Why LLCs Aren’t Enough for Real Estate Investors | Asset Protection, Trusts & Tax Strategy

Malcolm Jarrell (00:00)
that is accurate. Now you say

eliminate, which is very strong language in the tax world. We use avoid, eliminate sounds like you’re trying to just evade, which is illegal. And there’s a big defining difference between evasion and avoidance when you’re talking about internal revenue code, right? Evasion is the illegal not paying of taxes and avoidance is the legal not paying of taxes by using the tax code to your advantage, which is what we do.

Dylan Silver (00:16)
That’s a point.

Hey folks, welcome back to the show. Today’s guest, Malcolm Jarrell is a wealth strategist and licensed life insurance agent who works closely with real estate investors. focuses on structuring businesses to protect assets, reduce or eliminate taxes, and help investors retain more of what they earn. He specializes in advanced trust structures, private wealth strategies, and systems designed to move investors beyond basic LLC setups into long-term multi-generational wealth planning. Malcolm, thanks for

Malcolm Jarrell (02:20)
you

Dylan Silver (02:28)
taking the time today.

Malcolm Jarrell (02:29)
Yeah, I mean, absolutely. And that was quite a mouthful of an introduction. So very much appreciate it. Thank you. I love that.

Dylan Silver (02:34)
Now,

most investors, Malcolm, think in LLC is enough. At what point does that stop being true?

Malcolm Jarrell (02:45)
Right, so an LLC is in our world, it’s like the training world, it’s just the baby steps of starting out real estate. what it does is it offers your basic separation between you and a separate entity for legal purposes. So it’s just one veil further away from you, but still it’s pierceable. So what I do is I find out when is the optimal time to switch you out of the LLC.

and into a more stable structure, one that’s time tested, one that’s been around for over 70 years. And then we look and see ⁓ how do we structure you properly so that you are properly protected, I say properly, optimally protected against frivolous lawsuits and see if we can get you some further tax reduction than what your mainstream.

Entities like a 1031 exchange can do for you or cost segregation or accelerated depreciation. Those are things we look at to find out. Can we do better for you than what your current structures and strategies are doing for you? And most times the answer is yes, but we always want to do a one-on-one to see if it does apply.

Dylan Silver (03:52)
Now walk me through some of these, maybe without giving away all of the gold, Malcolm, but walk me through some of these structures that people can look at outside of NLLC.

Malcolm Jarrell (03:57)
Sure, man.

Sure, particularly in what we do, like you said, we work with trust structures and there are many of them. But the main one that we work with is it is non-grantor and irrevocable in nature, like truly non-grantor. There are some trusts out there that claim that they are, but when you get to the inner workings and the tax filings of it, that’s when you truly see if they are non-grantor or not. Ours truly are.

Dylan Silver (04:29)
Can you bring that down for

us? Non-Grantor?

Malcolm Jarrell (04:32)
So non-grantor means that you aren’t owning the trust itself. So the trust is its own entity and it being irrevocable in nature. Once you move assets into the, to the confines of the trust, under the housing of the trust, it can’t just be easily taken out. So that’s, that’s one level of protection for you. The other is because it’s non-grantor, it has its own EIN. So it files its own taxes separate from you. So it has its EIN where you have your social security number.

So when you go to file taxes, you file separately for the trust and for yourself. That way there’s no commingling of tax filings or what can be held against you versus what can be held to the trust. That’s just one aspect. The other part is because it has a spendthrift provision on it, it actually protects the trust from its own beneficiaries. And if you don’t know what a beneficiary is, anybody who’s in the real estate world and in…

the insurance world understands what a beneficiary is. Someone who benefits other than you. You work as a fiduciary, another fun word. Basically, you’re the financial and legal overseer of the trust to make sure that all the assets held within the trust are for the benefit of those who are to benefit from the trust, which are the beneficiaries and not the manager who is the trustee. And the spendthrift provision ⁓ doesn’t allow anybody, not creditors, not a bankruptcy court,

Not divorce court to force a distribution from the trust so assets truly are protected within the trust that we work with Yeah, I mean it’s a very powerful tool that it’s highly underutilized and You know with the IRS, know, there’s there’s warnings out there about not using sham trusts Which do exist and a sham trust is one that is set up incorrectly and used incorrectly So yes, obviously look out for those

because you don’t want to be in an entity that isn’t actually going to work for you and that will actually potentially get you in trouble. And what we want to do is make sure that you are set up correctly and you are compliant.

Dylan Silver (07:18)
Later!

What are some of the tax advantages of this structure? Or is that separate from it? Is that separate from the trust structure?

