[00:00:05] Speaker A: Welcome to the Short Term Show. The show about short term rentals and long term wealth with real property owners hosting real properties who are crushing it in the vacation and short term rental space.
And here's your host, Avery Carle.
[00:00:28] Speaker B: Hey y'. All. Welcome back to another episode of the Short Term Show. I apologize for my voice. I've been in large crowds in Disney and, and Universal this week with the kids. So really sorry that you have to listen to me like this, but I did not want to cancel on this guest because I finally have something for you that maybe we, that we definitely haven't had on the show before. Maybe you haven't heard of it. So we've got a guy named Don Thornton and he is, has been in the real estate investing world in the past. He does a lot of flips, short sales, things like that. But I found him on Instagram because I was just doom scrolling as one does. And I typically just scroll past anything about trusts, LLCs, whatever. I'm like, I know this, I know this. I don't need to watch this person. But I stopped on one of Don's videos and he was talking about something called a spendthrift trust. And I said, wait, I haven't heard of that. I need, I'm gonna watch some more of this guy. And then I was like, I need to get this guy on my podcast. So, Don, thank you so much for coming on. Will you give our listeners just a brief intro about who you are, what you do and yeah, that's really it.
[00:01:33] Speaker C: Well, I, I'm very grateful that, and happy and honored that you invited me on your podcast.
Very simple. I'm a, I'm a short sale guy. In fact, if you look at my thing back there behind me, it says Don the short sale guy. Because I focused on foreclosures here in Florida. I started in 2002 as a complete newbie RO and I learned how to do them by the school of hard knocks.
Fast forward 20 something years later, I flipped over 3000 properties and I got into trust because I was sick and tired of one always being worried about getting sued because in real estate, especially in Florida, you're doing foreclosures. That's going to happen eventually. And it did to me in 2011.
Second of all, I got sick and tired of capital gains. Short term capital gains, longer term capital gains. And I did not find any reasonable solutions except to defer it out. There was no way to eliminate them. And I thought, there's got to be a way out there. There are people out there smarter than me that probably don't do this legally. And then long story short, I found out about it about five years ago, did my due diligence and said, I like this a lot.
And because I'm a guy and we like to brag, I started bragging to people that you know in my network.
And so I started referring people to the law firm that I've been working with. And they said, look, why don't you become a distributor, a master distributor, because you're doing so well at this. You're better than most people we work with. And I said, sure, why not?
And I did not ever do social media.
So I just got on. I just got on not knowing anything and just started posting videos about it. And then here I am, you know, five years later and. And I'm one of the leading experts on this genre.
[00:03:28] Speaker B: Yeah, I'd never heard of it until I scrolled past you. So it's working for you.
So tell me, give me like the 62nd version. So what is a spendthrift trust and why do real estate investors care what that is?
[00:03:46] Speaker C: It has three things that if you're a real estate investor, you should want, and if you don't know that you need it, then there's something wrong with you as an investor. Like I said, Number one is I hated the fact that when I had LLCs and S Corps that anybody could cross reference my deeds with the divisional corporation's website to figure out exactly what I had, they my portfolio was out there. And I hated that. Okay. And it does. I'm sorry, Wyoming. Stuff like that. They can still find you. It's still, it's still a. A You had to register with the state no matter how many things you put on, you know, stack these entities. Second of all, I hated the fact that when I got sued in 2011 for a completely stupid reason, you know, there was the court that the judge would have thrown it out in just one second because it was a complete, you know, that we were out of.
I still had to spend over $10,000 defending myself.
Okay. And it was like. And then in Florida became weaponized. They threatened to sue you. So settle. Otherwise you had to pay more money if you, if you had to defend yourself. In my L.L.C. s corp, you know, Land trust, none of those things protect you. They go through that like knife through a butter. And finally the taxes, the spin Thrift trust solves every single one of those problems. Every single one.
So that's what you're looking for, that if any of those Pain points resonate with you, then you want to listen to more about how this works.
[00:05:30] Speaker A: The real estate market is always changing.
Covid is long gone, prices are down and properties are sitting on the market.
The Short term shop sells houses in all of the best vacation markets. And we'd love to help you purchase your next vacation home.
Join
[email protected] theshortermshop.com let's find you a deal.
