Main Street Business

#515 The Trifecta System: How The Rich Avoid Taxes

• Mark J Kohler and Mat Sorensen

Share episode

Join Mark J. Kohler in this episode of the Main Street Business Podcast as he simplifies saving taxes and building wealth with the Trifecta System. Learn the basics of legal structures and advanced strategies to protect and grow your assets.

Here are some highlights:

  • Mark introduces the Trifecta and how it can be used to save taxes, build wealth, and leave a legacy.
  • Mark points how the Trifecta is designed for everyone, not just the top 1%.
  • Emphasizes the importance of starting small and growing.
  • Mark maps out his own personal journey using the Trifecta.
  • How to successfully implement the Trifecta for parents' estate.
  • Encourages self-management with the right professional guidance.
  • Proves how the tax savings and protection strategies work in real-world situations.
Speaker 1:

Welcome back everybody. Today we are going to walk through my proven three-part system that anyone can implement to save thousands in taxes and operate just like the wealthy. Now I am a registered CPA attorney, best-selling author, and I've done 10,000 consultations over my career or more and I have personally implemented this three-part system that I've used over and over again to help thousands of clients save taxes, build wealth and protect it. Unfortunately, most people believe building wealth is reserved solely for the top 1%, implementing complex systems and using expensive advisors. But the reality is the best systems that wealthy use are available to every person in America. And today I'm going to walk you through the very best system there is to save thousands on your taxes. And these are the steps I have personally used to help clients build wealth all over the country. And the system we're talking about today is the trifecta. Now let's dive into it.

Speaker 1:

There's three issues that Americans are worried about and stress about in their pursuit of the American dream. These issues are obviously saving taxes, the number one cost in their pursuit of the American dream. These issues are obviously saving taxes the number one cost of their lives. How do I save taxes and do it in an organized way? And then number two how do I build wealth, how do I protect it? How do I grow this wealth so that I can use it in the future? And number three how does it all come together and I'm able to leave a legacy and to use it with privacy and protection? If I can bring those three pieces together, I'm going to maximize the benefits and reduce the exposure. I'm going to get the best result in saving taxes, building wealth and leaving a legacy.

Speaker 1:

The trifecta brings all three of those together. So let's look at it, let's go to the whiteboard and then I'll show you more examples here in a little bit, and you're going to see the power of this and how you can design and build your own trifecta to better live the American dream, save thousands in taxes and build the wealth you've been dreaming of. And you know what's interesting. It's that simple. This is what the wealthy do. They sit down and plan on a regular basis and they want to see it and visualize it so we can build it and enjoy it. Now, as we dive into it as well, I want you to know it's simple, it's elegant, it's because it will grow and expand with you. You may just be starting out with a W-2 and 500 bucks in the bank. Some of you might have 10 rental properties and two businesses and a family of 12. I don't know, the point is, no matter where you're at on your stage of your American dream, the trifecta becomes your framework. It becomes something that's super easy and simple to start with and then expand and build upon. So let's look at it here. This is what the basics are Three parts, as I said, a three-part system.

Speaker 1:

So we're going to start with a foundation of a revocable living trust and I'll explain a little bit more of what that entails and on the left side we're going to have our operations and then on the right side, we're going to put our assets. The operations side creates ordinary income, the type of income that's taxed at the highest rate, and the assets we want to create passive income. We get some different types of tax strategy and money that we can make while we're sleeping. On the operations side, we might have a side hustle, a little LLC. We might have a side hustle, a little LLC. We might have a full-time business, might be an S corporation. We might even have a day job or in a married relationship, or two people with two W-2s. All of this is going to flow down into your trust or your 1040 tax return, just like water flows downhill. That's the left side. So part one is our foundation or our legacy, and part two is our operational income. What are we doing to pay the bills? And then part three is our wealth building. It could be an LLC with some rental property, it could be our IRA, it could be a 401k that we're funding through a day job or a small business, it could be a health savings account. But we're going to start to build wealth in part three. These three parts, when they're all connected, build a tapestry of what the wealthy use to live their American dream, and you can do it too. Now, that was just the beginning. We're going to start to unpack this Now.

