Do private jet's come next day on Amazon?

If you follow the media at all today, you’d be lead to believe that everything is doom and gloom everywhere. That no one can afford anything. But, actually behind all of the noise there is some truly wealthy people adding value and getting paid for it.

That’s not to say there isn’t real doom and gloom out there. There is, and I see it. But, there is also so much wealth being created, I can’t even believe it.

Take this client I just started working on. While I was looking up home improvement materials the last few weeks (I was off last week and redid my basement with my wife, and I’m proud to say we’re still together after that ordeal).

So, while I was off doing to that, this new client was doing a little online shopping for himself. And, do you know what he was looking up….private jets.

Yes, that’s correct. And, good on him. He deserves it. He’s built an amazing company and is deserving of such a purchase. But I hope to God, he doesn’t buy it. What a money pit. Rent, rent, rent.

Anyways, my point in all of this is that there is some serious money out there, which I hope you are aware of.

And, today I’d like to share with you one of the most innovative strategies I’ve ever been a part of. I don’t think I’ve written about this in detail and if I have, it’s been a while. Because I was only reminded of it recently.

First off, this isn’t at all about a business owner, but an executive.

A few years ago, we had this executive finally retire from his company and he got a big payout of RSUs, stock options and bunch of other things that I don’t care to remember exactly. A bunch of incentive pay all triggered on his retirement, on top of his pension and bunch of other things. I think they call it the “golden parachute” in the business. I think it all came out to be about $15M after taxes, but don’t quote me. The point in all this, a bunch of money.

More than he needed actually. I think the Advisor figured out that he needed about $5M of it for retirement and that was being generous as he already had a few houses around the world paid off, etc. And, guess what, still married! Smart man indeed. Actually, I’d never seen a couple more in love, so nice to see. So no ex-wife to take care of. You keep more money that way folks, if it works out of course.

At the time I was working with an accountant that was half bohemian, a real artist of sorts. He was amazing. But, he was also this out of the box thinker, which is the reason I even have this story to tell.

Here’s what the accountant said: “You know this is very non-traditional, but you know if might make sense to flip all that money to corp, freeze the shares and invest in side. It will save you millions.”

So, let me decipher this for you, as it took me a bit to understand what we are doing. But, once you see what happened, it’s one of those things you can’t unsee.

Because the client had this bit chunk of money held personally and we figured that he had at least and extra $10M he would never spend, we could push the tax discussion out another 30-40 years by doing this.

So, let’s say he invested the $10M in a stock that paid no dividends and just reinvested for the next 30 years at 5%, that would grow to $43M by death. And, there would be a tax bill on his death of about $9M.

Maybe we could push out the tax bill another 30-40 years, as he wanted to leave it all to his kids instead.

So, if instead we got the money into the company, contributing $10M and then freezing the shares at $10M.

This means on his death there would be how much capital gains tax?….in the back please….00000000000000000000000000000000000.

ZERO.

That’s right. There would be nothing. Maybe some probate, some other stuff, but nothing on the investments.

Instead all the gain would be on a new set of shares given to the kids through a family trust. Brilliant.

The client loved the idea. We were essentially pushing out the long-term capital gain to the next generation.

Fees. Some people will bring this up. So let’s do some math. Let’s say we have to pay $5,000 for the corp and family trust each year (which I think is about accurate, but one of the many accountants on this list can correct me) to save $9,000,000. Let’s say that’s $5,000 times 30 years = $150,000 to save $9,000,000.

I’m not so good at math but that’s a 60x return or 117% compounded annual return on that $5,000 fee. I’d take that bet in a heartbeat. There you go accountants, see I have love for you and your fees.

Wait, I thought this was a newsletter about insurance. Well, we haven’t got there yet.

So, now we have two life insurance opportunities.

1. Buy insurance on the children, as they will have massive tax liabilities on their lives as they have the growth shares. These are usually pretty sizable premiums as well.

2. Buy insurance on the executive and his wife (could be a JLTD) to both extract capital (corporate asset transfer to kids, tax-free dividends on their death) and if you use Par (diversify assets, shelter capital, guarantees, vesting, etc - essentially another asset class).

And, that’s exactly what we did. We contribute the money to the corp and then bought an insurance policy for $10M to shoot that money back out to the kids on death and replace the capital to build dynastic wealth for the family for at least the next 3 generations.

And we bought two large life policies on the kids, who are were only in their 20s at the time.

The point of this story is that even if you have a client who is not a business owner, it don’t mean you can’t use corporations to minimize long-term taxes.

And two, you need to get more creative in how you look at situations. Keep on learning and good place to get that info is this exact newsletter.

Tell your friends about it. I’d love to reach more people.

As always, if you need help growing your business, don’t hesitate to reach out.

Have a great weekend my friends,

Andrew