BEWARE: The Major Changes In 2023 Affecting Real Estate Asset Protection With Clint Coons

What I wanted to do today is bring him on specifically to go over some things that are affecting asset protection and real estate investing for 2023. Specifically, I want to go over what the changes are, and what we need to be aware of in 2023. First off, welcome, Clint.

Clint: Hey, thanks for having me.

Toby: This should be fun. Clint and I have been practicing together for 25 years now or some really long number. Clint is an expert on the asset protection side. I tend to spend most of my time on the tax side and more of the legacy planning. Today, we really want to zero in.

There’s this thing called the Corporate Transparency Act, everybody’s abuzz about it. Is this something that’s happening in 2023? What do people need to know about this thing called the Corporate Transparency Act?

Clint: It is really important, just like all things about tax and asset protection, as you stated. Before I get there, I just want everyone to know what you and I are covering today if they want to learn more about this in detail, because we’re so limited on time, we talk, we’re going to have about 20 minutes here, check out the show notes.

If they want to join us on our Tax and Asset Protection workshop, we have a link there. It’s going to go more in detail as to what I’m talking about right now, which to your question has to do with the Corporate Transparency Act. If you’re not aware of it, this is something you better figure out sooner rather than later because this is going to affect all business entities. Even though it’s gone into effect currently, it’s not hitting any business entities this year, but you got to start preparing for it.

What it basically means is this. If you have an LLC, corporation, limited partnership, any type of business entity, and how you might hold that interest either directly or indirectly, you’d have to report to the federal government. The fact that you won’t turn over your personal information, copy of your driver’s license, because they want to track who is involved with business entities, because they’re concerned about money laundering that they say is taking place through business structures of which they don’t know who the beneficial owners are. It is going to impact us all in this industry, and it’s something you have to be aware of.

Toby: It’s basically reporting. Is it FinCEN that you’re reporting it to or is it some other agency?

Clint: Yeah, you report it to FinCEN. Here’s the common misconception. I see a lot of people that are hitting me up on the videos that I’ve been creating here saying, well, anonymity is dead. Now that the government has this information, everyone’s going to know about our structures. That’s not true because they’re holding this information.

Granted it can be hacked by China at any time, but they’re going to hold this information private. The only way you can gain access to it is with a subpoena. They’re going to limit it to governmental agencies that can subpoena this information if one of these business entities they think is engaged in any type of money laundering, wrongdoing.

It would be available from that standpoint, but it’s not available for the general public. As you brought up FinCEN, there isn’t a FinCEN database where all you got to do is log in and say, what the hell does Toby Mathis own, and then I’ll bring up all your entities. That will not happen. All the strategies—and we’re going to talk about some of them that we’re using—is not going to impact that.

Toby: The Corporate Transparency Act is basically reporting beneficial interest of an LLC or whatnot. Anybody else gets hit by this thing, like, hey, if I’m a lawyer and I’m setting these up or if I’m one of those corporate services online and stuff, do I still have reporting requirements?

Clint: Yeah, we’re all going to feel the pinch. If you set up a business entity, that is if you file the business entity, you have to report. If you’re at a law firm that employs people that set up business entities, you have to report not only the person who does the filing, but the attorney that oversees them. If you lend money to someone, and you have the ability to step in and convert that debt to equity, or you can exercise control over that company, you have to report about yourself.

There are lots of individuals that are going to get wrapped up into this. We’ve been telling people, we talked about this at our tax and asset protection event. Again, hit that show link. Check out the show link notes below for that link. You’re going to want to be ahead of it.

One of the things that I’ve been having conversations with these last couple of months with individual investors that people aren’t thinking about is that this impacts all entities. If you set your entity up this year, last year, 10 years ago, you got to report. More importantly, what you need to be considering is that operating agreement you have because I think it’s good practice to go back.

It’s one of the things that you and I have been discussing and we’re doing right now with our operating agreements. We’re incorporating the language in there to make them FinCEN-compliant, so that we ensure that when we have that LLC out there that we have the requisite language in there to make sure that the beneficial interest holders are going to be protected. I think that’s an area where a lot of people can get tripped up on.

