ADPI_016: Generational Wealth Building

Aug 12, 2018


Episode Transcription:

Alright alright what's going on guys Mike foster here and I am excited to bring you an episode. Here actually a little something special and different. I did a Facebook video on my video log. I post videos every single Wednesday and this is an old one, but it's a good one and I really think it's an important message. Especially as we start to think about long-term wealth and passive income. Right we have to have vessels to put it in and it's smart and a strategic of us to build with the end in mind. Right build with the long term goal of generational wealth and this episode is going to explain to you a little bit about what I'm talking about. So enjoy.

Hey freedom fighters welcome to the active duty passive income podcast. The only place where military members, veterans and their families learn how to build wealth through real estate investing. I'm your host Mike Foster and I'm here to show you how to stop wasting your benefits. Now get off your ass, step up to the firing line and make ready for today's lesson. Shooter stand by. 

Hey what's going on warriors how are you doing out there? Hey it's Mike foster here and I am excited to bring you this episode here or rather this video. We’re going to be talking about set your kids up for success all right. Generational wealth building. This is definitely something that goes hand in hand when it comes to building up real estate in your portfolio, in you know whatever it is that you that you decide to build as far as your goals. Whatever business, it can be real estate, it can be you know a store. It can be whatever it is that you have in mind. But yeah it is going to be nice. I got nine points and you can kind of see them detailed here in the notes that I'm going to be touching.

But before I go on I want to take a moment and I want to dedicate this one to my aunt. Lysa Bossheart. She was a wonderful wonderful woman. Mother of three. Her three original children, her two adopted children myself and my sister Bristol. She’s an amazing wife, she was an amazing daughter and just such a joy, an amazing woman. Our real estate was one of her many passions and she definitely taught me quite a bit with my limited time with her on this earth. But I love you Auntie Lisa and I know that I will never forget the awesome impact that you've had in my life and the life of so many others. So this one's for you. Alright cool anyway enough of that emotional stuff. Alright so let's get started. 

So the reason why I want to talk about this guys is because now, right 2018 is no better time to get into you know building and thinking long term. Right so we think about passive income right. Activity passive income right. What we love to teach is how you can change your life. you change your life by thinking your mindset, not just on the income that you work for, but the income that you can build that will not only sustain you, but it will surpass you and that's the importance behind this episode. so trying to figure out how you can set up your kids right, you're next generation for success and a lot of it goes into training them, teaching them while they're young, incorporating them in the family business and growing them up in it.

All right so let's get started. So number one, I talked about incorporation because you know any time you are going to take on some investments you always want to think of two things right. Your liability and your taxes. Because those are the two things that are going to be critical as far as your progress goes. All right so liability first off I mean you're liable for any investment that you take on that involves other people.

Okay if people are going to end up getting hurt, lose their money and invertenly all that jazz if they have any kind of claim against you, they can come after you if you have your investments in your own name okay. That’s why it's important for you to incorporate whether as under an LLC or some kind of partnership and as corporation, C Corporation. Right there are so many different ways that you can incorporate. But you need to make sure that you structure your investments right and you need to make sure you get a little help. You don't want to ever do something like this on your own. Because you don't want to take that chance okay.

So definitely find a legal advisor to help you out with that. Another critical piece of that like I mentioned taxes. Right you are taxed at a different rate when you hold your investments under some kind of incorporation okay. so if your tax at an employer rate, that's a lot higher than if your tax at a business rate okay and you also get a bunch of tax benefits that you can take advantage of when you incorporate too.  Such as depreciation right. I mean the list goes on and on. Cost segregation, I can go into it but that's going to be a whole another lesson. I'm not going to, the gist of this video here is to go an inch deep and a mile wide okay. So definitely make sure you go and dig up on some of these other things.

Alright so number two.  We are going to talk about employment allright and I have it here I say start them young. Because it's important. right if you understand how businesses work and all the different tax deductions that you can get for business expenses, you'll realize that if you employ your children which yes you can employ your children right under your family business that is a business expense okay and that's by tax write-off. So that comes off of the stated income at the end of the tax year and it also benefits your children right with the income that they have.

