Jason Hartman discusses three important things to consider when evaluating life. Later he gives information on the upcoming Meet the Master’s event. In the interview segment of the show, Jason hosts Garrett Sutton as they start a discussion on why business conscious people are leaving California. As a CPA, Sutton offers his insight into the latest IRS changes regarding LLCs and LPs. He advises on how investors can protect themselves from both internal and external threats.
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the company leet solution for real estate investors.
Jason Hartman 1:04
Welcome to the creating wealth Show episode number 903 903. This is Jason Hartman, your host, thank you so much for joining me today and greetings from the Oso famous Hollywood, California. Yes, I’m back in Los Angeles, my hometown again. This time I was here for Well, something so big as a Halloween party and to meet with a couple of our clients here as well. So I’ve been here for just one night I’m at the Roosevelt Hotel. And boy, it’s it’s just crazy. You know, the appeal and allure that Hollywood has as I walk around the street here and see all of these crowds and all of these crazy people impersonating everything from Elvis to Marilyn Monroe to Gosh, every every animated character, every superhero, everything you can think of it’s it’s just amazing the reach of the movie industry. And I just had lunch at the home of one of our clients who is in the music industry. I don’t want to mention his name without permission. But thank you for lunch. That was great. And it’s so interesting to see, you know, how the United States and how American culture has just reached to every span of the globe, to every place on Earth, with the possible exception, of course of North Korea and Iran. But even Myanmar or formerly Burma, you know, is has got American influence now, it’s just incredible. The reach, and mostly that comes through the arts. You know, it comes from the movie in the music business, right. And we certainly saw that in the interview that I did many years ago with one of our clients, Gary, who has a company in China and talked about visiting China back in the 80s and seeing how it had changed and you could see how the US culture was starting to creep in, as you would see, you know, the the girl in China tapping her feet to the American music and it’s just just amazingly powerful. It really is. And, you know, as messed up is the United States is right. The question to ask yourself is always what I believe is the most important question. And here it is. You’ve heard me say it before, compared to what? Compared to what compared to what other country and you know, when we evaluate things in life, there are sort of three really important I’m sure there are more than three. I don’t pretend that there are only three, but there are only three that I can think of right now, dear listeners, three important things that we always need to consider number one is compared to what? Number two is viewing everything as a ratio as a percentage, which is really just another way of saying what Compared to what? Right? You know, when you look at a statistic, don’t just look at aggregate things don’t just look at the overall, you know, size of a market, for example, well, there’s market that we’re going into is 10s of billions of dollars in terms of the market size, right. If you’re in business, that’s not the question. The question is compared to what, what does that mean? Okay, the rents in Los Angeles where I happen to be Now, interestingly, for the second weekend in a row, I have not been here all week. I just came in for one night. I was in Scottsdale the night before that on Friday night at Ken McElroy, his Halloween party, and that was just awesome. Like the who’s who have real estate there. Of course, Ken McElroy, of course, has been on the show before. He’s one of the rich dad advisors and authors of several great books on investing and he spoke at our venture Alliance mastermind group in Phoenix, Arizona, back home was that last December almost Well, about 10 months ago now, right? I think that was December. Don’t quote me on that. Don’t quote me on anything. Actually, I’m just making this stuff up as I go. Just kidding. But he did speak at our venture Alliance mastermind group, Ken McElroy. And was it his beautiful home on Friday night and then came in de la. So where I was going with that before that little tangent, mini tangent is, you know, you might say, well, the rents in Los Angeles are high. But then you have to ask yourself compared to what my Lyft driver driving me over to my clients home here today, was talking about how he was from New York City, and he moved to Los Angeles because it was so much less expensive. So the question is compared to what, and he talked about how in LA where he lived, there’s no rent control, bemoaning the fact that there’s no rent control. And then I asked him the compared to what question so he would actually think about it. Little more. And I said, Well, if there was rent control, like you have more, you have more rent control, unfortunately, sadly, in New York City,
