We have a serious disconnect in America concerning what it means to be “educated”. Most people think “college” when they think educated, and therefore millions of college students trudge along, looking to earn a degree that may or may not have earning potential, amassing a ton of student loans along the way.
We think of this college degree as a golden ticket to a life of purpose, meaning, and wealth. I think most people would not consider a person “educated” unless they graduated from the right school. I assume people would think I’m moderately educated because (over 20 years ago) I graduated from a “top-tier” school, according to the U.S. News and World Report. As such, parents push their kids to meet the arbitrary standards set by teachers at public schools, whether or not their kid is interested in that particular subject.
The need to get into the “right” school pushes parents to demand excellence in their kids in the pursuit of “A’s”. In a certain way, this is awesome, as every parent should demand excellence in their kids, and every man should strive for excellence in his life. On the other hand, I think if we’re honest the excellence we’re striving for is not learning that is aimed at (a) generating career success; (b) making one a better citizen; (c) developing spiritual awareness or questions; or (d) acquiring useful knowledge. Instead, modern education demands that students learn facts (and frankly harmful propaganda) that are designed to push them into an educational mill with the idea of getting spit out with the vaunted “degree”, whether or not that degree ends up serving any purpose in their life.
However, one must also admit that our current education is not all downside. We often make the mistake of saying that we never use anything we learned in school in our daily lives. That’s not true at all. I can point to several things I’ve learned in school that still apply today in my personal life and my career as a CFO. For instance, algebra word problems still come up for me all the time as I try to solve financial questions. Frankly, much of my problem-solving skills in general end up being derivative from math problem-solving at all levels. My ability to quickly learn new concepts, laws, regulations, policies, etc. and apply them to our current business are all skills I learned in science, where I had to learn new terms, rules, etc. in biology, chemistry, and physics to apply to a set of test problems. Oddly, I can point to a Hemingway and F. Scott Fitzgerald class in college taught by a professor whose name I’ve long since forgotten, as instructive on how to analyze the words on an author’s page in order to help develop my own philosophy on life (rather than adopt the author’s philosophy as my own).
But let’s admit it. There’s a good deal wrong with our education system, especially as it applies to young men. I really don’t think it prepares them to be good husbands, fathers, and citizens. It certainly doesn’t prepare them to be good Christians, even at most Christian schools. I went to a Catholic law school without any discussion regarding the application of the 10 Commandments, the foundational legal text of Western Civilization. However, I think the problem with education ultimately begins (as most problems do) with us as men. We see the diploma itself as the end goal, rather than the pursuit of useful knowledge. We also view someone with that diploma as educated, rather than demand that person actually has accumulated wisdom.
Look, school is important, and you should learn something along the way. But the vast majority of even college-educated people quit learning the moment they graduate. It’s shocking to read studies on how little Americans read. I saw a Pew Research study that the median (typical) American reads 4 books per year. That’s not going to get it done! Think about how much time that typical American probably spends on TV and social media. No wonder most Americans are so broke, lazy, and immoral.
Let’s try to arrive at a better definition of education. Education is a lifelong habit of the accumulation of wisdom, with the aim of becoming a better citizen. It goes beyond college. Sure, some of that wisdom should help you with your career. It’s extremely important to learn math, science, english, etc. in order to function properly at a job. But it’s just as important that it helps you become a better Christian, husband, father, friend, and member of your community. It’s just as important to your status as a man to learn about emergency tire changes as it is to learn about STEM subjects.
The biggest key to becoming educated is getting into the habit of reading daily. That learning must be lifelong, rather than ending upon the receipt of some sort of a degree. You should be getting wiser each passing day, even after college is over. How do you go about that? First, you must strive to be a lifelong reader. Almost every successful person I’ve ever met is a voracious reader, and they focus on useful information, rather than smut.
Most Americans are avid readers, but the reality is that they read the wrong stuff. They spend their time scrolling useless dribble on the latest social media platform. Back when I was a kid (in the dark ages before social media), everyone would read the latest teen magazines, which were just as much useless crap as social media posts. An important concept is to watch what goes into your mind, as it will find its way into your thoughts and therefore your actions. Therefore, you must have a system for determining how you pick your reading material. You need to focus on acquiring useful information, not useless stuff.
The first measure of value in choosing your reading material is the amount of effort it took for the author to put it together. At a minimum, you should focus your reading efforts on books rather than social media posts, blog posts, magazine and newspaper articles, etc. An author who’s willing to take the time, effort, and expense to write, proof, and publish a book likely has something to say. While there’s a lot of crap books out there, a book is at least evidence that there’s something of value there to put into your mind. Social media posts, for instance, take basically no time to write, require no reflection, and may not even be something the author is ultimately proud of producing. Witness the mass of people who regret “tweets” they’ve made in the past. Don’t participate or spend your time reading that stuff.
Instead, focus on books, as you know there’s been some serious effort there by the author. Also, realize that it’s a lot easier to tell whether a book is good or not after 10 years of it being in print. That’s because you can figure out whether it’s remained popular after all that time, or faded away. There are some incredibly popular books that are deemed revolutionary in the short run, only to peter out over time. Then there are classics that hold their value over long periods of time. OK, so where do you start? After all, it’s obviously important that you choose your reading material wisely.
I think it’s crucial to understand the morality advice of Jesus (start with the Beatitudes) as a framework for all other learning subsequent. We tend to underestimate how revolutionary Jesus’ thought process was, and the impact it’s had since being written. This advice holds even if you’re not currently a believing, practicing Christian. The information is that important, make sure you read it. The Bible is a framework for understanding how the world works and your proper response. In the Book of Proverbs, King Solomon (the wisest person to that point) tells us “The fear of the Lord is the beginning of knowledge, Proverbs 1:7.” If you don’t start with the appropriate understanding of how the world works, which can only be learned through reviewing the Bible, you’re going to have a tough time developing wisdom no matter how much knowledge you acquire. That’s why you see some remarkably smart people saying foolish things, why postmodern thought has taken a hold of society, and why we have silly arguments about things like whether there’s more than 2 genders.
Make sure you set the proper framework of learning by devoting a good portion of your learning to a review of the Bible. It’s best to set aside some time each morning for this study, it’s that important. Don’t just read the Bible, but also treatises on the various books of the Bible by a variety of well researched pastors and authors. Don’t overlook this step, but make sure you spend a great deal of time getting versed in the good book. After all, BIBLE stands for Basic Instructions Before Leaving Earth. I’ve found a ton of benefit reading analysis of the Bible by authors like N.T. Wright, R.C. Sproul, C.S. Lewis, R.K. Chesterton, and Charles Swindoll.
But as robust as the Bible is, you can’t rely on it alone. What else should you be reading? Books in your career area are a great start. As a CFO, I’m constantly reading books about business, M&A, accounting, and law. I’m also reading peripheral books about computers, robotics, marketing, etc. trying to gain an edge that can help me bring value to our company. I read magazine and news articles as well, to stay current, but I always take those with a grain of salt due to the principle of how hard it was for the author to produce those articles. They’re usually spit out quickly and designed to grab attention rather than convey useful information.
But it’s important to go beyond work with your reading. Biographies and history books are really important as well. I’ve always got a lot out of biographies of great men like George Washington, Winston Churchill, Theodore Roosevelt, etc. as it’s a good idea to learn about the habits and thought processes of great men in the past. Strategies employed, and how decisions were made in historical contexts is always good information to have that will be applicable in your own life. It’s important to read a lot about important historical events like wars, economic and business events, and nation formations and falls. For some reason, when it applies to business history, I’ve always found autobiographies of great businessmen to be very useful, particularly in the period of the 2nd half of the 20th century.
