Part 3: Lower Your Taxes Legally

Hey, this is Sharon Truvazzo. Welcome back to the Business School podcast. And this is episode three of How to Lower Your Taxes. So if you've not listened episode one or two, it may be helpful, but you can also start right here. And I'm talking about how do you pay less taxes? And there is a strategy here when you layer on level one, level two and level three, you can be extremely bulletproof. And this is level three of this, what I call the tax advantage matrix. I'm going to break it all down step by step starting right now. One thing is for certain, just because it's tried and true, doesn't mean it's working right now. So the big question is this, where can you learn what is working right now? The strategies, the tactics, the psychology, and the exact how to, how to grow your business, how to blow up your personal brand and supercharge your personal growth. That is the question. And this podcast will give you the answer. My name is Sharon Truvazzo and welcome to Business School. [MUSIC] All right, this is the episode three of the How to Lower Your Taxes series. If you've not listened episode one or two, it may be helpful to you, but you can listen to this and then scoot back and listen to that if you'd like. But if you're jumping in, you have no problem. I want to give you the full map overall. So many years ago, I realized that taxes were the number one drag on wealth creation. So I decided to figure out how do I actually do better. I almost thought that even if I made no money investing, if I did not change my income, how would I be able to keep more of what I make? And I came up with an entire matrix to help myself in this process. This is called the Tax Advantage Matrix. It has three levels. Level number one is to lower your tax bill. And that is how do you lower the series income? It has three pieces. How do you get deductions? How do you figure out the incentives? And how do you figure out the timing? Level number two is as your business starts to grow or as your life starts to grow, you have to design a structure because these are all one time things that you can do on how money flows through the pipes. And if you get the entities right, the classification right, the location right, it makes things significantly easier and doesn't actually take a lot of time. It is only you have to do it one time. The third is how do you transfer the wealth? You may say, "Well, try not to have the wealth right now." Well, it's not about having the wealth. It's about getting your setup right so that everything can work in your favor over time. And that is how do you move wealth from yourself to yourself in the most tax-abbalanced way? And that is, it's got three things that I'm going to talk about today, which is the freezing, the giving, and the skipping. This feels, this level three will feel far away for a lot of you and for me as well. But once you get there, you're going to be like, "Oh crap, I wish I'd have done this sooner because if you do it now, it's significantly easier." I always use this example of like if you're building a plumbing in your house, you want to build, you may say, "Well, I don't need hot water, but if you don't build it, the plumbing infrastructure, you can't send money through the like water to the pipes." And this is one of those. If you just set it right up, set it up right once the first time, everything gets significantly easier. I recognize you may not need all of this today, but if you don't need it, but if you set it all up right today, it will cost you almost nothing and it will help you in almost every single way. But if you own a business, if you have real estate, if you have a private company stock, if you're an entrepreneur, if you have life insurance, if you have a concentrated public stock, if you have mutual funds for one case, assets that grow, you need to understand this map. Because some of this works best only when the numbers get huge, but the funny part is people wait when it gets too big and when it gets too big, you can't really do any of these things. And that's why this gets really difficult. And that's when everything is super complex and that's when you can't figure out a lot of these things. So I highly, highly recommend that you like figure this out right now because when you figure this out right now, things get a lot easier. All right. This is what level three means I'm talking about how money moves to the next to yourself or the next generation, the most tax advantage way. And this is longer, no longer about income tax. I try really hard to have the lowest possible income tax. If you told me I would try to like zero out my income completely, but now you're talking about estate tax, gift tax, generation, shipping tax, liquidity, control, family rules, all of that. And it doesn't need to be only if you're the Walton to the Vanderbilts or the Rockefellers or the musks. If you do it right for yourself, it'll benefit your entire family and you will actually make more money just because you did this entire system. So let me break it down for me. Make it really simple. This kind of has three things that you need to think about. Number one, how to freeze. Number two, how to give. Number three, how to skip. So let me explain what that means. Freezing locks today's value. Now why would want you want to lock today's value? Because if you lock, if you have 100 shares of Apple and you lock it to today's value and let's say Apple grows 500% in the next five years, you're not taxed on the growth of that. That's why this is important. Giving moves your assets during your life. It's not that you have to give to charity. So as you're to give in such a way that you can get stuff out of your estate but still keep all the benefits for it. And the third is skipping. Skipping passes well to be on one generation or skipping passes stuff to yourself without actually getting stuck because now it allows you to do both control and tax efficient transfers. You have to know all of these things to actually do the thing. Otherwise, you just end up accumulating a lot of stuff and then you pay a lot of taxes and you're like, man, this sucks. So freezing, let me explain, freezing locks today's value in some way, giving moves assets during your life to yourself and others and skipping passes the wealth beyond generations and at least sets it up for you in your favor today while you're alive. And because different taxes hit different things at different points in your life and that's