Toby: If I’m hearing you right, this is not a big thing where plaintiff lawyers aren’t going to be able to use this to find new victims to shake down. This isn’t like, I have a tenant and they’re mad at me that they can hand my name to a lawyer who’s going to be to go pull up and see anything, I’m a beneficiary. That’s not what this is. This is just going straight to the federal government.

How is this different from the Bank Secrecy Act or the Patriot Act provisions, where there were disclosures, so that financial institutions, for example, had to get this information?

Clint: The financial institution, that’s the funny thing about this, they already collect the information. The IRS has a lot of this information because all these entities file tax returns. If somebody wants to commit fraud, they’re going to commit fraud no matter what, but our government somehow operates under this false assumption that if we pass a law, then people will stop doing this. If that was the case, then we would no longer have any robberies, no murders, nobody would break the speed limit.

The fact of the matter is I think it’s an undue burden. It’s a way for the government to make a few more bucks off of people, to wait for them to hold their feet to the fire, because if you fail to do it, there are civil as well as potential criminal remedies that come from this. It’s something we just all going to have to get used to, just like what you brought up with the Patriot Act and the Secrecy Act, the things that you and I could do back in the day when we first started, when we set up business entities, that all changed. Over time, you have those people that don’t like it and they’re going to push back against it, but you’re eventually going to bend to the will, and you’re going to do what they ask.

Toby: The good old days of being able to walk somebody to the gate of the airport or that you could set up a bank account without giving a blood sample.

You mentioned the government. Let’s shift gears here to the government. There are a lot of things that people aren’t aware of that hit them, and specifically, things that states like to do. You have franchise taxes, you have transfer taxes. The states are going to be looking for money right now, especially as we are in a recession and the economy’s a little bit sputtering and they start looking. What are ways that people can avoid getting hit with some of the biggies? We know some of the big states, but what are some things that you can do structurally to avoid getting hit by those excess fees?

Clint: The thing is that that’s where we talk about, strategic entity planning, understanding how entities work, and how that state assesses taxes or fees on business entities. One of the things that we do here at Anderson that you and I talk about all the time on our tax and asset protection event is the use of trust. A lot of investors are not aware of the fact that trusts oftentimes are not subject to a state franchise tax. Or if there are any filing fees on that trust, they are de minimis.

You still have to pay income taxes on the income generated, but you’re not paying anything at the state level. It significantly decreases the cost of setting up an asset protection structure. The way you can use trust, which is something that you and I both firmly believe in, is you can set them up with anonymity. If you hold real estate (let’s say) in a trust and somebody looks at the title of that property, they won’t see your name associated with it because of the way we like to set up trusts for our clients.

You can own personal property and trust, you can run a business out of a statutory type of trust. There are many different forms that an investor can use or a business owner can use if they’re looking for anonymity, and they’re trying to keep their costs down. That’s the best way to go.

Toby: Let me do this. There are a lot of listeners. They’re probably in states with franchise fees with probably the worst offenders in California. Can you avoid that $800?

Clint: Just move. The question is, can you avoid it? Yes. Can you avoid it legally? Yes, you can because there are some ways that people do it. That’s on them. But the way we like to do it here at Anderson to set it up, we like to use statutory trust and land trust.

If you’re a California resident, then you should not be a member in a limited liability company outside the state of California. Because if you did, it would be subject to taxation in California by the fact that you’re a member. We can solve that issue for you with the right type of trust to use it as a blocker entity.

If you own real estate in California and you want to set up a limited liability company, which is the prudent thing to do, well, stop. Think about that. How about if we could get you the same type of protection that the LLC offers but without the tax, would that interest you? I think so. That’s why at our event, we spend a fair amount of time with California investors, showing them how to structure their real estate, how to structure not only in-state but out-of-state real estate to keep those taxes low.

Toby: What are some other states that transfer tax, doc stamps, franchise tax, crazy high transfer taxes? Where are you able to avoid them?