Jason Hartman 6:09
what do you get? Well, compared to what? You get shortages, you get people that create a gray market or a black market for these rentals. I mean, there’s even a Seinfeld episode about that for many years ago, right to Seinfeld episodes, actually, kind of poking well. I don’t know if they’re poking fun at it, but poking at the idea of rent control and, and really how flawed it is, even though they didn’t say that, you know, just any thinking person can see that it simply does not work. What works is the free market. It’s not perfect. It’s just better than everything else. So very interesting there but yes, in Los Angeles and on my way heading home to the no income tax state of Nevada here in just a couple of hours, but wanted to introduce our returning guests today, who is also a Nevada A resident, and that is Mr. Garrett Sutton Attorney at Law. And another Rich Dad advisor who’s written several fantastic books. And we are going to talk about California today. And the economic Berlin Wall, as I call it. I’ve been talking about that idea for many, many years. You’ve heard me say it before the economic berlin wall. And you can see how this is going on in places like California, but really all high tax jurisdictions around the world, or high government, intervention jurisdictions around the world, always those in power, the institutions, the individuals in power, try to maintain their power, and they try to get their grubby hands into our business, don’t they? And certainly California is doing this. Garrett Sutton and I will talk about that here in just a few minutes. And also, I’m happy to say that Garrett Sutton has confirmed that he will be another one of our fantastic friends speakers at the meet the masters of income property event coming up in La Jolla, California in mid January. This is our 20th anniversary of meet the masters. And we have got a great lineup of speakers and a big one to announce. As soon as the contract is signed with that big name was confirmed by email just a couple of days ago. And some of you, I think, know who I’m talking about, but I’m not gonna announce it yet until the contract sign. So we’ll get to that later. Get your tickets for meet the Masters because we’ve got a fantastic event coming up. Garrett Sutton, our guest today we’ll be speaking meet the Masters for the third year in the row in a row. Also, we’ve got Of course, john burns, john Byrne’s real estate consulting, we’ve got Brian Smith, the founder of Ugg boots with a phenomenal billion dollar brand entrepreneurial story started from basically nothing as a surfer and brought Ugg boots to America and turned it into a billion dollar brand, which It is today. Gosh, who else we have Andrews atlin, the Moneyball economist, Danielle DiMartino. Booth, Federal Reserve advisor. So and then, of course, none other than yours truly Jason Hartman. He’s okay too. Don’t forget about that little guy. And then we’ll have, of course, our property managers, our local market specialists flying in from all over the country. So you can meet those teams shake their hand, look them in the eye, talk about investments that they have talked about how to better manage your properties. We’ll have our lender panel talking about mortgages in depth and answering all your questions on that. So it’s gonna be a great meet the Masters event, and tickets are selling briskly at Jason hartman.com. Click on events and learn more about that. Get your tickets today for that. Well, they are still on early bird pricing. And without further ado, let’s get to our guests. Garrett Sutton. It’s my pleasure to welcome back a returning guest and that is rich dad, advisor and famous author, Mr. Garrett Sutton Attorney at Law Garrett. Welcome back. How are you? Thanks, Jason. I’m great. It’s great to be with you and your audience today. It’s it’s good to have you back. And, you know, I just want to before we start Garrett, I want to recommend to my audience that they read all of your books, you are a fantastic author. I just love the way you you tell stories in your books. And, and I love I don’t even know if you meant to do this, but you’re you’re kind of snarky. It’s funny.
Garrett Sutton 10:39
Thank you for that. I’m glad you noticed.
Jason Hartman 10:41
Yeah, so that was intentional. Right, the snarkiness. There’s a little bit in there. Yeah, it’s whenever you talk about like government bureaucracy, you really do a good point of not appearing very political. But you know, there’s these little snarky undertones or just something Funny, you know, to me, I just love them. I love them. They’re great.
Garrett Sutton 11:04
I’m glad you picked up on that.
