Maximizing your real estate investment potential means not only building wealth through property ownership but also strategically managing taxes with the help of trusts. Trusts provide a powerful tool for tax mitigation, giving women investors the ability to take control of their finances and create a brighter financial future. In this episode, we welcome back Dr. Gina Gaudio-Grace to discuss tax relief through trusts. As real estate investors, taxes are always on our minds, especially after finishing tax season. Dr. Gina gives helpful advice on tax reduction using trusts, sharing tactics for those dealing with current taxes and those seeking future mitigation. As a trusted friend of the show, Dr. Gina lends her knowledge on trusts and provides practical advice for women pursuing real estate investment. She also touches on the importance of asset protection strategies, the utilization of your money in foundations, and more. Join us as we explore the possibilities and benefits of trusts.
Ladies, I am so excited to bring back to the show my close friend, Gina Gaudio-Grace. You met her before. She talked about trust in October and I’m bringing her back on this episode because I want to talk about trust again but I want to keep a focus on taxes and how we can handle tax mitigation with trust. I know taxes are on many of your minds because we finished tax season.
Many of you had to write a big check and are still smarting from that and so, I wanted to give you an opportunity to see that there are possibilities for relief in the future. Also, for those of you that didn’t write a big check, better ways to make sure that you’ve got tax mitigation. I’m going to read Gina’s bio again, so I can remind all of you who she is because many of you haven’t met her.
I do want to mention that in the past, we’ve had Chris Larsen. His whole thing was about the make, keep, and grow. We make a lot of money and we grow a lot of money. Those are the two things that most of us know about. Make it, get a better job, get a raise, get a side hustle, and grow it so that you can retire or leave a legacy or all of those things. That’s what we usually use real estate for.
We can use it for the make part two but usually, that’s how it goes. What we forget about is that keep part and just because of the simple concept of compounding, keeping part is so important. A lot of times, we don’t talk about it because it’s boring. I had somebody tell me, “Moneeka, I love your shows but even as entertaining as you are, I can’t watch your tax shows. They’re too boring.” I’m like, “That’s fair.”
I know taxes can be overwhelming, boring, and all of those things but if we don’t have that conversation, you’ll never reach the heights that you’re able to reach. I’m here in service to you to give you guys that blissful life. Part of that is working less. Let’s work less on the make piece. Let’s work less on the grow piece and we can do that by managing the keep peace. That’s what this conversation is about. Before we head into that, let me reintroduce Gina to those of you who have not met her before.
Dr. Gina Gaudio-Grace is a retired attorney and a 1991 graduate of Notre Dame Law School, where she was the Lead Note Editor of the Notre Dame Law Review. Dr. Gina holds a PhD in Entrepreneurship and Business Strategy. She’s a Certified Wealth Management Specialist and a Licensed Document Preparer. Dr. Gina is also the Founder of Abundance Group Trust and the Cofounder of the Abundance for All Foundation. Her personal mission is to touch the life of every person on the planet in a meaningful way. Welcome back to the show.
Thank you for having me.
It’s so nice to chat with you. We’re going to be talking about taxes.
If we’re talking about the keeping part, it’s one of my favorite things. It’s all about leverage. The key more than anything else is leverage. Decades ago, clients started calling me Leverage Gina. As a disabled woman, I can’t live life without leverage and I certainly can’t build businesses without leverage. Leverage is important and that’s what we’re going to be talking about. How do you work smarter, not harder? How do you make more and keep more so that you can then make that much more?
Leverage is one of our favorite real estate terms and I know you work with a lot of real estate investors. I want to emphasize that again, David and I have been able to grow our portfolio. He’s the main breadwinner of our family. He’s been a software engineer. His income has grown at the rate that incomes have grown, which is significantly slower than inflation and the appreciation of a property, so housing costs, all of those things, without the keep strategies. Without the whole thing along the way, we would not have been able to grow the way that we have.
Now we’re fine-tuning that as we’re looking at retirement. This is why you and I have been having so many conversations. We’re in the fine-tuning stage. That growth can continue to happen exponentially without us doing the make phase any further instead of trading time for money, which is what my husband does and I do it too.
Instead of doing that, we’re transitioning into real estate which is going to make the money for us. We are not going to be spending that much time with it. We’re going to be keeping more. Real estate’s going to grow anyways. It’s a beautiful hedge against inflation. Also, anything that comes in now is going to grow exponentially faster because we’re keeping more. Does that make sense?
It sure does.
Tell us a little bit more. Why don’t you explain how this all works?
Trust can be so powerful. As we talked about in the last show, we’re not talking about that living trust that you get for a lawyer for $3,000. That will help you avoid probate and probate taxes but that’s about all it’s going to do. It’s a very different trust. Even in law school, we didn’t learn about this trust. We learned about living trust mainly.