There’s a ton of other useful book subjects beyond business and history. Philosophy is another important subject. Classics like Plato and Aristotle are great but don’t neglect news stuff as well. It’s important to understand different frameworks of “how” to think. Scientific books are very interesting. Self-help books are important, but really watch it here, there’s a lot of charlatans out there. I like the classics, Zig Ziglar, Tony Robbins, and anything by Jim Rohn (look for the laters classroom videos on YouTube). Fitness, health, and diet books are important for learning about how to properly take care of your body. Even fiction can be great, as it’s an excellent way for expanding your creative side. As you can see, there are several genres and an endless array of subjects for a man to engage in. Make sure you get into the habit of constantly devouring books, at least 1-2 per month at a minimum.
I’m also a fan of reading a lot of fiction, as this helps expand one’s imagination and develop a more thorough vocabulary. One of the benefits of reading a lot is that you’ll become a better writer as well, which is important for communicating your thoughts, particularly in email. Your reputation as wise, smart, educated, etc. will be determined by how you interact with people in spoken and written words. Make sure you’re becoming ever more clear and concise in your manner of speech. I think often reading fiction is the best way to develop better oral and written speech patterns. But with all reading, make sure you’re taking note of interesting phrases and word combinations, and incorporate those into your own use.
You should also look to invest in your profession by taking seminars and workshops in your area of expertise. These events will usually provide information in a high-energy setting while allowing you also to network in your line of work. You need to do some digging here to make sure you’re attending high-quality events, but these can be really good for your development.
Furthermore, workshops for life outside of work in marriage, Christian faith, self-defense, health, etc. are all worthwhile pursuits that can make you a better overall man. It is worth investing some time and money in subjects that will enhance your life and make you a better man, husband, father, and citizen. You’ll often find these offered for a very low cost at your local church. For instance, the Dave Ramsey financial classes have helped millions of people get out of debt and become financially independent and responsible. Most churches offer a number of other such classes as well, which will put you into contact with others who are looking to improve themselves.
There’s also now a lot of virtual options for learning. You can take classes from all around the world on an infinite number of topics from the convenience of your own home. I’m always a little skeptical of virtual anything, as I feel in-person interaction is always best, but these virtual class options are great for learning specific subjects. For instance, the online class company Coursera offers college classes on a variety of subjects for a remarkably low price. Make sure you check out all the educational options available to you.
It’s imperative that you think beyond college in terms of becoming “educated”. Yes, college is an important consideration, but it’s frankly not even a requirement for being educated. Furthermore, one’s education certainly does not stop once one receives a diploma. Lifelong learning is crucial to one’s development as a man. Turn off the TV, put down the phone, and pick up a book. Make sure you’re reading the right books, listening to the right books, and filling your mind with positive information designed to make you a wiser man. It’ll certainly help you in your career but will improve your value as a husband, father, and citizen.
| Swing 20 reps | Swing 20 reps | Swing 20 reps |
| One goblet squat | One TGU each hand | 5 5 Sec Pushups |
| Swing 20 reps | Swing 20 reps | Swing 20 reps |
| Two goblet squats | One TGU each hand | 5 5 Sec Pushups |
| Swing 20 reps | Swing 20 reps | Swing 20 reps |
| Three goblet squats | One TGU each hand | 5 5 Sec Pushups |
| Swing 20 reps | Swing 20 reps | Swing 20 reps |
| Four Goblet Squats | One TGU each hand | 5 5 Sec Pushups |
| Swing 20 reps | Swing 20 reps | Swing 20 reps |
| Rest | Rest | Rest |
Warmup
Goblet Complex for 3 rounds
Goblet Squats x 10
Standing Press 3-6 (each arm)
Swing Complex for 5 rounds
20 Swings
6 pushups
30 seconds rest
Carry Complex
Waiter Carry for 1 minute 3 presses
Rack Carry for 1 minutes 3 presses
Farmer Carry for 1 minute 3 presses
One of the biggest mistakes I’ve made in life is to stop participating in martial combat sports after college, and not picking it back up again until my late 30’s. I’ve since participated in Kempo and Brazilian Jiu-Jitsu, and am now heavily involved in the latter, training 3-5 days a week and competing in tournaments.
By martial combat, I mean any sport involving physical imposition on a competitor. This would obviously include martial arts (i.e. Brazilian Jiu-Jitsu, karate, etc.) but would also include boxing and various forms of wrestling. Hence why I’m using the term martial combat sports and not just martial arts. A man’s life will be lacking without martial combat sports in it.
Martial combat is an essential function of man from the beginning of time. Certainly the Bible, but all ancient works, generally include references to the martial combat feats of men. The men of a society were expected to train in various methods for the defense of their homes. For good reason! The history of the world is basically the imposition of one group’s will upon another. Society has therefore demanded that men train in an effort to be ready for attack, whenever it may come. Your family and community, likewise, depend on your readiness for defense.
You see this in several famous examples. Wrestling and boxing in Greece, various famous martial arts from China (i.e. kung-fu, Shaolin fighting styles, etc. ) and those from Japan (judo, jujitsu, swordsmanship, etc.) are probably the most famous ancient examples. When you look deeper, there existed martial arts in every civilization, and you’ll find diverse examples from African, Indian, Russian, and Native American societies, among others. Some of these martial arts involve weapons, some not. The ultimate purpose was the same. Train young (and older) men in the society to be ready for armed combat should the need for protection of the society arise.
The rise of the state, slowly over time, has issued an odd disconnect. The common man has outsourced his protection to military and police apparatuses at the expense of his own sovereignty. If we are attacked by a foreign threat, we send the Armed Forces. If there’s a robbery, you call the police. We don’t feel the NEED to defend ourselves, as a first response. There’s someone else to do it for us.
This leads to problems. Since we outsource our protection, we lose control over its aims. Hence we see long, drawn-out wars fought in other countries, generating a never-ending cycle of animosity between Americans and foreign people who (absent their respective states) would have no grievances against each other. We see laws enforced, and people imprisoned, for crimes that hurt no one (except themselves). That’s not to mention the lesser frustration of getting speeding tickets for going a speed we know is safe. There’s an ever-growing cycle of dependency that extends beyond physical protection to economic protection (the welfare state), emotional protection (safe spaces), and equity protection (the “woke” movement). Its origin is the lack of self-sufficiency we’ve developed as communities. As it relates to defense, the fault rests solely on the shoulders of men. We can’t even defend ourselves, how can we possibly defend our families, communities, and nation?
This leads to personal issues in personal and business relationships, especially as it relates to other men. Deep down, we know that conflict resolution may ultimately end up in a physical confrontation. The neighbor complaining about your kid’s ball going over the fence, the co-worker who shirks responsibilities off to you, or the panhandler asking for money. These are all seemingly innocuous situations, but deep down every man has a gut reaction that things could go south in a hurry. Self-defense training, for some reason, gives one an extra sense of calm in these everyday situations that the untrained man lacks.
How about the jerk saying something rude to your wife on the street, or the crazy driver who tailgates you for some accidental grievance on the road, or the drunk guy who brazenly cuts ahead of you in line at the convenience store? I think we can agree it’s probably not best for you to automatically escalate these situations to physical violence, but shouldn’t you correct the rude behavior? If you’re not sure you can defend yourself, how can you possibly correct the situation without putting yourself at obvious risk of injury?
Now escalate a little. What about the mugging attempt while you and your wife are out on a date? What about the break-in home invasion? What about the psycho who opens fire in the mall when you’re shopping? Obviously, these situations call for additional armament (which I’ll get to in a second) but the concept is the same. Absent any sort of self-defense training, you’re at the mercy of evil. No cop is coming to save you. You can’t outsource immediate self-defense needs, even if you fool yourself that you can.
The better trained a man is in some form of self-defense, the more self-assured he will be in everyday life. While you may (let’s hope) never be robbed or subject to a home invasion, self-defense will provide you confidence that you can navigate evil in this world in a much better fashion. You’ll also make the community around you a little less susceptible to danger. Suffice to say, if every man took this advice, we’d have no logical need for the state to provide police protection in our communities, for the betterment of our neighborhoods.