So here's this little fun fact. Did you know that in accordance with our tax law, I will sign this year 2018 right the tax cuts and Jobs Act your children can earn up to $12,000 a year tax-free. I'm just going to go ahead and say that again. $12,000 a year tax-free, why not let that income come from your business right. Come on, so you can claim $12,000 right tax-free under each individual child right. So you see where I'm going with that and then they're taxed at a certain percentage. Which is much lower than the tax rate that you and I would face now for anything over that right.

So if they're taxed let's say they're making fifteen thousand right for some random number. So twelve thousand right minus that fifteen thousand right so at three thousand that's what they get taxed on. I mean it's awesome and they also don't have to pay any FICA tax under the age of eighteen. So for any of that stated income that they actually have to put on, you know they're not paying Social Security, you're not paying Medicare all that. I mean it's great. So that's awesome stuff right there. alright and then you know some important you know the stuff that you have to follow for that is you got to make sure you're following the rules. Just make sure that they're a real employee okay.

So your children actually have to do work for your business. You can't just toss the money that you have under your kid’s name you know. But employ them to learn stuff. I mean making them take on tasks right in the business, helps them learn. Have them lick stamps, have them you know close envelopes. Let them learn the value of hard work. You know if they're old enough have them budget some of the numbers. Teach them what some of these things mean, how to take account of for taxes and all itself right. I mean you can use this as an educational tool to build your children's financial literacy and I really shouldn't have to highlight how important that is in today's society. When we see so many people who have struggled since our economy tanked in a 08 and 07 and now so many people struggling now trying to pick themselves back up.

Anyway, I'm not going to kick along into that. But that should be very very apparent ok. Another thing right the compensation needs to be reasonable. So you can't just pay your kids $100 an hour to lick stamps. I'm sorry but you know it has to be something comparable to what you'd pay someone and under current market tenses. So I make it be a little bit you know above. But at the end of the day you need to be able to prove to the IRS that you're paying your kids you know reasonably, well within reason right and everything is documented. That’s super important ok and then you also have to comply with legal requirements right. So if you're going to hire any employee for a job there are certain forms you need to fill out. So make sure you do your homework and you find all that out okay, allright cool moving on. 

Number three retirement okay and this right here is a tax shelter. It’s important to understand that when you're talking about retirement, I'm talking about IRA. All right start an IRA for your children. You can start your IRA for your children at any age as long as they are earning an income okay. That’s important. If they're earning an income they can have an IRA and now that you add another tax shelter to you're already tax sheltered you know master plan right, I mean this is great. You can have your kids earn up to five thousand five hundred per year and if you do it smart and you get a Roth IRA, right they're not paying any tax on that income when they draw it out in 59 years or in sixty years or whenever they decide to draw it out all right.

So again understanding how compound interest works, you're letting your kids have income each year that's compounding on itself for 59-60 plus years. I'm going to let you go ahead and do the math on that one. Go find yourself a little IRA calculator and just play around with it and see how much money your kids can actually make with 60 years of compounding interest. okay anyway all right, so super important you think Roth and another thing is you want to also make sure that you put it in a good plan that they'll be able to use to leverage or even you'll be able to use on your children's behalf to leverage for them right. Doing a self-directed IRA is a whole lot better than doing something that is just with our regular company. Because with self-direction you have a little more control right. You want to make sure that it has checkbook control all right. Those words are critical when you're trying to find a self-directed IRA. because if you don't have that and you don't have full control over the funds that are in that account and so you wouldn't be able to direct it to something like say buying a property under the IRA. Alright so keep that in mind all right. 

Okay moving on. College savings, right so there's this thing if you haven't heard of it it's called a 529 plan okay. Now it's legally also called the qualified tuition plan. but it's under section 529 of the Internal Revenue Code and it's super important because this is something that your kids will be able to use to pay for college later on down the road should they choose to go to a state school right, a public school or a private school that allows you know these certain plans to be used. There are very few out there so you definitely need to make sure you do your homework as far as the private school that will unable to use this.

However most state and public schools do use these plans. So you'll be good there. But again make sure you do your homework right. There are two types of these plans. There are prepaid tuition plans, which are essentially you buying college credits at the current rates today right for your kids to use in the future and there are you know a few schools right that that use these. so you need to make sure you do your homework and find out which ones are and which ones aren't and then there's also another plan called college savings plans and that's just you putting a pool of money year after year right in an account that grows usually with some kind of interest. It might be tied to a mutual fund or an ETF or you know something along those lines. But it allows you to grow that pool of money for use of a beneficiary for the purpose of school.