If you go out and start googling trust, there are so many different kinds of trust. It will make your head spin and because there are so many more, understanding how different kinds of trusts can be grouped together to get that much more leverage from them, that’s what I’ve done. I’ve figured out how you combine different trust structures to get exponentially more leverage.
There are so many different kinds of trust; it will make your head spin. Understand that these different kinds of trusts can be grouped together to get that much more leverage from them. Click To Tweet
With the trust structure that we recommend and use and both Moneeka and I have this for our lives and our businesses, it allows you to completely and totally eliminate capital gains taxes legally. It also allows you to get up to 100% deferral of taxes and any passive income. Passive income comes from rent and lease income.
If you’re a coach, speaker, author, or infopreneur, all of that is considered passive income. It’s income from intellectual property, which the IRS says is passive. If you didn’t have to pay capital gains taxes ever and you could defer taxes on passive income in perpetuity, which means many generations from now when everybody’s gone is when the tax man gets paid. How much more would you be able to make and grow because you’re not sending 40% to Uncle Sam or more?
Ladies, I want you to think about that. She has a workflow report that she wrote. It’s a white paper that describes the differences between when you pay all of these taxes and when you don’t. Instead, you can invest or help them to compound and appreciate what the numbers work out to be. If you ladies want that, you can go to BlissfulInvestor.com/MoneyFlow.
That way, you can get that report downloaded and take a look at the way the numbers work. However, you ladies know the basic concept of compounding. The sooner the money goes into your resources to be investor or grown, the longer it has to grow and therefore, the faster your wealth grows. It’s a very simple concept that all of us have heard a lot about.
Many of us understand it. Some of us don’t but it’s the basic idea of compounding. Now because of the way that we structure things with Gina, it’s much faster than that. It’s that simple idea of making sure the money stays with you and goes into investments sooner rather than later because time is gold when it comes to investing.
When you read this article, Moneeka, the case study is what it is. That gave you the link, BlissfulInvestor.com/MoneyFlow. It’s a case study of an actual client who has a dental practice. Before we set up our trust for him, he was spending over $320,000 a year in taxes. Now, that was from a combination of his dental practice as well as his real estate investments.
Once we set the trusts up, we’re using a two trusts structure for this client. It’s what we call a personal trust which holds the majority of the assets, and then a business trust as well. The business trust is running his dental practice, his short-term rentals, and things like that. Once everything was set up for him and he could operate completely out of these two trusts, he’s now only paying around $100,000 a year in taxes instead of $320,000 a year in taxes.
If we had set up a third trust, which is a charitable trust structured as a private family foundation, we could literally get them down to a $0 tax liability. Making around $656,000 a year is great but if you’re spending $320,000 of that every year in taxes and now you get $320,000 more to invest, what would that do for you 10 years from now or even 5 years from now?
Even on a moderate return, you’re going to expect at least 12% to 14% per year, wouldn’t you? Let’s say at 12%, that $320,000 a year is going to add an extra $38,400 a year to your income or to what you’ve got. Imagine instead of $320,000, next year, it’s going to be at $358,000 because of that extra piece. If we take the $358,000 and do the same thing at 12%, what are we doing there? We’re going to do about $39,000 the next year in growth.
I’ve experienced that compounding effect personally. I invested $100,000 a little over a year ago now. I’m watching it grow and it’s growing well but not quite as well as I had hoped. When I got that $100,000 turned into $1 million and that $1 million started growing to get it to $2 million, it took about a quarter of the time it took to get from $100,000 to $1 million because of what happens with compounding. The more you have, the more you make and if the trust is making it, it’s making it all either tax-free because there are no capital gains taxes or tax-deferred if it’s passive income. It compounds way faster.
Let’s talk specifically about the structure and what people would be doing. How does this whole thing work?
You’re going to make a list of all of your assets and any liabilities attached to them. A liability would be a mortgage, a note on a car, or things like that. We’re going to help you take all those assets and liabilities and convey them to your trust in an actual sale. Now, if you’ve got a house that you paid $200,000 for, that you’ve owned for a number of years and it’s now worth $1 million, don’t worry. You’re selling that house to the trust at $200,000, so there’s no taxable gain for that tax here.
You’re not selling it at $1 million but literally, you convey every asset to the trust. The trust owns everything. The trust is then able to take care of any expense associated with any asset it owns, whether that’s your mortgage payment, a new roof on your home, or new tires on your car, if it owns the car. All of those expenses now belong to the trust.
Ideally, you’re not putting the assets that are just sitting there, those things that you use but you’re putting assets in that appreciate and grow. That’s where the trust is helpful because any income that comes into the trust first gets used to take care of any valid trust expenses. All those things related to your home, your car, and other things like your medical expenses can be paid for by the trust. Your life insurance can be paid for by the trust.