[00:05:58] Speaker B: Yeah, I think all of those pain points are going to resonate with, with most of our listeners. And you said something about defending a lawsuit that I, I hear investors every day, you know, when we're doing real estate deals and they'll say, oh, we get into, you know, little tit for tat, earnest money disputes. And then people start throwing around that, well, I'll just sue. Well, and then our client or the client on the other side of the deal will be like, we'll find, sue me. And that sounds big and tough, but these guys, if you say, we'll find, sue me, you're not going to win. That doesn't mean it's not going to cost you a bunch of money to defend, to get through the legal process. Even if somebody's suing you for something really stupid and you know they're going to lose, you are still going to have to pay attorneys to get you to the point of winning. So it's not like people just casually say, fine, sue me, you'll lose, but it's going to cost you money, too.
[00:06:53] Speaker A: Right?
[00:06:54] Speaker C: Exactly. And I'll never forget the, the, the attorney that I hired to defend me, the first thing, her name was Derecia. She said, don't.
It's not the initial lawsuit that you got to be worried about. It's discovery.
She goes, everybody they can, if they dig deep enough, everybody's vulnerable to something. That's what you have to worry about. Avoid discovery at all cost.
And when I went, I labeled that a financial colonoscopy, which is not good. Someone has been through it. So I can tell you that it's not just the money.
It's just everything is wide open. And it's just, it keeps, it paralyzes your business and there's no reason to. And people have learned to weaponize it because they, they know that the smarter investors will settle just to make it go away. And there's a better way you can stop it without, you can say, fine, go ahead and sue. If you're in a structure that's impenetrable, and the stuff that Most of you have, like I said, LLCs, S Corps, land trusts, whatever you got, it's easily penetrated. Not this.
[00:08:07] Speaker B: Okay, so let's talk about what this is a little bit more and dive into how it works and what it does. So it's, it's impenetrable and it can help you avoid paying capital gains taxes when you sell, which I think is like most interesting.
So can you tell me a little bit more about what a spendthrift trust is?
[00:08:26] Speaker C: All right. Spendthrift trust is a trust. The difference between this trust and a trust that you could get like say, go down to Joe Blow, attorney on Main street and say, hey, I want to get a trust. They're going to, they're going to say, okay, we can give you a living trust or revocable trust. You know, a lot, a lot of people on the Internet are, a lot of attorneys are, you know, pitching that as part of an overall scheme where you have a trust and you have LLCs, you have a holding company, an S corp and then all this stuff they wanted stack, you know, entities one on top of the other and then put them all in Wyoming, all right, which is very cumbersome. It's not ideal. And still, all you're doing is just trying to delay the inevitable. They can still get to you. A trust is a structure, this type of structure. Well, let me just, let me go back real quick. So they, they'll say living trust or let's say an irrevocable trust or irrevocable trust. Okay. And they all have their limitations.
They're all based upon their creation of some act of a legislature.
So Congress, state house, whatever it is, whatever legislature, they bring this into being.
But I look at the government and I look at the courts as the structures that you work with in those types of environments.
It's like a casino. The house is always going to win. The rules are baked in to where you're going to pay money or there's going to be ways for them to penetrate yours. Now a spendthrift trust, which is actually a contract law, non guarantor, irrevocable, complex, discretionary spendthrift trust. That's a mouthful, I get it. But that is a structure where it's based on the Constitution, contract law.
Article 1, Section 10, paraphrasing here, states that no state shall pass any law impairing the obligation of contracts.
Despite all the government overreach that's happened in the last 20, 30 years, we still have the right to contract in this country. Now I'm not saying that if two drug dealers can have a contract and they're going to be okay because hey, I got a contract. It's right here. A contract law. No, no, no, you can't do anything illegal. But here's the, here's the key point is that you, the government cannot change one word of the contract as long as it's not doing anything fraudulent or illegal.
And that's the thing, that's one very important part.
So you know, you're not having some statutory laws, what I call it entity or trust or whatever. That's, that's you're, that they're saying like for example, irrevocable trust.
They don't even, they're telling you you don't, you should not be the trustee, you should have a third party run everything and you be the beneficiary. So you're giving your, you have no control. Or they'll say, well you better like it now because you can't change it.