Self-defense training has other benefits as well. I notice that I’m more confident and assertive with other people. My negotiating skills have improved. I also notice that my focus at work improves significantly on days where I roll jiu-jitsu beforehand, noticeably more so than when I just run or lift weights. I can go on, but suffice to say there are significant side benefits to martial combat sports beyond self-defense training. I think martial combat sports offer a connection between physical training (i.e. lifting weights, running, etc.) and educational training that somehow enriches both. I find that I learn better and train better because I’m participating in jiu-jitsu.
So, how do you get started? First, you’re going to need to pick a martial combat sport. Far from a conversation about which one is best for self-defense, you should consider a combination of factors including (a) self-defense applicability; (b) tournament availability; and (c) community.
The truth is, with few exceptions, most martial art will work for self-defense. Arguments go back and forth as to whether straight boxing, Brazilian Jiu-Jitsu, various karate forms, Krav Maga, or {insert your favorite martial art here} are the best. However, the truth is all the forms listed, plus dozens of others will do. Most self-defense scenarios you run into will involve untrained attackers, and evening the odds can be done with a variety of martial combat methods. More important is whether the form suits your tastes and is something you’ll stick with. Also, note that there are many facilities, like MMA gyms, where you can participate in a variety of art forms to see what you like best. Just remember that it’s probably best to focus on one method eventually. There’s an old saying that I’d rather practice one move 10,000 times than 10,000 moves one time.
You need to pick a martial combat sport that offers competitive tournaments. There’s a couple of reasons that tournaments are so important, no matter your age. First, it offers a purpose and seriousness to your training. My buddy at jiu-jitsu (a white belt in his 40’s like me) just signed up for his first tournament. He described that it sets a deadline for his training, whereby he needs to learn some passes and a submission or two in the 6 weeks remaining until the tournament. Second, it forces you to eat and lift appropriately, since with weight classes there’s a benefit to being strong while lean. Don’t worry if you’re older, because tournaments will usually offer age divisions.
Finally, it’s important to pick a sport with a good community that suits you. You’re not going to continue to go and train if you don’t like the people around you. This means you may need to try a few places until you find the right crowd for you. Your training is a journey, and you want to make sure you’re taking that journey with the right people, otherwise, you’re likely to quit.
I picked Brazilian Jiu-Jitsu, and I think that’s currently the best place to start, and I’ll give you several reasons. First of all, Brazilian Jiu-Jitsu or BJJ is an amazing self-defense tool. It lacks striking, but you can easily make that up by hitting the back and setting up sparring sessions with your buddies. I recommend doing so with boxing gloves and football helmets on your knees for safety. The great thing about BJJ is that because of the lack of striking, you can go 100% in training sessions without significant risk of injury. It’s also extremely popular, with a ton of schools you can choose from. I believe it also is the most popular in terms of tournaments, there seems to be more and more popping up each year, so you’ll be able to test yourself. Finally, the community is really great, and the schools I’ve been to all have a wide variety of men and women of various ages working hard to better themselves. Again, most martial combat sports can work, but if you don’t have a preference, I’d suggest you check out Brazilian Jiu-Jitsu.
I’m going to now transition to thoughts on firearms. First of all, I think it’s the responsibility of all men to be armed and ready to defend your community against threats. I think the mass shooting epidemic in the U.S. is tragic, and I think some of it would be prevented if mass shooters operated under the assumption that people would shoot back if they opened fire in public. So yes, you should be armed, carrying concealed, and ready if called upon.
That being said, I am insistent that men should train a martial combat sport in addition to carrying concealed, and that being armed is (a) no substitute for self-defense training and (b) will be enhanced by self-defense training. Most of us aren’t able to train shooting often enough to become extremely proficient shooters, and spending significant time in military-style stress-simulated training is unrealistic for most men. In addition, most situations are best handled with non-fatal self-defense techniques as opposed to shooting someone. You also will not get most of the benefits of martial combat training listed above just from packing a gun. Finally, the stress management afforded by self-defense training would be very useful should you run into the need to pull your weapon. Make sure you practice shooting and develop accuracy with your weapons, but the reality is that martial combat sport training is needed as well, and is more important to your overall development as a man.
You can’t reach your full potential as a man without martial combat sports training. It’s time to find and join a gym. If you’re a father, it’s crucial to get your sons and daughters involved as well, especially as they enter high school. I would consider football (or rugby) a martial combat sport, but otherwise, kids need to participate in self-defense training. This is important at any age, but particularly so for young men in their 20’s, who have a tendency to get soft after high school or college sports are over. Martial combat sports will help avoid this and are worth keeping up as long as you can. There are guys in their 60’s at my jiu-jitsu school, and I’ve heard of guys rolling into their late 80’s. It will keep you young, strong, and focused. Do it!
The good news about life is that it’s all your fault. By that, I mean you can assume that everything that’s gone wrong in your life is your fault. This is really the best philosophy you can have regarding personal responsibility, because if everything’s your fault, then by default you have control over every aspect of your life, and can make the changes necessary to improve your circumstances.
Do you have a crappy job or boss? It’s your fault. You haven’t got the skills necessary to add the value necessary to earn more. This is despite the lower prices of the information necessary to get these skills from a library or online. You’re one skill away from a new job or position that will make your life so much better. Quit wasting your time with video games and social media and get more skills.
You’re broke? Your fault. You spend more than you make on stupid trinkets that add no value to your life. You also don’t make enough money, so please see the preceding paragraph for the solution.
Have a terrible marriage? Your fault. You’re most likely overweight, rude, and uninspiring. Why would any woman want to be with you? Get in the gym, clean up your attitude and pursue excellence. Watch your marriage change.
Stop telling yourself you’re fat because of your thyroid. You eat too much and don’t work out. It’s that simple.
Quit deceiving yourself that you aren’t in a relationship because there are no good women out there. You’re an out of shape loser who can’t support a family. Own it and get better.
Don’t blame your lack of a good career on your company not providing training. You don’t have any lucrative skills, so you don’t add value. Get out there and get better.
The vast majority of men have an excuse for everything wrong in their life. There’s always someone to blame, something that prevents their success, and some force holding them back. Don’t let this be you.
Now let’s get an obvious flaw in my argument out there. What about circumstances obviously beyond your control? What about a wife who gets cancer? What about the death of a child? How about a parent who has Alzheimer’s.
There’s been thousands of sermons by excellent pastors on the topic of why God allows tragedies like these. I’ve got nothing to add, and would encourage you to seek some of these out to get the answers you’re looking for. I’m not privy to God’s plans, nor do I deserve to be.
I do want to put a couple of points forward, however. First of all, the Bible makes clear that the reason for all these tragic events is a broken world caused by human sin. You and I contribute heavily to that sin problem, and we both should take responsibility and act more virtuously as a result.
Second, I think a lot of times we pretend that something very well within our control is an Act of God. For instance, how many overweight men seem bewildered by their health problems? How many men ascribe credit card debt to “emergencies” rather than overspending. How many lazy employees who are in the bottom 10% of the workforce attribute layoffs to corporate greed.
I’m not saying that there’s absolutely no situation or circumstance beyond your control. The point is that you need to be very careful in determining what is and is not within your control, and operate under the assumption that it’s all your fault.
You also need to be very mindful of your response in dealing with circumstances beyond your immediate control (whether or not you were at fault). You may have lost control of a circumstance, but that doesn’t mean you don’t have immediate control over what you do next.
Lost your job? Immediately reach out to contacts, send out resumes and pick up a night and weekend gig to temporarily bring in extra cash. Don’t sit on your rear end blaming your old company. That ship has sailed, and it’s time to swim to shore.
You’re sick? Time to adopt a healthy, organic diet and cut any sort of processed food out. Also, time to work out to the best of your ability, even if that’s only a walk around the block.
You’re in debt because you spend more than you make. End of story. Cut spending, work extra jobs at night and on weekends, and pay off your debt.