But it's just for the purpose of school. It’s important to understand that if your child decides not to go to school, you know in college; then you know you might end up in a hairy situation here. Because that's what it's designed for okay. Now again I'll let you do a little more research on it. but you definitely want to make sure that you understand you know all that goes into it, the states that will allow you to use it right and the different residency laws that are required for the schools that your kids attend okay, also very important. 

All right cool moving on number five, life insurance okay. Do not please do not believe the hype of life insurance. I understand everybody says that it's so bad and that it's is this it's that and I promise you the majority of people that tell you that don't even understand what life insurance is and how it's used. Okay so number one life insurance is not an investment all right. I repeat life insurance is not an investment. But think of it as a bank account right that you can use in the future to do your own banking and not have to pay four percent, ten percent interest on loans from banks that are only giving you less than a percent in your savings account okay.

Think of your life insurance account has a much better savings account. Because if you get life insurance, a whole life insurance right not term, whole life insurance right; it will allow you to build cash value that grows an interest usually above the inflation rate. So you're not going to lose money over time. You may not get that much over it. But you'll get usually just a bit over it.  So you can use that money later on and yes if you draw that money from your account, you have to pay yourself back. But imagine paying yourself back for money that you can use again later on down the road instead of borrowing from the bank and paying back so much more an interest and not being able to use that money again.  I shouldn't have to explain why that's a bad idea. But anyway again understand that and also understand how tax it goes into that too.

A lot of these life insurance plans are tax deferred. So if you plan on retiring in a much lower tax bracket, it makes more sense for you to put your money in the life insurance policy than inside a bank right or inside an IRA for most cases too. It all depends on what it is yet that your goals are and you need to make sure that you talk to a savvy financial advisor who's not biased in any direction and will give you honest, good advice from research that he or she has done okay.

Anyway moving on. educational learning; this is critical too and I already kind of went into why it's important and we're faced with problems today because of people's lack of financial literacy, myself include all right. I am literally trying to you know double my efforts and learning all this stuff that I didn't learn when I was young.

Mostly because I wasn't interested. But also because you know a lot of the things that we do at home don't involve conversations with money. I mean think of it this way, how many conversations have you had with your children about money and I'm not talking about saying things like money doesn't grow on trees, we're not the Rockefellers, we can't afford this because your daddy or your mommy isn't made of money all right. all those do is apply limiting beliefs to your children and thinking that you know money is hard to get and it's impossible to you know to dream after things that are not practical, because you know it's just impossible to get money.

Money is not impossible to get guys. I'm sorry if your parents lied to you, if your parents lied to them, if it's just been a continuation; I'm sorry but its 2018 and YouTube proves every single month that money is easy to get. You just got to work for it and you got to understand how it's made. all right so use things like educational gain which they have right or educational books and learning to instill good financial habits into your kids at a young age and let it grow on them and I swear to you they will impress you later on down the road. Just like investing you start small and you continue to water that seed. Let your kids, if they fight back okay cool let them fight back. But it's important and continue to stress to them. Just like I'm sure they fought back when they were eating at some point right. They wanted to play with it all in their hair because they thought it was funny or whatever right. I was watching the video that's why I'm talking about this.

 But you know at some point you stressed the importance of hey you need to eat otherwise you're not going to be able to sustain yourself right. So just like you discipline your kids with other things, you can discipline your kids financially and making sure that they do what they need to do to learn. Okay anyway I didn't have kids, so I'm not going to tell you how to be a parent. But I'm going to tell you that these things are important in your kid’s future. So definitely make sure you stress the importance of it alright, cool got it. 

Credit building alright number seven. Credit building this is also super important guys okay. So there are two ways to really grow your Empire. You can do with a lot of money and no or bad credit right. If you have a lot of money then you can buy stuff easier and then it saves you some time. But if you have no money but you've got good credit, alright then you can get things a little faster. Because the bank's willing to work with you and you can help build your empire. So you need a lot of money in no time or you need no money and a lot of time right. So really get yourself going.