Who wants that?
I don't want that. You know, and a revocable trust or a living trust, I mean it's, it's considered what they call a grand tort trust, which means that the irs, the courts, they consider that your alter ego. You might as well just put it in your own personal name. There's no other protection it gives you. The only thing it exists for is to stop probate.
But what they don't tell you is that if anybody challenges that trust after you die, it goes right into probate. So it is almost useless.
So as a estate planning instrument, I think it's completely useless. And also as an investment vehicle, it's even worse.
So a trust is an entity where you can hold assets, you can run income streams through and it is different. The requirements in a contract law trust are so much lighter in some ways non existent as a statutory law trust where you do have a lot more compliance things that you have to go through and you're much more vulnerable. These trusts are extremely, I, I'd say as far as the lawsuit goes, in 70 plus years of their existence, they've never been sued successfully. Never? Oh, never. Okay.
So if you don't mind me going on a quick tangent here, I will tell you.
2022 was when I moved everything, my entire real estate investing business, my portfolio, everything into it, into a spin thrift trust. So I told you that, you know the experience I had in 2011 when I got sued on a just a stupid contract dispute.
Very briefly, in a short sale there's three parties to A contract, you have a buyer, you have a seller and you have the bank.
And the price on the contract when it's a, when the short sale starts is you might as well just, you know, throw a dart at a number and that's, you know, it doesn't mean anything until the bank weighs in and says what they will take.
Okay? And so there's a clause there that states contingent on third party approval.
Well, we had some morons out there or people who thought they could bully other people. It happens all the time in this game where if you.
So let's say for example, contracts for $150,000, the bank comes back and says, no, we'll take 180. So it's a $30,000 difference between what the contract says and what the bank will take.
So the buyers were saying, you got to make that up. We got a contract. It's like, no, we're out of contract now actually, because the, the original contract at 150 is no longer valid because it did not get third party approval.
Right. Simple enough, right? I'm totally in the right. I'm totally fine. By all standards of logic, you would think that that would be fine, okay, we're going to steal any, we're going to sue anyway because anybody can find an attorney that's going to sue. And what do they do? They look at your assets, they do an asset search. If you've got everything in your name or in an LLC or a corporation or whatever, they can find it just like that.
And so they say, ooh, low hanging fruit, we're going to go ahead and go after this guy.
And you know, like I said, two years this thing went on. $10,000, I got off lucky. I think it could have been more than that.
So fast forward now that once I change everything to my spendthrift trust when, you know, three times in eight in an 18 minute period of time, I had a baptism of fire. We had similar situations. Contract disputes, third party approval, we're going to sue.
It got as far as them again, separate times, not one person, but three separate individuals, three separate contracts. They went far enough to where they got an attorney and I had no problem. I talked to an attorney and I said, you can do what you want. But just remember, counselor, that the contractual relationship is not with me personally, it's with this type of trust. And you better, you guys better make sure you understand what this trust is before you make a decision to move forward or not.
Not one time do I hear back from them ever.
They disappeared the Same thing did not happen when I had my S corp. They sued right away. They had no fear about that.
Attorneys will not go after someone that is not worth their time. They want the low hanging fruit.
So, and one little, little funny side of this, the third attorney it was is a pretty big ambulance chasing firm here in Orlando. And so I went ahead and got my, my attorney to the one who represented me in the, in the lawsuit 10 years previously. I just say I'll pay money, just retain me for the phone call, talk to that attorney or whatever. And she called me back and said, yeah, it's fine. And she says, by the way Don, it was so funny. He kept asking me how does this guy buy real estate? He doesn't have any assets or money.
And I just laughed. And she said, well it's what I'm your business counselor. But you know the reason why?
Because I moved everything into this trust, it's invisible.
They couldn't find anything in public records.
[00:17:18] Speaker B: So that's crazy.
[00:17:20] Speaker C: Yes, yes.
[00:17:23] Speaker B: Okay, so how do you set this up? Why, why do more asset protection attorneys that, you know, myself and our listeners go to, you know, annually.
Why are they not recommending this and how do you set it up?