Clint: Tennessee is a big one. That’s going to come into play. Massachusetts is going to be another one. Pennsylvania can really trip you up if you don’t know what you’re doing there. Those are just a few that come to the top of my mind, where we’ve worked with investors that will come to sit down and do a strategy session with them. We’ll analyze their taxes and their situation. We’ll spot that and we’ll say, hey, do you know that you could save $24,000 a year just by making a few tweaks?

They’re so shocked that their local CPA wasn’t up on this, they didn’t know it. It’s not a knock on them because many times, again, the people that we work with invest outside of their home state. Their local professional does not understand the nuances. Like Florida, for example. You have a dock stamp if you transfer real estate into an LLC. You don’t have one here in Washington State.

A good friend of mine is an attorney. He actually did that for his clients. He said, oh, your Florida property, we’ll put it into an LLC. Then he called me up and he said, hey, my clients asked me to pay $1800 in doc stamps, what happened? I said, you didn’t talk to me is what happened before you did it. What were you thinking? Those are some of the issues that you run into, and that’s why you shouldn’t do this on your own.

Toby: You have to actually do it. I think you said something pretty intelligent there about it. You have an attorney. They’re doing the very best they can, but they haven’t done it. Here in Clark County and in Nevada, you can put property in an LLC and there’s no tax. But if you take it out, they transfer tax here. How do you get around it? You use a land trust.

Anybody who’s done it and got hit by that once has done it, but most attorneys have never done it. Maybe a client has done it and they’re like, oh, you just pay it. They have no idea that you can actually avoid what ends up being hundreds, if not thousands of dollars in excess tax.

All right, let’s talk about some of the crazy lawyers out there and some of the things that they like to do. When the economy shifts, we start seeing a little uptick in some of the frivolous suits, you see more breach of contracts, you see more foreclosures, you see people in hot water. What can you do or what are you going to tell your clients to do as an investor to avoid those people? How do you keep from getting hit? And if you do get hit, how do you minimize it?

Clint: The fact of the matter is that attorneys like to get paid. If you can set yourself up in a way where you do not appear to be a paycheck to an attorney, then they’re less likely to want to target you.

The example I always like to use is the street bum that’s laying out there, whatever, the druggie sitting on the street. If you’re walking by and they get up and they smack you, are you going to run to an attorney’s office right away and say, hey, listen, I want you to go sue that guy. I think it was on First Avenue, sometimes he’s up on third, let’s go sue him because I saw that he had a grocery cart, he had a sleeping bag, and we’ll take those in compensation? It’s not going anywhere.

How about if we could set up a structure that would give you the same appearance to an attorney? That means if they looked at you, when there’s someone sitting there saying, hey, I want to sue Toby, and then the attorney runs an asset search on Toby Mathis and they say, listen, we can bring this claim, but Toby doesn’t own anything.

If we go forward, normally, I would take this on a contingency fee basis, but there’s too much risk here, so I’m going to need a $15,000 retainer. That takes a lot of air out of that balloon of that potential plaintiff who thought, well, this is going to be a free payday, they’re just going to roll over, and I’m going to collect money.

What we want to do is the way we create that strategy or give you that appearance is by keeping your name off of a title, keeping your name off a business entity so people don’t know what you have. But then you want to take one step deep because that’s a smokescreen, so we go deeper. We want to separate out all your assets into different structures so that if they’re able to get up into something because you just have a new attorney, it’s like, hey, I need to get some experience here, so he takes it regardless of whether or not he thinks he’s going to get a recovery. But then what you run into is the fact that you’ve limited their recovery to just that one asset that potentially created the harm.

Now all of your other assets still continue to perform and function the way they did. All that money is going to be preserved, maybe it’s because you changed your standard of living, maybe your spouse quit working, you’re saving for retirement, you’re sending your kids to school, whatever the ifs are or the whys why you’re doing this, that’s going to stay protected, and you’ve limited your overall risk of loss.

When we’re looking at an individual, we want to make sure that we’re isolating all of their assets, building walls, moats, and things around them. If anyone goes down, you haven’t put your whole financial jeopardy at risk.

Toby: What do you say to the guy that says, hey, I could just get insurance for that?

