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356: Getting Your Assets in Gear with Garrett Sutton

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Buck: Welcome back to the show, everyone, today. My guest on Wealth Formula podcast is Garret Sutton. He’s a corporate attorney asset protection expert and bestselling author who’s sold more than a million books to guide entrepreneurs and investors. He’s the author of Scam Proof Your Assets Real Estate Loopholes, Secrets of Successful Real Estate Investing, Own Your Own Corporation, and the latest, which is Veil Not Fail, which is something of interest, I think, to everyone on this particular program. Garrett Welcome back to Wealth Formula Podcast.

Garrett: Thanks Buck. Thanks for having me.

Buck: So asset protection is kind of the topic that I think I want to cover first. And I want to go really basic here. And, you know, for some people and it’s remarkable to me how many people don’t think about asset protection. Even people who are, you know, making hundreds of thousand dollars a year or maybe even, you know, a million plus. How does an asset protection plan aid an investor?

Garrett: Well, when you start out, you’re going to put your money into a piece of real estate, for example. And you know that money is exposed. If you have a tenant that sues and the property is held in your individual name, they have a claim against you personally. And not only can get can they get the property, but they can get all of your other assets that are in your name.

So we don’t want that. We live in a litigious society. People sue each other all the time. So when you buy that first piece of real estate, you want to take title in the name of a limited liability company, an LLC. So if the tenant sues, they can get what’s inside the LLC. That’s their claim, but they can’t get beyond the walls of the LLC after your other personal asset.

So asset protection is very important. Now, you know, 50 years ago, 100 years ago, people didn’t worry about this, but we have a litigious society now where attorneys can advertise, attorneys can collect 30 to 40% of what they get in the courtroom or through a settlement. So there’s an incentive out there for people to sue, and you and I back aren’t going to change that system. We just need to use the tools within the system to protect ourselves, which is LLC and corporations.

Buck: Now, real estate is a major part of, you know, this show and the people listening to this show, real estate investing. When you think about asset protection, if you could, could you sort of contrast, compare the types of asset protection requirements that you might have for real estate versus, you know, other types of investments?

Well, for real estate, certainly you are dealing with the public. You’re renting to people. You just need to be protected. And of course, I always recommend that people have insurance. That’s your first line of defense. And you also want to have a property that’s habitable. I mean, you don’t want to put out a property where someone’s going to get injured.

That’s not what you want to do. So but beyond that, beyond insurance and taking care of your properties, you need to have these limited liability companies on title to the real estate. So it’s very important. Now, another type of asset would be a brokerage account, right? Stocks, bonds, crypto. You’re not going to get sued by holding shares in Ford Motor Company. Right? You’re not going to it. It’s not like a tenant is going to sue you for that. But you could get in a car wreck. And in a car wreck, someone wants to go after your assets and so you’re better off having that brokerage account in an LLC in a strong state like Wyoming or Nevada, where someone after the car wreck is trying to sue you and they want to get at your personal assets by having those brokerage assets in a separate LLC. You’re much better protected than having them in your individual name.

Buck: So sometimes I, I kind of think about this is like, you know, three bubbles or eight in a row with, you know, so like, say, you know, you’re with you your assets in the middle and it’s being attacked from both ends. It’s being attacked. You know, you’re you’re in the middle, say, and your assets are being attacked by the people in real estate who might, you know, on a trip and fall. But then there’s also the people who your personal injury may result in some sort of litigation. So you’re kind of taken you’re trying to protect from both ends when you own real estate in some. However, a lot of people own real estate and limited partnerships now in that situation. The main danger there is obviously car crash and losing that type of ownership. So in that case, what do you typically recommend? Is it like a holding company LLC or something like that?

Garrett: Yeah. So, you know, limited partnership is fine for owning real estate. We just need to know that the general partner, if they’re an individual, is personally liable for everything that happens within the limited partnership. So you need to set up a second entity, an LLC, perhaps to be the general partner. So the difference between the LPI and the LLC is to be completely protected.

