Wealth Protection – Episode 504

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[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers on this episode of the podcast, we’re going to be talking about wealth protection. We’ve talked about mindset protection. We’ve talked about, we’ll call it technology protection, but we’re talking wealth protection. Kim, let’s roll out first. What are the things that you think of when you hear those two words together, wealth protection? Well, it’s interesting. I think one of the first things that pops into my head is protection from taxes. We all pay our taxes and of course, we’re legal and above board around it and it is imperative that you do all that you can to protect your wealth from taxes because they are our biggest expense. And so whether you connect with somebody like Tom

[00:46] Wheelwright of WealthAbility or your own CPA and you use products like life insurance that protect your liquidity from taxes. And of course, as you progress in your family situation, life insurance can help protect the sale of assets from taxes. It can protect from not only income taxes, but also capital gains and estate oriented taxes with combinations of strategies. It is very, very important that we focus on that, spend some time on that, get some help on that, which is not something that I can do for people necessarily. It takes an accountant and an attorney to get that kind of work done. And it’s worthwhile time because taxes are the biggest expense. You can absolutely do some legal things to protect against them

[01:38] and every family should be pursuing that. I will say even a W-2 employee can protect some of their wealth from taxes using just the simple life insurance product so that the growth of their liquidity is not taxed. Just something that simple can literally have a million dollar impact over the lifetime of a working person. Yeah, absolutely. When you mentioned that it can have a million dollar impact over the working life, I think of the analogy that public speakers will often use and they’ll talk about a rail yard and where trains are coming and going. And then you can have a simple couple inch change in the railroad tracks in one location, but that change by the time they reach the other end of the country is astronomical.

[02:33] And that’s kind of what we’re talking about here. It can be very small minor changes, be in your mindset, be with your financial advisor, be it with tax, accounting, whatever that would be, has astronomical benefits. So help us understand when is it that the light bulb went off when you’re like, whoa, I really see this and help us understand this clearly. Sure. Well, I can pinpoint it exactly. It was in 1995 or 96 when I met Todd Langford, who does the Truth Concepts suite of calculators. And he was able to use those calculators to prove not only the impact of taxation, but that slow incremental change at the front end, which is then massive at the long end. And it’s something that is very easy

[03:23] to take a look at and not something that people think about, you know, just your basic savings account. And it’s easy to not think about it right now, because your basic savings account is not earning very much interest. But the fact is that interest is taxable. And if you can put that savings account in a place where it wouldn’t be taxable, especially that that you don’t need in the next two or three months, so that you can build an opportunity fund, then you can have that be without tax. And it’s just a quick illustration of a 5% without tax versus a 5% with tax. I mean, oh my gosh, people are paying 32% federal taxes these days. Thank goodness we don’t live in Canada. So it is amazing what that difference

[04:09] can do. And it was a big eye opener for me. Yeah, absolutely. So you saw it from not only, you know, in your own personal finances, but with client finances. And, you know, I led with the word protection. And that doesn’t sound like the most prosperous word out there. Maybe there’s a better way for us to look at it than protection. But I think of, you know, our family, you know, we go through and there are things that we do to protect our living environment. There’s things that we have to do to protect our financial environment. Well, I would layer in now that we’ve talked about the taxes, the logical things that we protect ourselves from, and it’s typically in the realm of insurance. So we have car insurance,

[04:54] we have health insurance, we have home insurance, we may or may not have disability insurance, we may have other types of insurances, long-term care insurance is another one that comes to mind. All of these are expenses. They protect against if events, right, if you get in a car accident, et cetera. And yet they’re very valuable because it lets us have peace of mind. I mean, in some spaces, it’s the only legal way to drive as well. But, you know, the only way to get a mortgage, of course, is to make sure that you have home insurance, et cetera. And one of the things that picking up on Tom Willwright again, the CPA says is that you can turn an expense into an asset by purchasing whole life insurance in addition to

