CW 947 - A Deep Talk on Asset Protection & LLCs with Rich Dad Advisor Garrett Sutton, Part 1

This show is produced by the Hartman Media Company. For more information and links to all our great podcasts, visit hartmanmedia.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 multimillionaire 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. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to the Creating wealth show, episode 947. 947. This is your host, Jason Hartman and listeners around the world. Thank you so much for joining us today. Why do I say us? Because I have got a guest doing the entire episode with me. He is a returning guest. He is a distinguished author and attorney. He also has been a speaker at Meet the Masters for the last three years in a row. Many of you on your evaluations at the last Meet the Masters said he needed more time, so I'm inviting him back. And hey, you don't even have to pay his hourly rate today. So it's a pro bono, as they say in legal terms. Garrett Sutton, welcome back. How are you?

Thank you, Jason. It's great to be back.

It's good to have you. So you are a rich dad advisor along with Robert, you know, in Robert Kiyosaki's book series. You've written many books. Start your own corporation, writing winning business plans, loopholes of real estate, run your own corporation and buying and selling a business. And then you've got some books outside of the Series 1. I interviewed your co author who you did a great book with her on business credit. Just got quite a distinguished career. I love your books, by the way. They're funny too, you know, they're entertaining.

Well, thank you, Jason. I appreciate it. I do enjoy getting up early in the morning and just sitting down and writing. It is really enjoyable.

So, yeah. Well, that's good.

It keeps you off the streets.

Keeps you off the streets. A good catharsis and also, yeah, just some good time. But you write great stuff and so we're gonna dive into some stuff and talk about asset protection today. And Garrett, there are so many misconceptions in this field. I hear them all the time. People ask. I can just tell they don't understand it because they ask these questions that are just kind of obtuse. So we're gon clear a lot of these myths up today, hopefully for the listeners. And we're going to kind of expand on your presentation from Meet the Masters, leaving out mostly, at least leaving out all the stuff about the Socialist Republic of California, my former home state. So.

Right. There are plenty of other places to invest, so let's talk about the rest of the country.

Yeah, yeah, we definitely will. But hey, first I want to share a quote and it is from one of the Rothschilds. Now, as most listeners know, the Rothschilds are really the people that started modern banking. And who even knows what their this family's net worth is? I mean, I've heard these insane numbers, like trillions of dollars. I mean, this is not on the Forbes 400. It's way above that. It's. It's like the Netherlands, you know, here. Anyway, of course, we've had J. Edward Griffin on a few times. He spoke at Meet the Masters the year before, four last. Now, and this Rothschild quote is such an important quote, and it goes like this. It says, give me control of a nation's money and I care not who makes the laws. Give me control of a nation's money, and I care not who makes the laws. And I think the meaning of that, Garrett, is that, you know, when you control the money supply, money is just. It's sort of the context for life in general after basic survival needs, Money is hugely important. And for those crazy people that minimize it and say, oh, happiness is more important than money, you know, grow up, Seriously. I mean, grow up. You know, look, money is important in the areas in which it works, and it works in a lot of areas. Okay. It's not everything, but it is damn important. Okay. You've heard that quote before, right?

Oh, absolutely, absolutely. And it's kind of creepy at one level and then it's very sophisticated at another. And the Rothschilds certainly believe that way and act that way. How many of the central banks in the world do they control? It's almost all of them.

Yep. Nobody exactly knows, but Rothschilds are responsible for many wars and many laws and just, I mean, control the money and you control everything. But Garrett, like I said, said before, I want to take this to another level, I would argue. And you like music. You know, we went and we saw Ringo Starr and, and met him together when I was up there.

Highlight. That was just great.

Yeah, you know, I mean, just to meet a former Beatle is pretty cool, for sure. But, you know, music is hugely important. You like music? I love music. And of course, I wish you had stuck around at Meet the Masters to hang out with our Journey tribute band. They were so good.

Oh, I heard they were great.

Yeah, it was good. So I'm going to make up my own quote here. Give me control of the music, and I care not who makes the laws or who controls the money.

Well, there you get to the happiness quotient. Right? The music keeps you happy. And there is an energy to music, there's an energy to money. So it's all tied together.

Yeah, I like how you say there's an energy to it. That's certainly true.

But.

But, you know, I. I mean, if you look at fairly recent musical history and you look at how music changed the world, I guess the first mega change, at least that I know of, was Elvis Presley. Right. That was a. You know, it's before my time, but hey, I. I watched movies.