[00:17:36] Speaker C: Well, it's very interesting. I work with a law firm out of Houston. And the original, the original attorney who came up with Spendthrift Trust, his name was Robert Benson, he was a protege of Professor Austin Scott out of Harvard who was considered the godfather of trust law in the United States. This is back in the early 1900s anyway, when he decided to take leave academia and start his own private practice. He focused on the oil and gas industry in the Southwest based in Houston.
Well, he was the first one that was or was implementing these types of trust using contract law, not statutory law, as I explained previously, because they were stronger. More advantages for tax reduction, more anonymity. That's what he wanted. And the key thing here is that he wanted his clients to be the trustees and to control the trust. Whereas statutory lock attorneys are all saying get a third party or if you're going to be the trustee, it has to be a revocable trust where you, it's a grantor trust where you know, it's, you might as well just be you because the IRS and the courts are going to consider it to be yours anyway.
So none of those were what he wanted his clients to have. So he put this together over 70 years they've been in existence. They've never been, they've never been penetrated by lawsuit, like I said. And here's the thing you're going to be interested in hearing. They simply do not trigger taxable events.
Okay?
So whereas you have a 1031 exchange where you're going to defer and defer and defer, you keep deferring things out as you keep moving your money into another property, which, if you're lucky, lots of times you can't find the exact match, and so you can't do it. It falls through, and then you're stuck.
But to answer your question, the reason why is that I'll give you a little experience from my own life at a CPA. 20 years.
Loved him.
Great guy. We were good friends. You know, I was a good client. I mean, you know, he.
But you know what? Why did he love me?
Because we were doing depreciation, we were doing all this stuff, and he was making money, man, I was cutting checks, this guy, every year. And you know what? For S Corp, it was fine. He was great. I loved him.
I brought him the spendthrift trust stuff. He looked at it, we went over it, and I said, roger, why don't you just learn how to do this and we'll just stay together, keep the band together, you know? And he go. He laughed at me. He said, don, why in the world would I want to do this trust?
Because it's great. You see how it's helping me? He says it helps you? Does it help me? He says, I don't make any money with this trust.
He says, a basic tax return, it's going to zero out every year.
Why would I want to do that? I make no money on that. He says, I'm going to stick with people, investors that don't know about it and who don't want to do it. And so I'm just going to. I'll keep doing those depreciations. We're going to have all like five, five or seven different LLCs. I get a tax return on every single one of those. You know, that's Cha Ching for them.
That's why they don't do it, is because they don't make any money on them. And if they're not going to be. If, if the, the trust itself is the major deterrent from people suing you, they're not going to make any money defending you. Right? No retainers.
[00:21:22] Speaker B: Okay?
[00:21:23] Speaker C: So there's no money in it for them. That's the reason. Now, the smart ones know that a lot of ones out there, they just, you know, they're for. They didn't, you know, they, they. If they're lucky if they took one semester of contract law in, in school. They're lucky most of them didn't.
So it's monkey see, monkey do. They know what they have.
And they know that very well. It's like, it's like trying to go, if you've got, you know, you got a, I just had an iron infusion, I got some anemia now. So it's like if I went to a podiatrist to learn about my anemia, you know, they specialize so much, right? They know their thing very well, but they don't know anybody else's thing. And they're lazy or they're disinterested to investigate and what's going to happen. They, the ones that are smart ones that have investigated, they know no money there. So they're going to say, I don't know about that.
I don't know, I wouldn't do that if I were you. Now there's no case law on that.
And it's like, well, there's no case law because there's never, no, it's never been challenged.
Seventy years, it never been challenged. There's a reason why it hasn't been challenged, you know, and that's, that's the biggest reason why they don't, they don't do it. So they're gonna, they want to keep you in their milieu, if the French would say in their specialty, because that's where they make their money.
[00:22:49] Speaker B: That makes sense. That makes sense.
[00:22:52] Speaker A: Thank you for joining us. Here at the Short Term Shop, we help real estate investors like you buy and sell vacation homes.
We operate in over 20 true vacation markets across the United States.
If you have more questions about buying and selling, join us every week for a live Q and a@str questions.com that's
[00:23:17] Speaker B: str questions.com so how does this not, how does this avoid triggering a taxable event? Because most of our listeners are high income earners that are buying short term rentals then doing 100% bonus depreciation. And I'm sure if they decide later that short term rentals are not for them, they would like to not have to pay capital gain.