So think of it that way. However there are awesome awesome skills you can use to build your credit. I'm going to give you three super important ones now. But I'm going to go over credit building in a future video. So look forward to that it's going to be huge and it might be maybe demystify some of the questions you had on it. But so three ways you can build your credit super quickly now, especially for your kids. Authorized user, alright number one. If you have good credit, if you have a good card, it has a high credit limit and you have a clean record and payments and all that, get your kids as an authorized user under that card. An authorized user, not a cosigner; an authorized user okay.

They will automatically transfer all the good credit history, your time and the money limit right all that will be transferred over to their name immediately. Okay so everything that you've done for the past ten twenty however many years will all be transferred over to your kid’s histories. That’s great, that's an awesome boost right there. Okay that takes them from having no credit history to like ten twenty however many years of credit history. Okay also you want to make sure also even if they don't have good credit, they're bad credit history does not get transferred over to you. Okay so that's also important to know. It’s just your history to them, not theirs to you got it. Alright good so you need to make sure that you're using less than thirty percent of your credit okay. A good rule of thumb is to make sure you keep it across all those all the cards.

Don’t use any more than thirty percent for any one of them or don't hold the balance over 30% for each one of the cards. But overall is what they look at. So if you have a higher balance in one card and a zero balance in another, that's fine. Just make sure across your total credit limit you're not exceeding 30 percent of credit utilization. Okay so make sure you keep that in mind and then pay off your minimum amount at least every single month on time. If you have a missed payment, it will track with you for like 7 years. You don't ever want to miss a payment. Okay you never want to miss a payment. Make your minimum payments at the very least every single month on time, okay got it. 

Okay number 8, hey guys this is just being real. Working online right, we're in a millennium age right now. Millennials can make so much money online even starting this year it's crazy. so if you've got some older kids right that are looking for jobs and maybe they just need something to do on the side to bring some income or you want to inspire them to make a little extra income, help out your family business right; I'll tell you five ways right now. Amazon, you can start a business on Amazon which is great. You can be right online, it takes you less than an hour to set up and you can start making money selling products like everybody else.

There are plenty of YouTube videos you can research, plenty of e-books, plenty of podcast and all that stuff you can listen to get yourself started. So I'm not going to go into there. Upwork, www.upwork.com is a freelancing website. So if you like to write, if you like to you know manage social media, if you like to do whatever right. If you're a freelancer for anything, people are hiring people online alright. so think of it as like a LinkedIn, but for things that you can just do online and people will post jobs, the amount they're going to pay for a job, what they're looking, what they're expecting from you and you just go ahead and you send them your resume right and you tell them hey I'll help you and if they pick you great and then they'll pay you online, set up a PayPal account and you can start making some money. Cool blogging, blogging is another big thing.

I don't really need to go into that because you guys all know you can blog. Affiliate marketing that might be something that's new. A new term a lot of people. affiliate marketing is you know let's say I am partnering with Joe because Joe here has his boxing company and I have some kind of informational business and I want to promote Joe's boxing company, I'm going to take a certain link and I'm going to send that link to a bunch of different people telling them to use Joe's boxing company for x oyez; business because it'll save you some money in yada yada yada.

Alright every time someone uses my link right to find Joe's business and they sign with him, I get a kickback of commission. Affiliate marketing, its awesome okay. Start a website, start a website for something, anything. If you want to sell something, if you want to you know promote something whatever. Right starting a website to get traffic to come, all that can help you make some really good money and then right and that's it. Okay cool, so those are five ways, there are plenty of ways you can make money off online, I'm not going to go into all of them. 

All right and I want to really go into my last one, which is a living trust. Okay so trust fund not trust babies. We all know that right the whole stigma against trust fund babies and how they're entitled and how all this stuff right. Listen I mean I'm not a trust fund baby. Obviously right here I am trying to build my financial success. however I definitely understand the benefits that having a trust versus having a will provides to my family alright and so I am definitely going to put all my assets into a trust to make sure that they're properly protected so the government can keep their hands out of everything I've worked hard for, for them okay.

Now I will make sure that I discipline and train my kids so that they're real. Alright they're not going to be spoiled little brats to the best of my ability right. God willing and you know and it is what it is right. I mean you know it is what it is. but I'm not afraid of setting my family up for success and I hope that you know me saying the word trust fund right doesn't you know avoid you anyway. So here are five ways why a trust fund is better than leaving a will. Okay so you avoid probate. If you leave your inheritance to your children and it will, right your children have to go to the government once you die to fight to get it back. All right I know that you know everyone thinks that you just can't have your thing I'll hand it to you. I'm sorry but that's not how it works. There’s a lot of time that goes into making transferring the assets from your name right to your children's name if you die.