Clint: That’s a misconception that a lot of people have because it’s born from inexperience. You and I are avid real estate investors. Our portfolio extends over 300 properties in multiple different states. What we’ve learned over the years is that insurance, although you need it, oftentimes, it doesn’t cover the types of claims that you’re going to run into as either a business owner or a real estate investor.

There is the disconnect. People always think of it in terms of my tenant, it’s a slip and fall. It’s a personal injury on the property, but there are so many other claims now that have been manufactured by attorneys to hold landlords responsible. The simple one is always going to be discrimination, that somebody came out to look at your property. And the reason you didn’t rent it to them was because you’re discriminated against for their sex, orientation, whatever they call it now.

The real reason is, they didn’t have any money. You didn’t want to be in the situation where you have to evict them a couple of months later for non-payment of rent, so you went with the stronger candidate. That’s the problem that people run into when they adopt that mindset, well, insurance is going to protect me. Insurance isn’t going to protect you for a lot of the claims that will typically be brought against real estate investors, so it’s up to you to protect yourself.

Toby: You’re not going to say don’t have insurance, but you’re going to say, it’s probably not going to protect you when the chips are down. You want to make sure you have something that stops it from getting any further, going in, and taking everything you own.

Clint: I’m calling entities this a better form of insurance. That’s why you’re putting them together.

Toby: Have you ever seen somebody lose everything they had because they followed the advice of somebody else, maybe a CPA or another attorney, where maybe they did just try to rely on the insurance?

Clint: The funny thing is that teaching events for over 23 years to investors and small business owners, every event, without a doubt, and I don’t know how many, probably close to 1000 events that I’ve spoken at, people always come up to me, as you know this as well at break and say, I used to. That’s how they would start, and then you fill in the rest. I would typically say, I’m starting over at the end.

There’s always that in-between that wipes them out. In many instances it is because they didn’t have the knowledge that you and I teach on our tax and asset protection event, so they didn’t know what the risks were. Or they were dealing with someone who adopted that principle that we just talked about, that hey, just load up on insurance and you’re going to be protected. Then you find out that the claim that’s brought against you wasn’t covered by your policy, so you’re out on your own.

A client of mine down in California, they had a nasty situation where two people were severely injured, and then they found out that their insurer was not going to cover them because the valet company that was responsible did not list my client as an additional insured under their policy.

Their insurer pulled it up and said, listen, if you ever brought out a valet company, look at here on page 14 in 10-point font. It says we got to be additional insured. They said, well, that’s grounds for non coverage. Things like that happen. It’s unfortunate that it could have been reversed, had they just had the knowledge ahead of time and known what were the proper steps to take. Even if you don’t take them, at least you know.

Toby: Here’s one of the things people don’t fully appreciate. Even if you have some insurance, which I’m not saying don’t carry insurance, I’m saying understand what insurance is for, it’s really lawyer insurance. Actually, it pays for your lawyer, generally speaking. They’ll deplete that policy.

It says it’s not necessarily, hey, it’s going to keep everything away, but it’s a lot of time and energy. I’m just going to ask you. I don’t know the answer off the top of my head. But in the case you just mentioned where there was a valet company, if I’m not mistaken, were there family members involved in that, some had been structured, and some had not?

Clint: Yeah, there were. When we started working with these individuals, these clients, I told them, hey, do this. They said, well, then I don’t need insurance. I said, no, you still got to keep your insurance, because insurance is the carrot that we’re going to dangle to get you out of a lawsuit if it ever comes up.

When you say that to someone, they don’t understand what you’re referring to. When this harm all came about and the plaintiffs were going after him, I just shared with you that the insurance company said that they weren’t going to cover them, this is one of those instances where the insurance company did the actual right thing, and they chose to cover them with the reservation if they chose to exercise it.

It changed the whole negotiating posture because the people that were suing them couldn’t find any assets in our clients name, so they assumed they didn’t have much. The second negotiating tactic we use is, hey, listen, we have a policy, we got a million dollars here. Now, if you take our policy limits today, you’ll walk away with a million. I know you want 15 million, but we have no assets and we’ve just got a million dollars here. Or you want to play this dance, we’re happy to do this, but understand that our attorneys like to eat beluga caviar.

