The Plan illustrated utilizes a Community Support Organization
(Click CSO), a Family Limited Liability Company, and a "Hard Equity" Lending organization. We used the amount of $100,000 in this illustration for the sake of clarity. The steps are simple:
- The Client forms a specially drafted Community Support Organization (CSO) and donates $100,000 in cash or in other assets that may be utilized to produce that amount of cash within the CSO. The tax-savings we estimated as $40,000 resulting from utilizing the gift to the CSO as a charitable deduction.
- An offshore asset protection trust is formed as a tax-neutral trust. A domestic trust could also be utilized, if desired, and at less cost. This trust becomes the managing member of a Family Limited Liability Company that is formed for the client and his/her family.
- A Family Limited Liability Company is formed with the asset protection trust as the managing member, holding only a very small portion of the FLLC, and the family members as non-managing (or non-voting members) holding the balance of the interest in the FLLC.
- The FLLC applies for a loan from a third party lending agency and the non-managing members offer their real estate as collateral for the loan. A special type of loan instrument is created that allows the loan principal to increase with future advances and is structured to cover the equity in the property.
- The third party lending agency obtains funds from the CSO (limited to 75% of the available funds in the CSO for secured transactions) and then advances the funds to the FLLC.
- The funds from the mortgage and the funds generated by the tax deduction are combined and utilized through the hard equity lending organization. The client may, of course, elect to invest the available funds in other programs of their own choosing.
The result of this plan is that the equity in the property is covered by a lien against its full value, the resulting funds (obtained through tax-deduction benefits and a loan from the CSO) are invested in first and second mortgages at rates which exceed the rate paid by the FLLC. This program protects your equity and produces the cash flow needed to make the program effective.