There are only three things that the trust cannot pay for. They are food, fun, and fashion. Those three things you have to use personal monies to pay for but everything else, the trust takes care of. If you’ve got children under 21, even their food and clothing get taken care of by the trust. If the trust has income, that income gets used to pay all the bills. Whatever’s left over, so long as it came from either capital gains or passive income, the trustee declares it as what’s called an extraordinary dividend.
All that means is it’s getting added to the corpus of the trust. The word corpus means body in the Latin phrase. It’s monies from income that got kept in the name of the trust, whether it’s in an investment, buying a piece of real estate, or in the trust bank account. All of those are corpus. Anything added to the corpus from passive income or capital gains income at the bottom of the tax return where it says how much you pay in taxes, we’ll say zero. It is legal.
I have to confess, that’s the thing. I don’t want to be thrown in jail, Gina, because of tax fraud. You hear all these stories. It is all legal, correct? Let’s emphasize that.
Is it ever? In fact, I should know this off the top of my head but I’m going to go look it up. There is a little thing called Circular 230. Circular 230 is a very powerful thing. It is the rule for anyone who’s a member of the tax bar. Now, I’m not a member of the tax bar but we have a number of attorneys that work with us that are and when someone’s a member of the tax bar, they are allowed to write what is known as an opinion letter.
Circular 230 tells them that they’re allowed to do that. If you, as a taxpayer, rely on a written opinion letter that follows a very prescribed format, then later on the IRS should audit the trust and say, “It doesn’t work that way, Moneeka,” and they want to assess back taxes plus interest. They are not allowed to issue penalties.
The attorneys that work with our clients, all of them are required to have at least $1 million of errors in omissions insurance. That is important because of the fact that as long as they’ve got that million dollars in coverage, you’re able to go against the E&O policy should the IRS ever suspect taxes plus interest. In my opinion, the only way to get into this trust thing is to plan on getting an opinion letter from someone who is a member of the tax bar right in the Internal Revenue Code. I was trying to look up the section number but I’m not putting my finger on it very quickly.
What if that part-time, for instance, you go through an audit then that person that gave you the opinion letter has either retired or has been disbarred?
The likelihood that that would happen is extremely slim but if they are disbarred and that were to occur, the IRS still is not allowed to issue penalties. It’s straight out of the Internal Revenue Code. I wish I had the section. I wanted to read you what it says in the Internal Revenue Code. I’m going to have to do it from memory.
It’s going to say something to the effect of, “You are an innocent taxpayer because you had justification to rely on the opinion of someone.” It says it right in the Internal Revenue Code. In that case, they cannot issue penalties. They can’t issue either civil penalties or criminal penalties. Don’t worry. You and I don’t have to worry about looking awful in orange so long as we get a written opinion letter and so long as the opinion letter follows the prescribed format.
Interesting because my husband was like, “We don’t want tax fraud.” We don’t talk about tax fraud.
That’s the whole point. This stuff is straight out of the Internal Revenue Code.
We did this in the first call but I’d like to do a compressed version of what keeps it legal. You were saying, there are two different kinds of trusts that are written. There are contractual and statutory. One of the questions that come up for me is when we’re talking about tax law, everything is based on code. We want to make sure everything is legal.
Not everything in tax law is based on the Internal Revenue Code.
This type of trust is called a complex trust and it’s not because it’s complicated. It’s one of two types of trusts. A simple trust is a trust that must distribute 100% of its income at least annually to its beneficiaries. That is not this kind of trust. A complex trust is anything that is not a simple trust. That’s the legal definition of it.
If you have a trust that is allowed to retain earnings the way that a corporation could retain earnings, that’s a complex trust. It has its own tax ID number. It is completely separate as a taxpayer. Now it files a tax return. As individuals, we file on a 1040 return form. The trust is going to file on a 1041 return special, specifically for complex trusts right in the tax form itself, the 1041.
On page 2, there are 3 sections. The second section talks about deductions from income and line eight of that section, section B, asks for the taxpayer to insert accounting income as calculated based on the trust instrument and local law. What does that mean? What it means is local law is referring to something called the Uniform Principal and Income Act. It governs fiduciary accounting, which is the accounting that a trust does.
It’s fiduciary accounting as opposed to gap accounting or some other type of accounting. When you do accounting that way, the Uniform Principal and Income Act trumps the Internal Revenue Code when it comes to how things are taxed. Line eight is saying the trust instrument itself even trumps the Uniform Principal in Income Act. Technically, could you write a trust that says, “You have no taxes ever?” You probably could.