Be very careful about declaring ANY part of your life beyond your control. Yes, as a Christian I believe God is ultimately in control, but I also know that God operates on a spectrum that transcends time and human understanding. Meanwhile, it’s up to me to use the wisdom he’s given to live up to my potential. I owe that to God, myself, and my family.
The integrity of the upright guides them, but the crookedness of the treacherous destroys them; PROVERBS 11:3
Truth is the most important facet of a man’s existence. By that, I mean that you can’t be successful, by any measure, unless you learn to honor and accept truth, and demand honesty of yourself.
That means first and foremost, don’t lie, to yourselves or others. That also means tell the whole truth, because a half-truth (or half-lie depending on how you look at it) is just as bad as lying.
The problem with dishonesty is not so much the isolated act. There’s plenty of people who lie here and there and get away with it, or so it seems. The problem is that dishonesty changes how you approach your life and what actions you take. If you know that lying is an option, you will tend to procrastinate, take shortcuts, and engage in disreputable activity.
A man who lies will be fine with taking off early instead of finishing an important project at work, because he believes he can lie his way out of it. A married man who’s dishonest will hang out at the strip club, because odds are he won’t get caught even if asked directly. A man who doesn’t care about the truth will steal from his clients or employer, because records can always be falsified.
Lying begets lying, and someone who lives with any dishonesty will accept more dishonesty over time. M. Scott Peck wrote, “The more honest one is, the easier it is to continue being honest, just as the more lies one has told, the more necessary it is to lie again.” That’s so true. Honesty (like so many things in life) is like a muscle that becomes stronger with use. Unfortunately, lying is like a muscle as well, if you choose that path. For most men, their lying muscles are much more developed than their honesty muscles. Any allowance for dishonesty in your life will bring more dishonesty in your life.
The problem is that little lies turn into big lies, and pretty soon a man can find himself in a world of hurt of his own making. He won’t have the discipline to lead the type of life that leads to success, because he constantly lies to avoid any difficult situation. But those difficult situations are the crucibles that life gives us in order to shape us into men. Lying may seem like a way to avoid discomfort, but it quickly turns your whole life to hell.
The honest man lives a vastly different life. He knows that lying is not an option for him. He knows that it’s not worth lying about even little things. Little white lies can lead to bigger fibs, which can lead to bald-faced lies that can lead a man straight to ruin.
The honest man knows he can’t sneak an extra piece of fruit from his cafeteria at work, despite payment being on the honor system. Yes, no one will know, but the honest man knows that if he won’t steal a piece of fruit, then there’s no way he’ll pad his expense report, and there’s absolutely no way he’ll embezzle money from his employer.
The honest man never looks at pornography or goes to a strip club, and therefore he’ll never be tempted to strike up a conversation with someone who’s not his wife, and therefore there’s no way he’ll ever be a cheater and ruin his family.
The honest man won’t make up excuses for shoddy work to his clients, so there’s no way he’ll even think about billing them for unperformed or unnecessary services, much less steal from them (or anyone else) outright.
There’s millions of possible examples here, but you get my point that small lies lead to larger lies that lead to eventual ruin, in this life or the next. Don’t ever resort to lying about anything, because it’ll force you to be honest about everything. These might seem like large leaps, but I’ve found that everyone I’ve known who gets caught in lies that ended up ruining their life can trace their downfall to small lies that quickly become bigger lies that eventually lead them to their doom.
What you’ll find when you adopt this philosophy is that it’s actually very hard to be 100% honest all the time. Yes, it’s easy to not directly lie when asked a direct question about something. For instance, if asked by your wife where you were yesterday at 2pm, it’s pretty easy to say “I was at the mall”.
However, second order honesty, which is to try to answer the question behind the question, takes more effort. For instance, say that in the situation above you were at the mall spending $250 you don’t have on a new trinket you don’t need. Second order honesty requires that you anticipate the question behind the question and admit the needless spending. Even better is to admit your sin before being questioned. That’s the ultimate level of honesty. This approach forces you to think hard prior to spending that money because lying about it isn’t an option.
Why is this required? Who cares? Second order honesty requires that you not only tell the truth, but also present all available information to give the asker a true sense of what the truth really is, preferably without even being asked. It ensures that those you care about and whom you want to influence are aware of all relevant facts that could influence their opinion of your actions. It’s very difficult to actually think about all the variables that could affect the other person’s understanding of the situation.
Why do this? Isn’t it good enough to just tell the truth in general? Why subject yourself to such a high standard of veracity?
Now the good news. The reason for this level of honesty in your life is that it will force you to live your life, and conduct yourself, in an extremely moral and virtuous manner. This will benefit you significantly over time as a man, as you will gain more trust and respect from everyone in your life over time. Your life, (and your family’s life) will be better emotionally, spiritually, relationally, and financially as a result.
You will develop a reputation as someone who can be trusted, and that will serve you well over the course of your life. You’ll develop better relationships with people and you’ll have opportunities you would not otherwise have access to. People will look to you as a leader, because on a most basic level people want to follow someone who will be honest with them in all circumstances.
Jesus, in the Parable of the Shrewd Manager, says “whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much.” (Luke 16:10). Great advice. You should focus on becoming more honest all the time, on smaller and smaller things. This is the essence of this lesson, make sure you understand and implement this in your life. Become more and more honest all the time. Again, honesty is like a muscle that you must train, to crowd out dishonesty.
How about when honesty is going to hurt someone’s feelings? That’s a tough situation we run into all the time. What about when you need to reprimand a poor performer you manage? What happens if a friend is acting inappropriately? What if you’re breaking up with a girlfriend (remember, you don’t get to do that with a wife)?
The first thing to remember is that honesty is still important, even when dealing with the feelings of others. At the same time, it’s fine to say something in a compassionate way that minimizes the hurt. However, it is never acceptable to lie to another person as a way to avoid conflict. Your life, and that person’s life will ultimately be better for the truth coming out. Don’t lead a dishonest life, not even a little, because you want to preserve someone else’s feelings. This is especially true when avoiding the truth would enable inappropriate behavior that harms the other person.
I want to take a little time to touch on the area of honesty in relationships. So many times young men hold on to toxic relationships they’d rather get out of to avoid hurting their girlfriends’ feelings. Realize that when you do this, you’re wasting both parties’ time, which could be spend improving oneself and finding a more suitable partner. Staying in a relationship you know won’t ever lead to marriage will devalue you as a potential mate to someone else. You’ll not be engaged in the activities that will ultimately make you more attractive to higher-quality women. It is also cruel to the person you’re currently dating, as it doesn’t allow them to move on. Both of you are only young for so long, and it’s especially important for women to not sit in a relationship that’s going nowhere. Be a man, tell the truth, and end it.
Note that this is one of the reasons that having sex prior to marriage is such a bad idea. Sex is a cosmic connection to another individual that bonds you for life, regardless of what others say. Sometimes that bond creates a tangible connection, ie a child or even an STD. However, it always creates an emotional connection, which makes any potential breakup worse and harder to complete. Even worse is moving in with someone, which creates an added layer of complexity that makes being honest about a dead-end relationship even more difficult. Don’t listen to popular advice, and don’t put yourself in these situations. If you’re in a relationship where you have no plans to marry your girlfriend, be honest right now, and get out, for both your sakes.
Honesty needs to be a cornerstone of your philosophy. You need to realize that it exists on a continuum, and you must work on getting more and more honest all the time. You’ll quickly find your life-changing for the positive if you follow this path.
One aspect of wealth management you’ll need to consider sooner rather than later is estate planning. This refers to controlling what happens after your death to your assets for the best interests of your loved ones. You pick who will manage your assets, and act in your place for the benefit of your family.
It’s extremely important to have some form of a plan in place. In fact, if you don’t have a plan, you can do so today, even without an attorney. Eventually, it’s important to have a formal plan put in place, which I’d recommend once you’re out of debt and have an emergency fund. But for now, I’ll walk you through what you need to do in order to get a simple plan in place. Then, I’ll walk you through what an advanced plan would look like, and at what stage in your wealth journey you should consider having such a plan drafted.