[05:43] the term insurance that all families have. So you may have term insurance at work, you may have term insurance that you bought yourself, and death is a guaranteed event. And unlike all the other insurances, we want to have protection against things that we absolutely positively know are going to happen. And so by switching from term insurance to whole life insurance, and let me make very clear, you should keep your term insurance. You should have lots of term insurance. It’s a very good product. It does the job that it’s supposed to do, which is protect for a term of time. Nevertheless, it is an expense. And so by switching converting is the term, some of that expense to an asset formation called whole life insurance, that will not only create the asset called cash value,

[06:30] it will also create a guaranteed payment at the time of the guaranteed event. And there’s a lot of things that you can do out in the future because you have that guaranteed payment attached to that guaranteed event, that people that don’t have that double guarantee cannot do. And that’s a whole realm of protection against capital gains, taxes, estate taxes, gift taxes, etc, that are part of what we think about when we use the term wealth protection. Yeah, so you’ve been able to set these up for families, be it someone just starting out or someone that’s accumulated a lot of wealth. And they did a great job on the accumulation, but they maybe didn’t do a good job on the protection. Would you be able to

[07:23] share some examples without, you know, sharing their personal details? Yeah. Yeah, there’s lots of stories that I can share. So one of my favorites, I think, is always connected to the real estate environment. So I’ll kind of cobble a couple clients together. And yet it doesn’t have to do with investment real estate. This story I’m going to share does, but it could literally be as simple as your personal residence. So when real estate is owned, there is typically growth within that property, again, whether it’s investments or residence. And often what comes into play is capital gains. And again, if we can protect ourselves from some taxation, then that is helpful to us and time well spent. Well, a lot of people in the especially investment real estate space will

[08:15] say, well, I just will hold on to my property until I die. And then I’ll get a step up and base this and I won’t pay capital gains tax. And that sounds good in theory, but we have seen in actuality that basically never happens unless somebody dies quote early. So a better way to go about that is to combine the use of a guaranteed whole life product that will pay at death absolutely for sure, no matter how long you live, no matter when you die with things like either a reverse mortgage on a primary residence or a charitable remainder trust on a investment space. It could be an apartment building or it could be a compilation of a whole bunch of pieces of property in an LLC or what have you. And the charitable remainder trust

[09:03] will enable you to get that property moved to the next generation without paying capital gains tax. The combination of it plus the life insurance then enables you to not only be charitable, which is an interest of a lot of people, but also make sure that your family benefits from the passing on of that individual. So you’ve mentioned one thing in your statement about the asset protection that is really helpful because you said in theory it sounds good, meaning on paper or in a book. But you come with decades of experience and that’s the difference that I’m seeing time and time again, meaning an overzealous, overexcited person is like, oh, this is how it should be. Whereas you’re looking at the wealth and asset protection, not only from your experience, but with a prosperity

[10:02] lens. So how is it that you’re viewing this different than others per se? And I’m just making a pretty big generalization there. Sure. Well, I just have a lot of 70 and 80 year old real estate investors that are absolutely still buying and selling property, but with a little bit of a light at the end of the tunnel for say another 10 years, or maybe it’s another 20 years, but nevertheless, it’s not forever. And I think there’s something so critical and yet so difficult to acknowledge in that space. And that’s just that you’re not going to probably want to be physically or mentally involved in heavy duty property activities at your nineties. And so a lot of people are able to bring in the next generation

[10:58] and or some critical, you know, chief operating officer, or, you know, a person that may not be family, but will take over the reins. And when that’s the case, beautiful. Nevertheless, I find a lot of our clientele anyway, are kind of lone wolves. You know, they do their work. They have a particular specialty. Maybe it’s apartment buildings or hotels or whatever it is. And they are running and gunning and loving it, but acknowledging or not, sometimes that’s the challenge that they won’t do that forever. And so it’s very difficult to get the cream off the crop of that environment and not want to go back into real estate with it. But I find that the families that will just slowly take some of the cream off the crop of all the activities