They got a bill to keep that habit in play for them and their spouse. They’re going to be billing out, they’re going to burn that policy up, and we’re going to get done with this dance and there’s not going to be anything left. Do you want a million dollars today or do you want to go to battle on this? They took the million dollars.

Another party who was a joint defendant in this situation wasn’t so fortunate because he had no structure. He did not adopt the principles that we endorse and we tell our clients to implement. As a result of that, his insurance policy was not enough. In fact, he had to pay beyond the policy, and they held his feet to the fire. It’s really sad that this occurred because just a few tweaks, we could have done to his assets that would never have happened.

Toby: How many years of litigation did he get to enjoy before they finally settled that secondary?

Clint: Until he died, actually, because it went on for about seven years. They settled, he didn’t pay, they went after him. There are just a lot of things that went through this. He ended up finally dying, and they brought a claim against the estate.

Toby: If there’s one thing I could say, and Clint’s articulating it really well. is to stay out of harm’s way to avoid it, avoid lawsuits. They’re a drain financially, emotionally. I’m not saying that that’s what killed the gentleman. But if he passed away, there’s a good chance that it helped bring about the earlier demise, just the stress of it. Four or five years of litigation, I can’t even imagine. Seven years? That’s just crazy.

Of course, they’re not done. They’re going to go after the estate and get a few more years. Lawyers are going to make the money. At the end of the day, I’d be surprised if the actual victim of whatever occurred received the same amount that the lawyers did. I think the lawyers always win in these situations.

Clint, you laid out some pretty good ideas on how to avoid that. You gave us good information on the Corporate Transparency Act and how to avoid some of the state’s nasty surprises. You did mention repeatedly something called the tax and asset protection event. What is the cost to attend that and how does somebody sign up?

Clint: The investment to attend is completely nothing. This is one of those things that we really built our practice around, giving information to individuals that are watching us right now because we believe so strongly in the education concept, so we don’t run into people at our events that come up to us with that story that they started out doing well and then they lost it all.

To sign up for the event, it’s really simple. All you got to do is go to the show notes. We got a link right there, you click on it. It’s a one day event. We start off in the morning. We’re going to talk all about asset protection, talk about these trust things that I was discussing, privacy, limited liability companies.

In the afternoon, Toby is going to come on and he’s just going to bowl you over with the amount of tax savings you will recognize or realize when you’re actually doing proper planning. It’s available to everyone, these tax strategies that Toby covers. They’re the best strategies that our tax department has come up with, and it’s sad that more people aren’t implementing them.

Toby: Yeah, I agree. There are lots of incentives in there in the internal revenue code that will incentivize certain behavior. One of the behaviors that they really want to incentivize is investment. You hear about these politicians screaming that somebody didn’t pay tax, it’s dollars to donuts that they were investing in real estate because the incentives are that strong to help provide housing, which were really behind in the housing.

Let’s get our crystal ball out, we’re about five million units behind in this country, and the builders are not building right now. It’s only going to get worse. What does that mean? The demand is going to continue to increase. You can be part of the solution or you can be part of the problem. The solution is let’s build more housing, let’s buy properties, let’s be investors, and let’s make sure that there’s enough housing available to folks that they could use.

Awesome, free. I get to go to the tax and asset protection event. I know that we also touch on a little bit of legacy planning which is always great. I just really appreciate your time, Clint. I think that you nailed all the big points that people need to be aware of in 2023, especially starting out. Anything else you want to add?

Clint: Hey, guys, if you haven’t been into our event yet, I highly encourage you to do that. Not only are you going to hear us talking and teaching at the event, we’re also going to have a team of attorneys and tax professionals there that will answer your individualized questions. That’s what makes the events not only highly educational, but they’re highly specific to you as the viewer, because we want to make sure that not only you’re taking what we’re discussing and why we’re teaching the event, but you’re able to apply it to your individual situation. That’s what our attorneys and tax professionals will do for you when you join us.

Toby: Well said. Thanks for joining me, man.

Clint: Thanks. Take care.