Now it's different if you don't own those assets in your name okay. If you own those assets and something different like a trust right, then it goes straight to your beneficiary whoever it is and you're good to go. So again a trust fund is just setting up something that's out of your name to transfer over to your beneficiaries. Makes sense? Cool. So avoiding creditors. Let’s say your child ends up getting a divorce or has like five different kids and they're all pulling child support or you know whatever gets into a whole lot of debt and credit and maybe was in a bankruptcy and creditors are trying to pull for their money okay. That trust keeps it out of your name, but it also keeps it out of your beneficiary's name until they're ready to receive it. You see what I mean. So now if all these people are pulling for their money, that money and that the state that you've built is not in your beneficiary's name.

So they aren't legally entitled to any of that money in the trust and it takes a whole lot more legal proceedings and all that stuff to even just try and go after it. So definitely better there, okay. Government benefits for you know beneficiaries that have disabilities. Let’s say you have a child with a disability and you've been receiving some kind of government benefit and of course you don't want to offload your estate if you die to your child. Does now if they have all that money, they might not be eligible for some government benefits.

Well again having that protection out of your child's name keeps all that money out of your you know child stated income. So they don't have to worry about losing their government benefits. All right so a state tax protection all right and this really goes for married couples. Now let's say one mouse dies and they want to transfer all their money over to the other spouse via some I love you ELLs, what they call them out there. Hey that's good to go right and that'll work you know surviving spouse picks up your state, everything's good to go. Until that spouse dies. Because the money that you have in your estate is not just going to go to your kids now after surviving spouse. It’s going to go to the government and a lot of people don't understand that. So make sure you protect your assets further, get yourself a trust. So if your surviving spouse dies again it goes to the other beneficiaries that are stated down the line. Cool awesome. 

Now no court intervention throughout any of it. All right you set up a trust, you have your trustee, and you have your beneficiaries. It’s just like holding your money in an entity guys, like some kind of business. The courts will stay out of it right. Because if you're getting sued for something right, you don't physically own money. Because it's in the trust. So you're okay. If your beneficiary is getting sued for something, they don't physically own that money. Because it's in the trust. So again you're also okay. Make sense? So really all this is putting something outside of your name in some kind of cosmos here that is going to help your beneficiary at some point. But really will be when your beneficiary is ready to receive it okay and also applies to if your beneficiary is a minor.  Because if your beneficiary is a minor all right and you don't want all that money going to your child upon the time of your death.

The best way to make that happen is by doing it through a trust and allowing certain date or certain things to be fulfilled, certain things that you set aside in place. Because you know your child and you don't want them to spend their inheritance on Ferraris, on Spring Break parties and booze, alcohol, drugs you know whatever right, the whole crazy things.

So anyway all right those are the reasons why you should definitely consider doing that and wrapping all those things right, all nine things that I said into an awesome estate planning strategy that you can use to build wealth. Now think about buying real estate. Buying real estate and letting that cash flow compound into all those different things right. Guys I'm telling you, you can build yourself an empire a lot easier than you think. But it all comes down to educating yourself and to figuring out what's the best way to do it all right and starting and starting. If you don't start, you're never going to get there all right and your kids, well I'm not going to say they're hate you for it. But your kids will thank you for it if you start now. Okay so let's go with that, let your kid’s thank you for all the awesome hard work and planning this you've done for them and their children okay. 

All right all right all right thank you so much for listening guys. Awesome episode there. Definitely a flashback. But a good one and I really hope you guys were able to take some good nuggets out of that. Generational wealth is important and it is definitely important not only for your future, but the future of the generations that follow you. So make sure you guys take some time and take a look at some of those techniques and methods and tools out there. Because there's a lot of good information and good education to be had for them. All right and make sure you guys subscribe to our page. Our Facebook page or Instagram. All right we got those little blogs coming out every single Wednesday with awesome nuggets coming out. We’ve also got this podcast here.

So subscribe to this. Mondays and Fridays you get another awesome blast of information or an interview or something else really cool. We’ve got so much awesome stuff having ADPI. So come check us out all right. I'm Mike foster, thanks for listening. I'm out of here.

 

 

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