Within the LP, you need two entities, one to be the limited partnership and one to be the general partner with the LLC. Everyone’s protected. You just need one entity, but you’re right. But there are two types of attack. There’s the inside attack where the tenant sues over a condition on the property. Then there’s the outside attack where you get in a car wreck.

It has nothing to do with real estate, but they want to get at your assets. And so they’re suing from the outside. And that’s where the Wyoming LLC comes into play because it’s very protective. The person suing you can only get the charging order, which is a lean on distributions. Unlike the state of California, for example, with a California LLC, someone can pierce through and force a sale of the property with Wyoming, the state of Wyoming goes.

Now, it doesn’t work that way here. You’ve got to wait for distributions to be made. Right. And the attorney on a contingency fee doesn’t want to wait around it, you know, monitor distributions. So you’re much better off having good insurance and an umbrella policy of insurance that the attorneys can get at. And then having these LLCs sees that the attorneys are not good at getting through. So, you know, there’s just a structure that we need to put into place because, again, we live in this litigious society.

Buck: So you mentioned it a couple of times already in terms of the good states to have LLC is in. One of the challenges, I believe and correct me if I’m wrong because I live in California, is that even if I have a Wyoming entity, I have to register in the state of California at that point, I’m playing by their rules, right?

Garrett: Not necessarily. If we have a system where we hold the Wyoming certificate in the state of Wyoming. So someone suing you in California, they claim they have personal jurisdiction over you, but the actual certificate has been certificated in the state of Wyoming. And Wyoming law applies at that point. So we do have strategies to deal with the state of California, where we have to do more planning for California Buck than any other state or the IRS.

Garrett: Yeah.

Buck: Well, that’s interesting. And that’s something I didn’t have not really found a solution to, you know, because I and I have Wyoming LLC myself for the most part. All of them are Wyoming and that like when I buy property here in California, in the state of California, I just seems like everybody tells me, well, yeah, you could have it in that entity, but it’s not going to help you.

Garrett: Well, no, there are ways to do it. But if you hold title to real estate in California, use a California LLC. That’s where you’re doing business. Then you have that California LLC owned by a Wyoming LLC. And that’s the good way to do.

Buck: Understood.

Garrett: Oh, yeah. Yeah. California will say, well, jeez, the Wyoming LLC, you’re managing it from California, qualify to do business in California. And you know, we do that because, you know, the penalty for not doing that is $12,000. So, yeah, we don’t want to put our clients through that.

Buck: Right. Let’s talk a little bit more about I mean, we’re kind of talking about this corporate veil thing over and over without necessarily kind of diving into detail on that. That is the topic, I guess, of your new book, right? Veil Not Fail.

Garrett: Gobbled it up. Right?

Buck: There you go. Veil Not Fail. And I’m sure as it’s available everywhere, it’s part of the Kiyosaki series. It looks like it’s a purple book. Right. And let’s talk a little bit about that. What are the things that people need to know? First of all, let’s talk about what is piercing the corporate veil, and then let’s and we can follow up with some questions on that.

Garrett: Okay, good. So piercing the corporate veil is a situation in which you have a corporation or an LLC and someone sues that corporation or LLC. They want they have a claim against it. They want to get what’s inside the entity, but the entity has no money. The entity, there’s a judgment, but either people have transferred assets out of the entity improperly or it just doesn’t have any assets. And Piercing the Veil refers to the situation where with that judgment and the corporation having no money, the person with the judgment can say, All right, well, the corporation has no money, but I’m going to pierce through the corporation and go after the owners of the corporation. I want to get at their personal monies to pay this claim. And it’s a pretty dramatic situation for you, too. You know, you’ve set up this entity to be for protection, and then all of a sudden someone is barging through and going after your personal assets. And Buck, this happens in 50% of all cases. People are able to pierce the veil, go through the corporation or LLC and reach someone’s personal assets.

Now, why does this happen? Well, it’s because they didn’t follow the corporate formalities, right? They didn’t set up their entity properly. They didn’t have minutes. They didn’t have the stock certificates. They didn’t pay the state. They had a personal account for their business. They co-mingled personal and business monies. So there are a number of factors that can lead to the veil being pierced. And that’s why I wrote the book. It’s the most overlooked issue in all of asset protection is the ability of someone to pierce through the corporation and get it. Your personal assets.