I’ve never figured out how to do that. I don’t want to do that. I want to work within the framework that the IRS has created. Even in a handbook that the IRS has created for auditors in the estate division, that’s who would be auditing a trust. There’s a whole page devoted to saying something again, in almost every case, taxes are governed by the Internal Revenue Code and Tax Regulations but there is an exception.
That one exception is when it comes to complex trusts. Again, complex trusts for tax purposes are governed first and foremost by the trust instrument. Secondarily, by the Uniform Principal and Income Act. Third, whatever the IRS says, the Internal Revenue Code but it’s in third place. The other two trump it all the time.
Now, there are two kinds of trusts. There are statutory trusts like a living trust. Every single state has a statute that says you can have a living trust but from one state to the next, the rules of what that trust needs to look like are going to be different. There are contractual trusts. Anybody can say, “I’m setting this thing aside in trust for my heirs when I die.” It’s not written down but it’s a trust.
It has to follow the rules of contract law and nothing but the rules of contract law. It’s a contract like any other contract between any other people, so because it is a contract and it’s governed by things like the Uniform Commercial Code, with our trust, I decided to take that to another level. When I started looking at this thing called the Uniform Principal and Income Act that governs fiduciary accounting principles, most states have adopted it but from one state to the next, they have butchered it badly.
In many states, they have made so many modifications to it that it doesn’t even look like what the actual Uniform Act looks like. It made me start thinking, “How can I get the actual Uniform Act to apply to every client’s trust?” It was easier than I thought it was going to be when I started checking into it. It turns out that if the situs of the trust is the United States of America, the geographic region and not the state, not the country or the corporation, it’s a common law trust.
What does situs mean?
Situs means the location. It’s the body of law that’s going to apply to this trust, the basic. In a statutory trust, it’s going to have a situs in the state whose laws it followed. In a contractual trust, like in any other contract, you often see a clause that says, “This contract is governed by the laws of fill in the blank with the state.”
Common law is created when you say that the trust’s situs is the united states of america, the geographic region, and not either the country or corporation, which makes it a common law contract. I was a little bit concerned about whether a court might not honor that. In reading the Uniform Trust Code, which has also been adopted in this case, in every state, it allows having two different choices of law.
You have the situs, which is the location of the trust, which is what laws govern the trust. There’s a clause in it called governing law that also states if any judge should ever refuse to honor this as a common law contract, the choice of law should apply to South Dakota law. We did that because South Dakota’s laws related to trust are extremely favorable. They’ve been around a very long time.
They’ve been put through plenty of cases to come out with a great body of work that can help to give meaning to the trust in the event a judge doesn’t want to honor common law. That’s how we set it up. It’s a common law contractual trust that has the trust instrument and the Uniform Principal and Income Act governing it. Now because of the situs being the United States of America, the version of the Uniform Principal and Income Act that applies isn’t any state’s version of it. It’s the actual Uniform Act, so for tax purposes, that’s a good thing.
It protects us because it’s more universal. Have any of your clients had to go through any audits?
Yes, I have.
Could you talk about that?
One client and only one client. State division trusts or tax returns don’t get audited very frequently. In fact, it’s the least often type of return, 1041s. Nonetheless, we had a very weird set of circumstances. A client’s personal return was audited for one tax here. It came back with no change. She hadn’t set up her trust yet. A week later, she gets audited on the next tax here. Again, she hadn’t set up her trust yet. Again, it came back, no change.
This auditor’s getting mad that he can’t find anything to say about her returns. He moves to the third tax year. The third tax year on January 2nd of that year, she set up her trust. The audits, that personal tax return gets the return and says, “How did your income decrease so much and you didn’t have a change in the living situation at all?” She proudly explained that she had set up a trust for estate planning purposes and it was only a couple of days before they audited the trust for the first year of the trust.
I oversaw that and worked with the CPA that was representing her in front of the auditor and I am very happy to say that both the 3rd year of personal returns as well as the 1st year of trust tax returns both came back with no change and finally, the auditors left them alone. That happened and June of 2022 is when it finished.
If the trust were to get audited or anything like that, for instance, do we need your help? Can a regular CPA, whoever we’re using, handle it? Are there any specifications around that?
If your CPA is intimately familiar with complex trusts, then by all means, you can use whoever you’ve been using and in fact, that was the case with this particular client. She used the guy that’s done her tax work for many years but he had a lot of knowledge about complex trusts. You will have someone on my team, whether me or someone else on the team, overseeing whoever’s representing you in an audit.
If you go the route of the opinion letter, you’re also going to have the tax attorney that wrote the opinion letter overseeing things, which is even better. On the first year of the trust, we include the tax returns that will be done by a CPA or an enrolled agent, and by all means, contact them immediately if that return gets audited. They have a vested interest in making sure that that audit is going to come out well so you’ll have plenty of help.