[00:23:39] Speaker C: It's very simple. It goes back to contract law.
And in contract law, it's the trust governing instrument that determines the accounting of the trust.
Okay?
Now in a statutory law trust, the law already says what the trust can or cannot do. In a contract law trust, the original attorneys, Robert Benson and the attorneys at that have taken over since he passed away.
When they put that governing Instrument together, which is a contract. Right. As we talked contract law. That is the contract. What you can or cannot do is based on what the trust document allows you to do. One of the stipulations is that the trustee has the right to set up a fiduciary reserve account for the trust, a bank account. Okay. That is treated as an escrow account.
All right?
So it's very simple.
Money that's coming into the trust is not the property of the trust.
The properties that you put into the trust, they are not owned by the trust.
All right? So I've got real estate in there. I've got crypto. I've got vehicles, for example, some precious metals. All my portfolio, everything that I invested in my wife and I've invested in is inside that trust.
The trust does not own any of it.
There's money that's inside in the trust bank account.
I do not own that.
As trustee, I control it.
Okay? It's a discretionary trust, which means that the trustee holds 100% discretionary power of the trust.
So when an asset goes into the trust, it is, for all intents and purposes, held in escrow by the trust.
Therefore, when the trustee has the trust, sell the asset, the proceeds from the title company are going back into where? The trust escrow account.
Right. So none of this is a taxable event
[00:26:11] Speaker B: because it's an escrow account.
[00:26:13] Speaker C: It's an escrow.
[00:26:14] Speaker B: Okay?
[00:26:14] Speaker C: Right.
In the meantime, because, like, for example, my. I have got two. My. My beneficiaries of the trust, my wife, my two kids, and my grandson. And I have some more people I've added on, but those. That's the core group, the trust. The trustee can use the trust debit card for that escrow account to pay for almost all of their expenses, including living expenses.
And it's not a taxable event for them, and it's not a taxable event for the trust either.
[00:26:46] Speaker B: Let me make sure I'm following this. So let's say I. I bought a property 10 years ago. I'm sitting on a. And I bought it in this trust. I'm sitting on a bunch of equity.
So I decided to sell it. But I'm not 1031 exchanging. I'm just gonna let the money sit. Let's say it appreciated $200,000. So 200,000 goes into that escrow account. I can then use as the trustee. And I've got my kids and my husband as beneficiaries.
[00:27:11] Speaker C: Yes.
[00:27:11] Speaker B: I can then take that debit card and then go, like, pay for Their college. And that's not a tax.
[00:27:16] Speaker C: That's it. That's not a taxable event. Not for them either. If you gave them money, cash, that's a taxable event for them.
But let's say my, my son, you know, I'll just give an example.
My, my grandson is getting, you know, he's just starting school, he's young, but you know, we've got English classes, German, you know, getting in the foreign languages, early private tutoring, you know, pre K, elite pre K, whatever you want to call it, okay.
It's all being paid directly to the vendor.
It's not going to my daughter cash and then she pays it. That would be a taxable event.
So when the trustee uses a debit card to pay the educational institution directly, then that is if on, on behalf of the beneficiary, not directly, then that is a legitimate trust expense because the trustee, according to the trust governing instrument is, you know, one, one of his or her main duties is to maintain and upkeep the trust on behalf of the beneficiaries.
[00:28:35] Speaker B: Okay, so my next question is, you use the word expense. So let's say you go pay for the elite preschool and the German lessons and what have you, that expense, is that now tax deductible for the trust?
[00:28:49] Speaker C: See, this is the thing you have to you change your thinking about a little bit because you know, the whole idea of write offs and deductions is more of a statutory law concept.
[00:29:03] Speaker B: Okay.
[00:29:04] Speaker C: Because we have taxable money comes in and then you're trying to expense out as much as you can to lower your taxable income.
That's the statutory law thing. When you come over here to our contract law spendthrift trust, that's not taxable income coming in, it's an escrow.