Jason Hartman 11:06
Yeah, they’re awesome in the stories, you know, the guy that owns the restaurant and the government bureaucrat comes in, ruins his life. Yeah, it’s just all too tragic. It really we shouldn’t be laughing about it. But Garrett, there’s some big changes going on. Hmm. That effect. Now a lot of our Of course we have listeners in 164 countries worldwide, but many of them avail themselves of the strategy. They’re from my former state, the state that I didn’t leave, but the state that left me that would be the Socialist Republic of California, and they will sell a highly appreciated property there and use the strategy of taking that equity and buying good cash flowing properties that actually makes sense around the country diversifying into multiple markets. So there’s something that affects those people. California has once again, breathing down your neck. Do you want to start with that one and then we got a lot of other stuff to cover?
Garrett Sutton 12:07
Sure. So there was a new case that came out this summer. And from the California Supreme Court, the highest court in California, the case is called nine to six Ardmore Avenue LLC. And the case involved a family that held a piece of property in Los Angeles. And the property was titled in the name of the LLC, that’s the good way to protect yourself is to have your real estate titled in the name of the LLC. The family made a transfer from one generation to the next. So instead of the North Ardmore LLC being owned by Mom and Dad, Mom and Dad transferred 90% of the membership interest to the kids So there’s no change in title if you go to the County Recorder. This piece of real estate was titled in North Ardmore Avenue LLC, while mom and dad owned it. When they transferred it to the kids. It was still in North Ardmore Avenue LLC, there was no change in how title was held. California has like most states, a documentary transfer tax, meaning when you transfer title to real estate, the city and the county can assess attacks. And, for example, in Los Angeles, a transfer of a $1 million property results in a transfer tax of 50 $600. All right, okay, so you say 50 $600 in San Francisco if you transfer a $5 million property, the transfer tax that the city and county of San Francisco collects is $112,500 It’s a huge tax, California and some of the I mean San Francisco and some of these other cities have really high transfer taxes, though and typically, in, you know, a buyer seller situation, you split that so you buy a $5 million property in San Francisco and as the seller, you’ll pay, you know, 60,000 plus the and the the buyer pays 60,000 plus. But in this situation, the California Supreme Court said, When mom and dad transferred the LLC interests, not the title, but just the interest in the LLC that was on title, a transfer tax was due. And this is it creates all sorts of problems. You know, for example, Mom and Dad transfer a property to their kids in San Francisco, you know, they owe $112,000 to the county When there’s no sale, they’re just they’re just transferring the property to the next generation. It’s that’s
Jason Hartman 15:05
like, a an underhanded way to get a new estate tax. Right. I mean,
Garrett Sutton 15:11
yeah, it is. It is because a lot of these transfers as you identify Jason are, are part of estate planning procedures, right. So you’re transferring the property to the kids. And now this the state of California says you have to pay this documentary transfer tax. So it’s, it’s a shocker. Yeah, unbelievable, you know, but
Jason Hartman 15:35
California is just looking for money everywhere they can get it, it’s theirs. It’s the most business unfriendly state in the entire country. It’s writing on a very reputation it earned a long long time ago that has the dynamics have massively changed obviously there and that’s why you know, the middle classes fleeing for their lives, in their wallets and right for you, but Lee does this affect someone that wants to do the strategy I mentioned to you, for example, if someone has a rental property in California, or even a portfolio of rental properties that, of course, never cash flow don’t make any sense. But they got lucky. And they made some money on appreciation over the years. Right. And they ran a take, and that’s in an LLC. Now, I don’t know if it matters what state the LLC is domesticated in, if it’s California, or maybe it’s a Wyoming LLC or whatever. But well, if it’s Wyoming, it’s going to have to be domesticated in California and probably Right, right. Yeah. Right. Okay. So essentially acts like a California LLC, even if it wasn’t formed there. Right.
Garrett Sutton 16:40
Right. But we’ll talk about a service we have to assert that Wyoming law applies but yes, the Wyoming entity, the LLC qualified in California, on title to the property and then someone you’re saying wants to do a 1031 out of the state of California. Right, right. Right.