Is there anything else you wanted to share about tax mitigation specifically around this trust?
Quite often, I talk to people who will end our consult by saying, “I love everything I hear but I’m not big enough yet to be ready for this trust.” I laugh because trust has several benefits. The tax mitigation piece is the one we’re talking about now and it’s a biggie. It’s what’s going to give you a return on your investment but it’s one of many benefits. There are asset protection benefits. If you drive a car, you need asset protection.
Trust me when I say setting up an LLC to run your real estate is not a solid asset protection strategy. I was only a third-year law student the first time I was able to penetrate an LLC and get the assets within it and go after the owner’s personal assets. It is not hard to do at all. Don’t rely on your LLC for asset protection.
This trust gives you ironclad asset protection. If you drive a car, you have risk. Someone that you hit unintentionally but nonetheless, it was your fault. They’d come after you for everything, your house, cars, bank accounts, brokerage accounts, or any of the real estate that you own. You do not want to be in that position.
When are you ready for trust? As soon as you buy your first car, have the car owned by the trust. Have everything else owned by the trust and get yourself this ironclad asset protection. Because of the unique structure of this trust, someone who’s a judgment creditor cannot reach the assets held within the trust other than in one instance.
If you knew that a car accident had taken place, you hadn’t been sued yet but you were still wondering. They might sue you but I got to get asset protection. Now you set up your trust and put all your assets in it. That’s called a fraudulent conveyance because you knew the cause of action had occurred. If you wait until that point to set trust up, nothing is going to be done to help you. They’re going to be able to unravel the trust and get to anything and everything that’s in it.
If you’re thinking about real estate investing, you haven’t started yet, now is the time to set up your trust for asset protection purposes if nothing else. I promise you, working with my team, we’re going to find ways to help mitigate your taxes. If you don’t have any passive income or capital gains income yet, there are so many different things we can still do going to vary from one person to the next but there are still so many things we can do to help mitigate your tax liability, give you that ironclad asset protection, and help you grow through what you keep. It will compound that much faster.
I love that. If we don’t have capital gains income or passive income, which are where we get relieved of our tax liability, what are some of the other strategies? You said it’s per person but could you give us some examples?
Let’s say you have a W-2 income. I have a client who’s a pediatric oncologist. He is paid directly by the hospital, not a practice. He gets $1.2 million a year. That’s a lot of W-2 income. That poor guy. We were able to have him go into the hospital.
I try to interrupt and say, “That poor guy, wouldn’t we all want to be that poor?”
Yes, but $1.2 million a year, he keeps less than $600,000 of it before he talked to Dr. Gina. It’s painful so that poor guy. To work as much as he does and as hard as he does and take the risk that he does, that’s awful. Uncle Sam wasn’t right next to him helping him do all of that for the $600,000 that he got. I had him go to the hospital and ask the hospital if they would be willing to pay him on a 1099. They said, “We can do that if you have a PLLC,” which is a Professional Limited Liability Company.
We set him up with a PLLC. With a PLLC, the trust can become a 90% limited partner of it. He’s the manager of it, so 90% of his $1.2 million now belongs to the trust and it’s 100% tax deferred and perpetuity. He went from having to spend $600,000 a year on his tax liability to pay out about $120,000 a year in his tax liability. How much more will he grow because he is got an extra $580,000 a year or $480,000 a year to invest?
In that case, what happens with malpractice and all of that? How does that work?
All were handled by the hospital and his PLLC. The hospital’s been paying the premiums. He’s not had to pay any premiums out of pocket from it.
That’s someone who can do that. You and I have had this conversation. My husband works for a tech company. They said no way. Let me tell you quickly what they said and I want to hear what you had to say. They would do it but he loses all of his benefits. We have a six-figure benefit package. Does that make sense?
Yes. Does his W-2 also show a portion of the benefits package that you’re then taxed on?
It does not. It’s regular. We’ve got our medical. We have to match in our 401(k), so there’s no tax.
If there are benefits of more than $100,000, it is treated as imputed income and you are supposed to be taxed on it just so you know.
This is going to be our first year, so let’s see what happens.
It’ll be interesting. What can we do with poor David? The one thing we can do is to use our third trust structure, which means a charitable trust set up as a private family foundation. When we obtain the tax ID number obtained as a 501(c)(3), it is a legitimate charity. You can donate up to 30% of your adjusted gross income to this type of nonprofit and it is a dollar-for-dollar reduction of adjusted gross income.