Malcolm Jarrell (07:33)
No, it actually is built in. There are some tax advantages built into the trust. So I won’t get too deep into the tax code because it depends, you know, which entity you’re currently structured in and what you’re going to use. it is built into the trust that we follow the tax code to the T specifically dealing with real estate investors. You guys, you know, you get hammered with capital gains tax, right?

Dylan Silver (07:44)
your time.

Malcolm Jarrell (07:59)
That’s a tax that every investor that I talk to is concerned about. It’s like, do I handle my capital gains tax? How do I reduce it? How do I defer it? How can I mitigate it? Well, when you work within the confines of the trust structures that we offer, your capital gains tax is, I don’t wanna say indefinitely deferred, but it’s deferred until you take a distribution from the trust. And because our trust is also discretionary, it means,

You don’t have to take a distribution from the trust on an annual basis, much like some other trusts do. So as long as your assets sit in the trust untouched in the corpus of the trust. And of course, again, we can go around and around about tax code about this. We have court cases proven that this actually is legal and does work. Your capital gains, your capital gains aren’t taxed when held in the trust. So it’s all about how you structure the asset before and after it’s sold. So make sure that you’re using the right structure.

In LLC, you’re taxed. In S-Corp, you’re probably taxed. That’s what people see. That’s why we use a 1031 exchange, which has really only been around since 1984. And our trusts have been around for considerably longer.

Dylan Silver (09:09)
If we combine the 1031 with the trust, does that compound the effect in some regard? Walk me through what that process looks like.

Malcolm Jarrell (09:18)
Actually, because there aren’t capital gains taxes to avoid or defer any further, there’s no need for a 1031 exchange. So you just do away with it altogether.

Dylan Silver (09:28)
No kidding. Okay. So if someone has a rental property and they are potentially selling that rental property, they’re able to eliminate a great share of those taxes. Is that accurate?

Malcolm Jarrell (09:41)
that is accurate. Now you say

eliminate, which is very strong language in the tax world. We use avoid, eliminate sounds like you’re trying to just evade, which is illegal. And there’s a big defining difference between evasion and avoidance when you’re talking about internal revenue code, right? Evasion is the illegal not paying of taxes and avoidance is the legal not paying of taxes by using the tax code to your advantage, which is what we do.

Dylan Silver (09:58)
That’s a point.

Malcolm Jarrell (10:41)
So yes, above and beyond what the 1031 exchange can offer someone who’s working within a rental property that they, or they want to sell a property. Yes, absolutely. If the property is within the trust first, then they sell it. Then those gains are held into the trust and not taxed until a distribution is made, which is super powerful.

Dylan Silver (10:42)
Thank you.

Evade is bad, avoid is good. Okay, I’ve got the distinction.

Malcolm Jarrell (11:05)
Yeah, evade is bad.

So mean, if you want to look at the textbook definition of evade from the IRS, it just means the failure to pay or deliberately underpay of taxes. And avoid is structuring things in a timely manner, making sure you’re using the right structure and using the Internal Revenue Code to your advantage to legally avoid, reduce or defer taxes.

Dylan Silver (11:27)
Now you’re also in the life insurance space. I would be remiss if I didn’t ask you your perspective on the infinite banking concept. And it seems like every time I have one in the life insurance space on here, they talk about this. So what’s your perspective on infinite banking?

Malcolm Jarrell (11:36)
man.

I love it. When it comes to working within the confines of the trust, the infinite banking structure works phenomenally. It was one that was coined by R. Nelson Nash, one that is highly promoted by Garrett Gunderson. And when used correctly, you can use it as part of your asset, as part of your portfolio within your trust and within real estate. They all work hand in hand very well.

So when it’s structured properly, yeah, absolutely. Now, what I will caution anyone who’s listening and even yourself is if you’re going to use infinite banking, please use the correct policy type. The incorrect policy type would be an IUL. Please do not use those, they are not structured properly. If you want to know how to structure properly, that is something I will work with you one-on-one. I’m not gonna drop names of carriers, but I will tell you that the carriers we do work with, when we build you a policy, it is truly an infinite banking. You do become your own banker.

It creates family wealth that is abundant, just like the Rockefellers did.

Dylan Silver (12:45)
Now, when people want to get into infinite banking specifically, I think there’s a lot of people who hear this and they think, well, that sounds great, but there’s also a level of consultation that and continued consultation that probably needs to happen in order for people to really take advantage of that. And so when folks are reaching out to you and they’re interested in it, but don’t know exactly what the process is, what did those initial conversations look like?

Malcolm Jarrell (12:50)
Mm-hmm.