Jason Hartman 16:55
So they keep the LLC in Wyoming, maybe the maybe for example. And I know these questions get complicated, we won’t go too far down the rabbit hole here. And, you know, legal stuff is not simple, folks. That’s why you need to talk to Garrett and call him and get a consultation and, and, you know, do what he says. So we’ve got the Wyoming LLC, it’s domesticated in California, and it owns a bunch of California portfolio of, you know, five rental properties in California. And someone gets say, Listen to my podcast, and they wise up and they think, gosh, I could get much more cash flow more than double. And I could diversify and be investing all over the country, right? So they do that. And they sell that property that property or properties in California on a 1031 tax deferred exchange, right. And then they bought acquire new properties on the 1031 exchange in, you know, three markets around the country, right, that have better cash, right? Are they going to get nailed or how does this affect them or does it at all?
Garrett Sutton 17:57
Okay, so first of all that you would have the Wyoming LLC has to take title to the new properties in Indiana and Ohio and wherever else so you’re going to use the same LLC you won’t have to qualify into California anymore. Because you’re not doing business there. So that’s good. Jason I did attend 31 out of California and here’s what they say when would because there’s no tax on a 1031 exchange. California can’t collect anything. But they they sent me a notice saying we’re going to follow you and if you sell that property ever that I transferred into a property in Florida from California to Florida, California says if you ever sell the Florida property, we’re going to collect tax on it. Well, good luck with odd
Jason Hartman 18:45
got Well yeah, they’d be they’d be hard pressed to figure it all out. I bet because that’s just a problem with falling. But the problem is carrot, they’ll make you liable and and you know, like, you’ll be the one responsible to tell them you sold it. I am sure they have a lot For that, right, you know, this is this is what I talked about 1213 years ago, you know, maybe 14 years ago is that California is essentially building in economic Berlin Wall, because just like in in East Berlin, okay? When communism took hold, there was a brain drain and everybody was leaving, and they decided over basically one weekend to erect a wall and trap everybody in there. And that’s what California is doing economically. They’re building a berlin wall and that wall keeps getting higher and higher and higher. So my warning to all of you listening is get your affairs out of California if you possibly can. Because the Berlin Wall, the economic Berlin Wall keeps getting more harder to scale.
Garrett Sutton 19:52
Have you heard their latest free speech rule us healthcare workers who deal with transgender patients have to call them by what they want to be called. By and I understand that but if if someone says wants to be called them instead of he or she because they identify both ways, you know, that’s fine. I understand that. But California’s rule is, is if the healthcare worker doesn’t call them then instead of your sheet by the proper pronoun, by if you don’t use the proper pronoun, you are subject to a year in prison. You can’t
Jason Hartman 20:35
make this stuff up, you know it, why not just make it evil? Why not just make it $100 ticket? You know, if you’re getting like a, like a, like a speeding ticket, you know, I mean, a year in prison like California can afford to imprison any more people. I mean, that’s just insanity.
Garrett Sutton 20:52
But political correctness run
Jason Hartman 20:54
amok. I totally totally at the same time, Garrett, interestingly, think there was another law just that just passed that says, If you infect someone with HIV, you can’t be held liable? At least not.
Garrett Sutton 21:13
At least it’s not a felony anymore, right? Is that correct? What happened? It used to be a felony if you intentionally infected someone with AIDS, and for whatever reason, they reduced it to a misdemeanor. I don’t understand the rationale behind that. But now, it’s only a misdemeanor if you intentionally threaten someone’s life by infecting them with AIDS.
Jason Hartman 21:36
Unbelievable. This is bass ackwards. You know, that’s the only way to say it. It’s crazy. Okay. Talk about did we finish this topic of the transfer tax? And let’s jump to the next thing if we did.
