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199.5: Private Investments, Ponzi Schemes, and Fraudcasters

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Buck: Welcome back to the show everyone and today my guest is Doug Lodmell. You know he’s been on the show a fair number of times and there’s a reason for it. He’s my asset protection attorney. He’s a guy I trust a lot for a variety of things when it comes to quarterbacking all of my structures and really just protecting me so you know he’s a guy I trust so I feel very comfortable bringing him to you. He’s obviously specializes in asset protection he is with the law firm of Lodmell & Lodmell and he’s Doug Lodmell. Doug welcome back to the show.

Doug: Thanks Buck happy to be here again.

Buck: So Doug you know so what inspired this this particular podcast was something that was sent to me a while back from one of our listeners and it was like you know it was a trust opportunity that somebody on another podcast had that there was a podcast and basically was all these things that a trust can do like you know it can you know make it so you don’t have to pay taxes, it can make you so you could live forever, I mean all these crazy things but what I wanted to do before we get into some of that stuff because I think it’s really important to talk about what you cannot do with a trust. Let’s do a basic you know 101 on trust because you know people who are you know just coming out of residence, you’re just getting out of law school or just starting to make six figures they start hearing about trusts and you know you get all these ideas in your head like you know some kind of crazy thing and right you know it doesn’t relate to me or maybe it you know it’s illegal. Anyway you get all sorts of like imagery that that initially comes in at least for I think for some people. So let’s kind of start with the basics. What exactly is a trust anyway?

Doug: Okay so and I want to preface this because I know we’re gonna talk about this issue with what some people are saying trusts can do and I’m an asset protection attorney but I’m a tax attorney as well so with that me as I went to law school and actually after law school subjected myself to another year of punishing abuse by professors at NYU most of whom were part of writing the tax code, it’s the number one tax program in the world so it’s a postdoctoral degree in tax so I actually do really understand that stuff, painfully so. So I want to say that and I never usually talk about that because it’s not relevant to most of things but it’s relevant today so I’m coming from a position as a tax attorney not just as a trust attorney. So trust, what a trust is is it’s an arrangement where someone entrust someone else for the benefit of someone else. So I could say to you Buck hey you know what you’re gonna go skiingI’m gonna give you 20 bucks would you buy lunch for my kids who are skiing with your kids at the slopes and you say great yeah happy to buy them lunch and I say yeah but don’t give them any sodas that’s my condition on this don’t give them any sodas and and it’s for my kids right don’t buy some random kids so we just created a trust. I’m what’s called the settler or the grantor I’m the one who created it by asking you to do this thing for me you’re called the trustee because I’m entrusting you with the 20 bucks and my kids are called the beneficiaries because they’re that’s who the 20 bucks is actually for. So it’s not your twenty bucks it’s my kids’ twenty bucks and then we’ve put a few conditions on there which said only is it for lunch you know don’t buy them soda and don’t use it for some other kids that is there so we’ve put these conditions around it.

Buck: Legally as I understand it there’s really, in court there’s two types of things that really the Court recognizes and that’s an individual and one is a trust right?

Doug: Well there’s more than two types of things, there’s individuals, there’s trusts and then there’s partnerships LLC’s corporations. Those are all legal entities recognized.

Buck: But if you look at it as an ultimate like somebody responsible for something doesn’t it even the corporation’s ultimately come down to individuals. No corporation is actually especially a C-corporation is actually seen as a separate legal entity they have a status on their own which is why the the shareholders aren’t really responsible for the actions of the corporation. That’s where we get that corporate veil liability. So yeah and remember the law has all these fictions that are not really possible but they make them up anyway.

Buck: Okay so let’s start comparing and contrasting different kinds of trusts. So now there’s something that we call a living trust and what exactly is a living trust and is there something that’s a not living trust?