The first thing you need is a will. You’ve probably heard the term probate, and probably in a negative context. Probate is the court ordered administration of your estate after your death. A will is your instructions to the judge on how you want your estate handled. In some states, like California, probate is very expensive, and it makes sense to use a Revocable Living Trust to avoid it. In Texas, where I live, probate is not so onerous, and a will is fine, although more affluent people, as with a net worth of more than $1 million, might still want to avoid probate for privacy reasons.
You can write a will by hand, right now if you’d like, sign and date it, and have a valid legal document called a holographic will. You can also go to several websites and order one. You could also type “free {Insert Your State} will” into your favorite search engine as well, and come up with a will as well. Would an estate planning attorney be better? Yes, but I’d rather you have something in place rather than nothing.
In your will you’ll need to choose the following, at a minimum:
In addition to your will, you’re going to need a power of attorney. There are two specific types of these documents that you’ll need. The first, a Durable Power of Attorney, allows you to pick an agent to make financial decisions for you in the event you’re incapacitated. The second, a Health Care Power of Attorney, allows you to choose an agent to make health care decisions for you in the event you’re incapacitated.
For your Durable Power of Attorney, you can get a free template by typing “{Your State} Statutory Durable Power of Attorney” in a search engine. You’ll need to decide the following:
You’ll also need to draw up a Health Care Power of Attorney, which is often called an Advanced Directive or Living Will. This is a document that allows you to control your healthcare choices in the event of your incapacity. Again, you can find a free version on the internet. You’ll need to make decisions such as:
It’s crucial, whatever your current financial situation, to get started with a will, a durable power of attorney, and a healthcare power of attorney. Those documents form the foundation of a basic estate plan, and will ensure your loved ones are taken care of after your incapacity or death. What I’ve described above can also be had for free, by a basic internet search, so there’s no excuse for not getting them completed. You could go to a legal form site, like uslegalforms.com or something similar, but candidly, I find that even I have to modify their forms.
At some point, you’ll want these documents handled by a professional estate planning attorney. A good rule of thumb is for this to happen when you have a million-dollar net worth, although it’s certainly prudent to do much earlier. It’s a cost that’s well worth the investment, provided you find a competent, qualified attorney. The challenge with this, of course, is how to know you’ve found a competent qualified attorney. The first step is to select someone who specializes in estate planning. You don’t want someone focused on divorce one day, then car accidents the next, then dabbling in criminal law. No, you want someone who does estate planning day in and day out. In addition, you should look for someone who invests in joining a nationwide estate planning group, like WealthCounsel (www.wealthcounsel.com), so you can be sure they spend the time and resources to have a well-run, proper estate planning practice.
If you’ve followed my advice, you’ve already got a will in place. However, an estate planning attorney can help you set up your plan to form a “trust” after your death in order to take care of your family in a much better manner. A trust is a legal document that creates an entity, sort of like the personal version of a corporation. The grantor, which is you, puts assets into the trust. The trustee is the person you choose to manage assets after you’re gone for your spouse and children. Your beneficiaries are your spouse and children, and any others who benefit from the trust at the time you specify.
By keeping assets in trust, you protect your loved ones by making sure the money is available when needed, and not foolishly spent or wasted. You can also set up a trust to protect your loved ones against creditors, divorce, and bankruptcy. While people often criticize trusts as “controlling from the grave”, in reality you’re just protecting those who deserve your protection.
When you go to see an estate planning attorney, a question you’ll need to address is whether to step up to an actual revocable living trust, or to stick with a will-based estate plan. A revocable living trust is a trust you set up during your lifetime, that will pass assets in trust to your loved ones after your death. The advantages to a revocable living trust, compared to a will, are (a) avoiding probate and (b) privacy.
As described above, probate is the court ordered administration of an estate. A revocable living trust avoids probate, because you move assets out of your estate when you “fund” your trust. To fund a trust simply means to title assets in the name of your trust. You’ll title your house, bank accounts, investments, etc. in the name of your trust. Thus, you will no longer own the assets, but they will instead be titled in the name of your revocable living trust. When you die, your probate estate will have nothing in it, thus no need for probate. The advantage of this is time and expense. In some states, such as California, probate can often cost 5% of the gross value of your estate and take 12-18 months. That’s definitely something to avoid, because your assets will be tied up during that process, and not particularly accessible to your loved ones. In other states, the probate process is not as expensive and time consuming, so a revocable living trust is not as necessary from that perspective.
Another reason for using a revocable living trust, versus a will, is the public nature of the probate process. Anyone can go down to the courthouse and view anything about any probate case. That would include assets, beneficiaries, etc. If you’re worried about that, then it might be a good idea to use a revocable living trust to avoid probate.
Whether you use a revocable living trust or a will, it’s crucial that your assets continue in trust for the benefit of your loved ones after your death. This is a useful tool for making sure assets are available when needed. You can also use a trust to protect your beneficiaries from creditors, divorce bankruptcy, and themselves. A trust used to receive inherited or gifted assets is one of the most powerful asset protection tools available.
Say one of your kids goes through a bankruptcy. Normally, all of their assets will be controlled by the bankruptcy court and sold to pay their debts (with some exceptions, called “exemptions”). A trust, properly drafted, is not an asset of your child, and would not go through the bankruptcy process. Instead, your trustee would be able to hold assets inside the trust, until the bankruptcy situation is resolved through the court system.
Since you’re going to hold assets in trust for your loved ones, it’s extremely important to consider your choice of trustee. In my experience, individual trustees are susceptible to persuasion from beneficiaries to distribute assets in a manner contrary to how the grantor (usually their parent) would have wanted. From the trustee’s perspective, they don’t want to argue with beneficiaries or face the possibility of a lawsuit from a disgruntled beneficiary, so they usually just give in. There are a couple solutions to this problem.
First, it makes sense to consider the use of a corporate trustee. This is a trust company that specializes in managing trusts for the benefit of beneficiaries. These companies are often attached to banks, and have the advantage of lasting forever. You don’t have to worry about picking successor trustees, as the company will always be there. If the trust company merges with another company, the new company will become your trustee. If the trust company goes out of business, your trust will contain a mechanism for picking a new trust company.
Second, you should spell out your intentions for how your assets should be distributed in a Letter of Wishes. This is a set of instructions for your trustee on how you would expect distributions from the trust to go to your beneficiaries. It’s also useful for setting the expectations of your beneficiaries. The default standard in trusts is to make distributions to your beneficiaries for their “health, education, maintenance, and support”. This is a pretty broad standard, and you can imagine how this could get confusing for your beneficiaries. A Letter of Wishes is a much more descriptive approach, and will yield better results. It also provides a great deal of comfort, if you select a corporate trustee, knowing that you’ve outlined a detailed method for making distributions. You can also appoint a trusted friend or family member, called a trust protector, to enforce the terms of the Letter of Wishes and ensure your wishes are being followed.
Another important consideration is when your beneficiaries can manage assets by themselves. In the case of your spouse, you (and they) may be okay with them managing the trust immediately, and they can serve as their own trustee. Why wouldn’t the trust just end and they manage assets themselves? Because you’d want to maintain the asset protection structure of the trust, and any hassle associated with managing the trust is offset by this characteristic.
When it comes to your kids, and any other beneficiary you might choose to leave assets to, the situation becomes a little murkier. If your kids are adults, you probably know whether they manage assets well and can choose whether to have them serve as their own trustee accordingly. With minor children, it’s a little more difficult. A common choice is to have a corporate trustee serve in the event of your death up until they reach a certain age, such as 35, where they are likely to reach a more financially mature state. The danger, of course, is that they may be a complete spendthrift and blow through the trust. It’s perfectly acceptable to keep assets in trust for your kids for the duration of their lives, as it ensures the assets will always be there for them.