Garrett Sutton 21:48
Yeah, just to finish it up. If you’re thinking of transferring title to your kids, over a period of time, and you have that California real estate I think a better option. To do a 1031 out of California, right, like you suggested Jason, then do the transfer to your kids. If you’re in a, if you’re in a city like San Francisco where you’re on a $5 million transfer, you’re gonna pay 110 $112,000. So that would be a way out is to do a 1031 and then gift to your kid. Yeah, right. Okay.
Jason Hartman 22:21
Okay. Okay, so we’ve attempted to solve that problem. What other things are going on? there? There are some other fairly significant changes that people need to know about, right? Yes, the IRS has new rules for auditing LLC s and LP. Okay, so now we’re off to the California subject. We’re
Garrett Sutton 22:44
really this applies to everyone in the country. Okay. All right. So the the IRS when they tried to audit a large, Master limited partnership that had 7000 owners, partners And, you know, three different tiers of interests and all, it was really tough for them to audit that type of structure because they eventually had to deal with every single partner individually. So you can imagine a master limited partnership with 7000 people, the IRS doesn’t have the resources to do that. And, you know, they would have to deal with each individual partner partners could come in and Sue and litigate over the IRS decision and so not, not a lot of effort went into auditing these large, you know, it’s usually oil and gas or real estate syndication, partnerships. So the IRS, you can kind of understand their position on it. They wanted to change this so that they could better audit these these large limited partnerships. What they did was changed the rule, so that instead of auditing individual partners, They get to audit the entity itself. So they get to deal directly with the LLC or the LP instead of the individual partners. And there are new rules that take effect January 1 2018. whereby the LLC and LP agreements need to be amended to account for these new rules. One of the things you have to do is appoint what’s called a partnership representative, which is a person based in the US you can’t be a foreign citizen to hold this position, someone based in the US that the IRS can deal with directly on behalf of the entity. So you know, if you don’t appoint the partnership representative, the IRS gets to appoint one for you. That’s not a good position. It’ll let the IRS appoint someone who’s going to be able to say that the whole entity is subject to the This new audit attacks. So we need to amend the LLC operating agreements, the LP limited partnership agreements to appoint a partnership representative. And we’re doing that we send out letters to all our clients, we keep our clients informed of major changes like this. And, you know, for our clients, we’re, we charge a very affordable fee to amend the operating agreement. If you’re if you’re not our client, but want to become one, we also have a fee for that as well. And it’s on our website the information but people need to realize that you need to amend these documents before the end of the year because you don’t want the IRS appointing a partnership representative for you. You want to have that in your document.
Jason Hartman 25:50
Okay, now, does this affect a single member LLC, though? Sounds like it doesn’t. Oh, does. It does so, so basically everybody listening is affected by this everybody listening that has an LLC, is that correct?
Garrett Sutton 26:03
Correct. Now here’s the issue, Jason is, if you are, if you have 99 or fewer partners in an LLC or an LP, you can opt out, which sounds great Oh, I can opt out. I don’t have to worry about this. But here’s the key thing. partners who are trust living trusts, or partners who are single member LLC s, aren’t allowed to opt out. And that’s the vast majority of our clients, you know, you’ll have a single member LLC owned by your living trust, you can’t opt out. You’ve got to be subject to these new rules. So it makes sense for everybody to opt in and just be covered. Just have the partnership representative appointed.
Jason Hartman 26:50
So if it’s a single member LLC, you now need to be your own. You need to appoint yourself as your own partnership representative. Is that correct? Right It’s just seems like ridiculous I mean, on a single member LLC what what is the difference? You know, I mean what
Garrett Sutton 27:06
I don’t know why they didn’t exempt living trusts and single member LLC from the the opt out provisions they should have the the CPAs fought them tooth and nail on it there for some reason the IRS wanted those types of structures to be included in this new it’s called the centralized partnership audit regime. So they wanted to
Garrett Sutton 27:33
centralize, and that sounds eerily Soviet to you.
Jason Hartman 27:36
Yes, it sounds very Soviet. Yeah. It’s crazy. It’s crazy. Oh, my gosh. Okay, cool. So well, not cool, but we got to do that. Okay. So So what else is happening? I think you had one more thing on your list for today.
