Monday, April 12, 2010

Poor house to MegaMansions in 20 years

Arnold Schwarzenegger arrived in New York from Austria to star in a film entitled "Hercules in New York" (1970). You should see the film with your grandkids. In my book it is the worst movie ever made. Arnold being dubbed is hilarious. Edward D, Wood's 1959 "Plan 9 From Outer Space" is a masterpiece by comparison. I am not a film critic. I point out this trivial bit of history to illustrate a point.

Arnold had little more than the money in his pocket when he arrived here in 1970. By the 1990s he was worth over $600 MILLION. Not bad for a guy with a bad accent. Someone asked his financial advisor how did he do it, probably expecting something along the lines of "America is the land of opportunity," or "Hollywood is big business," or like some supermodel "He worked really, really hard," Etc. The actual answer surprised him: "Arnold has a sophisticated understanding of Legal Entities..."

WHAT?!?!! What does that mean??? "sophisticated understanding?" "Legal entities?" What does that have to do with making money. Isn't hard work, who you know, and lucky breaks the way to wealth?

It means a lot. It means Arnold, the Terminator, Governator, oversized guy next door, was hiding behind that muscular facade a rare intelligence that allowed him to ride far ahead of the curve in acquiring and preserving his wealth. That is not to say he was a corporation law, tax law, asset protection specialist who knew it all. He didn't and few people could. He did understand and appreciate what conservative legal, tax, business and personal planning could do for him and hired the best people to plan and do it.

What were some of the things that he did? Incorporate! Tax laws allowed deductions for work related expenses. Room, board and expenses, all first class, were deductible to "Arnold, Inc." when he was sent him away from home to film. It was like the Government paying 60% (the tax rate) of his living expenses. Today you can still do it but would have to exclude the fair value of what you would have spent for some things, like food, back at home. Still a great idea.

Arnold's companies, partnerships, corporations in lower tax states or internationally took advantage of lower taxes and moved some expenses off the books. Don't take a vacation, promote a Movie in Cannes, London Tokyo. Its business and mostly, if not all, deductible.

His different corporations and LLCs also served as an asset protection. The company was responsible, not Arnold, for much of what might go wrong. They hired the servants, drivers, boats, helicopters, not Arnold. And, while I would never say the big guy ever failed to pay his debts, if a creditor failed to get his bill paid before the company expired, well he lost out because Arnold wasn't personally liable. Expensive Cars, planes, boats: lease them through the company since they have a business purpose. Buy stuff? Get the business depreciation write off. Keep it honest and follow the rules and many things you have to do anyway gets subsidized by the tax man. Benefit your business, save money to make money and live better too!

You or I would probably never have that body or $600 Million Dollars. No body builders, and few people in any profession, have ever made that kind of wealth before or since! We can though, use conservative asset protection and business tools to accomplish the same goals. That's Arnold's real lesson for us.

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