Doug: Right okay so a living trust is commonly known as an estate planning trust. So what a living trust is is you create a trust, you let’s say husband and wife are the settlers and guess what husband and wife are also the trustees so they entrust the assets to themselves and guess what husband and wife are also the beneficiaries. So they entrust the assets to themselves for their own benefit that’s allowable that’s okay to do that’s called a self settled trust and it’s a grantor trust which means from a tax perspective the IRS says hey if you create a trust and you’re the trustee and you’re also the beneficiary, don’t tell us about it we don’t want to know we don’t want a tax return we don’t want to hear about this thing it’s just you so we’re gonna classify that as disregarded for the purposes of taxation because we know it’s just you so don’t bother us with this kind of trust well why would somebody do that because if it’s just you then what’s the point? Well the point is in California particularly where these things really started getting popular there are fees for probate so if you die with a will guess what the guy who gets to probate your will is gonna get a statutory fee that starts at three percent of your estate. For what he’s not doing anything but walking a piece of paper into a courtroom and now he’s gonna get starting at three percent of your estate and so some clever attorneys said hey why would we do that people said well people are gonna die they need a will and he goes well let’s just put all the assets in this trust and the trust doesn’t die and then when the husband and wife die new beneficiaries just get inserted new trustees get inserted and we avoid probate.

Buck: So we had talked about this in another episode where ultimately what I the thing that I left everyone with was I don’t care what else you do what else you don’t do but if you don’t have a living trust get a living trust because you need a will and a living trust and it’s not just the fees but it’s also the time and probate that if you die that your kids are gonna sit there and wait for your stuff for like a year or more and so that is the simplest easiest thing in the world to do. Do it.

Doug: And that’s more true in California than anywhere else and it’s actually still not the norm or the standard of care in New York. So where I went to law school they still don’t use revocable living trust so I actually worked for a very large law firm there in these trust and safety Department and we’re talking the elite of New York and I’m looking at that and we’re like why do they all have wills and the answer from the partner was we still use wills here. Now in New York that makes sense the probate process is very streamlined it is not a problem and in New York there’s no fees it’s very simple it happens very fast. It’s not private so there’s still reason to use a trust but I’m just saying some states more so than others.

Buck: Right all right so let’s go on to more nomenclature because this is just fraught with lots and lots of words of people to understand you use the word to describe a living trust as revocable so what is the difference between a revocable and an irrevocable trust?

Doug: That’s a really good one so a revocable trust can be revoked. You can say hey I changed my mind you can literally legally write revoked on the front page on the signature page and now you have legally revoked that trust it no longer exists its revoked it’s gone the mini right revoked its revoked. Now if there’s assets in the trust you better get them out of there because now you have a revoked trust with a bunch of accounts at the bank and you go to the bank and what are you gonna show them to show who the trustee is etc but from a legal standpoint you can just make the trust disappear. An irrevocable trust cannot be revoked it’s irrevocable so I’m saying hey I’m putting this stuff in trust and I cannot revoke the trust. Now this is a really fine point for the most part in the history of trust what an irrevocable trust means and what 99% of the attorneys listening to this out there would say is an irrevocable trust is a non-grantor trust set up for somebody else. So the most common example is a Children’s Trust so use you take a million dollars you put it into an irrevocable trust for the benefit of your children and then they get it at certain ages or under certain conditions that does a couple of things it gets that money out of your estate that trust is a non grantor Trust which means it has to either be a simple trust or a complex trust, if it’s a simple trust it must distribute all the income every year and then that trust gets taxed one way or if it’s a complex trust it can retain income and the trust will pay its own tax rate. And this is super important for the rest of this podcast trusts must pay taxes. There is no magic thing that says trusts don’t have to pay taxes. Trusts pay taxes just like corporations and just like individuals. The only way they get out of paying taxes is distributing the money to the beneficiary in which case the beneficiary pays the taxes.

Buck: Let’s keep going with some nomenclature you mentioned a grantor versus non grantor yeah what does that mean?

Doug: So grantor is back to our revocable living trust where the IRS says hey it’s grant or meaning the grantor is responsible for the taxes. If the grantor is responsible for the taxes it simplifies everything related to the trust it means that the trust does not pay its own tax rates it means the grantor pays the taxes that the trust would on any income the trust generates.

Buck: The grantor trusts can also be for some a revocable trust right like you know we’ve got the fact or you know Nevada Dynasty Trust all these irrevocable trusts you can also make grantor for tax purpose.

Doug: Correct. So you can have an irrevocable trust which actually gets the assets out of your estate and still have it grantor and you do that by creating a couple of provisions in there which qualify the trust under the IRS as grantor so you can still pay the taxes on the trust but the assets are actually out of your estate some people call those freeze trusts where you’re freezing the value of your estate giving it to your kids but you still pay the taxes why you’d want to do that is that you want to spend down your estate and leave the kids’ estate intact because of the estate tax issue. So non-grantor trusts are our means that the grantor doesn’t pay the taxes either the trust has to pay its own taxes or the beneficiaries of the trust get a distribution and they pay the taxes but somebody’s paying taxes. There’s another word that I want to define spendthrift trust what’s that?