Garrett Sutton 27:53
One more thing, Jason. And that is we offer a new service called armor eight. And basically If use, for example, you live in California, and you have a Wyoming LLC that you formed, you want the advantages of Wyoming law, it’s the best state along with Nevada for LLC protection. But if you have that Wyoming LLC certificate physically with you in the state of California, California Court could say that, that LLC certificates in California, it’s subject to California law. And we don’t want that. We want the stronger Wyoming law to apply. So under the UCC, the Uniform Commercial Code, which is the code in all 50 states, if you actually hold that certificate in the State of Wyoming, Wyoming law applies. So what we do is when we wait for new entities, and as well we can amend it for older entities. We will have the certificate be held in a safe deposit. box in Wyoming. And if someone Sue’s you in California and wants to get your Wyoming interests, they have to hire an attorney in Wyoming to get a court order to get the certificate out of the bank account. At that point, Wyoming law applies and you’re much better protected, it’s also a burden. It’s also a burden for attorneys to have to hire a Wyoming attorney to get the certificate out.
Jason Hartman 29:25
So when you say get the certificate out, you know, you know, what just drives me crazy about the law, just as a general statement is the law was set up. In an era when everything was sort of land based, right? You know, everything was very geographical. In the days all this stuff was set up. And now geography as I always say, geography is less meaningful than it’s ever been in human history. It’s still meaningful, it’s just less meaningful than it’s ever been before. And and everything’s virtual and portable and digital and you know, hyperspace. So like, you know, when you’re making me think of all the LLCs and corporations I have, you know, of course, you You are my registered agent for those. I mean, where are my certificates? I don’t I don’t even know. I mean, I guess they’re just on my hard drive.
Garrett Sutton 30:15
Well, offline will offline, we’ll talk about them, but your certificate should be held for your Wyoming LLC, whether they’re qualified in Arizona or California or wherever else. We now recommend that those Wyoming LLC certificates be actually held in the State of Wyoming,
Jason Hartman 30:35
a physical piece of paper and what is going to be held at your registered agent office. Is that how you do correct? Yeah, no secret, this whole thing about, you know, choosing the best state in which to, you know, form your LLC, for example, it seems like it’s very meaningful at the point at which a question creditor gets a judgment against that LLC, right? If hopefully that’ll never happen. But if it does, it seems very meaningful from that part. But it doesn’t force some, you know, like the Delaware people, right? I have some entities in Delaware. They always say, well, Delaware is great, because you know, we have this chance to record whatever that means. And it’s very business friendly, and so on and so forth. And so all of these companies incorporate in Delaware, that’s a famous, especially for large companies, you’ll, you’ll notice, like Microsoft is in Delaware, even though they’re really in Seattle area. So, you know, it doesn’t stop people from suing you in any state. That’s the thing. It’s, it’s only at the point of judgment, right. Am I correct in that thinking or is that?