That was a shift. Yeah, that was a societal shift.

Total societal shift. And then the Beatles was, you know, of course, our man Ringo Starr was part of that. That was a huge shift. And then each decade had its own flavor of music, of course. You know, hard rock and. Or class. Well, classic rock, you know, Led Zeppelin and all the rest. And just amazing. But, you know, I mean, so many people talk about how it's kind of true but untrue at the same time. Like the society is going down the tubes, we've lost the culture war, blah, blah, blah. You've heard all this stuff, right? And, you know, I would argue that that really began in about 1990, when the Seattle grunge music bec popular, when MTV was able to reach almost the entire planet. You know, Garrett, you've traveled extensively. So have I. I've been to 81 countries. I don't know if you're keeping track, but you're probably. You got a high number there. Touring with Robert Kiyosaki and the other rich dad advisors. It's amazing. These kids around the world, they dress the same. The music is everywhere. You know, it just has such a long reach. And MTV was a huge part of that in its heyday. And so, I don't know, I think music is a pretty. It's a pretty big deal. And in 1990, we had all this like, sort of caustic, urban, violent music, you know, and grungy music, and that seemed like a Big shift. I mean, do you do perceive it that way? You got kids that are in the age that were quite affected by this? I do.

You know, pre 1990s, I would agree with you that the music, at least for me, was more enjoyable, more easy to listen to. I will tell you, my kids, I have three kids, they're in their late teens, early 20s, and whenever we went on a family road trip, we were listening to the Beatles, we were listening to the Rolling Stones. And you know, now they admit after having heard their own music for the last 10 years or so, they admit that our music was better. And I've heard other parents say the same thing, that when you really get the kids listening to the music of our era versus the current music, which for me is almost indistinguishable song to song. Yeah, they do like the, the early music. They, my kids just love the Beatles.

You know, that is amazing to me. I mean, many millennials I've met love the Beatles. And I was going to hire a Beatles tribute band rather than the Journey tribute band at Meet the Masters. I really kind of struggled with that decision. So, hey, a future event, you might be seeing a British Beatles tribute as well. Maybe now that we were in with Ringo star, Garrett, maybe we'll get him to come.

Absolutely.

I doubt it. He'd probably be a little expensive. But hey, we did get a photo op with him, so that was cool.

He was a gentleman. I really enjoyed talking to him. We had a very cordial, nice chat.

Yeah. Yeah. And he looks pretty great for a rock star. I mean, those guys usually wear themselves out pretty quick with a lifestyle, right?

Well, he's no longer doing drugs or alcohol. He's a vegetarian. He told us he goes to the gym every day. Yeah, like you say, he was in great shape.

Yeah, yeah. Well, good for him. Good for him. But. But yeah, it's funny that the millennials like the Beatles. That does surprise me. But hey, it's great, you know, music that was just a simpler time back then for sure. So. So, hey, speaking of complicated times. Asset protection. Oh, but before we jump into that, I gotta, I want to mention, I want to remind everybody I haven't mentioned in a while, we have got a big event coming up. That is our trip to Sweden to go to the ice hotel. This is a bucket list item. Garrett, maybe you should come. Okay. We are doing a Venture alliance mastermind trip, but it's also open to non members. You know, they've got a different rate. Of course. This is going to be a bucket List trip to the ice hotel in Sweden, first week of April. Go to Jason hartmanicehotel.com Jason Hartman ICE Hotel. I know that's a long domain name. Jason hartmanicehotel.com check it out. Bucket list items. Them. Can't wait, hopefully, to be sitting in one of those spas, in the hot spa at night, looking at the northern lights above me. I hope we'll see them. It's up to God, you know, we don't get to schedule the northern lights, but be pretty cool.

That sounds like a great trip, Jason.

Yeah, yeah, it's gonna. It's gonna be fantastic.

And I've heard of that hotel.

Yeah, it melts every year. So this. This is the 28th year they've built it, and, yeah, it's going to be phenomenal. So, Jason hartmanicehotel.com hope you'll join us. And we need a few more people to greenlight that trip, so go check that out and get your tickets for that today if you're interested. So, asset protection. Garrett, there are so many misconceptions about this. I commonly hear people make these statements that just. You can tell they don't get it. They say things like, well, what if my tenant sues me? And what if I get sued outside of, like, you know, what if I get sued for a car accident and my insurance, you know, maybe it's above my insurance limits, or if I get sued in my business, or a lot of doctors ask this question, what if I get sued for medical malpractice? You know, say I make a mistake and I get sued for that, can they take my properties? So this is the concept I want you to explain, of the internal and the external threat. This is a foundational principle that people have to understand about asset protection. Now, here's another one for you, Garrett. I'll give you some stuff to chew on here before we dive in. Another one is I hear people sort of make these cavalier statements about, well, I'll get an umbrella policy. Well, they like, what does that mean? Do you even know what that means? The umbrella policy only is an umbrella over certain assets from internal liability on those assets. Right. Not external liability. So gotta dive into that a little bit for us.

