lender reserves that are saved, things like that. So that cashflow is what the distributions come out of.

In order to calculate how much money you need to distribute, you need to know how much money was invested in the deal. That initial preferred return is what the investors receive first. Let’s say for example you’ve got a limited partner who invests $100,000 into the deal. 8% preferred return is $8,000 per year. Then depending on your frequency of distributions, that could be $666,67 per month, or that could be 2k every single quarter, or it could be a  lump sum of 8k per year.

Knowing whether or not you can make a distribution actually depends on the frequency. Because just because you would have in this example $8,000 in cashflow cumulatively for the entire year, but maybe it increases gradually throughout the year. So maybe the first six months is below 8%, and then the next six months is above 8%.

If you’re doing annual – great; if you’re doing monthly, you might run into an issue where you can’t distribute the full 8%; obviously, pro-rated, so 8% divided by 12 months, each month.

Let’s say you’ve got ten investors who all invested $100,000, a million dollar investment. That means that you need to distribute, at the 8% preferred return, $80,000 a year. That’s a million dollars times 8%, equals $80,000. The same logic applies that I mentioned before about the monthly versus quarterly versus annually.

Now, let’s say that that property cashflow is 80k. 80k divided by 12 each month, and you’re doing monthly distributions – then you know “Yes, I know I can distribute the 8% to my investors.”

Now let’s say that it does more than $80,000 that year. Then you distribute the 8%, and then you can distribute the additional profits based on what the profit split is.

Now, what happens if it cash-flows below 80k? Let’s say it cash-flows 60k. Then you can only distribute 60k, because that’s all you have; the investors technically didn’t hit the preferred return, so at that point it either rolls over to the next year, or it rolls over to the sale, depending on how it was outlined in the PPM, and you can’t make that distribution.

Again, the question is “How do I know if I can make the distribution?” That’s the long way of saying whatever the initial investment was, multiply that by your preferred return; that’s how much money your property needs to cash-flow for that year. If it does, the answer is “Yes, I can.” If it doesn’t, the answer is “No, I can’t.”

Number two, what happens if I cannot make a distribution? I guess I kind of already answered this. Following the example from before, if you need to cashflow $80,000 to hit the distribution number, but you only cash-flowed $60,000, then that gap of 20k can either roll over into the next year, or it can roll over at the closing. So when you close on the property, assuming, you have this catch-up provision in your PPM, however it’s outlined… If it’s at closing, then once you pay off the debt, you pay off the closing costs, whatever that lump sum profit is before it gets split between you and the investors, you have to pay that preferred return; then after that, those remaining profits will get split. But again, the process is whatever you have outlined in the operating agreement, the PPM, with your investors.

So it’s something you need to think about before you close on the deal, and figure out “Okay, if we cannot hit a distribution, what do we do? Is there a catch-up provision? Do we just never pay it out? What are we going to do?”

Number three, how do I calculate the distributions? I’ve already mentioned this as well – it is based on the preferred return that you offer to your investors, and their additional investment amount. So you take the initial investment amount and you multiply it by whatever that preferred return is, and that’s the annual return that they get. So if you’re doing quarterly distributions, you divide that number by four and distribute that quarterly. So $80,000 – that’d be 20k per quarter. If you’re doing monthly, then it’d be $80,000 divided by 12, which is the $6,666,67 number.

Obviously, if you’ve got ten investors, you divide that by ten, and each of those ten investors get their chunk. So it’s based on how much money that they actually invested times the preferred return, and that’s the annual distribution they get.

Number four is when do I pay out the actual distributions? As I mentioned, obviously you’ve got that preferred return if 8%, but what happens if the deal cash-flows 10%? What happens with that extra 2%? The answer is you don’t just get it; it’s based on the compensation structure. In this example that we talked about, the compensation structure, the profit split is 70/30. So of that 2%, the passive investors get 70% and you get 30%.