Garrett Sutton 31:46
Yeah, and we need to distinguish between attacks if a tenant sues the LLC itself. They have a claim against the LLC, and this service wouldn’t protect you they have it’s called the inside attack. They sued the LLC on time. They can get the equity inside that LLC which is why we don’t hold 10 properties in one LLC because if a tenant could get all the equity in all 10 properties, attack number two is the outside attack you get in a car wreck Jason and the insurance company doesn’t cover you well enough for that huge claim. And they want to get at your Indiana and Ohio LLC as well. We’re going to have those LLC s be owned by the Wyoming LLC. They have to fight through the Wyoming LLC to even get up over into the Indiana and Ohio LLC for example. So the charging order is what comes into play there. California would say you are a California resident we don’t care if you have a Wyoming LLC or not. We’re going to subject your Wyoming LLC to California law. This is where the armor eight service comes into play. Because you say that certificate. The ownership is in Wyoming. It’s in a safe deposit in Wyoming. I don’t have the certificate in California, there by therefore the California Court. We don’t have a case on this, but this is how the UCC works. The the California Court would not see it as
Jason Hartman 33:18
Uniform Commercial Code
Garrett Sutton 33:21
applicable in all 50 states. Okay, so the the California judgment creditor, you don’t have the certificate in California, they need to get the certificate. And so they have to go to court in Wyoming and get the Wyoming certificate and at that point, Wyoming law, which is the strongest out there, the charging order does apply. In California that they ignore the charging order they go let people go right through and get all the assets of the LLC and back number two, California is the worst. I wish someone would make a book on what’s the best state in which to foreign foreign entities I think we know but to like to live in
Jason Hartman 34:06
business in the states to stay out of because there are so many cash items. You know, there’s just so much complexity to it in so many different ways. It’s, it’s quite fascinating. But what I find is that these judges, they’ll just they just kind of don’t care. Right. You know, it’s sort of that a lot of levels. It doesn’t seem like they have to obey the law. But yeah, you know, they
Garrett Sutton 34:29
Well, certainly in that Ardmore case the documentary transfer tax, the one justice justice Kraus. She goes, she goes, the court can’t do this. This is a matter for the legislature. We have 150 years of a documentary transfer tax being applied only to transfers of real estate. The court does not have authority to do this. So you do have a couple good judges out there but right as to which state to live in. I mean, the good thing, Jason is we have a federal system And whereby, you know, each state has its own rules. If we had, you know, a complete federal system where we had US law apply everywhere, in every single case that would be, that’d be a nightmare for me. I’m glad we have states like Wyoming that Yeah, right. Right. That allows people, yeah,
Jason Hartman 35:18
it allows people to vote with their feet, they can still be in the same country have the same currency have the same federal law, but they can vote with their feet and move to the friendliest state, or at least form their businesses in the friendliest state. And, and that’s a great thing. You know, we had Meredith Whitney on the show before and, and she wrote that awesome book about, you know, the state of the states, and how you can just see the migration patterns of people leaving the unfriendly states Well, I should distinguish Garrett, winners and contributors leave the business unfriendly states, but slackers and takers stay in them because those people I and bless their hearts. I just don’t want to be stuck with supporting them, you know? Right.
Garrett Sutton 36:05
Well, California what 5 million people have moved in the last decade?
Jason Hartman 36:09
It’s unbelievable. Yeah, it’s it’s Iranian people. Yeah. But the thing is, those aren’t just people, those are contributors. Okay. Those are people that pay taxes. So yeah, California is a mess. It really is. Even if it doesn’t appear that way. It’s, it’s crazy. Okay. Garrett, you’ve done the best of any lawyer you really taught me to understand that concept, which people just totally fail to understand the concept of the internal attack and the external attack, they they just blindly go and like, Oh, I’m just gonna set up an LLC and I’ll be protected well protected from what can you just elaborate on that for a minute I’ve got your ear. We’ve got you know, all everybody’s listening. Internal and external attack you. You mentioned it a moment ago, but just give us just nail that. Bring it home.
