All Forum Posts by: Mike S.

Quote from @V.G Jason:

Again, a financial advisor. You guys sell this stuff, no one promotes this besides the one selling it. 

I'm sorry that I am a no one to you... I'm not selling anything and I am using cash value permanent life insurance and recommend it to my fellow investors.

Then no one promotes mortgage except mortgage brokers, no one promotes real estate except real estate agents, no one promotes syndication except syndicators... 

Quote from @V.G Jason:

 No, life insurance in all forms is an incredibly stupid vehicle to put money in. 

I strongly disagree with you. A properly structured cash value permanent life insurance can be an incredible tool in your wealth building strategy. You obviously have not studied enough this asset class.

By borrowing from it you can make your money work at two places at the same time, increasing your total return. It's a long term play as the front loaded fee takes a few years to recover from. But in essence it is not different than using a refi on a real estate property, except that you are protected on the downside as the cash value only goes up while real estate can go down. And on top of it, you have a life insurance to protect your family in case of early demise.

If it was so bad, why would so many sophisticated investors using them? You just need to find the right insurance agent specialized in this kind of policies as the run of the mill policy is definitely not what you want for that purpose.

Quote from @Thomas Rutkowski:

 Matt, You need to realize that when you are investing in real estate, you will be paying the loan interest from out of pocket. This is not going to have any impact on the policy whatsoever. Whether the market is up or down, you can still borrow against your cash value. If the IUL returns zero one year, it just means that you won't have access to that 6% extra cash next year... not a big deal.

That is why the Infinite Banking concept uses only Whole Life, as they finance purchases that does not make money, it is important to have minimum guaranteed return each year. An IUL can not do that. However, if you use your cash value loans to invest, you can absorb the volatility of the IUL and it does not matter if one or two years you don't get interest. What matters is, on the long run, the IUL will get better return than a WL.

Even with an IUL, if some years you need some specific gain, you can always set up a portion of your cash value to be allocated to a fixed income interest account. All the IUL I know of have some fixed interest accounts options.

Quote from @Don Konipol:

ONLY 15% fee.  So I pay 15% to get a life insurance product I don’t need, and to get access to my own money.   

That is the initial cost, but the internal gain of the cash value will recoup that cost in usually 4 to 6 years. Like other front loaded product, you want to look at the long term IRR. The IRR take into consideration the time/cost of money. Long term IRR is approximately 3 to 5% for a whole life insurance and 5 to 8% for an IUL.

It's no different than a mortgage on a house. You pay $100k for a house that has a cash value of $92,000 (closing cost, etc...). Then you can borrow approximately 70% to 90% ($64k to $82k) of its appraised value. A few years later, when your property has gained some value, the 70% to 90% you can borrow against is now above the $100k that you were out of pocket initially.

Quote from @Lane Kawaoka:

Everyone thinks they're bulletproof with an LLC, especially if it's in Wyoming or Nevada, right? But let me tell you, nothing is truly bulletproof. If your net worth starts climbing over few million, it's wise to think about adding some offshore flavor to your strategy.

Offshore is expensive but could be more bulletproof for assets that are NOT in the US. Especially not US real estate. A judge may completely disregard the offshore ownership and directly grab the asset that are in his jurisdiction ie the real estate.

So, if you have a stock portfolio or own foreign real estate, by all means, if your threat model justify the cost of a foreign trust and its trustee, then use these offshore asset protection trusts. They are really effective. But be very careful who you chose to manage these trusts, as there has been some people ripped off by local trustees. Don't go cheap and use a reputable, and probably expensive, bonded trustee. Also make sure that you have in your team a good CPA who is knowledgeable about the complexity of IRS reporting.

LLCs, if setup and maintained properly are very good. But again some mistake in the situs, operating agreement or day to day use can render them very weak. So again good legal counsel is warranted.

There are some hybrid solution between the local LLC and the offshore trust, where your local LLC structure is owned by a local trust. In case of threat, the local trust will expatriate offshore. You saved some money initially by not going offshore immediately, but eventually you get the same pro and con of offshore. But still your US real estate may get taken away from you.

Regarding the WY LLC, it should be your holding LLC. Each property should have their own LLC in the state where they are located. These LLCs are owned by the WY LLC. You get the anonymity and the WY charging order protection. Again, if you don't follow some simple rules on how to manage each LLC you may pierce the veil and lost the insulation between entities that you wanted, so it's not bullet proof but could be pretty solid if you do it properly.