I love that question. So the initial conversations, we try and figure out what is your goal with your inventory, your money, your finances? Where do you stand with your family? Where do you stand with, I mean, do you currently have insurance? Some people have insurance with their place of employment. They’re like, oh, I have XYZ policy with my employer and that’s good enough for me.

What they don’t understand is those are rented policies. They aren’t typically owned by them. So they can’t truly expand on that. So when we’re looking at the bigger picture, which is how do you want to benefit from this policy? What do you want it to do for you? What do you want it to accomplish? That’s what we start looking at. How old are you? You know, what gender are you? Are you fit? Do you have underlying health problems? I mean, we look at the big and I say big picture. You as a person, you as a parent, you as a spouse.

You as a business owner, because business owners can also have their own separate policies. Same thing with partnerships. Partnerships can have their own policies within a business where they can also use that as an infinite banking policy. Not typically, but we can. But the consultation is who are you, where do you want to go, and how do we get you there? That is typically the flow of the conversation.

Dylan Silver (14:36)
Now, separate from this, but it does tie in here. When folks are coming to you, they have their bookkeeping, their books in order, and how does that play into overall the scope of their wealth picture?

Malcolm Jarrell (15:32)
It makes it infinitely easier to work with them because number one that shows us they’re already financially intelligent and willing to do what’s necessary to make sure their finances are kept in order. The person who comes to us with no financial idea of what’s going on, they’re actually kind of easier to work with sometimes because they are immutable, they’re teachable, they’re trainable, and they’re looking for solution. Those who have their books in order, who are also looking for solution,

They’re also easy to work with because we know they understand the flow of money and how to use it as a tool. The money isn’t the goal, it’s just the tool and we know how to work with them.

Dylan Silver (16:11)
Now, bonus question here for you, Malcolm. You’ve worked with lots of folks, I’m sure from various different circumstances and situations, and a lot of this can be emotionally charged, I imagine as well. When folks are coming to you, is it most of the time because they are looking to plan for the future, or is it because something potentially adverse has happened and they’re realizing, I don’t wanna have to go through this again, or something similar?

Malcolm Jarrell (16:14)
Sherman.

man, that’s a loaded question. The clients that we see, they all have their goal in mind. They all have their different situations. Some come to us from a place of pain where they’ve paid taxes. Some have already been sued. Some are learning from the pains of others and they just want to set something. They want to be proactive with their structure and how their income is classified. And so we see all walks of life. We see all income levels. We see all business structures. I mean, so like,

Just a quick example, one of our smallest clients had a $30,000 tax bill, business owner. And we were able to help them restructure their business, help them restructure their cashflow, and ultimately give them that 30,000 back. They were able to recapture those taxes and reinvest that back into their business. that’s one small example. Another larger example, we’re currently working with a client right now. He had $40 million in income.

close to 700,000 in taxes and he’s a real estate investor. And if you can understand 750,000 in taxes is a lot, significantly more than most people make. But as we’re, and because we know what we’re capable of doing, we are showing him as we’re going through this, like, look, this the 750,000, you’re going to recapture all this that you can put back into your business. So it’s a significant change in night and day between who we work with, whether it’s business owners, whether it’s investors.

whether it’s somebody who’s married, one spouse has a W-2, the other one’s a real estate professional. That’s a very common theme among high earning W-2 is somebody is doing real estate because they need those tax deductions, they need those write-offs. So when we show them, you can get out of the W-2 and focus more on your real estate because here’s how we can get you to recapture all those gains that are being taxed, then they feel more confident moving forward because they have the right structure in place to

to then capitalize on what they’re gonna be doing going forward.

Dylan Silver (18:40)
That’s a great point and I’ve really been thinking about this a lot as I’ve had a diverse range of guests on the show. Some people use real estate as a way to recoup.

taxes that they’ve paid in through a W-2 job, right? And people aren’t even thinking about this because if you’re high earning W-2, you may just be thinking, okay, well, this is what I have to pay through my job, but you may be entitled to some of that back, especially if you’re investing in real estate or a full-time real estate operator. We are coming up on time here though, Malcolm. Any new projects that you’re working on and then as well, what’s the best way for folks to reach out to you or your team?

Malcolm Jarrell (18:55)
absolutely.

Any new projects we’re working on? Honestly, man, every day is a new project. We find a new client that needs our help, that wants to do what we offer to get in the infinite banking to restructure underneath one of our trusts, whether it’s a business type trust or one for their family or one for a real estate syndication. We work with all of especially oil and business royalties or not oil and business, oil and gas royalties. We touch it all.

The best way to get ahold of us is there’s two ways. You can either email us at [email protected] or you can meander over onto our website, automateyourlegacy.com and just hit the schedule and appointment now and get on our book so we can have a one-on-one complimentary consultation with you.