Now let’s use $300,000. If you made $300,000 in W-2 income, he could have up to $90,000 donated to his nonprofit each year and now he’s only going to get taxed on $210,000 instead of $300,000. That’s a big difference. At $300,000, he is probably paying around $120,000 or a little more every year in taxes. At $200,000, he’s only going to be paying $80,000 a year in taxes. That’s an extra $40,000 a year. Put that to work for you in your personal trust and grow it tax-deferred in perpetuity but what do we do with the $90,000 he put into the foundation?
This type of foundation is an amazing thing. It is legally allowed to provide fringe benefits for the trustees and their families. It could pay for things like life insurance and even medical insurance. You can go on a family retreat up to once a quarter. It’s a vacation to solidify the family unit. Moneeka, you at least go on vacation once a quarter, don’t you? You could use that 90,000 for that. I don’t know if that’s going to be enough for you but nonetheless.
In between those family retreats, you can go on an unlimited number of what are called site visits. Say Moneeka comes and visits Dr. Gina in Fort Myers, Florida. While she’s here, she looks around for good work that her foundation can do. That’s a site visit. Don’t think that money going into your foundation is going into a black hole, never to be used or touched. There are plenty of ways to make use of it.
For those of you that have businesses, that foundation is huge in terms of what it can do for you. Illegitimate nonprofits can get up to $10,000 per month in advertising credit from Google. That’s $120,000 a year. When I talked to some of my clients, people like Jay Connor for example, Jay has a fairly sizable advertising budget.
If he got an extra $120,000 a year in advertising, he wouldn’t be able to handle the volume of business it would bring in. That’s huge and that’s one thing you can do because of the foundation. That foundation doesn’t have to use advertising, just advertise the foundation. If you were to use it, you can have that advertising advertise Blissful Investor, as long as whatever you make from that advertising, you have a little baby piece that you pay back to the foundation as a donation. It’s a totally legitimate use of advertising dollars.
There are so many things you can do with the money in that foundation in addition to doing good in the world. If you need more than a 30% reduction in adjusted gross income, then we set up a second foundation that’s a public charity. I have both a private family foundation and a public charity. Why would I do that? In my private foundation, I cannot get donations for more than 40% of whatever donations it receives each year.
I would’ve had to have matched it plus some. After Hurricane Ian last September 2022, I wanted to raise a bunch of money to do a lot of good in and around my local community. I couldn’t do it out of the foundation that I had, so I set up the second foundation as a public charity. No restrictions on that When I’m giving, which I did. I gave $250,000 to help the relief efforts that we did. I donate that money to my private family foundation. My private family foundation gives a grant to my public charity. It’s easy.
My public charity then goes out and raises all this other money. You can’t get the fringe benefits out of public charity, which is why you want both. The private family foundation is there for you to give donations to, whether from your trust or you, but your personal ones are going to be limited to that 30% of adjusted gross income.
Your trusts can donate up to 100% of their income to the foundation if you choose to but if you’re that doctor with the $1.2 million W-2 income and 30% is going to help but not enough and you add the public charity, you can also personally give another 30% of the adjusted gross income to the public charity. For that $300,000 example, $90,000 could go to the Private Family Foundation. Now it gets you down to $210,000 and another $90,000 can go to public charity getting your taxable income down to $120,000 instead of $300,000. That’s enough to not only reduce the dollars that are getting taxed, but it also reduces your tax bracket big time.
If it goes into the public charity trust, you can’t personally utilize that money. That goes to a charity.
Public charities are considered operating associations. They’re the boots on the ground doing good work kinds of people. They can make grants but that’s not what their intention is from the start. The Private Family Foundation is a grant-making organization only but both can also receive grants. In fact, with my public charity, within a couple of weeks, I got $9.2 million in grants, which was fantastic. I’ve been able to do so much good in my local community.
When you have a private family foundation, is there a certain percentage that you have to give back from that? You can pay for the trustees but you must have to go out and do some work. We do anyways.
Not how the Internal Revenue Code is written. It must spend at least 5% of the assets under management or the endowment. Whatever it has, it must spend at least 5% of it per year but the costs of the foundation are also included in that spend. All those fringe benefits, what you spend on them, counts towards the 5%. Now if from one year to the next and on and on, the only things that were being reported on the tax return were things that were fringe benefits.
The IRS is probably not going to like that too much. I would make sure that each year, you’re doing some good work and giving some grants to do something. Even if you’re just giving money to your local church, that’s enough to make it legitimate and you get these other huge benefits from it. There are many ways that we can help mitigate this.
My whole point in even starting that conversation was it’s never too soon. Don’t think that you are not yet big enough. If you’re even contemplating real estate investing, now is the time to get this foundational stuff set up. It’s going to help you get into the investing part of real estate so much faster with the things that we’re doing to help mitigate your tax liability.
In my own household, we’re looking for ways to have a little bit more and not a little bit more to spend on us. Our lifestyle is not growing but we want that extra money so that we can then invest it somewhere or donate it somewhere. Leverage it in one way or the other.