Buck: Okay so what a spendthrift trust is it’s provisions in the trust so back to our example where I give you the 20 bucks for the for my kids to have lunch I added a spendthrift provision in there which basically said don’t use it for Coke I don’t want it going for Coke oh and if his buddies come and say hey he owes me five bucks and since you have his money can you give him say no don’t pay any of his bills this is only for his lunch that’s a Spendthrift provision so what Spendthrift provisions are is provisions that limit how the trustee can use the assets and the most common form of Spendthrift are ones that limit the access of a creditor of a beneficiary. So if you’re the beneficiary of a spendthrift trust that has good Spendthrift provisions and your creditor comes to the trust and says hey this beneficiary owes me money why don’t you pay it off on his behalf the trustee will say ah not allowed my Spendthrift provisions don’t allow me to pay his creditors I can only use it for that person’s benefit not the benefit of his creditors and that was of course popular with people in you know the past the Rockefellers and the Vanderbilts who set up trusts for their kids they didn’t want their kids blowing it all with creditors or gambling or whatever they put Spendthrift provisions in there.

Buck: Okay and so that takes us to this podcast that one of one of our listeners listen to and forwarded to me and was like this is the greatest thing ever why is nobody talking about this so I listened to the podcast and it was a podcast where I’m thinking here’s a few things about the guest. The guest is not an attorney, the guest is not a CPA, the guest is giving legal information illegal advice left and right, the guest specifically says don’t go to your CPA because it’ll just confuse them, I mean unbelievable I’m listening to this but this is on a podcast that a lot of people listen to right so I forwarded to you. There are lots of claims here Doug you know there’s a trust an absolute bulletproof asset protection, by the way is that even possible I mean short of a offshore yeah even offshore?

Doug: I mean I would never say anything is absolutely bulletproof it’s all about leverage and I have watched offshore trusts voluntarily get terminated because the leverage on the guy back here was just too great.

Buck: So the thing about this podcast that was sufficiently ambiguous I forwarded it to you I forwarded you the website we’re not gonna use a name here but what I’d like you to do if you would is describe for us what exactly this scenario is that is described and then tell us why you can’t do that.

Doug: Okay so what you forwarded me is what’s called an abusive trustee.

Buck: They didn’t call it that Doug.

Doug: They didn’t call they had a very nice for the trust it was really really cool but the IRS is well aware of these they have an entire webpage dedicated to abusive tax schemes and this exact trust that this guy is promoting is described exactly on the IRS webpage.

Buck: Describe it for us.

Doug: So what they’re telling their clients or the their compliance because they’re not real attorneys but their the customers is that their trust is never taxed unless the money’s distributed. Well we’ve already determined that trusts either pay tax from the grantor if it’s a grantor trust at the trust tax rate if it’s a non-grantor trusts or at the beneficiary rate if it’s distributed so there misstating the entire taxation of trust right off the get-go and they’re saying as long as the Trust is in existence it cannot be taxed unless the money’s distributed. Now where they get that is they piece together a bunch of unrelated out-of-context things that believe me i sat through these classes they are they’re just taking something and making it seem like it’s saying something else it’s a complete fabrication it’s a straight-up lie if they were an attorney it would be malpractice instead it’s just fraud and I mean and what they’re saying is that our trusts are never taxed unless you distribute the money. Now how do you get the money out without distributing it well our magic secret is is that trusts are allowed to have expenses and so all you have to do is have the trust pay every expense in your life your personal expenses and I listened to that podcast and he literally goes through all the expenses that the trusts can pay your kids school your mortgage your groceries your car your I mean the trust can pay anything it wants and all those expenses are deductible off of the income so you live out of the trust and you expense everything and then whatever’s left you just leaving the trust since you don’t need it you distribute it and therefore it’s never taxable and because it’s never taxable until the trust is dissolved we’re never gonna dissolve the trust and none of the beneficiaries are gonna be alive by the time we do and it’s very ambiguous it’s completely misstated they take case law and they cited this is a common strategy for people who want to commit a fraud is they take a lot of partial truths or things that in and of themselves are accurate like yes you know title 26 subchapter A chapter 1 subchapter J part 1 subpart a section 643 a 3/4 7b does state that capital gains and losses from the sale exchange of capital assets shall be excluded to the extent that such gains are allocated a corpus that’s a true statement but what they make it mean is you don’t have to pay any taxes on capital gains inside your trust that’s not what it means it’s. It does not mean that in any way shape or form so they’re just miss stating everything and I know when you sent me that pod cos I sent you back the IRS web page right where the IRS and if I can just read it I mean this is from the IRS there I’m happy to send anybody this link a legitimate trust is allowed to deduct distributions to beneficiaries from it’s taxable income so deduct distributions that means the beneficiary is paying the tax so that’s allowable with a few modifications therefore trusts can eliminate income by making distributions to other trusts or other entities as long as they’re named beneficiaries which themselves will have to pay the taxes. The distribution of income is key to understanding the nature of the abusive trust scheme remember IRS web page. In the abusive scheme bogus expenses bogus expenses like your own personal living expenses by the way which would normally be distributions to a beneficiary and taxable so bogus expenses are charged against trust income at each trust layer after the deduction of these expenses the remaining income is distributed to another trust and the process is repeated the result of the distributions and deductions is to reduce the amount of income ultimately reported to the IRS it’s just a sin.