Advanced planning such as this should only be done through a qualified attorney, and you should not try to do it through an online do-it-yourself system. These are complex documents, with tax and legal implications that are well beyond the scope of this book. It’s crucial not to make mistakes that can cost your family significant dollars down the road.
Once your assets start growing, your net worth may get to the point where estate taxes become a concern. My feeling is that you need to start worrying about estate tax planning when your estate grows beyond $5 million. Currently the estate tax exemption is $11.58 million per person, and amounts above that are subject to a 40% tax. This means married couples can shield $23.16 million from estate taxes. As you can imagine, the vast majority of estates will never pay an estate tax. Still, I’ll outline some simple estate tax planning techniques, as the estate tax exemption is fluid, and could lower at any time. In addition, one should engage in estate tax planning prior to reaching the actual estate tax exemption because (a) your estate will likely grow over time if you follow the advice in this book and (b) estate tax planning has side asset protection benefits. However, it’s also very expensive when done right, hence my advice not to bother until your net worth is north of $5 million.
The general way in which estate taxes are reduced is by gifting assets out of your estate. First of all, you are allowed to give up to $15,000 to as many different people as you’d like. Your spouse has this ability as well. As such, a couple with 3 children could give up to $90,000 per year (2 spouses x $15,000 x 3 kids). In addition, you are allowed to use your $11.58 million estate tax exemption while you’re alive as a gift. The advantage of this approach is that once assets are gifted, the appreciation occurs outside your estate, and beyond the reach of the IRS.
One of the problems with giving assets to your kids, grandkids, etc. is that they have the assets, and you don’t. They can blow through the money, and end up broke. Worse, if you have a change in fortune, you can’t gain access to the money in an emergency. The solution is an Irrevocable Trust. An Irrevocable Trust is an estate tax planning device that allows you to control, and even access your assets, while removing them from your estate through the gifting process described above.
As with any trust, you can use a trustee to control the distribution of assets to your beneficiaries. Drafted properly, the trust will protect them against creditors, divorce, and bankruptcy. You can also draft an Irrevocable Trust to give yourself a lot of retained rights to control and even benefit from the trust. You can set up trap doors in the trust that allow you to gain access to the assets in the trust, should you lose everything.
A common starting point for trusts is the Spousal Lifetime Access Trust. In this scenario, a husband creates an Irrevocable Trust for his wife, and the wife creates one for her husband. They often remain as trustees of the respective trusts, to enhance their control. Since the wife is the trustee, and main beneficiary of the husband’s trust, and the husband the same for the wife’s trusts, they are able to distribute assets to themselves if necessary. Since kids and grandkids are often also beneficiaries of these trusts, a great deal of money can be gifted into the trusts, and removed from the taxable estates of the husband and wife.
Assets can also be sold to these trusts, in exchange for a low interest rate promissory note. This concept will allow assets to appreciate outside the estate, and also be protected by creditors. All that remains in the taxable estate is the note, which has its original balance and any accrued interest. As long as the assets given to the trust appreciate faster than the interest rate, a great deal of wealth will be transferred outside of the estate.
It’s also a good idea to combine the gifting above with owning one’s assets inside a Limited Liability Company, or LLC. You can give or sell membership units (which are akin to stock in a corporation) to your Irrevocable Trust using the methods described above. This will first of all offer asset protection features, that will protect assets against lawsuits. This asset protection is not foolproof alone, and an explanation is beyond the scope of this book, but suffice to say that properly done, this is a VERY good asset protection strategy once the interests in the LLC are gifted to the Irrevocable Trusts.
Another benefit of gifting LLC membership units owning your assets, rather than the assets themselves, is discounting. LLC membership units have the advantage of being (a) unmarketable and (b) having a lack of control. They are unmarketable because there’s no stock exchange for trading them, like a share of a public company like Amazon. They have a lack of control because the “Operating Agreement”, which contains the rules of the LLC, will state that only the manager (which will likely be you) can decide what to do on behalf of the trust, your beneficiaries themselves will have no say in the matter.
As a result of the limitations, from the perspective of beneficiaries, listed above, gifts of LLCs membership units receive a significant discount. To make the example simple, say you’ve got $1,000,000 of real estate in an LLC, and you give the member units to an LLC. Your attorney would then hire an appraiser to value to LLC units that you’ve just gifted. The appraiser would note the lack of marketability and control and assign a discount that will often be 30% to 40% (or even more in some circumstances). Say the discount in your case was 35%. Practically speaking, this would reduce the value of your $1,000,000 gift by $350,000. This means that $350,000 has moved out of your estate, and into the protective Irrevocable Trust, without incurring any gift or estate tax.
With respect to estate taxes, putting your assets into an LLC, and gifting and selling those LLC units to an Irrevocable Trust is the best method for reducing the estate tax. Doing this early, before you accumulate assets large enough to worry about the estate tax, is the best time for this approach. If you wait until your estate is much larger than the estate tax exemption (or if the exemption declines) it’s much harder to move assets out and have an impact on estate taxes.
Asset Protection has always been a source of wonder and misinformation, in my opinion. You’ll often see ads selling asset protection corporations and the like, with promoters telling you the benefits of investing in their method or strategy. I’ve also noticed that a lot of investment salespeople refer to the product as an “asset protection tool” because it protects your money against downside risk. It’s hard to know what’s real and who to trust in this field, so I’d like to lay it out for you from the perspective of a former estate planning attorney who handled asset protection for clients as well.
Let’s first define what we mean by Asset Protection. Asset Protection is the act of holding your assets in a manner so as to protect them from lawsuits, creditors, and bankruptcy. What one is trying to do here is avoid catastrophic loss due to one of those events happening.
The goal with asset protection is to allow yourself a new start financially should you go through a traumatic financial situation. That could be due to a job loss, medical emergency, lawsuit, etc. You want to make sure you still have something available to start all over with.
First of all, we should not overstate the risk of those events happening in the first place. It’s pretty rare to get sued and for a judgement to be rendered in court. So, while it’s important to think about asset protection, I’d rather not have you spend inordinate amounts of money on it with attorneys, unless (a) you’re for some reason at a higher risk or (b) your assets are VERY large, say above $5 millon. What you’ll see is there’s a bunch of free and low-cost techniques for providing asset protection that will work wonders for you.
Another thing you want to make sure is that your assets aren’t locked up in a manner that generates a poor return. There are certain asset protection techniques, i.e. life insurance, that I can’t recommend due to low returns. You need your assets to continue to grow at high rates in order to ensure your financial freedom down the road.
Also, you don’t want a plan that causes inordinate amounts of annual fees to maintain. Look, if your net worth is $100 million, it’s fine to spend $20,000 annually for trustees, entities fees, insurance, CPA tax returns, etc., because it’s such a small part of your net worth. If your net worth is $1 million however, that same $20,000 is 2% of your net worth, and makes no sense at all. If your net worth is under $1 million, you really want to make sure you’re using as many free techniques as possible, and not spending much at all on asset protection.
I’m going to outline several tools you can use to protect your assets, in increasing order of complexity. I’ll try to outline when you should consider each step as I go along.
The first technique you can use to protect yourself is your state homestead exemption to protect the equity in your home. Each state has different levels of protection afforded by their law, and you can easily find the rules for your state online. In Texas, the protections afforded by the Homestead Exemption are unlimited, meaning all the equity in my home is protected should I be sued. That’s a great benefit of Texas law, and makes paying down my mortgage even more important, because not only do I eliminate risk due to debt, but I get to protect those principal paydown dollars with the Homestead Exemption.
Other states don’t afford as much protection, but each state offers some, and this is a simple tool and benefit of home ownership that’s an important first step.
The Homestead Exemption above is a state bankruptcy exemption, which allows you to “exempt” certain assets from the bankruptcy process. In a bankruptcy, the debtors’ assets are all sold in order to pay off creditors. The debtor is left with certain assets in order to start over. These assets are state bankruptcy exemptions, and are an important consideration in Asset Protection. They vary wildly from state to state, so it’s important to view what’s exempt and the dollar limits of that exemption.