Even donating it is leveraging it. As you said at the beginning of the episode, my mission is to touch the life of every person on the planet in a meaningful way. It’s not something I can do on my own but working with people like you who are setting up foundations and are out doing good work in the world. Together, we can touch every life on this planet. No problem.
I am certain of it and I realize in 2022, we’ve helped so many people start foundations now. It’s not even about touching the lives of every person alive now. It’s touching the lives of people who aren’t even born yet and all of them in a meaningful way. That’s what my mission is. I’m so thrilled that you, your clients, and all of our readers are likely to be a part of my mission.
Ladies, I hope that you have a little bit more clarity on how this structure can benefit you, your business, and your family and the stuff that you want to do in the world and all of those wonderful things. If you want more information, there are a few things that I’d like to share with you. Gina and I did another episode where she did a lot more in-depth explanation of the details of the trust. If you want to know that, go to my website, BlissfulInvestor.com, and do a search for Gina.
Put her in and you’ll be able to find that old episode and you can read that. The other thing is we did a webinar and it was about an hour and a half webinar. Lots of good questions and that is also up for you to take a look at. You have to go to BlissfulInvestor.com/trusts. When you go on there, you’re going to have an opportunity to see that webinar. It’s in two parts.
You are also going to get to see the webinar and show that Gina originally sent to me to let me know what is going on and got me interested in this conversation. It is very good and it comes from the perspective of someone who had made a lot of money in stock. It’s a little bit different conversation, so it gives you a bigger perspective on what’s possible, the legalities of everything. I know a lot of us hear so much about taxes and all our obligations and the possibilities if we don’t fulfill those obligations.
I have to admit, it’s even scary for me. That rested and I know Gina would never do anything to get me in trouble. We’re close personal friends but for me, I need to do my research too. Due diligence is very important. You’re going to get access to that too. There are four hours of information. After that or before that, depending on where you’re at, you can reach out to Gina. Gina, why don’t you explain how this works for you if they reach out to you?
After you get to the interview that I did and the webinar Moneeka told you about, at the bottom of the page, there’s a button where you can set up a time to talk. We get together on a consult. I’m not here to sell anybody anything. It’s truly a consult. I need to know more about how you make your money so that I can then help guide you. I call it I serve and strategically monetize but I’m here first and foremost to serve.
I’m going to bring my Leverage-Gina hat that day so that I can look at ways that you can get more leverage so you can make, keep and grow the way that we’re all intended to. If at the end of that conversation, it looks like the trust is a good fit for you, we’re then going to send you a written proposal. It’s going to outline all of the details for you. It will show you everything that’s included in the deliverables. It will show you what the pricing looks like and if you talk about it with your spouse or you decide on your own that you want to move forward, you sign that and send it back to us and we move right along.
There is a time element to this. The time element is this. From July 23rd through July 26th, 2023, we are doing our first annual wealth-building mastermind and networking event. To say I’m excited about it is an understatement for so many reasons. One of the biggest is I’ve never met my clients in person. I’ve never even met Moneeka in person.
I’m going to be there.
I can’t wait to go and get hugs from you especially, and all of my other clients. Don’t sit there and wait. Go through the material, go get on the consult schedule, and come join us in July. It’s open to clients only. That means you’re moving forward as a client but those tickets are sold for $2,000 if you’re not a newer client, so go do it.
The thing is, we are finishing taxes and every year, taxes keep going. It’s better to get this all prepared so that you’re not scrambling with all the other stress that taxes can cause for us. You don’t want to be scrambling at the very end of your tax planning.
Moneeka, it’s worse than that. Until your trust tax ID number is set up and we get a couple of basic things done, your income is still outside of the trust. If you waited until December to set this up, you’re not going to be able to take the income from January until December and have it be in the trust and therefore tax-deferred. Every day that you wait, you’re paying more taxes.
I didn’t realize that because there is a lot of stuff that you can do at the very end and it’s retroactive.
The only thing you can use for that is you can use the foundations as we talked about, to reduce it by 30% but that’s it. The trusts you can’t do retroactively.
I didn’t realize that. Ladies, I know this sounds complicated.
I promise you, it’s not.
Ladies, do you remember I talk about this conversation I had with my dad when I was a very young woman debating, whether to get into real estate? My dad said to me, “Moneeka, everybody has stress, fear, and money problems. You want poor people’s money problems or do you want rich people’s money problems?” What do you think I chose? What are you going to choose? I don’t want to say that this trust is a money problem but this poor guy making $1.2 million, that’s a money problem. Rich people’s money problems are significantly better than the alternative.