Buck: It’s literally describing exactly what this guy was talking about.

Doug: That’s exactly this guy on his podcast said he’s doing and I mean I also I told you this and I’ve seen it happen before what I predict is gonna happen with this guy because he’s pretty high-profile he’s out there he’s making a lot of claims the IRS is not stupid at all they listen to this stuff they know what’s going on in the world I have a guarantee that in fact most of the people in that Taxation masters program that I attended were actually about 50% of the the students were IRS agents they are very smart people they are not dumb and they listen to these things so they know this guy and if they don’t know him they will know him very soon and what’s gonna happen is that they will listen to him for a while they’ll get real clear and then they’ll be exactly this case where they walk in his office with windbreakers on they take all his computers they take all his files they took all his customer files and guess what everybody who’s ever done business with this guy is gonna have an audit and they’re gonna find your abusive trust they’re gonna they’re gonna penalize you it’s so blatant you will not have the defense that you relied on professional counsel because this guy told you to avoid your CPA avoid professional counsel because you just need to listen to me the non CPA promoter schemer I’m gonna tell you but unfortunately Buck people are so anti-tax and they’re so willing to believe something that is has any sense of hope that it could be you know plausibly real that I see clients do this all the time. I’ll give you a one example a client in the Midwest it’s a chiropractor and he called me in and he described essentially the same thing and he was a thousand percent convinced and he had done his research and he was just sure and I said look I’m telling you not legitimate not good and he goes well I do understand that Doug I really respect you but I believe that I’ve got this figured out I’m gonna do it he did it and for 10 years every time we checked in for an annual review I said how’s that going he’s like great haven’t paid taxes in 10 years fantastic yeah and I said ok good for you I mean you know it’s your money it’s your life and on the 11th year we had our review actually we didn’t have a review he called me because IRS had allowed at him and denied everything and he literally lost everything that he had because the IRS came in and took it all he just narrowly avoided being in jail. So this is if it sounds too good to be true you know it is you know.

Buck: And there’s a lesson there too right I mean we are in this show and just to be clear we’re we’re not we’re not like saying that don’t don’t look at what’s out there that you can negotiate to the extent that you know Tom Wheelwright’s on the show a lot Tom’s my CPA everything that we do is within the law. You just have to you just have to understand what’s legal and what’s not I think that there’s a difference between not you know doing your own due diligence to the extent that understanding which things are available to you and using them to your benefit and then which is which some people will say is being you know quote-unquote aggressive and that’s fine right you’re not breaking the law but you understand what the law is and you you know you have legal and you know accounting advice that you know this is appropriate it’s not not against the law and it may provide tax mitigation but there’s a difference between tax mitigation and basically breaking the law and not paying you know doing things that are illegal. I really worry about this in the podcast space and it’s not just trust but there is so much of this stuff as you know you know we were talking offline there’s multiple Ponzi schemes that have been now gone through because of a legitimization of the podcast the podcaster and the influencer thing and there’s just a lot of abuse what other things have you seen that that people should be aware of Doug?