Logistically, what Joe does – for the first 12 months of the deal, so month one through twelve, he’ll just distribute the 8% prorated. Each month will get 8% divided by 12, multiplied by their investment. So $100,000 investment – that’s $666,67/month. Then at the end of a full 12 month of ownership, they will evaluate the profit and loss statement, as well as their bank statements, see their cash balance, things like that, and see how much money they cash-flowed above that 8%. Then whatever that is, the investors will get 70% of that, or how you structured the deal.

Let’s say for example you have ten investors who invested $100,000 each, at an 8% preferred return, and the property cash-flowed $100,000 year one. That’s 10%. So you distribute the 8% each month, and at the end you say “Okay, we’ve got $20,000 remaining. That means that each investor will get 70% of that $20,000.

So if you have ten investors, each of those investors will get $1,400 each. That’s calculated by $100,000 cashflow minus the $80,000 you’ve already distributed, which is $20,000. And then $20,000 multiplied by 70%, which is their portion of the profit split, is $14,000. If you’ve got ten investors, 14k divided by ten equals $1,400.

Then for your investors, this would actually equal 9.4% return for year one, because they got that 8k plus 1,4k. That’s $9,400, divided by their initial investment of $100,000, which is 9.4%. So you can say to your investors, “Hey, we’ve projected 8% for year one, but we were actually able to distribute 9.4%, and you’re gonna get an extra $1,400 for your first distribution of the year two.”

Question number five, who sends out these distributions? We’ve already talked about this before in parts one through three, when we talked about the asset management duties, as well as part five, where we talked about how to manage your property management company. The answer is ideally, your property management company is the party responsible for sending out these monthly distributions, or quarterly distributions, or annual distributions.

Obviously, you tell them “Hey, this is how much we distribute”, but logistically, they’re the ones that are actually sending out the checks and sending out the direct deposits to your investors, so you wanna make sure that you have set expectations with your property management company about these distributions before you’ve closed on the deal. So let them know “Hey, we wanna send out distributions via check, or direct deposit, on a monthly basis. It should be this much, but each month we’ll confirm that with you. At the end of 12 months of ownership, we want to reevaluate the performance and I want you to let us know how much money we can distribute extra. That will be distributed the same way as the regular distributions – direct deposit or check in the mail.”

Question number six, when do I send out the first distribution? Generally, Joe sends out the first distribution at the end of the third month of ownership, and it’ll cover the time that the property was owned during that first month and the second month.

As an example, let’s say that the property was closed on January 15th. Then the first distribution will be send at the end of the third month, which is going to be March, and it’ll cover the time the property was owned from January 15th to February 28th. So it’ll be a full month, plus half a month. Then after that, each distribution will cover one month fully, and then it will be sent at the end of the following month. So the distribution that covers the month of March will be sent by the end of April.

That just gives your property management company time to send out distributions, make sure the money is there… So you don’t wanna send that March distribution at the end of March, because you might not have collected all of the money, you might not have paid all of your bills until maybe mid-April. So you make sure all of your ducks are in a row before you send out those distributions.

And then of course, make sure that when you’re setting expectations with your investors, they know that the first distribution is going to be a little bit larger, just because it’s covering multiple months of ownership.

Second to last question, number seven, is how do I send the distribution? I’ve kind of already mentioned this, but the two main ways to send distributions are 1) direct deposit, or 2) check in the mail. You can either just send them via direct deposit, you can either send them just through the mail, or you can do a combination of both and let your investors pick an option. But as I said before, make sure that your property management company is capable of doing whatever method your investors want, or whatever method you decide on.

If they, for some reason, don’t wanna send out checks, then you can’t offer checks to your investors. If for some reason they don’t wanna do direct deposits, then you can’t offer direct deposits to your investors. The last thing you wanna do is have them fill a direct deposit sheet, you tell them that they’re gonna get their first distribution by the end of March, for example, and then when the time comes, your property management company says “Hey, by the way, we can’t send out direct deposit, we can only do check in the mail.” Then you have to go back to your investors and let them know why they can’t get direct deposit, which makes you look bad, it makes everyone look bad… So make sure that you know exactly how your management company can send these distributions before you set that up with your investors.