what we need to fix. All right. So let's, let me actually give you example. The first one is the freezing. Meaning if you own something that may grow a lot, the question becomes who should own that future growth? Do you tax the seed or do you tax the harvest? That's the whole idea. And lots of examples that in my tax advantage matrix are a grad, which is a grant or retained annuity trust or you give a portion of your company away, but you still keep all the control or a intentionally defective grant or trust or you're essentially set up a trust in such a way that it breaks and then all the benefits go to whoever you set the sub for and installment sale and installment sales are really good because it says, hey, I'm only going to sell this in pieces and the only taxable tax that is realizes in pieces. A dynasty trust. What this does is say, hey, I'm going to build this massive dynasty and then, but I'm not going to get taxed on it multiple times. So I'll give you an example. Probably that's easier. Let's talk about grad. A grad is a grant or retained annuity trust. And what this means is it's a trust used to move future growth. So let's say you're your company, you have a startup today and it's worth zero dollars because you started today, but you know what's going to, you think it's going to crush it. Well, if you took 1% of your startup and you placed that 1% into into the trust in your kids names, well, you've really transferred 1% of zero dollars. And there's nothing to pay you back. Maybe they pay you back one cent every year for the next 10 years because you gave them something that's worth today. But since it's since you've already given it and the asset now grows and your company now grows, all the growth that happened passes to your kids at 1% without any gift taxes. Otherwise, you pay gift taxes on the and so that the is a really simple question. I did do this for my children all the time is do I tax the seed or do I tax the harvest? Right? Tax the seed or the right tax the harvest. This is all about growth. If something is small today and could get big later, you want to look at the super early because if you look at this late, it's too late. Private company like startups, real estate, like a pre exit, like pre IPO stock, any kind of fast growing investment. If you think that, hey, this is going to be worth a lot tomorrow and all of that is important. And that's why you talk about the freeze. It's important to talk to your attorney about this stuff because they, which assets may grow the most, where should those assets should you plan around it because it takes it a little bit of planning. Once you set it up, you never have to worry about it again. And so a lot of times just freezing the value in which you transfer the asset itself is the tax advantage in this process overall. All right. Big idea number two is to give giving actually moves assets during life. So meaning some wall can move while you live. Some wild moves while you die. So I'll give you a couple examples. There is something called annual gifting rules. There's something called lifetime exemption gifting rules. There's five 29 planned super funding rules. There's direct payment of tuition medical expenses. There's donor advice funds. It's cruts and clats and it's five 29 plans are very people understand what they are. You actually used mainly for educational purposes. So let me give you an example of super funding of five 29 plan, right? A five-term plan is used is used for mainly educational expenses for whoever you designated for. It can be you, your children, airs, whatever. Super funding means putting several years of gifts in at once. And the money starts to grow for the educational cost. A lot of people are like, man, I'll do $200 a year for the next 20 years. Or let's say you got a big bonus. You can super fund that amount. And then money can grow faster for all the education costs. I'll tell you how I think about it. And every time the markets drop like in 2008, the global financial crisis and then during the COVID crisis, both of those times in the markets drop, I super funded the five 29 plans. Because I knew the markets were dropping and then when I set super funded, then it grew a lot. And this is really interesting because you front load all the giving because there's a lot of time for that money to grow for your children and grandchildren. And I think here's where people think too small. They say giving is just handing someone a check and hoping they do that do something done with it. I tell all my family and friends, et cetera, they're getting money to my children. I'm just going to just give it all to the 5.29 plans because you teach the spending very differently. It's not about the spending. It's about the ownership. And that's why I love the story with my kids. I'll give you an example. My son, Neil, who was 14, he got paid to do real work to read books to an investor. Like if he read a book, I give him $50 and he took the $50 went on a Robinhood and he actually invested in companies. You know, I super funded that with $1,000 to actually see it work for him. But that $1,000 turned into $7,000. Like $7,000 plus his $50 of all the books that he read over the last three years. Like you may think that's small, but it's not because he's continuously like, you know, in a growing environment, contributing, right? My daughter, Laura, became a CEO of a real business called 100 Unicorns.com at 7 years old. And she's 10 now. And she has less interest in the business, but she learned a lot because she now had ownership of something. This is about teaching this ownership early. So if you don't teach your kids to manage money, you give them. But instead you teach them the systems and to make money while they sleep, they'll learn to manage it automatically. And that's the cool part here. So in the whole giving thing, I would ask your advisor, I would learn these, I would learn the rules. Hey, what can I give? You can't just give money because it's a considering gift. It's income, right? What can I use during my lifetime? Can I give my house to my lifetime? Can my parents give me their house over the lifetime? Can somebody else give me the house? And then I can't, can I know that? then give it to a trust and charity. Should we super fund our 529 plans? Should any tuition and medical expenses be made directly for tuition and medical expenses directly? So there's no gift issues. For example, if you, instead of gifting somebody money and having them pay for medical