Buck: Well, you know, you talked about a few of the more common things, but like I mean, what what are when you talk about people co-mingling funds or loans and transfers, like what do you see the most often that that really weaken that corporate structure?

Garrett: Well, just failing to follow the corporate formalities, you know, when you set up a corporate charter, you’re making a deal with the state, You’re going to follow these rules so you can stay protected. One is failing to pay the corporate filing fee, Right? You know, if you don’t pay the state their fees, you know, California, it’s 800 a year. But if you don’t pay those fees to the state, the state says we’re going to default. You and your corporation will no longer provide protection. And so, you know, you really want to pay the state every year so you can stay protected. The state says, look, you have to have a meeting once a year. You know, it’s not that big of a requirement.

But if you failed to have these meetings and this also applies to LLC, there are a lot of promoters out there saying you don’t need meetings for LLC. The courts say otherwise. And plus, how can you run a business without ever having a meeting? I don’t want to be in front of a jury saying I never had a meeting for ten years. It just doesn’t business doesn’t work that way. So you have to do the annual meeting. You have to have a separate bank account, you have to file separate tax returns. That’s part of the deal of getting the corporate charter is following the rules. And if you don’t follow the rules in 50% of all cases, they pierce through the veil and get at your personal assets.

Buck: So obviously that’s the bad scenario. And but a lot of times it doesn’t really get there, right, Because if you have a good structure in place, part of what you’re really trying to do is make yourself, you know, repellent to lawsuits, because as you mentioned, a lot of these attorneys are coming after you with contingencies. And if it looks really tough to get at your assets, you may not have to deal with the lawsuit at all. There could be a settlement. Correct? 

Garrett: You want to put up as many real or perceived roadblocks as possible. So having title to the property, an LLC is good. Having Wyoming or Nevada holding entities for your other LLC is good. Having an umbrella policy of insurance and enough insurance on your real estate is good. We want to take these steps and to, you know, to dissuade the attorneys who are on a contingency, who have an incentive to sue. We want to dissuade them from ever thinking about suing you.

Buck: If you have property right now, somebody is listening to this and like, oh gosh, I shouldn’t have put that in my name. What can you do, you know, after you’ve already invested? Is it difficult to move things into other structures? Does that create any weakening of that corporate structure? Just curious on that, because I know a lot of people probably are thinking, well, gosh, now what do I do?

Garrett: So what you do is you set up the LLC, you transfer title with a grant deed or a warranty deed from your name into the name of the LLC. As long as you haven’t been sued or threatened with a lawsuit, you are able to make these transfers. The problem arises when you’ve been sued. You know you can’t. You can’t put the seatbelt on after the accident. You know, you have to have the entity the LLC set up on title to the property. Then if you ever get sued later, you are protected by that LLC.

Buck: Let’s shift gears a little bit. Let’s talk about something that else you’ve been involved with, which sounds like a lot of fun. So you’ve kind of gotten yourself into the movie business. How did that happen?

Garrett: Well, I’ve always been interested in movies, and, you know, when you’re when you’re younger, to get into the movie business just is kind of a dream. It’s not something you do, right. I went to law school. I became a lawyer. Yeah, but my son is he’s coming into the practice. He’ll be taking over. And I’ve become associated with some really good people in the movie business.

And we’re starting in make documentaries. We’re in production on three documentaries right now. We’re going to be doing a feature length kids movie in Kentucky in May. And, you know, it’s it’s a good business. There’s a great need for content. You know, the one of these documentaries, I look at it like a duplex. I mean, it’s just something that can provide revenue. Yeah, for a long period of time as well. There’s some great tax advantages. Buck U.S. 181 of the tax code. You get to write off the cost of production in the year of production, so you get an immediate write-off.

Buck: So that’s effectively like, you know, in real estate lingo, it’d be like taking 100% bonus depreciation in the first year. But automatically, right. I mean, that’s not you’re not having to go through some code that’s going to expire tomorrow or something like that.