And then lastly, question number eight, which might be the most important question to you, I don’t know – it is “When do you actually get paid?” So depending on how you structured the deal with your investors, you might get an acquisition fee, which you would be paid at closing. You might have some other fee that you charge for putting the deal together, and you collect all those fees at closing. So think of it as similar to the broker’s commission. They get their check at closing, you get your check at closing.

From an ongoing distribution perspective, you might get paid an asset management fee each month, or each quarter, depending on how you decide to set up these distributions with your investors. If you have an asset management fee, that’s considered a non-operating expense. What Joe does is he puts that in second position to the preferred return, which means that if the investors don’t get their preferred return, then Joe doesn’t get his asset management fee… Which is a little bit extra alignment of interests with the investors, to say “Hey, I’m not getting paid unless we get paid. I’d rather invest with someone like that, than someone who takes their money first and then tells me that they can’t pay me because they took 2% out of the deal already for themselves.”

So whatever that percentage is, you want to collect that after you’ve sent out the preferred return, if that’s what you want to do, and if you want to have that alignment of interest with your investors.

The other way you’ll get paid on an ongoing basis is if you’re able to exceed that preferred return. Again, you can do this on a monthly basis or you can do it whenever you calculate the extra distributions you send to your investors.

Going back to our previous example of the preferred return being 8%, so you owe your investors 80k per year, but the property cash-flows 100k, so 14k of that extra 20k, which is 70%, goes to your investors; the 6k which is the 30% go to you. So you’re gonna collect that each month, each quarter, or you can collect that once you send out that 14k to your investors.

And of course, you’ll get paid at closing based on that profit split as well. So if there’s a million dollars of sales proceeds after paying everything off, the investors get 70% of that, which is $700,000, and then you, the GP, gets $300,000.

Those are some of the questions that you might have about investor distributions. Some things we haven’t exactly talked about yet, kind of going into the details of the logistics behind how you actually calculate distributions, how you send them out, what happens if you can’t hit them, what happens if you exceed your cashflow amount, how do you approach that… So we’ve hit on all of those in this episode.

If you have any other questions about distributions, feel free to email me, theo@joefairless.com. I’ll be happy to answer those for you, or make them a topic of a future Syndication School series.

Now, this concludes part nine. I’m really excited, because tomorrow is going to be part ten, and that will be the conclusion of the second-to-last step of the syndication process, which is the asset managing a newly-acquired apartment syndication deal.

Tomorrow we’re gonna talk about how to secure a supplemental loan. We’ll talk about what that is and how to do that tomorrow. Then next week is going to be the start of the last series, and in fact it’s probably just going to be a two-part series, which is how to sell your apartment community at the end of the business plan. That will conclude the entire apartment syndication cycle.

At that point, we will just kind of go back over the entire cycle and focus in more detail on certain aspects of the process, but by the end of next week you should have an entire overview of the entire apartment syndication process, from start to finish. I think it’s 21 series that have between two episodes – and this one’s the longest, so ten episodes. Hundreds of hours of content that teaches you the how-to’s of apartment syndications, and at least 21 free documents as well. All of those are available at SyndicationSchool.com.

Thank you for listening, and we will talk to you tomorrow.

JF1811: Protect Your Assets! #SkillSetSunday with Brian T. Bradley

Brian is here today to tell us how we can best protect the assets that we work so hard to acquire. He’s an asset protection attorney, so he’s seen first hand the consequences of not properly setting up your business from the beginning. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“If I’m not adding value for my clients, they don’t need me” – Brian T. Bradley


Brian T. Bradley Real Estate Background:

  • Asset Protection Attorney for Investors, Self-Made Entrepreneurs, Business Owners, High Risk Professionals  and Affluent Families
  • Sets up systems and strategic teams for our clients asset protection and wealth management
  • Based in Portland, OR
  • Say hi to him at https://btblegal.com/


Evicting a tenant can be painful, costing as much as $10,000 in court costs and legal fees, and take as long as four weeks to complete.

TransUnion SmartMove’s online tenant screening solution can help you quickly understand if you’re getting a reliable tenant, which can help you avoid potential problems such as non-payment and evictions.  For a limited time, listeners of this podcast are invited to try SmartMove tenant screening for 25% off.