Here’s some common exemptions. You’ll need to research the laws pertaining to your specific state to get a better sense of what’s protected:
Cars;
Personal Property like clothes, pets, guns, instruments;
Health Savings Accounts;
Burial plots;
Pension and Retirement Accounts;
Insurance and Annuities;
Alimony and Child Support; and
Tools of the trade in business.
For most homeowners, the Homestead Exemption is the best asset protection tool you’ll have in your tool kit. A close second is the ERISA protection afforded to 401K and certain types of other qualified retirement plans.
ERISA, or the Employee Retirement Income Security Act of 1974 is a federal United States tax and labor law that places minimum standards for pension plans in private industry. The goal is to make sure that any plans are legitimate, safe (to the extent investments can be made safe) and protected for when workers reach retirement.
A huge aim of ERISA laws is to make sure that a worker’s retirement savings is fully exempt from creditors. A famous example of this in action was O.J. Simpson’s NFL Pension Plan, which was exempt from the plaintiffs of a civil suit against him for the death of Ron Goldman. You may or may not agree with the outcome, but the plan worked exactly the way it was supposed to, an impregnable fortress protecting Mr. Simpson against financial calamity. Note he also was able to protect his house against the lawsuit, as it was located in Florida, through his Homestead Exemption. This asset protection plan, developed at no cost (and maybe not even intentionally by Mr. Simpson) resulted in the protections of millions of dollars’ worth of assets.
So how do you turn on this magical power of ERISA protection for yourself? The truth is you’ve probably got it working for you already. Every employer 401K in America is subject to ERISA protections. Therefore, if you’re investing in your 401K at work, you’re already benefiting from these protections.
Let me revisit the beauty of the 401K to review how great of a wealth building tool this really is. You get to invest with a tax deduction, your employer will often match your investment up to a point, generating a 100% immediate return, the assets grow tax free, and they’re protected against your creditors. The 401K is an amazing wealth building tool. True, the assets are taxable when you withdraw them, but it still serves as a wonderful wealth building tool.
Thus far, we’ve reviewed three asset protection techniques, (1) the Homestead Exemption; (2) State Bankruptcy Exemptions; and (3) 401K and Qualified Plans, that won’t cost you a dime. But what if you have assets that don’t fall into those categories? How can you go about protecting yourself?
The first place to start is with an Umbrella Liability Insurance policy. An Umbrella Policy is designed to “cover you” in the event your other insurance policies (auto, homeowners, etc.) do not. To take a step back, insurance like auto and homeowners (or renters if you don’t own) which are designed to protect you from emergencies, also act as a liability shield in some circumstances, and should be thought of as an asset protection strategy as well. That being said, your umbrella policy is a liability specific form of insurance designed to protect you against getting sued.
Your Umbrella Policy will protect you in two distinct ways. First, it will protect you against having to pay out a liability claim in the case that you are sued. Second it will cover the costs of your attorney defending you in the case of a lawsuit.
As you grow your wealth, you will inevitably become more of a target for lawsuits. That’s natural, because lawyers don’t want to sue broke people. There’s no point going through the expense of a lawsuit against someone from whom you can’t collect. As they say, “you can’t squeeze blood from a stone.” However, once you have assets, and a lawyer knows that, they’ll be much more likely to go through with a lawsuit against you on behalf of someone looking to sue you (legitimate or not).
In the event you are sued, most often the cases will settle long before you end up in court. At that point, you’ll need to cut a check for the settlement amount. Your Umbrella Policy will come in handy right then, and the insurance company will cut the check on your behalf. Most lawsuits will settle for less than your umbrella insurance policy limits, even if the dollar amount of the lawsuit is much higher. Why? Because it’s easy cash. The other side’s lawyer doesn’t want to have to have to go collect from you, they just want the easy cash from your policy.
Your insurance company is going to want to make sure your opponent’s case is legitimate, and that they’re not paying out for a frivolous claim that would have been won in a court of law. Therefore, they’re going to pay to make sure you get a competent lawyer to defend you. They’re also going to pay for this lawyer, less a small deductible to make sure you’ve got skin in the game.
Once you have assets besides your 401K and house, you should go get an Umbrella Insurance policy. They’re not very expensive, and can save you from some real headaches should you run into a lawsuit.
How much insurance should you have? Well, that depends on your assets, and you should certainly have enough to cover those. I’d recommend starting with a $1,000,000 policy, simple because they’re so cheap, relative to the coverage, and that amount will cover 99% of lawsuits.
At some point, and I believe this is when you have a $1M net worth, it becomes counterproductive to cover yourself only with a liability insurance policy. This is because in the event of a lawsuit, the opposing party will be too enticed by your assets, and won’t be willing to settle at your insurance policy limits.
This is when Limited Liability Companies (or “LLCs”) come in handy. An LLC is an artificial business entity, similar to a corporation, that is designed to protect business owners from personal liability should they get sued. The idea is that you are allowed to “limit your liability” to the capital you’ve invested into a business venture.
How does this protect your assets? Well, think of your investments as a business, where you’ve invested cash in order to get a return on real estate, stocks, or any other type of investment. You are allowed to protect your business just like any other business owner.
A Limited Liability Company can protect you in two ways. First, it gives you “outside” creditor protection against lawsuits directly on your business, and the assets inside your business. Second, it gives you “inside” creditor protection, protecting assets inside your LLC against lawsuits against you personally, that have nothing to do with the assets directly inside the LLC.
A good example of outside creditor protection is a slip and fall at one of your investment properties. Say your tenant slips on a loose step. They’re going to claim that your business, specifically the real estate, was unsafe and caused their injury. They’re also going to try to sue you as the owner of the real estate, saying you caused the unsafe condition. If that property is owned by your LLC, rather than you, the lawsuit against you personally will be dismissed, and they’ll only be able to proceed against your LLC.
Inside protection happens when you’re sued personally for something you’ve done. Say you have a contract dispute with someone, and they win a judgement against you for $2,000,000. That’d be pretty rare, to have a contract dispute that high, but let’s just say it happens. Let’s also say your Umbrella Policy doesn’t cover you completely. That plaintiff’s lawyer is going to want to collect against your assets. They’re going to want your real estate, cash, and investments.
However, if those assets are inside an investment LLC, you’ll receive (in many states) the benefits of “Charging Order Protection”. In many states, a plaintiff can’t directly collect assets inside an LLC, they would simply get a Charging Order to collect any distributions made from the LLC to the members (or owners) of the LLC. If no distributions are made, no money can be had. However, while they’re waiting, they must take on the LLC interest covered by their Charging Order.
The plaintiff is likely to settle for much less than the outstanding judgement, just so they can get something. Note that in some states, a creditor can “foreclose” on the LLC when they have a Charging Order, which would force the sale and distribution of assets inside the LLC. However, creditors are much more likely to settle a case than go through a judicial foreclosure process.
You want to speak with your lawyer about what states are best for forming your LLC. Sometimes you may live in a state where the LLC laws don’t really protect you against creditor attack. You may have the option of using another state with more generous laws to protect yourself.
Another thing to consider is whether a “Series” LLC could come into handy for you. A Series LLC is an LLC that can create its own additional series, to hold different assets. All series in a Series LLC are isolated from each other, for liability purposes, such that the assets in one series cannot be used to satisfy a creditor of another series.
That’s pretty confusing, so here’s an example that might help. Imagine a situation where you have 5 rental homes in an LLC, each with $50,000 of equity, for a total of $250,000. Now imagine there’s a slip and fall at one of your properties, and the plaintiff successfully sues you for $250,000.
In a normal scenario, you’d have a judgement against your LLC for $250,000. The equity at all 5 of your properties would be at risk. Maybe the plaintiff could get a court to force the sale of all your properties to satisfy this judgement, ALL of your properties would be at risk.