Doug: So anytime I see a lot of this stuff look if anybody tells you anything can magically avoid taxes in a way that your CPA hasn’t told you or your tax attorney hasn’t brought up for you you need to question it. I mean there is a reason that you know no one else has brought it up to you. If it’s a legitimate thing and they just haven’t brought it up to go to them and say hey is this legitimate and and they’re gonna say well yeah you can do a defined benefit plan that is legitimate I didn’t propose it to you and here’s why or yeah actually maybe we should look at that but anything that magically does it whether it’s an offshore entity or a domestic entity by the way that this exact same scheme was run with Nevada corporations for years where you’d have one nevada corporation and you’d expense all the expenses to another nevada corporation and you expense those and all these are personal and they just keep going until there’s no income left it there’s a hundred variations of this and they all are attractive because they promised to save taxes and here’s what I’ve learned Buck when it comes to money there’s two things that somehow suspend disbelief. One is saving money with the IRS somehow people are so desirous of saving money with the IRS that they believe the unbelievable like this guy on this podcast they just they just want to believe it so they do. The other thing that they somehow magically suspend disbelief is returns that are impossible a hundred percent return in a month I there’s a scheme going around right now that is promising these you know you can only get in it it’s a hundred million dollar minimum investment but I have the only connections that can get smaller investments in down to two hundred fifty thousand dollars it’s a bank guarantee thing your money goes into the secured account it’s never used and you’re gonna get a four hundred percent return in four months I mean I’m gonna get a million dollars in four months over my and it’s a complete scam and and yet it’s popular and I’ve seen people fall for it so use your common sense is number one just just think about it and and if you rely on your professional counsel rely on your team of trusted advisors you know I’m working on a coaching podcast series I’ve done a lot of coach personal coaching where I pay to get coached and I have learned a lot of amazing things and one of the things that I’ve learned is surround yourself with people who understand the things that you don’t that are qualified so that you can go to them and ask for support. Your own personal Council of experts and go to them if something sounds great come you know if you’re my client I encourage my clients all the time I don’t care what it is I look whatever the subject call me I probably heard of it because everybody calls me so I get a lot of these crazy things and we’ll talk about it but that’s the best thing you can do and if you’re listening to this and you don’t want to believe what we’re saying and you’ve heard that podcast just know you’re you’re suspending the disbelief because you want to believe it.

Buck: And on the other hand you know I think that there is value I think the biggest lesson for me on this is that you know what do I do whenever something doesn’t sound right to me I have people that I trust then I send them to that to verify coz so there are rarely situations sometimes when I do find out something and it’s like wow I didn’t know that and somebody says yeah it is true actually no it’s not very often anymore cuz I feel like I kind of unfortunately run out of those kinds of things but having you know a Doug Lodmell, having a Tom Wheelwright, in my case you know having a really good internet guy who was who who told me about a you know that he thought something was a Ponzi scheme way before it happened before it was exposed this is you know you’ve got to have some people that you trust around you and that’s that’s really critical.

Doug: Yeah.

Buck: Doug, I want to thank you again for being on the show. Again you know as always you know Doug has an asset protection webinar that he’s done on wealthformula.com that you can download. He also has a real estate asset protection paper there. Doug is it lodmell.com?

Doug: Just lodmell.com just one word lodmell.com ton of information on there webinars, papers, videos. You can just email me directly if you have a question my name is just my email [email protected] shoot me an email saying hey I heard you on Buck I know have this question and if you want to get anything you’re up to it’s best if you just talk it’s amazing how someone who knows what they’re doing can quickly identify it and and get you on the right track and it doesn’t take a lot of time when you actually already familiar with it and you’re welcome to call me and schedule appointment 800 231 7112 just say I heard you on Bucks podcast I’d like to schedule a call with Doug my assistant will be happy to do it.

Buck: And by the way Doug does you know I think essentially a 30 minute 30 40 minute free evaluation of your situation so if you’re not sure you need him or what it’s not gonna cost you anything anyway and Doug’s really good about saying I don’t need you come back in five years when you’ve got something to protect. Well Doug great again and thanks for being on and as always we appreciate your expertise and we’d love to have you on again sometime soon.

Doug: My pleasure Buck. Thanks.

Buck: We’ll be right back