Go to tenantscreening.com and enter code FAIRLESS for 25% off your next screening.


Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Brian T. Bradley. How are you doing, Brian?

Brian T. Bradley: I am doing great, Joe. Thanks for having me on, and the Best Ever listeners, and putting this podcast together. This is really gonna be a good, hot topic for everybody, from your newbie, to the person with 1,000 doors, and I just hope that I can add some value here.

Joe Fairless: Asset protection is very important, and that is our focus today. Best Ever listeners, first off, I hope you’re having a Best Ever weekend. Because today is Sunday, we’ve got a special segment, Skillset Sunday. That skill is talking about asset protection. A little bit about Brian – he is an asset protection attorney for investors, self-made entrepreneurs, business owners, high-risk professionals and affluent families. He sets up systems and strategic teams for clients, for asset protection and wealth management. Based in Portland, Oregon. He works with clients all over the country.

With that being said, Brian, first do you wanna give the Best Ever listeners a little bit more about your background? And then let’s roll right into some things we should know about asset protection.

Brian T. Bradley: Yeah, let’s do it. As you said, I’m an asset protection attorney, and I got into asset protection from the litigation side of things. A lot of these guys come into it from estate planning. I got into asset protection from the attack side, and just having a lot of clients coming into my door who a lot  had insurance, and a lot had revocable living trusts… And it gave them a false sense of security, and the next thing you know they were getting sued and their lives were just turned completely upside down. They were shell-shocked that they weren’t protected, and everybody was starting to distance themselves from them.

What I wanted to do was start providing something better, that added value for clients, and try to get them on the front-end of things and set up systems before they needed them and before they were being attacked.

So just like an investor, my goal here with what I do is just to add value to the client. If I can’t add value to them, they really don’t need me. And there’s nothing that I’m doing really that’s special, it’s just the way me and my network look at things and the way we work at things. So what we really want for clients is to not just educate them on what they don’t know with what they’re doing – that’s the easy part – but what we really strive for is to educate and teach clients on what they don’t know that they don’t know, because that’s where real problems come into issue.

So what we do for our clients is, like you said in the intro, is set up strategic teams and systems for more advanced estate planning. And then using our acronym ECCM, which stands for Effective Control Cost and Maintenance, all while trying to keep in mind the overall goal of lifestyle preservation, because that’s really what asset protection is all about – preserving their current lifestyle, creating peace of mind and then changing the way a potential predator is gonna actually view you, while trying to pick up and build in some secondary goals of tax benefits, and decreasing your taxable estate and taking risk off the table.

Joe Fairless: You said you help set up systems before they are being attacked… What are some systems that you’ll set up for your clients, more often than not?

Brian T. Bradley: More often than not we’re trying to put people into asset protection trusts. We also use LLCs, or Delaware statutory trusts. There’s different versions of trusts. The trust that we’re trying to do here is separate the client’s personal liability, using our acronym ECCM. We can break this down a little bit, if you want, so that the listeners have a better idea of what they’re trying to get when they go and talk to their lawyer.

When we’re setting up effective systems, what we mean is that any attorney can make an argument to pierce a corporate veil. I think you’ve had an episode in the past with another lawyer about piercing veils… So depending on the state, like California, which is a non-asset-protection-friendly state, the worst thing that you can do is own anything in your personal name. So effective systems are actually gonna use what we call exemption planning first; and this is before you go and set up an LLC, or some sort of corporate structure or a trust. And this is just because an exemption is a legal right. So before we do anything elaborate, we wanna see what assets we can stuff into an exemption.

Then after that we move into more advanced estate planning, which would be an asset protection trust, and then we would be going into picking the best jurisdiction to establish that trust in. We like the Cook Islands, or at least having that as an option in the backpocket, but we would always prefer to link that option, if we needed to, with something domestic based here in the U.S.

Then, continuing with the ECCM acronym, your Best Ever listeners are gonna want a system that actually gives them control. Control doesn’t mean in your personal name; it just goes to what the rich are doing. The rich don’t own things, they just use them and they get the benefit from them. So they don’t wanna own the assets in their personal name, they want to really just separate the personal liability out. And then when they’re getting into these systems that they’re gonna go talk to their lawyers about to set up, the costs have to be reasonable. If you can’t afford it, you’re not gonna set one up, and then you’re gonna still be personally liable.

