[00:00:00] Hello, friends and family. Welcome to the Kenan Roberts Advantage, where we discuss how families and business owners tactically grow and preserve wealth for generations to come.
This episode is brought to you by none other than AssetSmart. And today we're breaking down why every business owner needs a trust and how to set it up the right way. Now, this is the very first episode
of this podcast, so you might be wondering, why is this podcast called the Kenan Roberts Advantage?
And I'll be happy to explain that to you, or maybe you're not wondering, but I'm going to tell you anyway, because after all, it is my name on the podcast and not yours, but I truly appreciate you for being here. All right, here's the deal. There's a right way and a wrong way to protect your business, grow wealth and transfer it.
But most people only learn the hard way when it's too late. [00:01:00] The advantage you get here is learning the strategies used by the wealthy, by top business owners, and by those who don't just make money, but know how to keep it. I'm here to break down these strategies in a way that's clear. actionable and most importantly something you can actually use.
Quick question for you. If something were to happen to you tomorrow, do you know exactly what would happen to your business, your assets and your family? Most business owners think that their LLC or their will or insurance is enough. But guess what? It's not. of this episode, you'll know exactly why a trust is essential and how to structure it properly to keep what's yours protected. Now, Lawsuits are more common than you think. 36 percent of small business [00:02:00] owners face lawsuits every single year. And the average lawsuit costs around 54, 000.
And that's if you win, according to Forbes, LLCs and corporations. can still be pierced in court, putting your personal assets at risk. Now, hold up. Let's take a step back. When I became a business owner, like most people I see, the first thing that I learned was to go and set up an LLC, go to LegalZoom and set up your LLC.
I didn't go to legalism. I went through the secretary of state. Anyway, most people go and set up an LLC because that's what Instagram or TikTok told them to do. And that's what I did. However, I just read, I got my notes in front of [00:03:00] me. I just read that LLCs and corporations can still be pierced in court, putting your personal assets at risk.
Hold up. I thought when I got an LLC, That my personal assets are protected because what's in the LLC is the business's assets. It separates that liability from my personal assets, and that's why they call it a limited liability. Well, guess what? I'm going to teach you something today that should shift your perspective about an LLC.
There's a such thing Called reverse piercing. My mentor taught me this reverse piercing essentially means, or I'll, I guess I'll paint you a picture of what this looks like. Yeah. Maybe your personal assets aren't exposed because you own the LLC and the LLC owns the assets, but [00:04:00] I can guarantee that 90 percent of the people under the sound of my voice own the shares.
of the LLC. So you may not own the assets in the LLC, but you own the shares of the LLC because you own the LLC, which means that if there were a judgment against you, a creditor can go after those shares, which then puts your personal assets at risk. Okay. I'm glad we cleared that up. I want to help you all understand that there is a hidden risk in every business that every business owner faces when they're structuring their business through an LLC.
We're going to unpack all of these things today. The next thing, estate taxes can wipe out your entire business clean. Many business owners don't [00:05:00] realize that their company is considered a part of their estate. Why is that? Why is the company considered part of your estate when it's typically structured separately?
Well, again, I think this is going back to the fact that when you went out there and you created your business, you got your LLC, your corporation, again, you own it. Therefore, that's going to contribute to your total estate. Families are often forced to sell their business just to cover Those estate taxes.
Did you know that? So the estate planning conversation. Always starts with what happens to your assets after you're gone. And that's why people prepare an estate planning for the most part. They don't know all these different [00:06:00] strategies, that estate planning provides, and we'll cover some later. But typically the reason why someone goes out and gets their estate plan is to avoid a lot of this stuff.
But it sounds to me that a lot of this stuff is still not avoided because things are not structured properly, but let's move on probate probate. Probate can paralyze a business for years. Probate can paralyze your family for years. And by the way, I'm going to show you how to set all this stuff up the right way, but again, as I mentioned earlier in this episode, my goal is to make sure that you understand the right way, because there's a right way of doing things and there's a wrong way of doing things and unfortunately, people learn by doing it the hard way.
And I'm going to help you avoid the hard way. But let's get back to this. Probate. is a legal process of transferring a deceased person's property to their heirs or their children beneficiaries. [00:07:00] It involves validating the will., By the way, a will is just your wishes. It's what you will to happen. It's going to be validated, not automated.
Anyway, probate is the legal process of transferring deceased person's assets, property to their heirs. It involves validating the will, paying debts and distributing their assets. Without a trust. Your assets will go through probate. And most people don't realize this or even know what probate is. That's why I wanted to share the definition with you.
Simple Google search is that probate can last anywhere from 12 to 24 months and even sometimes longer. And it's going to cost at least 5 10 percent of the estate's value. By the way, for most people that don't own much, that's like 10, 000. Oh yeah, and heirs can't access the funds from the business or even make decisions because everything's frozen [00:08:00] while probate continues to drag on.