Only some type of life insurance policies offer loans. These policies are usually permanent life insurance like Whole or Universal Life Insurance policies. Also, they need to have been issued with the goal of cash value accumulation as regular policies are usually crafted for the most death benefit with the lowest premium cost, limiting the cash value.

All the information of your current policies were given to you in the initial contract. You can also consult with your agent to tell you if you can borrow from your policy.

If you want to get a policy that is designed properly for high cash value accumulation you need to find an agent who is knowledgeable and willing to sell them as the agent is getting a lower commission on them than regular policies.

Quote from @Shafi Noss:

@Mike S. 

"If the property is held in a partnership the assets in the partnership do not automatically receive a step-up in basis like those held in a disregarded LLC."

"A failure to make a 754 election will result in the basis not getting a step-up."

Source: https://hmbtx.com/blog/step-up-in-basis-for-assets-held-in-a...

Does this source and conclusion look legitimate to you?

If so, then if the decedent didn't set up the LLC correctly, which happens all the time, gifting LLC interest could be very harmful.

After reading the section 754, it just says that to claim the step up basis for an LLC, you need to declare it with the LLC partnership tax return that year... Not a big burden. That is part of the different document, like the appraisal you also need to obtain to claim the step up basis... Not a big burden...

It has nothing to do with the setup of the LLC.

Quote from @David M.:

@Christie Gahan

An attorney has to represent the LLC because it is its own legal entity. However, since its not a "warm blooded" legal entity it can't physically represent itself in court. If the member of the LLC is a licensed attorney in that state, then s/he can represent the LLC so that is the only case where one would consider the LLC "representing itself."

In some states, the representative of an LLC can represent the LLC in small claim courts without an attorney. But it is an exception to the general rule that only an attorney can represent someone else in court.

Quote from @Shafi Noss:

You own an LLC containing property and gift $10k of LLC interest to your daughter through the uniform gifts to minors act. You also have $10k cash. Then you die. Your daughter will not get a step up on the remaining LLC shares. 

On the other hand if you own property but with no LLC and gift $10k cash to your daughter through the act and then die, the daughter will get a step up basis.

Many exceptions and talk to your CPA, etc.

If this is true, using an LLC really screwed you into some taxes. Before I run around for sources, do you think this scenario is impossible?

Anything you give before your death does not have step up basis. So it is often advised not to transfer anything before you die unless your asset are above the inheritance tax limit and need to use some mitigation techniques.

In that case, gifting LLC interest has some tax advantage as close LLC are very unliquid. It could be argued that a fractionnal ownership of one has a value 25% to 30% less that the real value and as such you can gift more interest and stay within your annual gift exemption limit.

Also when you sell interest in an LLC, you can not choose which lot of interest you sell like with stocks. Your tax basis in an LLC is blended.

However, I never heard that if you already own partial membership interest in an LLC, if you receive more interest at time of death, this new interest does not get step up basis. I'll appreciate if you can point me to some more information on that as it goes against everything I read on the subject so far and it seems to me very unlikely. But IRS ruling may at time be completely unlogical and there is maybe somewhere one of this rules I am not aware of.

Quote from @Caroline Gerardo:

Sorry to tell all the cottage industry attorneys and gurus on BP that owning or vesting in a LLC no longer keeps your identity secret. It really never did. If you applied for a mortgage with the LLC it's publicly registered. And everything digital can be accessed or hacked.

• I wrote 50 times to vest in Living Trusts and save the filing costs, keeping money separate, and paying for extra tax returns and attorney fees. Now here is another piece of evidence why not to bother with Asset Protection Schemes. 

Anonymity is only one small facet of asset protection. And the FinCEN Boi does not invalidate anonymity. The IRS already knows who the beneficial owner of the LLC is. A subpoena or a court order was also not protecting that information before the Boi. The Boi will not change the fact that you can keep your anonymity towards the public.

Asset protection is much more than anonymity. It is to protect all your other asset in case of catastrophic lawsuit. If you don't care about protecting your asset that is your own risk assessment decision. But the way you denigrate it, you are insulting all the other people here who need to protect their asset due to a situation different than yours. LLCs are a very good asset protection tool. Are they bullet proof, no, but pretty close if you set them up and maintain them properly. There are better tools for higher risk individuals, but they are more expensive (like offshore trusts).