Then at the back-end of it, the annual maintenance that you have to pay with your IRS and your filings – you can’t lose money due to annual maintenance fees, otherwise you’re also not gonna set one up. So you just wanna keep in mind when you’re talking to your lawyers and shopping around for systems, ECCM.

Joe Fairless: You said the rich have control, but they don’t own them, but they get to use their assets… How do they do that?

Brian T. Bradley: What they’re doing is a basic system – you’re transferring the assets out of your personal name. A lot of your listeners are gonna go into a bank; they wanna go buy an asset, so they’re gonna go get a loan, and they’re gonna put the title in their own personal name. But then that holds you personally liable for everything… So no matter what kind of system you set up, whether it’s an LLC or some sort of asset protection trust, what you wanna do is then transfer that title out of your personal name and put it into an asset protection trust, or an LLC linked to a land trust… You just wanna take it out of your personal name, to where you’re not gonna be personally liable for it.

Joe Fairless: If someone has worked with an asset protection attorney already, and they’ve got some stuff drafted up, and they couldn’t exactly explain what they’ve got drafted up; they just kind of followed the advice of the attorney… What are some questions that they should ask their attorney to make sure that what they currently have is set up properly?

Brian T. Bradley: I think the best thing first is, like anything, you wanna shop around. Don’t just talk to one person. You’re gonna want to vet that attorney like you would vet your doctor or your CPA. The first thing you would wanna do is make sure they do what’s called an asset diagnostic.

Some firms, because they’re just used to drafting trusts and they’re not asset protection firms, no one wants to turn down business, so they’re like “Oh yeah, we can create an LLC for you. We’re real estate lawyers”, but they’re not specifically specialists in asset protection.

An asset protection lawyer who’s worth his dime is gonna first have you fill out your entire financial portfolio in life into what’s called an asset diagnostic. Then what we’re gonna do is look through what state you live in, what exemptions you have available for your state… Because then once you put an asset into an exemption, that can completely change the entire evaluation of what we actually have to protect, because if it’s an exemption, we don’t need to put it into a protective system. So we need to know what we can exempt first, and then go from there… But that’s all gonna be derivative off of the asset diagnostic.

So that’s really the first thing that you wanna make sure – before you even speak to them, you’re gonna have an efficient conversation with that lawyer because they’ve done an asset diagnostic.

Then the next thing is what other tools do they have in the toolbox? Are they only pumping one product? Are they only using an LLC? Are they only using a Delaware statutory trust? Or have they taken the time to actually evaluate you and see how you’re different than your neighbor or everybody else, and then just like a doctor, matching what prescription works for you, your net worth, your profession, your risk liability, your investment strategies, what tax advantages don’t you have, because then we’ll work with the CPAs and our financial advisors to see what credits you didn’t pick up, what tax benefits you didn’t get, and then creating a system around it. So you just wanna vet that attorney to see what options they have to work with.

Joe Fairless: Okay. So that’s in the vetting process, but my question is you’ve already got that done, and  you wanna make sure that whatever has been done is done properly… So what questions should you ask the attorney that you have already selected, to make sure that that was set up properly and that you do have the right stuff in place?

Brian T. Bradley: I think that should be done in the vetting process, because you’re not a lawyer. Just like your doctor, you’re not a doctor, so how do you know that the doctor that diagnosed you diagnosed you correctly? You eventually have to just work with your team, and if you wanted to, take it to another lawyer to have it checked. That’s just gonna be expensive.

But at the end of the day, I think when you set up your team and your advisors, you’re paying them for  a reason, so I would trust them after your vetting process and you asked them all the questions, and you went through a bunch of different people and who you’re comfortable working with. Because your listeners – I wouldn’t be comfortable giving them the advice to say “After you get your LLC set up, now second-guess your lawyer and ask this, this and this”, because that lawyer should know what they’re doing.