Garrett Sutton 37:00
Where you, okay, we have an LLC that holds title to a duplex. If a tenant sues, they are renting from the LLC that owns the duplex, their claim is against that LLC. That’s called the internal attack, they have a direct attack against that LLC. Again, we don’t want to put too many properties in there because first of all, you’re going to have insurance. But, you know, some claims go over the insurance limits so they can reach the equity in the property on the inside Attack. Attack. Number two is the car wreck example where it has nothing to do with the real estate. They aren’t entitled to sue the LLC that owns the real estate, they have a claim against you who was driving the car. So when they get that judgment, they’re a judgment creditor, they’ve gone to court and one they want to collect from you. Now, hopefully you have enough insurance, you have an umbrella policy, I always recommend people have an umbrella policy of insurance you know, 400 hundred dollars a year for an extra million in coverage. The attorneys know how to get at that money. Right? They’re good at getting in at insurance. They’re not so good at getting through these LLCs especially when we have a Wyoming, owning the property holding LLC. So the outside attack means they have to fight through Wyoming to get it the other ones the exclusive remedy. In the state of Wyoming even for a single member a sole owner LLC is the charging order. That is a lien on distributions meaning the person who was in the car wreck can receive whatever is distributed to you Jason, you were in the car wreck, they can get what you are entitled to receive. Well, that could take a while for them to get paid. They may not make distributions. The money may be kept in Indiana or the Ohio LLC is to make repairs. So the attorney is sitting around waiting Get Paid, and attorneys who are usually on a contingency fee, meaning they get a percentage of what they collect, when they have the choice of doing, you know, waiting around for a charging order, spending their time and effort on that or going after another car wreck case where there’s plenty of insurance. Which case are they going to pick? They’re going to go after the the case that involves insurance. So the attorneys and under quite understandably, don’t like to go after these Wyoming LLC only to get a charging order. So that’s how you want to structure your affairs. You want to have enough insurance, and then you want to have your assets protected with Wyoming LLC to prevent people from trying to reach these valuable assets that you have.
Jason Hartman 39:49
Yeah, yeah, good point. good points. Garrett. And in that car accident example is the same as the person who owns a business or is a doctor or is in any kind of high liability. environment, right? That’s the external attack. So you use the car accident as the example. But you could substitute it from the doctor who gets a malpractice claim. Now, of course you have malpractice insurance. Right? And you’re correct when you try not to let them die on the operating table, right?
Garrett Sutton 40:16
Yeah, that’s a personal claim. You can’t as a doctor, you can’t hide behind a professional Corporation. That is a personal claim against you. So you better have your other assets protected, right? Yeah.
Jason Hartman 40:27
Yeah, good stuff. Good to know. Garrett, give out your website and tell people where they can get. Well, you know, the books are in all the obvious places, folks, you got to read Garrett’s books. Garrett. How many books do you have? Now? You’ve got a couple on the rich dad series with Robert Kiyosaki. But you’ve got some others outside of that too. Right?
Garrett Sutton 40:43
I do. So it’s a six with rich dad and then three other ones. So it’s fun. I get up at four in the morning and write I enjoy it. So
Jason Hartman 40:52
yeah, you’re good. That’s great.
Garrett Sutton 40:56
So the the main website for all the listeners is Corporate direct comm corporate direct and then if you want a free 15 minute consult with one of our paralegals you can call 800-600-1760 and I look forward to being at future events with you Jason and helping your your listeners understand these IRS rules and understand how California is really putting the squeeze on taxes and then hopefully protecting people’s Wyoming LLC is up in Wyoming.
Jason Hartman 41:32
Yeah, good stuff and Garrett by the way since you mentioned it, Garrett will be speaking again at our upcoming meet the masters of income property in January in beautiful La Jolla, California. And that event is the tickets are selling like hotcakes. It’s going to be our 20th anniversary meet the Masters so it’s going to be bigger and better than ever. We’ve got we’ve got some great celebrity speakers including Garrett Sutton, who will be there as well and Garrett, I believe you’ll be speaking On Friday, is that correct? Right? We’re thinking Right, right. Yeah. Okay, good, good stuff. So that’s a three day event Friday, Saturday and Sunday in mid January. And get your tickets at Jason hartman.com. In the events section, and you can meet Garrett Sutton there in person and Garrett, I hope this time you’re gonna bring some of your books and, you know, have a little booth and all that kind of stuff. And maybe maybe we’ll have a little book signing for you if you’re willing.
Garrett Sutton 42:25
Sure, that’d be great. That’d be nice. I really look forward to at the event last year was terrific. There’s a lot of energy in the room. People learn a lot. You put on a good show, Jason. So I’m looking forward to it again. Well, thanks. I
Jason Hartman 42:39
hope this one will be the best ever and we will see you in January. And thanks again for joining us today. Mr. Garrett Sutton.
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