Speaker 1:

Let me kind of show you the end of the movie here and show you the crazy Kohler family trifecta and what it might look like. And let's put this up on the screen. Wow Right, look like. And let's put this up on the screen Wow Right, all these little bubbles and boxes. It can seem a little overwhelming. All right, now, before you get overwhelmed, let's come back here. Okay, now hang tight, we're going to get there and I want to kind of show you how it evolves to that. And there's no rush, don't feel pressure. Some of you are like Mark, I'm just trying to pay my bills right now, or I'm in the middle of my business and expanding and growing. What Slow down? Let's take a breath, because what I want to do is show that this is a process of evolving. It's a journey.

Speaker 1:

The trifecta is not just one picture that works for everybody. It's something that is particular to you, it's special. Start to unpack it and I want to tell you the story of how this trifecta evolved for me. I didn't learn this in law school and you ask any lawyer hey, how was your class on the trifecta? There's no story. And you go to accounting school and you take the CPA exam. They don't teach this, but I was passionate to help the small business owner.

Speaker 1:

My dad was a small business owner, my mom was a small business owner. We had a farm and I grew up on Main Street America. I wanted to be a tax lawyer and I don't even know what that meant at the time, I think. But I felt like I could speak to the small business owner and we all grew up thinking that lawyers were expensive and accountants didn't even speak English and they were too expensive and so many business owners in America are starving for practical advice. So I came out of law school with this dream. I was like I can help the small business owner and I started to talk at the local chamber of commerce meetings and realtor groups would say, hey, come talk to our group, and I get up and I try to explain what I thought would work for them. And I just failed at it. It was just so excruciatingly hard to take what I learned in law school and make sense of it for the small business owner. And I don't know, maybe I was like Doc and Back to the Future and I had my flex capacitor moment where this came to me.

Speaker 1:

There was one day when I started to teach a class to a bunch of investors and realtors and brokers and I kind of just threw up a line down the middle of the paper and said you know what? Let's keep our operations over here and let's put our assets over here, and like water it all flows downhill. We'll put our tax return down here at the bottom and kind of this trust concept. And at that time I was trying to figure out my own structure too. I don't even know if I had a trust the first couple of years out of law school. I was still trying to make sense of all of it. And you think you're struggling to figure this out.

Speaker 1:

You come out of law school and you're trying to figure this out and that day I remember, actually, the classroom I was in and I was teaching this concept of the left and right side and bringing it all together and it just came out in this one presentation and maybe I was having fun with it and said the word trifecta. But it stuck with me and I remember so many people coming up to me after that event saying, mark, oh my gosh, it finally clicked. I've been trying to make sense of my legal structure and my tax returns and, oh my gosh, can you meet with me and help me build my trifecta? And I don't know. I think that's when it all started and I started to teach future lawyers in my practice and my employees and my accountants and our team started to grow and this was probably 15 plus years ago and this trifecta was magical for so many people because it allowed us to see where we were going. A picture says a thousand words and damn it, if you can see it, you can make it happen.

Speaker 1:

And so when I started to drop trifectas for clients and teach my team how to do it, and I started to figure it out myself better and better and build my own, I started to build wealth. I started to get wealthy. I started to just have these clients come through the door that I idolized and I was like how would you do that? And we start putting it on a paper and they're like yeah, yeah, no one had drawn that out for me before. And, oh my gosh, you're putting on paper what I dreamt about or slept and dreamed of doing. And so the trifecta became this passion project for me to help people build their American dream. And you can do it too, and it can be simple. It just starts with one or two bubbles and a trust at the bottom and we can start to build this dream for ourselves and our clients and our families and make it happen. All right, so let's go to the whiteboard and I'll start to show what I did, because I wanted to live it first. If I was going to teach it, I had to do it for myself first. So if we go to the whiteboard.

