All Forum Posts by: Mike S.

While there is a front loaded fee that takes a few years to absorb, on the long run (10+ years), by using a life insurance with your other investment, you will increase your return substantially.

You can do that with a whole life insurance or an index universal life insurance. As long as you maximum overfunded them, both will work. A WL will have lower but constant return (in the 3 to 5% IRR range), while a IUL will have some years at 0% and some years at 10%+ or in between. On average you can expect a long term IRR on IUL in the 4 to 8% range.

What is great with cash value life insurance is that when you take a loan collaterized by its cash value, you are not taking money out of your policy and the whole value continues to grow. Also if you use a third party lender (like a bank) and use the loan to invest, you can deduct the interest of the loan as investement expense.

Last you get a good life insurance for your family if you die early and the proceed are tax free. It is also asset protected against creditor.

Look in this forum, it has been demonstrated that you will make more money on the long run using a cash value life insurance with your other investment, than investing without it in the mix. You are making less money the first few years to absorb the front load fee, but after 7 to 10 years, you are getting ahead of a scenario where you did not use it. So it's a long term play, but well worth it.

I was usually using option 1, but I was recently introduced to option 2 and would like to get feedback on its caveats:

Option 1:

- Contribute to the Roth portion of a 401k (lets assume $50k)

- Invest this $50k in a syndication

- Pay regular income tax on this $50k contribution

Option 2:

- Contribute to the deductible portion of the 401k (let's assume again $50k)

- Invest the $50k in a syndication

- Get a third party appraisal of that investment, that has now a fair market value of $30k (due to upfront fee and lack of liquidity)

- Make an in-kind Roth conversion of the investment, valued at $30k

- Pay regular income tax only on the $30k conversion.

Is there a minimum time to wait between step 2 and 4 of the option 2?

What third party appraiser would qualify to do the appraisal?

Any other issue I should pay attention to?

Quote from @Linda Weygant:

No need to change the arrangement. There's nothing about an LLC that changes the way you conduct business.

That is pretty pedantic too. When using an LLC there are a lot of things that need to change the way you conduct business.

That is why you want in your team not only accountant but also lawyers, as listening to only one of them will maybe give you exact answer for their field but very bad advice for your whole structure...

Quote from @Linda Weygant:

 That's not a reason.  Please - if you're going to participate in the forums, you'll need to explain and justify your reasoning.  Particularly when discussing a topic with people who are very knowledgeable or even experts in the area in which you're trying to advise.

From an accounting point of view, if the LLC is disregarded, it does not change anything as everything is still under the individual taxable party.

From a legal point of view however, the flow of money is one of the element that is looked at during a veil piercing attempt. The money should flow from the property manager to the property owner. The property owner is now the LLC and as such the money should flow to the LLC. Flowing the money directly from the property manager to the member of the LLC will weaken the liability protection of the LLC.

Quote from @Simon W.:

I am not justifying anything. You are throwing unnecessary scares to the OP. Not once did the OP mentioned if it was paying to him personally or LLC.

Maybe I am misinterpreting the OP but when I read:

Now that it's in an LLC, does the rent he collects need to come to us
completely first and we pay him for his services from our bank account?

To me, its an accounting question and I'm not sure if legally it all needs
to come into our account and then be paid back out or not.

I understand the last statements as the OP bank account, not the LLC bank account.
I agree with everyone else that the way the property manager pay the owner after expenses is not changing, I am just pointing out that the change is who the owner is; and now the property manager should not send the money to the OP as an individual but to the LLC instead. And I am explaining that if the property manager continues to send the money to the OP as an individual and not the LLC, that will weaken the OP liability protection. If you believe that it is off topic, sorry to waste your time by reading me, my purpose was to educate the OP not you. If the OP has that simple question regarding the payment, it seems logical that the OP needs also to be aware of that point that is much more important. Again why creating an LLC to start with if it is to weaken its main purpose.

Quote from @Simon W.:

This is utterly ridiculous to even state such a comment. You are throwing in these weird scenarios to scare the OP. Why is everyone assuming that he will be commingling funds if the money was sent to him?

How can you justify having money sent to you directly when the property is not owned by you but by the LLC?
By doing so you are just proving that the LLC and you are the same.

When you go to the car dealership, does the seller ask you to write a check to his/her name and not the name of the dealership? Treat your LLC with the same respect.

Even if your LLC is a single member and disregarded for tax purpose, sending money to you is not illegal, but will make voiding your LLC protection very easy. Why going through all the hassle of creating an LLC to protect yourself if you are destroying its company veil?

The way the property manager manage the fund is the same, the proceeds should just now be sent to the LLC name/bank account instead of the individual. 1099-MISC should also reflect that, and as such all the contracts showing the new ownership of the property.

Quote from @Christopher Liu:

Quote from @Simon W.:

Quote from @Christopher Liu:

@Simon W. I would modify it as follows : instead of having the property manager send you the rent minus his expenses he should send it to a bank account opened in the name of the LLC.

What? Why? 

Because the property is now owned by the LLC.

That is correct;
The money should go from the property manager to the LLC. By sending the money to you, you are commingling asset and in case of lawsuit the opposite attorney will tell the judge that your LLC is a sham and an alter ego as you receive the money directly. If you don't respect the separation of your LLC yourself why should the judge do? So all the asset protection purpose of your LLC will be voided (piercing the veil).

Open a bank account for your LLC, update the contract with your property manager to mention your LLC as the client/owner of the property (and not you), make sure that you sign all documents for the LLC with your title for the LLC and not as an individual, update all insurances to put the LLC as primary insured, and possibly you as agent of the LLC as additional insured, do not commingle money, keep good bookkeeping and follow the formalities of the LLC operating agreement (members meeting; state filing; etc...)

Quote from @Steve Vaughan:

The more important issue than this accounting is to make sure your title insurance and hazard insurance remain in effect when quitclaiming to a disregarded entity. 

Do not use a quit claim deed. Use a warranty deed when transferring to the LLC.

When set up properly with WL or IUL, you should crossover and get more in cash value than premium paid between year 4 and 7 depending on your specifics.

Quote from @Matt Ruttenberg:

It's a great concept and if designed properly, can be very beneficial.  There two schools of thought with either a Whole Life Policy or an Indexed Universal Life policy... I'm a fan of the IUL personally because of the flexibility and a much easier design.  You can use it like a Fix n' Flip then refi out to pay off the loan... rinse, repeat.

I am also in the IUL proponent camp. But the concept is the same. You just want to use the loans to buy assets and not liabilities. I never liked the example given of using these strategies to buy a car, they did not make sense to me. To buy assets however, you are making your money works at two places at the same time. It's a long term play that has some upfront costs, but when it starts to take off, what a beautiful system...