I had the complete opposite of Moneeka. When I was younger, my dad was President of North American Operations for Oman Electronics, which is a huge Japanese electronics company. He was making big bucks but he lost his job in 1989. After that, he tried a couple of different ways of doing startups. He got into day trading for a while.
I was doing day trading and teaching day trading very successfully. Dad lost his whole retirement. My dad is now 82 years old. He worked full-time until he was 79 and physically couldn’t do it anymore. I never ever had conversations with my dad about rich people’s money problems or poor people’s money problems and I so wish I had. Your dad, I love him. That was awesome.
What a gift, right?
If you didn’t get that in your early years like I didn’t, please listen to what Moneeka is saying because it’s very true. I’ve been on both sides and it’s a very different money problem.
It changes your mindset because my original thought around that was, “What? Rich people have money problems?” There are a lot of people that will say, “I don’t want rich people’s money problems.” I hear this all the time too. What do you want? You’re going to be dealing with money in life. It’s a reality of life. How are you going to be dealing with it? For me, I wanted my life to be blissful. I wanted it to be with ease and flow.
I worked very hard. I have worked very hard for my money in the past too but everything that I do is to support my bliss. Part of what makes it a reality is having rich people’s money problems. A trust allows me to do that better. Even though in the beginning, there’s a lot of stuff to learn and it feels a little bit complicated. I will admit, I’m in the learning phase. It does continue to feel complicated but I’m getting there. I can see progress.
Progress, for me, is the big thing. As I see progress, movement, and benefits. That learning curve continues to be okay with me. There is a learning curve also on how am I going to get out of credit card debt because I don’t make enough. There’s a learning curve on my credit got shot because I couldn’t make my house payment or my car payment.
There’s going to be a learning curve on one side or the other, whether you’ve got not enough money or you’ve got too much money. You want to set yourself up for the better money problems. If you’ve got them, there are obvious reasons. If you don’t have them yet, get yourself set up so that you’ve got more time for it, you can relax into it, and you can grow in that way, which will help you to grow a lot faster. Does that make sense?
It sure does. Don’t worry. We will hold your hand every single step of the way. Abundance Group Trust is not just Dr. Gina. There’s a whole team supporting all of our clients, so we are here for you. Whether you like it or not, we’re here for you. We do calls now four4 days a week, usually 3 days a week. The extra day is a new training I’m putting out. It finishes up but I always will do three calls a week. They’re Q&A calls and they’re meant for people to come in and get the help they need to implement and operate out of their trusts.
They’re all recorded. You can get access to them, so you’ve got this huge wealth of information that you can listen to until you are able to repeat all the information right in your own brain.
You get it in audio, video, and text format. We don’t give it to you one way, so whichever way helps you the best, it’s there for you.
I love that. Did you want to say anything before we close, Gina?
No, I can’t wait to meet your people in person in July even. Come get on my calendar. Make sure that I know you came from Moneeka so I can say, “Oh, my goodness,” and tell her, “Thank you.” We hope to see you in July. In fact, we’ll even do this, Moneeka. I have some room for breakout sessions. We can even do a breakout session with your ladies at the event since we’re both going to be here. Might as well, right? That would be awesome.
Ladies, you know I’m traveling a lot for fun. I am not leaving David behind anymore. I’m not traveling a lot for business stuff because he’s not going to take time off of his job to come do my business travel but I am going to be there with Gina in July. That’d be a fun time to meet and put our heads together on how we can utilize the trust to benefit the growth of our lives.
That will be fun. I’m going to be in that breakout session.
I’m with you. I’m so excited.
Me, too. Thank you so much for having me, Moneeka and to remind everyone, it’s BlissfulInvestor.com/trusts. You’re going to have a blast.
Ladies, thank you so much for joining in with this conversation and hanging in there. I love hanging out with you. I appreciate you so much and I’ll see you next time. Until then, remember, goals without action are just dreams. Get out there, take action, and create the life your heart deeply desires. I’ll see you soon.
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Moneeka Sawyer is often described as one of the most blissful people you will ever meet. She has been investing in Real Estate for over 20 years, so has been through all the different cycles of the market. Still, she has turned $10,000 into over $5,000,000, working only 5-10 hours per MONTH with very little stress.
While building her multi-million dollar business, she has traveled to over 55 countries, dances every single day, supports causes that are important to her, and spends lots of time with her husband of over 20 years.
She is the international best-selling author of the multiple award-winning books “Choose Bliss: The Power and Practice of Joy and Contentment” and “Real Estate Investing for Women: Expert Conversations to Increase Wealth and Happiness the Blissful Way.”
Moneeka has been featured on stages including Carnegie Hall and Nasdaq, radio, podcasts such as Achieve Your Goals with Hal Elrod, and TV stations including ABC, CBS, FOX, and the CW, impacting over 150 million people.