Joe Fairless: Got it, okay. So if any Best Ever listeners do have something already set up, then they should already know what they’re doing because they’ve picked a lawyer, if they went through the proper vetting process; and if there is an action item, it’s not necessary they ask questions to them, it’s just you could take it to another lawyer to just have it double-checked.

Brian T. Bradley: Yeah, and [unintelligible 00:11:29.06] For example, if you go to LegalZoom, they’re not law firms, but there’s a lot of missed clauses. I wouldn’t be able to tell  you “Go ask this as a checklist”, because I don’t know their situation, but I would say if you aren’t comfortable with what your lawyer is doing, go get a second opinion.

Joe Fairless: Got it. Okay. When you work with clients, what’s a unique challenge that you’ve come across, that you’ve helped solve?

Brian T. Bradley: A unique challenge is 50% of the phone calls that come in are people who are already being sued and are asking us what we can do for them. Unfortunately, on the asset protection side the courts really favor asset-protection planning before you’re in trouble. Obviously, people don’t care about that; they don’t think about it until they already are in trouble. You’ve jumped into the deep water. So 50% of the clients are coming in the door already being sued, and at that point it gets tricky in what we can and can’t do, and it gets more expensive.

One of the clients, for example, is a doctor that we had. He had got sued – if I think back to this real quick – for a nerve-damage case and he had one million dollars in liability coverage. He had about 3 million in assets in net worth, plus his practice… He was like “Hey, I’m being sued. What can I do for you?” And it’s like “Well, you’re already being sued and you didn’t set anything up in the beginning, so it’s gonna be a little tricky, but what we can do with some of the tools in the toolbox is look at what your insurance coverage is, and then what we reasonably would expect your malpractice insurance to cover you for… And then from there, what would a reasonable claim be, and then we can either shield those assets and put them out of the protection system, and then protect everything else, or what we can do is put everything that you own into a protective system, and then just exempt that lawsuit.

Another tricky one is we get a lot of divorcees coming and not wanting to give their spouses access to the properties that they own, so we have to walk through and say “Alright, this is communal property, most of this. We can create and help you protect the assets, but we either have to exempt the current dissolution assets and then work with your spouse on what is community versus separate property.”

So those are the tricky ones when they come in, just how to balance what’s reasonably gonna be covered with insurance and what’s not, or dissolutions because of communal property relationships.

Joe Fairless: And any tips for someone who is getting sued and they’re like “Oh man, I don’t have any asset protection…” — or let me rephrase; let’s do a different hypothetical… Someone who has a high likelihood of being sued because maybe they’re a fix and flipper and they work with a lot of general contractors, and they don’t have asset protection – any main things they should make sure they keep in mind whenever they’re working with an asset protection attorney?

Brian T. Bradley: Yeah, I would say the thing to keep in mind is — I get a lot of guys who are like “I’ve never been sued yet”, but you need to realize if you choose to work in real estate or be an investor and a flipper, or whatever you’re doing in real estate, real estate law is the hottest area of law for you to be sued in. It’s the most litigated area of law, so it’s really just not a matter of if, but when and then what condition you’re gonna be in when you do get sued, to deal with it.

So I also say proactive planning… If you’re already being sued, what you need to do is understand your assets and what is that asset that’s under attack right now, and then ask the lawyer “What are the options of…” – like we just went through. “I have insurance in X amount. What’s the reasonable amount of coverage that we can expect the insurance company to cover on this lawsuit?” And then if we can’t protect that one particular piece of property, maybe you own 3-4 more, and then maybe we can shield the rest of those and protect those, while that one piece of property that’s subject to the lawsuit gets filtered through the system, and then the lawsuit goes away. Or, like I said, ask them “Can we put everything in and then just exempt that one lawsuit from the protection system?”, and then you’re protected going forward.

Joe Fairless: Okay. You’ve mentioned Cool Islands. Why set up jurisdiction there?