Garrett: Well, this code does expire, but they always bring it back. All right. So it’s good for the next couple of years. Also, if you film in a state like Kentucky or Georgia, they have a 30% rebate. And so you make up $400,000 movie and you get a rebate of $120,000. Right. So with the tax write offs and the rebates, your risk goes from 100% to 40%. And so, you know, there are advantages to film production and, you know, we’re I’m learning them. Yeah. So it’s been interesting.

Buck: So talk about if you would, you know, for people who’ve never, you know, invest in that kind of thing, how does this how does it work typically? I mean I mean, how to how to invest you, first of all, are most movies these kinds of are they mostly syndicated types things where you’ve got somebody raising capital and, you know, you make a movie and then you send it out, see how it does? Or is that the way most movies work?

Garrett: Yeah, there’s Syndicate action. And then you also have funds that come together that are in the business of constantly making movies. So, yes, money is raised from individual goals through syndications. Individuals come together through an LLC. You know, five people come together through an LLC. So yeah, there is it’s just like real estate.

Buck: You know? And then when people get you’re talking about sort of residual income. So how does that work in when you’re invested in a movie? So it’s just is there ownership of that for a period of time, forever or whatever? And then every you know.

Garrett: Well, our deals are the investors get all the write-offs, right? And they get their money back plus 15%. And then from there on out, it’s typically, you know, 50 plus percent to the investors, 50% to the people involved in making the film. But the investors get all of the write-offs, all of the tax refunds and their money back, plus 15%.

Buck: I guess my bigger question is like, how does mean how do the movies actually function in terms of like where the money comes from? The box office, right. And then it’s, you know, purchased by somebody else? Maybe it goes on Netflix. I’m just curious about the different how the streams of revenue work.

Garrett: Well, the streams of revenue, I mean, it used to be the theaters, but that has changed significantly in now. A lot of it is just through streaming, either a subscription service like Netflix, where they’ll buy the movie from you and you really don’t get much information on how many people are watching it. So that’s a problem with Netflix. You have these free ad-supported channels now where you will get either a flat fee or you will get a percentage of the ad revenue. So there’s there are new models that way coming out. So there’s just a lot of it’s an interesting time in the movie business because all these new models are coming forward because after the pandemic, people are not returning to the movie theaters.

Buck: Yeah, very fascinating stuff, that kind of business. Is there asset protection type issues there that you need to worry about, too? Like, you know, somebody accidentally shooting somebody on the set or something like that? Not that that would happen, but.

Garrett: You know, I, I feel sorry for them. I can’t believe that was intentional. No, I’m sure. You know, I just really feel sorry there. But, you know, you have to have insurance. The investors are protected because we’re going to use an LLC or an LP and they’re limited. Their loss is limited to the amount they invested. So with and with all the tax deductions, you are going to get some significant benefits in the first year. But in terms of asset protection, you’re a passive investor in an LLC, so you’re not exposed to any sort of risk.

Buck: Kind of again, the book itself, the new book is called Veil Not Fail available anywhere. It’s great. And Garrett also, tell us a little about some of your other resources. And I know, you know, you have corporate direct as well. Maybe talk a little bit about that, other things that you offer.

Great. Well, Corporate Direct is our main business. We set up and maintain corporations. An LLC in all 50 states and maintain is one of the keywords because you have to have that registered agent. We are for that service. You have to have the minutes done. We give you a book with all the templates on how to do it every year, but a lot of people don’t do it. And so we offer a service whereby we will do the minutes for you. We offer a free 15-minute consultation. If you want to go to CorporateDirect.com, you can sign up and talk to one of the incorporating specialists and see if there’s a fit, see what our fees are, see if we can help you. So that that’s our main business is just helping people set up the LLC and corporations to protect themselves in this litigious society.

Buck: Good stuff. And if they want to get in touch with you for anything else, like, um, movies or whatever.

Garrett: That’s great. Yeah. They can go to corporate direct and just send me an email at the corporate direct and you know, if you are interested, we’ll let you, we’ll send you the link to our website for the movies.

Buck: Fantastic. Garrett Sutton, thank you very much for being on wealth for your podcast.

Garrett: Thank you, Buck. Good to be with you again.

Buck: We’ll be right back.