All right, well, let's talk about the inside attack versus the outside attack. And do we have a slide to refer them to? Jason?

Yes. You were very kind to donate your PowerPoint slides that will explain this stuff. And they can go and they can get this@jasonhartman.com right in the show notes for this page. We will put the slides there. And so just Jason hartman.com and just this episode 947 and they can grab the show notes that will include your PowerPoint slides. So thank you for doing that.

Sure. Well, let's look at the first slide. And we have a picture of a California llc. Joe is the owner of it. And we are distinguishing between the two types of attack that you can face. The first attack is called the inside attack. And that's when a tenant falls at the property and is suing the landlord of the property, which is the California llc. If your name was listed there as the landlord, if you were on title, the tenant could sue you personally and reach all of your personal assets. In this case, because the California LLC is on title to the property, that's who the tenant's dealing with. Their claim is against the California llc, they can get the equity inside that llc. Now, of course, hopefully you have insurance, but let's say it's a horrific claim and the tenant wants to get what's inside there, and his attorney, who's on a contingency fee, does too. If you only have one property inside that California LLC, they can get the equity in the one property. If you have 20 properties in there, they can get the equity in all 20 properties. So this is kind of a foundational point. How many properties do you put in one llc? And this is a judgment call on your part. What do you feel comfortable with?

Right. And really the question is not how many properties do you put in one llc. How much equity is do you put in one llc? Because if those properties are highly encumbered and leveraged, then, you know, there's not much to get. Right. And so they may not pursue it. But why are we even talking about California again? What's the significance here? Or are you just saying, using an example, like someone might own a property in California and this is what they're doing. Certainly better.

There's a strategy behind this slide.

Okay, good. Tell us more.

So the inside attack applies in all 50 states. Right. Whether it's a North Carolina LLC, a Wyoming LLC, whatever state it's in, if the tenant sues, they can get what's inside that LLC applies in all 50 states. Now, the outside attack is a different animal. That is where you get in a car wreck, it has nothing to do with the real estate there in California, in that California llc, but you have a car insurance rate that is not good. The company doesn't cover you. It's again, a horrific attack where there's a lot of damages. And the car wreck victim and their attorney on a contingency fee wants to get at that California real estate that will help satisfy the claim they have. And in California, the law is really weak. The courts in California say to the car wreck, give them everything. Joe caused the accident. Joe's at fault. You can blow right past Joe, get into his LLC and force a sale of everything. And so California, that's why we put the slide up this way, is the weakest state in the union.

Okay, okay. So that's the reason. So look, a lot of people listening don't live in California. They have nothing to do with the socialist republic of California. But. But many of them do. So in other words, California, and we don't need to keep harping on this California stuff, but they have really bad asset protection. Not only is it overtaxed, overcrowded, and overrated. And I say this, it's, you know, this place I lived most of my life, and it's where something like 40 million people live. So it's a very significant state. Obviously, it has very weak asset protection. It's a very good place for a plaintiff and a very bad place for a defendant. It's a very good place for the little guy. A very bad place if you want to accumulate any real wealth because you're always susceptible to attack, either from a creditor, a lawsuit, probably a divorce too, Although we never really talk about divorce law. But. And then also, of course, you know, the taxation and such is another issue.