[00:29:24] Speaker B: Oh, because it's. Okay, got it, got it. So that's not income that is taxable because it's in the escrow. Okay. And then that's how you avoid the capital gains. And then you can use that, you can't use it to go like, you know, put money in your account to go on vacation, but you can use it to pay for the expenses of the beneficiaries to live. And is there anything, there's a lot
[00:29:44] Speaker C: of, there's a lot of things that can be paid for, buy the trust debit card for that. Vacations can be paid as long as they are done in a manner that agrees with what the trust is allowed to do or not to do. For example, whenever my family travels, they always make sure that they do something having to do with wellness or education.
When you do that, then the trust can pay for their hotel, it can pay for their, pay for their airline tickets, their food, all that stuff. Okay. For example, so there's a lot of leeway, just like we are in, you know, with real estate investing. You know, we've got, we get pretty good at generally expensing stuff out, you know, within reason. Right. But it's the same principle. As long as, as long as it is in compliance with the trust governing instrument of what the trustee is allowed to pay for on behalf of them, then you know, it's not a, it's not a, it's a legitimate trust expense. And if it, and if for some reason it wasn't, then there's another way to be able to get money tax free from the trust without it, you know, taking cash, for example, because it's an irrevocable trust as well. The manner in which you get property into the, or any asset into the trust is via a bill of sale.
Okay, so let's go back to your example where you said someone's had a short term rental for 10 years and now they want to move into the trust and they're going to sell it, they're going to get their profit back. Okay. So initially you move that you do a bill of sale and say a quick claim deed or a warranty deed from them into the trust.
Well, the bill of sale for it to be legal, for this transaction to be legal, there has to be compensation given on behalf of the trust from the side of the trust.
So say you bought the property at $200,000 ten years ago.
And so now you're gonna, and the bill of sale is gonna be $200,000.
It's cost basis. Okay.
[00:31:57] Speaker B: Okay.
[00:31:58] Speaker C: So the trust will give you a promissory note as compensation for $200,000.
Now, $200,000 is what the trust owes you.
You can take money from the trust. Let's say, pretty typical example. Let's say your daughter's getting married, you want to have a great wedding, you're going to spend $50,000 on it. All right? There's no way in the world you're going to be able to justify that as a trust expense.
But if the Trust owes you $200,000, you can pull that $50,000, use that for the wedding, and the money coming from the trust to you is considered a return of capital and it's not a taxable event for you or the trust.
[00:32:45] Speaker B: Wow. So I'm Sure. Everybody listening is like asking this question next. So people who have a bunch of assets right now that are in LLCs and S Corps and regular trust.
[00:32:54] Speaker A: Trust.
[00:32:55] Speaker C: What.
[00:32:56] Speaker B: What do they do? How do you add things to.
[00:32:59] Speaker C: Same thing, bill of sale. The only difference you make it from the LLC or the trust to the, you know, to the trust. And then, you know, you have. Before that happens, you have an assignment to you personally. And then it moves it over. So that way the promissory notes made out to you. All right?
[00:33:15] Speaker B: Okay.
[00:33:16] Speaker C: And listen, I just want to make. I forgot to put this in when we got started. But remember, everything I say here is for informational, educational purposes only. It's not tax or. It's not tax, legal, financial or accounting advice. All right?
[00:33:30] Speaker B: Yes.
[00:33:31] Speaker C: So, you know, see a licensed professional before you enter any financial transaction. I'm here just tell you how I use the trust in my. In my real estate investing business.
[00:33:43] Speaker B: This is all very interesting. So, yes, you keep talking about the. The governing document of the trust. Is that something that the owner of the trust sets up or is that a set thing?
[00:33:53] Speaker C: Well, the trust, remember, there's no owner of the trust.
The trust exists as its own entity.
[00:34:01] Speaker B: Okay.
[00:34:01] Speaker C: It's a non grantor trust, which means that somebody else is officially the creator of the trust, not you. Your social is not tied to the creation of this trust. In my case, my former real estate broker of mine, he acted as the grantor or settler of the trust, so his social was used for that. And then in the creation, I was named as the initial trustee of the trust.
So.
And then once, once the trust was set up, he resigned immediately.
So now he's gone.
The trust is its own entity with its own ein number from the irs. And because it's a discretionary trust, the trust governing instrument states that the trustee has 100 control of the trust.
I'm the trustee, but my social is not tied to it. I didn't create it. So therefore, you know, the IRS cannot say that it's a grant. It's a grantor trust, that it's an alter ego of me.
