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/
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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 – email@example.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!