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Benefits of Starting a Nonprofit Organization (Running a Nonprofit Business) - YouTube
Channel: Toby Mathis Esq. | Tax & Asset Protection
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- Hi Guys, Toby Mathis here
with Anderson Business Advisors
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and today I want to talk
to you about non-profits.
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This is near and dear to my heart
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and I have a personal
philosophy that basically
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states that if you're
good at making money,
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you should be very generous and make sure
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that you're taking care
of those who can't.
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I get this from something
called The Gospel of Wealth
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that was written by Andrew Carnegie
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more than a hundred years ago,
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Where he basically stated that
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millionaires were the
trustees of the poor.
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In other words, not that
you just give money away
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but that you do good works
with your money and help those
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that may be not as fortunate
as you or maybe they're not
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as good at making money as you are.
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If you are good at making money,
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one of the best places to put it,
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is inside of your own non-profit.
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Now here's the thing, a lot of people say
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"oh, non-profit that's horrible.
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"What am I going to do with the money?"
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It's an operating business.
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In fact, whether or not you're around,
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that thing may just keep on going on.
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It's a great legacy tool to make sure
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that your kids are taken care of
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because they always have a place to work.
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No better example than Milton Hershey,
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who in 1905 created the Hershey Trust,
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which established his charitable intent
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and manages his various
charitable activities.
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Now charitable activities
are basically falling
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into a few different categories.
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But it's for charitable
activities, literally,
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they call it charitable
activities, education activities,
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or religious activities
all fall under 501(c)(3).
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Those are the ones we're
so used to dealing with
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where you get a charitable
donation for putting money in.
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Right now if you put money
into an operating charity,
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even your own, you can write off up to 60%
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of your adjusted gross income.
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You did not mishear that.
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If you make a million dollars
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of adjusted gross
income, you can give away
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$600,000 into your own 501(c)(3).
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If you have equivalent
assets, like real estate,
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or other assets that
have fair market value,
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you can give those in.
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Those can qualify up
to that 60% threshold.
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There are a few rules depending
on when you purchased it,
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if you've boughten and gave it
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in the year that you purchased it,
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then you're going to be
limited to your bases.
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But otherwise if you've held
on to a piece of property
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for 10 years and its
appreciated huge in value,
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don't sell it and give
money, give the asset itself.
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If you've had stock that
you have very low basis in
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and it has run up over the years,
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give the stock to your charity.
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It doesn't pay tax.
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You get a donation based
off the fair market value.
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So anyways, we get that
money into the charity.
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Milton Hershey again, great
example, he set this up in 1905.
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He died without children,
I think it was 1930's.
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The Hershey Trust continues
to manage the museum,
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a hospital, it was an
orphanage and a school.
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It's a tremendous school that
helps kids without parents,
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not just orphans but also
if they're incarcerated,
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over 2,000 kids a year,
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continues to this day and is worth over
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12.6 billion dollars
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'cause its primary holding
is the Hershey company,
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the publicly traded
Hershey Chocolate Company.
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So this thing just keeps getting
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bigger and bigger and bigger.
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No family, no kids, no
descendants and it's still growing
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to this day and there's a ton
of examples just like that.
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That these things get set up and because
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they don't pay tax, they continue to grow.
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Now what qualifies as charitable activity,
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If you don't want to be a church,
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if you don't want to be those things?
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Helping the poor in any
methodology could be even providing
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housing to them, helping
them by providing them
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rental housing or providing
houses for them to buy.
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Low to moderate income qualifies.
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In San Francisco, by the way, $100,000
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in a family can qualify as
a moderate income family.
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And if you're doing HUD houses
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that is where your standard comes from.
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You could be providing HUD housing.
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That qualifies as a charitable activity.
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You're providing housing for Vets,
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you're providing housing for single moms,
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you're providing housing
for transitional housing
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for incarcerated women who are coming out.
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We actually have a great example of that
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where they've just exploded
because organizations like,
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"hey, yeah we need this help.
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"We need someone to help by housing them."
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Boom, there's the charity sitting there.
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Pays zero tax, doesn't even
pay the real estate tax.
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It allows you to actually
increase your capita,
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if you know what that is.
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I mean, it allows you to
actually get a lot more.
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The difference is there are no
private owners of a charity.
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The great example that just popped up
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is the founder of IKEA did
not want IKEA to be sold
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by his descendants and he
knew that's what would happen.
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He put the stock into
non-profits before he passed.