[00:35:08] Speaker B: So you have to have somebody else set it up with their Social Security number so that you are okay.
[00:35:15] Speaker C: And I just said, well, for me, I gave him a bottle of vodka. I'm just kidding.
No, we worked together for so long. I mean, it was like, hey, do me a solid. I gave you, I sent you a lot of listings for my short sales. You know, would you mind doing this? He goes, sure, I got no problem with doing that.
[00:35:31] Speaker B: Yeah, can spouses do it for the other spouse?
[00:35:35] Speaker C: That would not be arms. That would not be arm's length.
[00:35:38] Speaker B: Okay. It has to be somebody.
[00:35:39] Speaker C: It's got to be an arm's length. Yes.
[00:35:42] Speaker B: Interesting.
[00:35:43] Speaker A: Yes.
[00:35:43] Speaker B: And is there any recourse like if that, if that person, you know, in business as you go down the road, people sometimes grow apart and decide they don't like each other anymore.
[00:35:55] Speaker C: So that person's gone immediately.
[00:35:57] Speaker B: Okay.
[00:35:58] Speaker C: You know, it's gone immediately. So you know, the, the, the, you know, the attorneys out of Houston, they, they set this up and then part of the creation process is that the grantor slash settler immediately is gone. That's part of the initial paperwork. So there's no time for anyone to get cold feet or grow apart. It's kind of like my, kind of like my first marriage.
[00:36:25] Speaker B: Oh my goodness. So now, now you forget what I was going to ask next.
So is that allowed? Is this frowned upon by the powers that be in any way?
[00:36:37] Speaker C: It's a completely legal. It's been going on for over 70 years. It's just not done in the statutory law world.
Okay. And that's what, again, I'm harping on the theme of this, of this episode here is that you're not. You people get a little bit like sketchy about it because it's like, well, no one does it this way. Right. Because they only do it the one way, the statutory law way, where you got the contract law way, where you can still do it that way. That's why Robert Benson and the initial attorney who created these things knew that he had more flexibility to protect his clients with contract law than he had with statutory law that was available. The 99.9% of the attorneys sell.
[00:37:23] Speaker B: So what are some pitfalls that people need to watch out for with this? Because I would imagine there's a lot of ways to make mistakes and things you gotta watch.
[00:37:31] Speaker C: Well, yeah, you need to make sure that, that you understand how the trust accounting works, which is not, I mean, listen, as someone who ran an s Corp for 20 plus years, I got into this, it wasn't that big of a leap to learn how to do it. It's just different. It's a little bit different. The escrow part of it's different. Okay.
And you have to retrain yourself a little bit, but it's fine. We, there's, in our network, we have licensed accountants that, that help you out with that. And they, if you mess up, they're going to, they're going to show you how to, how to Cover that.
But what I liked about it was the fact that because coming from real estate investing background, with properties already in my portfolio, I had a nice little chunk of promissory note as my insurance.
So if I really screwed up, you know, on. And maybe some things were, I put down in my bookkeeping and QuickBooks as trust expense. And an accountant comes back and says, don, that's not going to fly. You can't, that's, that's not, no way.
That's a, that's a trust expense.
Just move it over to the promissory note and subtract the promissory note.
No harm, no foul. The only negative I would think about it is that a lot of people want to refinance their properties.
It's more difficult to refinance in a trust than it is in their own name or in an llc.
So that sometimes will make people pause.
But in my case, I never use institutional finance anyway. In all any of my deals, I use private investing, private money, so, or, and then later on my own. So that was that big of a deal. But I was never a. The brrrr method. I never did that. I never liked that. You know, that's.
I call me crazy, but I didn't like debt.
So if I did, you know, I don't mind taking other people's debt. If I've taken a property subject to. I got no problem with that because that's their debt, not mine.
But, you know, it's more. I'm not saying you can't do it. It's just, you have to understand that a trust is an entity and you have to build credit for in every entity. If you want to do the whole LLC funding thing, well, you have to build credit too, on that. I build credit for my escort, you know, so I mean, you can do the same thing. It's just, it just takes a little bit longer.
[00:39:57] Speaker B: This is all very, very interesting, Don. So we're coming to the end of our, our time together. What else do our listeners need to know about this type of trust and where can they find out more about that?