Brian T. Bradley: It’s just the strongest jurisdiction that you can have, because they just don’t recognize U.S. court orders. That’s the great thing about it. Let me get to this right here for you… What we always say is maximize exemptions first, and then picking jurisdiction is the next best thing after that. And the greatness of foreign trust is that, like I said – statutory non-recognition of jurisdiction court orders from the U.S. What this means is they’re just gonna go tell anything in the U.S. [unintelligible 00:15:57.04] to go pound sand. They’re not gonna be able to collect. They’d have to go and restart the case all over from scratch, [00:16:05.07] the highest legal standard in the world, which is [unintelligible 00:16:04.24] beyond a reasonable doubt. And this is just for a civil claim.

Then the plaintiffs are gonna have to front all the court costs, they’re gonna have to fly in a judge from New Zealand to the Cook Islands… It gets crazy what you have to do to be able to sue somebody in the Cook Islands. And the claim is not amendable; what this means is that once you file the complaint after the discovery process, you can’t go back and amend that complaint like we can do here in the U.S. So what you file, you’re stuck with.

And then a big deterrent on this is if you lose, you end up paying. So that plaintiff who is suing you is most likely going to lose, because they have to prove their case beyond a reasonable doubt, so they’re most likely gonna be paying all of your legal fees also, and most likely they’re never gonna get the chance to sue you in the Cook Islands, because there’s a one-year statute of limitations.

So while they’re kicking their tires here in the U.S, trying to sue you in the U.S, they’ve already run their statute of limitations timeframe in the Cook Islands, and they don’t have an actual timeframe now to go and sue you there.

If we wanna compare this now to our acronym ECCM, because there’s always give and take, some pros and cons to everything, if you’re purely foreign, meaning an offshore in the Cook Islands, number one, effectiveness – that’s five out of five stars. We’ve just went over how it’s truly effective.

But on the other three factors – control, cost and compliance – it’s gonna be a little but short. For a foreign asset protection trust to actually work you have to be out of control, meaning you’re gonna have to be subjected to a third-party foreign trustee in the Cook Islands. The costs are gonna be a lot higher to maintain, so you’re gonna go from about $1,500 to maintain, to over $5,000, and we’ve seen over $10,000 to be purely foreign, in just annual maintenance fees. And if you’re purely foreign, you have a lot more IRS reporting compliance and disclosure fees; you have to file these IRS 3520s and 3520(a)’s. But we only go purely foreign for about 5% of our clients who are really high-risk. For everybody else that’s just overkill.

So we have the option that we use, which is called a bridge trust, and we kind of bridge something domestic with the Cool Islands and we stay domestic until we actually have to go foreign with a predrafted triggering clause, that then moves us foreign if we ever have to execute that clause.

Joe Fairless: Oh, it sounds like the best of both worlds. Why wouldn’t  you have the bridge trust clause – if I said that right – in the super-risky people? Because it sounds like it’s the same thing.

Brian T. Bradley: Because sometimes you just – depending when they’re coming in and what’s going on with their situation, they may just have to immediately be more aggressive in their planning and go foreign… And just to preserve wealth, depending on — they may have a potential lawsuit that’s coming up and they may be losing 15 million dollars. On that standpoint I would say we need to be a little bit more aggressive and we need to go immediately more foreign, and then apply some more aggressive asset protection strategies to preserve the equity into it. But like I said, that’s just for higher and more risk clients.

What you really wanna do is just be more reasonable in your cost and how you’re gonna break things down, but have (like you’ve just said) the best of both worlds. Be domestic, don’t have to worry about all those IRS filings that you don’t have to do, pay cheaper maintenance fees, but still have the power of the Cook Islands with the built-in triggering clauses to go there if you need to.

Joe Fairless: Anything else that we haven’t talked about as it relates to asset protection that you think we should?

Brian T. Bradley: How are we on time? Because there’s one thing I think that would be a really big value for your clients, which would be [unintelligible 00:19:30.10] but I don’t know how we are on time.

Joe Fairless: Please continue.

Brian T. Bradley: Fraud and fraudulent transfer is really the crux of where all the decisions that we have to make come down to. Fraud is — or let’s start with fraudulent transfer/conveyance. It’s a transfer of ownership of an asset – what you own – for little or no consideration. What this means is that the other party is not really getting anything of value for it, and then this comes with an intent to hinder, delay, or defeat the claim of a creditor.