So, let's take a step back and really think about this. When you go to meet the Lord, Your family doesn't get the opportunity to really grieve that loss because they're going through probate. Because you decided to ignore this conversation. You decided to ignore tactical wealth transfer. that's why I'm here.
That's why I'm here to show you how to not ignore that anymore. Hopefully, you're catching on to that, but no one wants to go through this. I mean, I was talking to a poor lady at an event. about two months ago , during the holidays, three months ago now while time's flying and she's sitting there, she's setting up her business.
She had a catering business. It was pretty cool. And I mean the lady was talking to me for like 30 minutes and she was an older lady and . [00:09:00] She was talking to me about how. She can't stop thinking about her mom, yet all her stuff is going through probate. And so she's just been having a very difficult time getting all her stuff in order.
And I thought, my goodness, I wish I had known this lady four years ago. I wish I knew what I knew. I wish she knew what I knew. Anyway. So creditors can go after your business assets if you personally have financial issues. We already talked about that. , But catch this. If you're running a business and think you're protected because you have an LLC or a will.
I just want you to think again. Okay. So does it work? , What do we do to get this? What's the solution?[00:10:00]
When you think about trust in estate planning, it's a lot like my mentor would say, when God created human beings, he created man and he created woman, right?, That's what the Bible says, but my mentor likes to say this because he compares this to trust. There's only two types of trust. There's the revocable trust and there's the irrevocable trust.
Both will help you avoid probate. Let's unpack the revocable trust for a second here. The revocable trust avoids probate, but It's still going to be subject to lawsuits and estate taxes. Okay. Irrevocable trust, however, separates business from personal assets, so creditors can't touch it. I think the obvious one you'd probably want to go with, no, I think the obvious one that you should go with would be an irrevocable trust if you're going to get a trust set up.
But, let's go back to revocable for a second. A revocable trust is a lot like your [00:11:00] LLC, it just bypasses probate. So there's no real difference outside of that because it has no asset protection., Why doesn't a revocable trust have asset protection?
Well, this is going to go back to Mr. Nelson Rockefeller, who has this famous quote, own nothing but control everything. If you follow me on YouTube, you've heard me say that several times. When you own nothing, basically that means is that there can't be anything taken from you. And so that's where an irrevocable trust comes into play because it does separate ownership from control.
It separates your personal assets from the business assets. And. If you're waiting for me to give you some amazing secret, if you're waiting for me to give you the aha, the bingo, the solution, this is how it works, here's the big secret, I just told you what it was. It's own nothing but [00:12:00] control everything irrevocable trust.
An irrevocable trust is going to exclude estate taxes and it's going to keep 100 percent of the business wealth. In the trust for the family's control. So all of this only works if you structure it correctly.
And that's what we're going to get at in just a moment, we will be right back with this quick commercial break.
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Okay, let's unpack this. How do you set it up the right way? Okay, we talked about which trust makes the most sense. We talked about which trust of the two, revocable and irrevocable, is going to really give you that ultimate control. And it's going to be the irrevocable, but how do you actually set it up?
Well, in an irrevocable trust there's three parties. You have the grantor, also known as the trustor, creator. You have the trustees,. You have the beneficiaries. The creator, or trustor, creates the trust and funds the trust, then they walk away completely. They have nothing to do with it. They sign paperwork, all that declaration, all that good stuff.
[00:14:00] They walk away completely. Then you've got the trustees, who control everything in the trust, , for the benefit of the beneficiary. This truly separates Ownership from control. Because if something happens to you and all your assets, all the things that you've worked so hard to build and control are within a trust, they can't touch the trust.
They can only go after your personal assets. If you don't own anything, there's nothing to take. And that's a whole nother conversation. But the point is you want to be in the controlling position. You want to be a trustee of an irrevocable trust. Okay. Oh, by the way, did you know that 70 percent of trusts failed due to poor structuring?
And of course that's a statutory [00:15:00] trust, but in the case that I'm referring to, that number shouldn't be anywhere near 1%. Setting up a trust is not complicated, but doing it incorrectly can be worse than not having one at all. So the key is making sure that the trust is structured the right way.
All right. So trusts are not just for the wealthy.
They're for any business owner who wants control. An LLC won't protect you from lawsuits, estate taxes, or probate. The right trust shields your business from lawsuits, taxes, and legal issues. If you're serious about protecting your wealth and your business, don't wait until a lawsuit, a tax bill, or probate battle forces you to act.
Take control today. If this episode helped you, share it with another business owner [00:16:00] or someone who you believe needs to hear it. Thanks for tuning in to the Kenan Roberts Advantage. I'll see you next time.