Now imagine a Series LLC in the same scenario. The plaintiff would only be able to proceed against the series that owns the property in question, and would not be able to secure assets in the other series of the Series LLC. Thus, your potential risk is limited to the $50,000 of equity in the one series that holds the property where the liability occurred.
Not all states allow for a Series LLC, although sometimes you can use an LLC from a state other than yours to get the same benefit. There are also possible tax consequences in certain states where each series is subject to tax consequences that make a Series LLC prohibitively expensive. Therefore, you should speak with your attorney and tax advisor about whether this concept makes sense for you. The Series LLC can be a potentially powerful asset protection technique for you.
Once you’ve got an LLC, the next concept to explore is whether it makes sense to add a layer of protection by having that LLC owned by one or more Irrevocable Trusts. Generally, I think this makes sense when you have over $5,000,000 worth of assets.
As we learned in the chapter on estate planning, an Irrevocable Trust is a trust that is not subject to being revoked by the grantor of the trust, and can be used to move assets out of one’s estate for estate tax planning purposes. Irrevocable Trusts also have the benefit of protecting one’s assets from attack from creditors.
Most states have laws that protect the assets in trust from the creditors of the beneficiary of the trust. The thought behind this is that the grantor should have the right to give assets in a way that prevents them from being taken by creditors of a person other than the grantor. Therefore, if structured properly, the assets will not be taken due to creditors, divorce, or bankruptcy with respect to the beneficiary.
Generally, with trusts, you would be placing assets inside the trust for the purpose of passing them to your kids or grandkids. With asset protection, your Irrevocable Trust will pass those assets to your family eventually, but first you’ll need to have access to those assets for the remainder of your life. YOU need to be a permissible beneficiary of your Irrevocable Trust.
In addition, you need some measure of control over your trust. You need to write in the trust language that tells the trustee when and how to distribute income from the trust to you if you need it. You also need to appoint a trust protector, who can remove and replace your trustee should your trustee not follow your wishes.
Creating an Irrevocable Trust that will allow you to be a beneficiary is rendered difficult, but not impossible, by laws that prevent the use of “Self-Settled” Irrevocable Trusts in most states. This law prevents the grantor of a trust form being the beneficiary of his or her own trust and receiving any asset protection benefits. However, a crafty estate planning lawyer can draft around such laws by creating “trap doors” in your Irrevocable Trust that will allow you to benefit from the assets even if you aren’t technically a beneficiary.
For married couples, an easy way of creating an Irrevocable Trust for asset protection is by using Spousal Lifetime Access Trusts, of “SLATs”. SLATs create two trusts, one by the husband for the benefit of the wife, and one by the wife for the benefit of the husband. Both trusts are Irrevocable, remove assets from the estates of both spouses, and protect assets from the creditors of both spouses. The trusts need terms that are slightly different to avoid the “Reciprocal Trust Doctrine”, which says that trusts with identical terms can be unwound as a sham. In reality, this issue is really easy to avoid by a good attorney.
An important thing to note about Irrevocable Trusts is that you must put assets into such a trust long before an asset protection situation arises. If you put assets into one after a situation arises, that’s called a fraudulent conveyance, and is illegal. Fraudulent conveyances are generally unwound by the courts, and you could be subject to additional civil and criminal penalties for committing such an offense.
I can’t stress how important it is to seek the counsel of a qualified and experienced attorney in creating an Irrevocable Trust for asset protection purposes. These trusts are very useful, and should be part of your plan after you reach a certain amount of wealth. However, they are very technical, and any drafting errors can render them useless. This is not a place to skimp on making sure it’s done right.
If you’ve got a VERY large estate, meaning in excess of $20,000,000, you may want to consider using the benefits of certain states, like South Dakota, Delaware, Nevada, and Wyoming, that have intentionally made their trust and asset protection laws very conducive to wealthy Americans.
These states offer a couple of advantages that are worth considering. This is why you see many wealthy Americans (and foreigners) flocking to these states as a holding place for their family’s estate plans. From a long-term perspective, these states can be very rewarding, but there are downsides to consider as well.
The first benefit is better asset protection laws. These states have intentionally set their laws as favorable as possible in an attempt to attract business and investors to their state. Trusts formed in these jurisdictions are rendered especially immune to attack from creditors.
The second is flexibility. These trusts are easy to amend, or change, to suit changing conditions that affect every family. There is also a process called “decanting” whereby you can take a trust from your home states and “decant”, or pour it out like wine into a new trust (like a wine decanter) with new terms set to your liking.
The third is perpetuity, through the use of a “Dynasty Trust”. Dynasty Trusts in these states have the advantage of lasting forever, without ever incurring the Generation Skipping Transfer Tax, which is a second estate tax that occurs when assets pass from your kids to your grandchildren (and then every generation subsequent). When your wealth is over a certain dollar amount, it makes a lot of sense to pass it down in a way that avoids this, and the fact that trusts in these states can last forever is a huge benefit.
Now the downsides. The first is cost, which is why your wealth needs to be pretty large to justify the use of one of these jurisdictions. Each trust created in one of these states requires a trust in the state. This can add an expense of $5,000 to $10,000 per trust.
The second downside is that you’re bringing in an outsider, the trust company, into your family’s plan. This can be a real pain if the trust company is inflexible, and values “risk management” over your objectives. However, the good news is that the states we’re talking about allow you to significantly limit the influence and power of the trustee in an effort to mitigate this issue.
The third downside is the requirement of a lot of up front and ongoing planning in order to have a successful plan for a perpetual trust. Developing such a plan is beyond the scope of this book, but I’ve written extensively about the subject in my book “Estate Planning that Works”.
In short, the use of favorable asset protection states is a great technique for the ultra-wealthy, but probably not economically feasible for most Americans. Should you ever venture into this arena, be sure you have a very sophisticated attorney and tax advisor.
The techniques listed above will be sufficient for 99.9% of Americans reading this book, however there are additional techniques out there to suit certain situations that are worth mentioning. It would probably be accurate to suggest you shouldn’t consider using them, unless there’s a specific recommendation made by your attorney or tax advisor that there may be some benefit to your particular case.
Offshore Trusts and entities have gained popularity and notoriety over the years as many ultra-wealthy customers have utilized them to avoid creditors. I’ve noticed they most often make the news when a debtor puts their assets into such a trust following a judgement or when heavily in debt. This is called a fraudulent conveyance and is legal, as discussed above. Usually when you hear about someone going to jail after moving assets to a trust to avoid creditors, it’s an offshore trust.
Private Placement Life Insurance (“PPLI”) policies are offshore life insurance policies that allow you to grow assets tax free and borrow against the cash value of the policy. While you can do this with American life insurance policies (I don’t recommend it), the offshore PPLI policies have the advantage of being able to invest in essentially anything, whereas regular policies can only invest in mutual funds. However, the expense of creating and maintaining these policies, and their restrictions on access make them a dangerous proposition for all but the wealthiest in the U.S. The only time I’ve seen them work effectively is for estates worth in excess of $100,000,000.
Captive Insurance Companies are insurance companies owned by a business, that provide liability insurance to that business. The advantage, over traditional insurance companies, is twofold. First, the business gets a customized policy that inexpensively meets its needs providing insurance that is not commonplace (or is cost prohibitive) in the market as a whole. In addition, the owner of the business gets to keep the profits of the insurance company, meaning the premiums paid were not paid out as claims. In addition, his business receives a tax deduction for paying those claims. In theory, it’s like taking money from one pocket and putting it in the other. In practice, it’s a bit expensive to set up a captive company, and is really worth it for a limited subset of business owners with an excess of cash flow looking for tax advantages.
There are always new asset protection strategies beyond what I’ve listed thus far. My recommendation is you should be using all of the items listed above prior to considering exotic strategies. Generally, newfangled asset protection troupes are the brainchild of a promoter looking to make money on a cookie cutter program at the expense of folks generally terrified by the prospects of losing everything. The items listed in this chapter, if used with the guidance of a competent attorney and tax advisor, will protect you just fine.