The key here is the intent. In other words, the courts are gonna look at what was the state of mind when a transfer was made. So whenever you’re transferring properties, they wanna know what was your intent, and then did it have an actual effect during the transfer period? …delay, hinder or defraud a creditor.

Where people get wrong with this is if you don’t have that state of mind, then there’s no fraudulent conveyance. And if you didn’t have a creditor existing at that time when you made that conveyance, then there was no fraudulent conveyance. So that’s the point of being proactive and planning beforehand, and before the need.

And now let’s compare this to fraud, because these are drastically two different concepts. Fraud is an intentional misrepresentation of a material fact to induce someone to refrain from acting to their detriment. So you’re just intentionally misrepresenting them with the intent to hurt them, and then they do get hurt. So these two concepts are different in how they’re actually applied in the law.

Understanding fraud is usually — that’s a crime. But fraudulent transfers on the other hand aren’t. They’re what we call a supplemental or secondary proceeding, where you get sued, they’re gonna start finding out what assets you transferred during the discovery process and for what consideration. And if it’s discovered that you made a transfer for little or no consideration within about five years, what they’re gonna do is have the judge ask to undo that transfer. So the remedy of this is to ask the judge to give it back, so that the creditors can collect the judgment.

I think a good example would be the doctor example that we went over in the beginning [unintelligible 00:21:31.07] the likelihood of what the insurance would cover or not. And then this also goes for the importance of what we were talking about with picking a jurisdiction and how it relates to fraud. The reason, for example, an offshore trust is so powerful, or having it in the backpocket, is that in order to undo a transfer, the court actually has to have the power to tell that person that you did the transfer to, that you gave the asset to, to actually give it back. Any court that’s in the U.S. doesn’t have the power to go and tell an offshore Cook Island trustee to give it back. They’re just gonna tell you to go pound sand  and ignore that order. The Cook Islands, like we said, just statutorily don’t recognize U.S. court orders or judgments.

But if we compare this to anything purely domestic in the U.S, we don’t have that option because of the full faith and credit clause of the Constitution; you can’t run from judgments in the U.S. So that really goes into why we wanna pick strong jurisdictions and why we wanna first  max out exemptions.

Joe Fairless: Thank you for sharing that. I’m glad that you brought that up. I know that’s gonna be valuable. And this conversation was very valuable, and I’m very grateful that you’ve spent some time with us on this show.

How can the Best Ever listeners learn more about what you’re doing and get in touch with you or your team?

Brian T. Bradley: Yeah, my email is one of the best ways – brian@btblegal.com, or you can find me on LinkedIn, Brian T. Bradley. My firm is Bradley Legal Corp. I’m always checking my email, and on LinkedIn. We do free initial consultations and the exemption diagnostic reports, and we’ll go over all your assets, and the different exemptions, and the specific tax and credit strategic planning that you may have missed, so you can try to recapture those missed opportunities.

I used to charge for this, but then I got tired and concerned about clients not wanting to know what’s going on and what we can do for them, because they didn’t wanna pay a consultation fee, so I’d rather just say “Here, take this hour, hour-and-a-half for free, educate yourself. Let’s go over everything, and then now you have more education to set yourself up.”

Joe Fairless: And if someone already has a plan in place, but they are not sure if it’s accurate, is that free consultation still…?

Brian T. Bradley: Exactly. And particularly, there’s a lot of exemptions that — I know you probably have a lot of California listeners…

Joe Fairless: Yes.

Brian T. Bradley: They don’t even know that, for example, what’s called a private retirement plan (PRP planning), which anything that can be stuffed into this plan, that we can easily calculate for, is completely exempt from a lawsuit. So we will do these evaluations, and a lot of people outgrow the systems that they’re in, and we’ll just upgrade them and see what we can stuff them into, and what works for them.

Joe Fairless: Excellent. Brian, thank you so much for being on the show, thanks for talking about your background for why you got into the business, as well as a lot of specifics for what to think about from an asset protection standpoint.

Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Brian T. Bradley: Thanks, Joe. You too. Bye!