Right. And so we just have to be aware when we're dealing with California properties, we have to structure things the right way. So if we go to slide number two, we have a California LLC owned by a Wyoming llc. I like to have things flowing downward. That's how the cash flows is downward. So we have the California LLC in slide number two on title to the property. And again, if a tenant sues, it's an inside attack against the California LLC who they're renting from. California, though, is owned by a Wyoming llc and Wyoming has superior asset protection laws. So when the car wreck victim says, you know, Joe, you owe us some money, when they come from the outside and try to get past Joe into the Wyoming LLC so they can reach the property in California, the state of Wyoming says, no, we don't do it the way California does. We don't let you get into that Wyoming LLC and force a sale of everything in there. Instead, our remedy is called the charging order, meaning you are entitled to distributions from the Wyoming LLC to pay the Car wreck victim, but you can't barge in there and force the sale of all the assets. So we like the charging order procedure because. Because the attorney on a contingency fee case doesn't want to sit around and wait to get paid and have to monitor distributions from the Wyoming llc. I always like to have my clients have a umbrella policy of insurance for home and auto that provides a million dollars of coverage for 400 a year in most states. And the attorneys know how to get at that, Jason. But they're not good at getting bursting through the Wyoming LLC and they don't want to spend the time to do so. I mean, attorneys are rational economic animals. They're going to take the next case that has more insurance money. So that's the feature that we wanted to explain in slide number two.

Okay, so if someone doesn't live in California and they don't own real estate in California, does this matter to them? Yes.

Okay, this slide applies to the person who lives outside of California and they own real estate inside California.

Does it apply to someone who doesn't do either? They don't live in California. They don't own in California.

Oh, yes, this would apply to that. I'm sorry, this would apply to that person too. The person who lives in Oregon has an Oregon LLC for the Oregon property. Could still have the Wyoming LLC even though they live in Oregon, protecting their Oregon or other out of state LLCs.

Okay, so let's just make sure everybody understands that you're only using California as an example. This could apply in any state. So for example, now a lot of people do live in California. I hate to almost keep mentioning that because I think I'm confusing people, but just stay with us for a minute. You live in California, you live in New York, whatever. Right? Two weak states. Over taxed, overrated and bad asset protection. And both of them, you live in one of those. For example, you own investment property in Tennessee, Texas, Georgia, Indiana. Right. So you own in those four states just as an example for investment property. But Wyoming is your favorite state as far as asset protection. So what are you going to do then? Are you going to set up a Wyoming LLC and then domesticate it in Texas, Georgia, Indiana, or are you going to set up an LLC in Texas, Georgia, Indiana, you know, Tennessee, and then have the Wyoming one own those? How do you do?

That will be slide number five. Okay, so yes, that's to give you a hint. Yes, what you said. The second thing is what you'll do. But we'll look at slide number five. And explain that to people.

Okay, go ahead.

Slide number three deals with the California resident. And California's law is really strict. If you have a California property and a California LLC, of course you've got to pay the $800 a year, the minimum franchise fee to California, but that's not enough for them. If you use the Wyoming LLC for the best asset protection and you're a California resident, the state of California says, all right, Joe, you're managing a Wyoming LLC from the state of California. Ergo, the Wyoming LLC is doing business in the state of California. Pay us $800 a year for that one. And so in slide number three, you would have to pay 800 for the California LLC at the top and another 800 for the Wyoming LLC qualified to do business in California.

Right, but it's not the $800 that's. They're a ripoff because it's the highest priced state in the union, charging $800 a year, even if you don't make a penny. But it's not that. That's the worst thing to add, insult injury. When you domesticate it in that state, does it then become subject to the laws of that state or does it retain that great Wyoming charging order asset protection?

We don't have a case on that.

Oh, okay.

All right. So we have a strategy in slide number four whereby we assert that Wyoming law will apply because we hold the certificates in the state of Wyoming. This is how banks handle financing transactions. Where they want that LLC security interest to be theirs, they will hold the certificate. And that's what we do for our clients in Wyoming. We call it armor 8. Here's the reason we do this. If you live in California and you hold your Wyoming LLC certificate with you in California, a California court could say that's personal property. The Wyoming certificate with you in California is your personal property in the state of California. So we're going to let an attorney reach that certificate and gain control of the llc. Our strategy is to hold the certificate for our clients in the state of Wyoming. And if an attorney in California wants to get at that Wyoming llc, they have to go to Wyoming to have us provide them with that certificate. Once they do that, Wyoming laws. So we're setting this up so that Wyoming law applies, which is much stronger, as we've discussed, than California.

Okay. Whenever you hear the word California, you can mostly in this discussion, substitute it for any state. I mean, not exactly, but most of the time.

Well, you're right, Jason. New York would be the same way. Georgia is pretty weak Utah is really weak. And so you would want to have the Armor 8 certificate strategy used when you live in a state that has very weak asset protection laws. Now, for example, if you live in Texas and you want the Wyoming LLC protection, you don't have to qualify the holding Wyoming LLC in the state of Texas. So you don't need armor 8 in that case. You just need it for the strong, the weak states.