[11:49] and buy very simple products like income annuity. So a single premium immediate annuity is the kind of thing that you can plunk a million dollars into and get a 60 or $70,000 annual income absolutely guaranteed for as long as you live, even well past the million dollars. So that is another form of wealth protection that you can put into place. You’re not going to do that for your full, say 20 grand of income that you want every month, but you might do that for the first 5k of income or whatever your numbers are. But if we packed some income, we’ve been talking about wealth protection, but income is what’s driving our lives. If we can make absolutely certain that there is going to be an income for the rest of our life, no matter

[12:38] how long we live, then it makes it much easier to make decisions around other investment real estate, around other retirement plan dollars, around family members and what we’re doing or not doing to help them. And especially when you have a husband and a wife and so often one of them is in the real estate and the other one is not, it’s critical to guarantee income that’s going to be simple and not associated with property and property management and dealing with accountants and attorneys and tenants and et cetera, et cetera, et cetera. Yeah. So well said. I asked these questions because I think about the conversations that I’m having with others. And as we go out and research for the episodes, I have a group

[13:23] of friends that are 20 plus years older than me. And so that means they’re in their 60s or 70s. And I’m seeing that transition happen where they’re selling their apartments and they’re not selling the entire portfolio, but some of the apartments they’re selling and then they’ll sell or finance the deals. So now they become a bank for a while, but then we’ll call it their wealth skills can become multiplied, meaning they could just simply do that. And the ones that are doing the best are saying, okay, I now have additional cash flow or I have a chunk of money. Then they couple it with a life insurance product or a new ID or something like that. So that’s where, you know, we’re seeing the multiplication happen, not just typical linear, but like exponential changes.

[14:15] And you’re, you’re mentioning those pieces exactly. Well, there’s such peace of mind and just having some basic things locked down with guarantees. And it truly frees you to then take the rest of your wealth and your time and mental focus to pursue that moonshot that may or may not work out. And yet what often happens is all of the wealth and time gets spent pursuing the moonshot that may or may not work out. And that can leave the family and or the individual in sad shape. And it’s just so easy to be able to carve off just a little bit of that and lock those in with guarantees. The problem is, it’s very boring. It is very boring. In pre-interview of this, one of the wealth protection pieces that we

[15:06] were chatting about is the wealth protection in your mind. So if you aren’t in a situation where you have saved enough or you have enough opportunities, you can prepare your mind now. And if you are in a situation, and I think that one of the saddest is when, you know, using examples of real estate professional that owns apartments, when they do the hard work, but their spouse doesn’t know. And they haven’t prepared their spouse or their children for the wealth. And all that hard work is gone. So if you have, maybe this let’s wrap with that, like some counsel you would give to those family members that weren’t on board, but they’re not opposed, they just didn’t know. Right. Well, and that’s a big part of the reason that we wrote the book,

[15:53] Perpetual Wealth, which of course has an audio version as well, because it is imperative that you involve family members. And I really feel like you want to do that when they’re young. And if you haven’t that, you know, there’s every every day is new. So there’s still a chance to fix that. And the perpetual wealth book, and there’s a game that goes with it. There’s a workbook that goes with it, gives all kinds of guidance and ideas for family retreats, conversations, ways to open the door. The current app is a great way to open the door as well. There are other resources that we talk about purchasing life insurance on the next generation is a great way to open the door. It just takes some intentionality. And it takes some structure and possibly getting

[16:45] somebody’s help. I am always available to pop in and talk with the next generation, explain some of the things that the perpetual wealth book operates with, because it is a very, very valuable method of communicating what is important to you. Because not only should the money be moving from generation to generation, so should the values, the stories, the learnings, the failures, the experiences, you want all of that to be protected and shifted to the next generation. So that I mean, we could do a whole nother podcast on just how you protect all of the things that are important to you, even simple things like pictures, but more valuable things to like values and lessons. Oh, that sounds like fun. All right, we’ll put that down as a list for a podcast.

[17:38] Thanks for sharing this. And for any of you family members that have some of the tools and you feel like you need a little bit more guidance, or maybe you just want to confirm that you’re on that path, send an email to hello at prosperity thinkers calm, Kim set up that email. It’s specific for you listeners. So you’re going to get an answer to every single question there. Thank you for listening to the prosperity podcast to take control of your money and have it work for you. Visit prosperity thinkers.com