expenses, if you just paid the hospital directly, it's, you know, there's no gift tax to them. And it's deductible expenses for you. Like that makes sense. So what should I give during my lifetime and what should I stay in my estate? That's really important. Again, everything varies. You should talk to a advisor about this stuff. You should ask the questions. A lot of times advisors are really good. They don't think about the answer to the questions really well that you ask. We just don't ask them the right questions. All right, cool. Third part of this. Skipping. Skipping passes wealth beyond generations. Meaning the plan can be built for children, glandural, and future family members. If you want to keep a house in your family, if you have a big farm, if you want to keep stocking your business and you want to family business, how do you keep that going? Well, the reason is if you don't set it up right, it'll get taxed in every generation. That's why you have things like generation skipping trust or dynasty trust or, you know, there's generation skipping trust exemption or life insurance in an irrevocable life insurance stress called an eyelid or you build a family bank. Let's say we have a family bank. A family bank is a system to manage the capital of a family. The Rockefellers actually did this. By a life insurance policy on every single person in the family and as you can pay the premiums in the policy, it has cash value of the policy. The family, as the family members grow, they borrow from the cash value of their life insurance and they do investments in education and deals and whatever. And then if someone dies in the family, all the life insurance comes right back into the family bank. And the first generation, it means nothing, but in the third generation, that the bank is worth insane amount of money. That's what the Rockefellers did. So if you want to do anything, like if you just did that and built a family bank structure, you would crush it because in generations to come, the third generation will be like, where did all this money come from and all came from life insurance? That was used to borrow and build a family bank against all of it. And so the reason I'm sharing all this with you, the family bank idea is super simple. The family capital, you have some rules. You say, hey, every time a new child is born and your policy is gonna be added and then you, if someone passes away, all the debt benefit is just added to the entire bank. And it crushes because you need the liquidity from time to time. Give you a crazy story. You have to, you cannot pay the, you need liquidity because you cannot pay the IRS or you cannot pay debtors, creditors with assets. There's this guy, his name is Joe Robbie. He owned, he was a single owner of the Miami Dolphin. There was not a lot of estate planning done when he died. The estate tax was not set up right. So the problem was so used and the team was the main asset. So the family was actually forced to selling the Miami Dolphins. That sucks, right? And if you do the skipping correctly, you don't have to, you won't get stuck doing any of that. So again, I would ask your attorney, hey, do we need some generation skipping? Do you, should we set up a family bank? Should we, should you know, is the cash early life insurance? Should that be held in a irrevocable life insurance stress? You know, how do you build a bank for future generations? If you're like, man, sure, I'm the only thinking about my life today, that's fine. But maybe there's a simple way to think about life for the future without a lot of money and without a lot of thinking. You can just make it a goal for the year. You don't have to make it a goal for today. So this is like, I'm bringing together part three of all of this. So this is the tax advantage matrix. The third part here is the transferring a wealth, freezing, giving and skipping, freezing locks today's value, giving moves assets during a life and skipping passes wealth be as generations. And all I'm suggesting is that you should talk to a well educated asset protection and estate planning attorney to like, just think through what the next 10 years look like so that you have this stuff in place. And the cost of setting all of this up is so small compared to the benefit that you can get from all of it. If this is the only episode that you're listening to, just listen to this 'cause I'll summarize all of these for you. Number one, the tax advantage matrix is exactly what I built myself, nine kind of levers that I can pull to have the best tax advantages for myself and my family. There are three levels. Level number one is to lower the bill today. Level number two is to design a structure for however all the money flows. Does it love her number three is to transfer the wealth. When you lower the bill, you have deductions you have incentives and you have timing. When you design a structure, you think about entities and classification and location. And you think about transferring wealth, you think about freezing, skipping and giving, which is what we talked about today. By the way, the entire, you can take, you can go to the show notes on this episode, you can take the entire full transcript, you can put into AI and you can have a draw your stuff of a map and then tell them to ask you the question that you should ask your CPA or attorney or whatever, copy, paste, and send it to them. Like you spent the time listening to this, might as well do something with it, right? Hey, if that wall is as helpful, can you do me a favor? This is a little technical, I broke it down to three episodes for you. I really hope that you listen to all three. I know I talk fast 'cause I love this stuff. If you like this, can you do me a favor? Can you screenshot this and tag me that way I can make more like this for you? Please, screenshot this and tag me and I can make more like this for you. (upbeat music) Hey, this is Sean. I have an awesome free gift for you, just for listening to the podcast. As you may know, I've got a chance to build two billion dollar companies a hard way. So if you like this episode, you will love getting the exact playbooks from those wins. It's on my sub stack called My Next Billion. It has the exact frameworks I wish. Someone had given me when I was figuring it all out. Now you get the real lessons from the trenches as they go for a three-peat and build the next billion. So everything's free at MyNextBillion.com. Please check it out, MyNextBillion.com. (upbeat music)