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That way there is a board
that's watching over
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his baby, the IKEA.
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He left his descendants board seats.
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They still have two out of seven,
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I believe is what the number is.
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But they can never get
enough control to liquidate.
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Which is what his fear was, is he wanted
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what he started to continue to grow
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and that's how he's protecting it.
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And there's a lot of people that do that.
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So it is a tremendous
tool to create a legacy
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that does not get stripped down
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because someone decides
to sell all your stuff.
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And it continues even beyond you living.
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It is not owned by shareholders.
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This is important.
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You do not own it, you control it,
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but you can give control
to future generations.
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Nobody gets to just take the money.
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If you want money out of a non-profit,
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you're going to have to earn it.
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You're going to have to work and get paid.
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So, if you leave a legacy
behind that is your non-profit,
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and there's basically two flavors,
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there's an operating non-profit
and there are foundations.
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Foundations are the ones
that we all hear about.
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The private foundations where
you have to give money away,
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5% of the assets every year.
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That's what they would have to do.
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But an operating non-profit
does not, it can just continue
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to operate and do what it's doing.
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And it might be providing
low income housing,
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it might be providing
housing for veterans,
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it may be providing housing for disabled,
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it may be providing residential
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assisted living for elderly folks.
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It doesn't really matter
so long as it's falling
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in that category, and boom it qualifies
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and then your heirs can
continue to operate it
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but they're not entitled to
go take all those assets.
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They are allowed to work for it,
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they're allow to get a salary,
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they're allowed to get benefits,
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but they're not allowed to go in there
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and pillage it, doesn't happen.
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And then if they ever decide
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to close it down, they
don't get the money.
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There's no owner the way a
traditional corporation is.
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All they get to do is distribute
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that to other qualified 501(c)(3)s.
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So if your kids really
aren't getting along
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or if you have generations
down the, few generations down
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and they're just not seeing eye to eye,
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they can literally break that thing down
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but they can't take the money.
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They could set up other
501(c)(3)'s with similar purposes,
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and say "hey we don't work well together
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"but we're going to separate
off and we're going to continue
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"going down the line that you established
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"of what you believed was important."
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Yes, there's huge tax
benefits to doing that.
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And if you want great example
of that, look at what happened
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with Howard Hughes and
you can Google it up.
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Before the government came
in they were a little worried
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about some erratic behavior by Mr. Hughes.
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He took all of his shares in
the Hughes Aviation Company
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and dumped it into a non-profit.
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Boom, story he was no
longer the shareholder.
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He got a massive tax deduction.
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In fact, a huge tax deduction,
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caused the government they were all upset
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because of how many millions of dollars
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they didn't get to take.
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And then he received
moneys back for many years.
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And it just kind of sat there,
didn't do a huge amount.
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Now, I believe it is
the largest bequeathment
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for medical research in the world
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and it's one of largest top
five charities on the planet
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after Howard Hughes passed away.
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Because boom the shepherds come in,
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they see his vision, and they say,
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"Hey, we want to actually make
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"this vision more of a
reality" and it grows.
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And because it's not taxed you have
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what's called exponential growth
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It goes broom and just
takes off because you're not
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taxing it so the growth
stays in the company.
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And if people are continued
to give moneys to it
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it just continues to snowball
and it's a fantastic tool.
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One of the most under-utilized
tools that's out there.
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I'm always surprised when I see somebody
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who's heavy into real
estate, then they're paying
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big taxes on something and
they're looking at me saying,
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"what should I do?" And
I look at them and say,
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"You need to quit
holding all those assets,
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we need to start
transferring some of those
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out of your estate,
getting you some tax breaks
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for doing so, and making sure
that you are always secured.
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If it really comes down to it we can
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put a deferred compensation plan in place
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and make sure you get
paid until you pass away.
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But you're never going to run
out of money if you do that.
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You want to make sure that you're
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doing these things proactively though.
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But what a powerful tool.
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The rich know how to use it, the top 2%
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for decades have understood
the power of non-profits
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and they all have them put in
place cause they understand
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that it doesn't matter what their kids do,
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who their kids marry,
whether they have mistakes,
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whether they have huge liabilities,
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whether they're just not
good at managing money,
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that non-profit's going to be safe
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and it's going to be a safety net
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and it continues to do what you envisioned
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and you want to make sure that somebody
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doesn't hijack your vision.
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This is how you do it,
is you set that thing up
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and just let it go, tremendous tool.
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Love working with 'em.
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Hope this was helpful.
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