Now, why do you call this armor 8?

It's based on the Uniform Commercial Code, which is the law in all 50 states.

The UCC?

Yeah, the UCC. And it's Section 8 that allows for the certification of membership interests. And so we just. It's section 8 and so we just call it armor 8 as a way to explain and identify the strategy. It's based on UCC section 8.

Okay. And I mean, Garrett, that's not a gimmicky thing. Like, you really need that. It seems crazy that in today's world we gotta pay to have a piece of paper stored in another state, or is there more to it than that?

No, that's what we're doing. And we don't recommend it for our clients that live in good states. It's just if you live in a state like California, we want to protect you as best we can. Again, we don't have a case on this one either, but it's only $75 a year, and we want to protect you as best we can by holding that certificate in the state of Wyoming. And if an attorney in California is coming after you, you would tell them, look, the Wyoming LLC membership interest is up in Wyoming. You're going to have to go get it. And we want to put up as many roadblocks as possible, whether they're real or perceived. And some attorneys are going to be put off by this. Some attorneys are going to say, I'm just going to wait for the next insurance case to come along where the money is much easier than having to hire an attorney to fight for a court order in the state of Wyoming.

Okay, all right. What else do people need to know?

I think people need to know that the LLC law is a developing area of law. LLCs have only been around for 40 years, and with the collapse in 2008, we had a lot of banks going after LLC interests. And, you know, the law is starting to get fleshed out, but we don't have all the cases that you would want for the certainty. So we don't have a case on California versus Wyoming. We don't have a case on Armor 8. But I did mention that we did have slide number five, that really your question anticipated how we would structure things, whether you're in California or any other state. In slide number five, we have a situation where we have a Utah property in a Utah llc. We have a Florida property in a Florida llc. Those two are owned by one Wyoming llc. And if someone sues you in that car wreck and wants to get at the Utah and Florida properties, they again have to fight through the Wyoming llc. Wyoming says, the court in Wyoming says you're entitled to a charging order, meaning you can receive distributions that the Wyoming LLC makes to Joe. But unlike California, you can't barge into that LLC and force a sale of the Utah property or the Florida property.

Right. In other words, in weak states, the law allows the creditor or the plaintiff to foreclose on the assets of the LLC or corporation. But in, in favorable states like Wyoming, and I think Delaware is this way too, possibly, and some others are pretty good. I mean, they all vary, but they only allow them to get a part of the distributions that are taken out. And your premise is, well, you know, maybe you never need to take a distribution. You can just make them wait forever and. And the idea is that will encourage some sort of a settlement or they'll just go away, Right?

Absolutely right. Jason, you nailed it. The Utah llc, perhaps it needs a new roof. So it doesn't make any distributions. It puts on a new roof. The Florida LLC needs to pay someone to do some work on the property. So nothing is distributed to Wyoming. Ergo, there's nothing. Or from Wyoming, there's nothing distributed into Wyoming. Right. From Florida or Utah. So that Wyoming doesn't have anything to distribute to Joe.

Right. But there's no rule that, like if that Wyoming LLC has $10 million in it, there's no rule saying you have to take a distribution out of it. Right. Or is there?

No, there isn't. Some states would say, this is Utah's law, for example, that if the creditor, the car wreck victim, is not going to get paid in a timely fashion with the charging order, then they can go in and foreclose on the interest. Now, part of me says, yeah, they were in the car wreck, they should be able to foreclose. But the, you know, to, to protect my client's interest, I want to use the strongest state possible, and that is Wyoming. There was a case recently where, the exact same case as we have on this slide, Jason, there was a car wreck. The person wanted to get at the interest inside the Wyoming llc. It gave the opportunity for the person being sued to settle at a discount. So instead of settling for the full amount, they were able to settle for 10 cents on the dollar. Now that's a win.

Yeah, that's a win.

The Wyoming LLC provided a win for this client. They didn't have to pay 100 cents on the dollar. They just paid 10 cents on the dollar. Everybody moves on the car wreck Causer Joe was able to keep his properties.

This will be continued on the next episode. Thank you for listening and happy investing.

Thank you so much for listening. Please be sure to subscribe so that you don't miss any episode. Be sure to check out the show's specific website and our general website, hartmanmedia.com for appropriate disclaimers and terms of service. Remember that guest opinions are their own, and if you require specific legal or tax advice or advice in any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to to itunes or Stitcher Radio or whatever platform you're using and write a review for the show. We would very much appreciate that and be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.