[00:40:11] Speaker C: Well, I would say that the knowledge is power and, you know, if you want to find out more about it, reach out to me. I think I'm very open, guys. You know, I, you, I'll give you my cell phone. I mean, just, just give it to them. I mean, my personal cell phone. Just send me a text and we can set up, I can send you a link and we can set up a, a free consultation. You can tell me what You've got what you, what your goals are, what you're looking for. And then we could, could show you how I do it and, or how other clients do it that are similar in similar situations. But just again, remember I'm, I work with them, with the attorneys. I don't do the trust. Okay. They're the ones that provide the trust to you, you, but I'm the gateway to get there.
[00:40:54] Speaker B: Okay, gotcha. So reach out to you for more questions on how to do this.
And we do have a final three set of questions or final set of three questions that we ask everyone at the end of every show. I'm going to tailor them, tweak them a little bit for you. So first question, what advice would you give 20 year old dawn if you knew then what you know now?
[00:41:19] Speaker C: The biggest thing would be that if you find a deal, if the numbers work, you can always find money.
That was very difficult for me to conceptualize when I started my real estate investing career. It stopped me for a number of years because of that self limiting belief. Then I realized there's so many people out there that want to invest in real estate. As long as you can find the deal, which is the hardest part, you can find the money.
[00:41:48] Speaker B: Finding the deal is the hardest part. Totally agree with that.
And number two, what advice would you give a new short term rental or vacation rental investor who's looking to get started today? Weird time in real estate.
[00:42:03] Speaker C: I would say that if don't overpay is a big thing because I went through the Great Recession and I can't tell you how many, how much money I made off of people that over leveraged their properties and bought way too high, thinking that it was always going to go up and it didn't go, it went down. There's always a market correction.
So think, at least think medium term and not only. Well, don't assume it's always going to appreciate. Try to build value into your, your investment a little bit of a cushion if you can, if it's possible. That's why I like foreclosures so much because I could create, you know, some, some cushion when it came to price. I didn't have to rely on only appreciation.
[00:42:52] Speaker B: Yeah, yeah, I agree with that.
And I really think that buyers in the last few years have been artificially conditioned to expect a lot of appreciation in a very short period of time.
And that's not real life.
[00:43:07] Speaker C: Right, I agree.
[00:43:10] Speaker B: Okay, last question, Don, what's your favorite book that's impacted your mindset?
[00:43:14] Speaker C: Very first investment book I ever read. I think, you know what I'm going to say. It's they can grow rich.
That's, I mean, it is, it is absolutely the Bible when it comes to investing. And for me, real estate, that was my vehicle of choice because it's so true. And the theme of that book, if I only could take one snippet from that book, I would say go back and read it where he's talking about the guy who had a gold mine and he left three feet from hitting a huge strike because he quit too soon.
Now the good news is that that guy ended up turning, turning around and learning from that and becoming one of the best life insurance agents in the country at the time.
So good for him for learning that lesson instead of going off and becoming, you know, a hopeless drunk. And, you know, but, but the biggest thing I would say is it took me two years to make my first deal. Two years.
And my, and you think I was getting flack from my wife and my mother in law about what are you doing? What are you doing?
2002, nada. 2003, I think I made 20,000. 2004, I made almost a million.
[00:44:27] Speaker B: Whoa.
[00:44:27] Speaker C: You gotta percolate sometimes. You gotta percolate things. You gotta, you know, but once you, when you get it, oh boy, then it's just execution.
[00:44:37] Speaker B: Totally agree with that. And Don, last thing. How can our listeners find you, follow you on social media and learn more about this?
[00:44:46] Speaker C: All right, so on Instagram. I'm more active on Instagram than anywhere else. It's just at Don Thornton. Do H n is my first name. Thornton with an N, not an R, T H O R N T O N. That's the best way to. If you want to see my content, that's where I'm at. I'm also on TikTok, but frankly I don't, I think my message resonates better on, on Instagram. I have many more followers on Instagram than I do on, on TikTok. But yeah, either way you can find me there.
[00:45:14] Speaker B: All right, thank you so much for coming on. This is a really, really interesting topic and listeners, we will see you again next week. It.