Speaker 1:

I think what really started for me was understanding my business structure. Maybe it was small business that I wanted to build and it was when I started my first law firm, and so I started this entity and this entity was going to be my operational structure. To build wealth, I had to start with something, and so this was, to be honest, a professional corporation that I taxed as an S corporation, and some people use an LLC, some people use an ink, whatever. And when I went to go structure this, to start my practice and start doing tax and legal, I asked myself who's going to own this? Am I going to own it? Is my wife and I going to own it together? What did I really want to do for the long haul? What was the long-term picture? And that's when I started my revocable living trust. The trust was the structure that was going to own the business, because if anything happened to me, I wanted to know where that wealth was going to go. So the trust became the receptacle for that operation. Now I was going to take a W-2 and I was going to take a K-1 and it was all going to flow down to a tax return here and all those goodies. But legally I wanted to make sure that my trust owned my operations.

Speaker 1:

And then I started to make some money and I'm like, okay, where do I put it? Oh, I'm going to come over here on the asset side and I'm going to create an LLC and buy a building. And one of the first investments I made that really made sense is we bought a building to rent back to our operations. The first best renter you can have is yourself, and so many business owners are like paying rent to other people. Why don't we pay rent to ourselves? And that was the beginning of it, and I saw this trifecta start to manifest my future. And then we'd set up other LLCs to come with other rental properties and, oh, I was going to start funding an IRA or a Roth or a health savings account and I started to build a structure that would create wealth and I was going to start saving taxes along the way, right off home office, right off auto, right off travel, right off equipment, right off supplies, and so I could start saving taxes and then taking my profits and building wealth. And everybody's structure is going to look a little different. Every process is going to take on a different timeline, but that's how I did it.

Speaker 1:

I just started to go out and start my entrepreneurial dream and, as I was starting to teach it to others, I was trying to get my own structure and alignment, because I didn't. I didn't want to be fake, I wanted to be transparent. I wanted to let people know I'm doing the same thing you're trying to do. I'm trying to build assets to create passive income so I don't have to work my ass off all the time. And so it was like business structure, trust and estate and LLCs are holding companies, and it evolves.

Speaker 1:

Maybe let's look at a couple other pictures or diagrams that are simple to grasp. This First here would be a basic trifecta, and this is a diagram that we do at our workshops and I build for clients where we have our day job off on the left side and operations and ordinary income, our assets and passive income. And then we might get to the next level and we start to add in these tax deferred or tax free strategies like the Roth IRA or the solo 401k, the day job 401k so we might have a side hustle that evolves into an S corporation. And notice, down here on the right side, we want to have all of our real personal assets be owned by the trust as well. We've got our home, our investment accounts. We want our trust to be the beneficiary of our life insurance, so it goes to the right people at the right times in their lives. And then let's see it again.

Speaker 1:

Right Bam, it can evolve, it can grow, but you shouldn't be daunted by this. You should be excited by this. You can start to bring together a structure that it's perfect for you. And it's not a race, it's a journey. Don't compare yourself to others. Now, another beautiful thing about the trifecta is that you can manage it yourself. With the right professionals, you're the captain of your ship. You shouldn't have to be at the mercy of expensive or complex planners. We build trifectas for clients and a comprehensive consult for around $1,600. That's really quite affordable. You can meet with a real lawyer on Zoom and build your trifecta and build a future and an action plan, and you can start to learn about this on my podcast and in my books and start captaining your ship. You shouldn't feel like that. You're at the mercy again of expensive or complex planners. You can do this and that's the trifecta. It's simple, it's elegant, it's complex, it's amazing and when you can see it, you can manifest it and you can do it. Okay, now I want to share some of the biggest wins in my life applying the trifecta.

Speaker 1:

Now, what's interesting here is that I talk about leaving a legacy. Well, I haven't died yet, so I'm hoping I build a trifecta that's going to work perfectly for my kids and my family when I leave. So, after I built my own trifecta, what do you usually do? You share it with your family. You do it for your family. So I built a trifecta for my mom and dad, who have now passed on. So let's go to the whiteboard.

Speaker 1:

Remember the revocable living trust. One of the first main assets you're going to put into it is your home. Well, I went and built a trifecta for my mom and dad. They had to have a trifecta and I put their home into the trust. Well, my dad went on to have Parkinson's and my mom to have Alzheimer's, and when they passed away, I was able to make it simple and easy for the sale of their home and their primary residence just flowed right down into the trust and they could leave their wealth and assets to their children and grandchildren in a structured format that involved no lawyers, no probate. Do you know? 50% of Americans don't even have a will. They don't even have a structure. They don't even have a structure at all. But with this trust, we were able to keep the sale of their home private. We had no legal fees and everything went into the proper way to the next generation. That was a huge win. That was a win that changed everything, the trajectory for our entire family, because we had a plan and we left a legacy to the next generation, with grandchildren involved and everyone.

Speaker 1:

That trust was really, really special. And one of the biggest wins of this situation with my parents was that there was clarity. It was very, very clear where their wealth went. There was no infighting. There was no one bickering and fighting over who gets what, because my parents have laid that all out and when you lay out your trust, you get to decide where your wealth goes, in stages or in pieces and parts, and who gets what. When you don't, it's a nightmare and it's a disaster and you've heard about these types of stories. So that was a huge win to see the trifecta play out in that process and to see that it kept the family together. It created family unity and it was actually very special, and it was all because of the trust.

Speaker 1:

Now let me share another win. Let's go back to that real estate that I talked about. All right, so let's go back and boom, I've got this LLC and I've bought that rental property that I want to lease back to my operational business. Well, when you go out to build a structure like this, there's a lot of question marks who's going to own this building and what happens if there's an accident or a lawsuit? Well, it's kind of funny. This is how the trifecta started to play out for me. It was a wintery day in Southern Utah. Believe it or not, southern Utah is not just red rock beautiful desert it snows. So I had built my trifecta with an LLC to own the building and I was saving taxes. That's part of the beauty of this. I'm getting a write-off, renting the property back to myself. I mean, there's a really subtle tax strategy here. That's beautiful, but it's also built for asset protection.

Speaker 1:

And so there was this situation where HOA had not been salting the driveway and there was ice everywhere, and my building was part of this HOA situation, with my employees coming in and out of the parking lot and coming into the building. Well, one day this employee slipped and fell. Oh, it was so sad. She had really broken her arm and wrist in a terrible way and someone's got to pay for that and we wanted to make sure she was taken care of. And so we start to call our insurance company and the workers' comp and all those goodies. And, of course, questions can be asked and there was maybe going to be some sort of bigger lawsuit. Insurance companies like to blame someone else and go collect money from someone. Well, when they started to peel away the onion, they said oh, there's an LLC here, the LLC owns the building. Oh, and Mark's maintaining it and it's protected. And oh, this works Okay. So the insurance paid out, our employee was taken care of, but there was no big lawsuit, there was no big loss.

Speaker 1:

The structure worked. The structure created asset protection for my building and for my family and for what we were trying to build, and at the same time, I was getting tax write-offs, paying rent back to myself and getting depreciation. And the system was working. The trifecta proved itself and that was a big win for me. I was like proof of product. All right, this is cool. And so, as I went out and continued to teach the trifecta. I knew that I was teaching something that was legitimate. It worked. There was tax savings, asset protection, and I had just seen this experience with my mom and dad knowing that at the end of the day, it was going to all come together.

Speaker 1:

Now you know the exact strategy, the wealth they use to build wealth, to save taxes, to protect it, to pass it on to the next generation. You can do this. This is the strategy, this is the secret sauce, and you can start to build your trifecta with an advisor that's not expensive and overly complex. And if you don't have one, you can get to my law firm and meet with a tax lawyer that can build it for you. This is doable. Now you know the exact strategy, the trifecta, to start saving taxes and start building your system for wealth. However, if you're operating a business, you need to make sure you're not also falling for the number one tax lie so many business owners fall for, and luckily I've created a video to walk you through that tax lie and explain how you can avoid it.

People on this episode

Head Shot

Mark J. Kohler

Host