Lee Philips – Legalees

Tax Secrets: “Your little business is the most important tax shelter that you have.

You probably started your business because you are very good at the skills needed for that industry.

But knowing everything you need to know to take care of the business side of your business can be a challenge.  It’s knowing what you need to know and knowing what you don’t know and knowing when it is time to hire someone that knows what you need to know.  Legalees is a company started to help small business owners navigate the LLC and S Corporation side of business.

Listen as Lee Philips, Counselor of the United States Supreme Court, with a long resume in real estate, investing, insurance, research and law shares his time with us to share his expertise in helping businesses play the game of business and play the accounting side well.


Visit Lee at: Legalees.com/james
Authentic Business Adventures Podcast

Podcast Overview:

00:01:06 SBIR grants, governor endorsement, BYU stock profit.
00:03:27 Word Perfect founder’s interesting story and Utah’s tech success.
00:08:30 Avoid probate with Living Revocable Trust.
00:13:03 Trust simplifies bank account setup, avoids tax ID.
00:17:54 Estate planning is simple for smaller assets.
00:21:33 Degrees in geology, physics, nuclear chemistry. Chemistry company, law school. Patent work, health scare, hospital visit.
00:23:08 Friend discovers advanced cancer, two-three week lifespan.
00:29:07 Lost everything due to IRS tax issues.
00:32:48 Easy transition, no asset protection, lower taxes.
00:37:07 LLC offers tax advantage and asset protection.
00:38:20 Corporate shield protects owners in slip and fall. Partnership has asset protection against creditors. English law protects innocent partners from debt.
00:42:54 Utah removes corporate formalities, but it’s BS.
00:44:33 No formalities in LLC; charging order protection.
00:50:30 Understand taxes for increased income and protection.
00:52:07 Lawyer walks in cow pasture, steps in manure.
00:56:06 Business and real estate: secret to wealth.
00:58:55 Authentic Business Adventures: Business owners’ struggles, successes. Locally underwritten. Thumbs up, subscribe, comment. Call answering services. Bold business books. Thank you, Lee Phillips. Website?

Podcast Transcription:

James [00:00:02]:

You have found Authentic Business Adventures, the business program that brings you the struggle, stories and triumphant successes of business owners across the land. Downloadable audio episodes can be found in the podcast link found at drawincustomerscom. Today we’re welcoming, preparing to learn from Lee Phillips, the founder of Legalese. So Lee is going to take us right into it. We got going into conversation, so let’s hear all about the accounting and legal stuff that you have to deal with with your small business.

Lee Phillips [00:00:32]:

Some background that you don’t know is after I got sick, I went to BYU and I’d created an instrument for chemistry as a student there. And then in my two weeks as a patent attorney, I started the patent on it while I was sick, for three years, the patent issued. So I went to BYU and I said, I’d like to make this instrument. And I started a company called Lee Scientific, and it was the first Utah high tech company.

James [00:01:05]:


Lee Phillips [00:01:06]:

We got the first SBIR grants, the first all of this crap. And the governor actually spent 20 minutes of his 40 minutes State of the Union address saying, lee Scientific is the future of this state. And I gave BYU, and I’m not going to go through this story for you, but it’ll give you some background. I gave BYU a little bit of stock in Lee Scientific. I wrote the license agreement for them and they made about a million dollars off of the little bit of stock I gave them when we sold the company three years later.

James [00:01:44]:

All right.

Lee Phillips [00:01:45]:

And they said, can you do this again? So I created the technology transfer department at BYU, and I was director of research for 1500 PhDs, which was kind of an interesting job.

James [00:02:03]:

Yeah, I bet.

Lee Phillips [00:02:04]:

But I helped create companies word Perfect, Novell, dsearch, which is the search engine for Google. All of these companies I helped create as we moved them out of BYU. So we did. So I had a lot of experience creating companies and doing stuff like that.

James [00:02:29]:

Gotcha. All right, well, that’s pretty slick. And you’re talking 80s, you mentioned something like that.

Lee Phillips [00:02:36]:

Late eighty s all right, 87 to 91, something like that. It was five years ended in 91. So 86, I guess it would be.

James [00:02:51]:

All right. Word perfect. That’s interesting. That was back in the day. Wow.

Lee Phillips [00:02:55]:

Yeah, that was back in the day. It’s actually a superior product to Word, even today.

James [00:03:02]:

I just saw a meme making fun of Word for failing in a lot of areas, yet it’s still one of.

Lee Phillips [00:03:09]:

The most popular, actually a high percentage. At least a third of the lawyers still use Word Perfect.

James [00:03:20]:

Do they really?

Lee Phillips [00:03:21]:

Yeah, because it’s so superior to Word. To Word.

James [00:03:26]:

All right.

Lee Phillips [00:03:27]:

And I can tell you the story. There are a lot of interesting stories associated with Word Perfect. Alan Ashton is the guy who founded the company. He was a music professor at BYU. And Utah is a high tech. They call it Silicon Slopes. You’ve got Silicon Valley in California, Silicon Slopes in Utah, and we’re competing with Silicon Valley. But the reason Utah was so far ahead in computers is the day the PC came out, BYU went to every professor and said, this thing’s available. Would you like one of these on your desk? And to put that in perspective, it was over ten years later that Stanford had a PC on every professor’s desk.

James [00:04:21]:

Oh, wow. That’s ahead of the curve, all right.

Lee Phillips [00:04:23]:

And so they were playing with these things, and Alan Ashton was a music professor, and he was trying to get the computer to write music, and he figured out it could write words. And that’s how word perfect was developed. It was originally called Satellite Systems, Inc. SSI.

James [00:04:43]:

All right?

Lee Phillips [00:04:44]:

And one day we’re in a board meeting, and Alan’s been trying to get a hold of Texas Instruments, and he can’t get a hold of them. And we’ve decided to change the name from SSI to Word Perfect. Everybody knew who Word Perfect was, so we snicker. But he gets on the phone and he calls up Texas Instruments, and they’ve just been throwing him under the bus for months. And he says, this is Alan Ashton from Word Perfect, and we all kind of snickered word Perfect. And the lady said, just a minute, the president will be right with you. They had no clue who SSI was, but they knew what Word Perfect was.

James [00:05:27]:

Oh, interesting. Wow. Anyway, that’s crazy. The power of a name, I guess, right?

Lee Phillips [00:05:35]:

The name is important.

James [00:05:37]:

Who knew? Well, let’s get this party started here. You you’re all good? All good. Let’s go. You have found authentic business Adventures, the business program that brings you the struggles, stories, and triumphant successes of business owners across the land. We’re locally underwritten by the bank of sun prairie. My name is James Kademan, entrepreneur, author, speaker, and helpful coach to small business owners across the country. And today we’re welcoming, preparing to learn from Lee Phillips, the founder of Legalese Corporation. He said schmucky. I still got that in my head. So, Lee, how are you doing today?

Lee Phillips [00:06:16]:

I’m doing good, yeah. He asked how to introduce me, and I gave him the word. You’re not supposed to swear on the radio, though. Yeah.

James [00:06:26]:

Is that swearing? I don’t know. I think we’re good with that.

Lee Phillips [00:06:28]:


James [00:06:28]:

Is it really?

Lee Phillips [00:06:29]:

I used that in a speech. And one day in New York, a little old lady came up to me and she says, mr. Phillips, you’re such a nice man. I don’t think you know what schmuck means.

James [00:06:40]:

And I didn’t I guess I have to say I’m ignorant in that regard as well.

Lee Phillips [00:06:47]:

It has a Hebrew Yiddish meaning all right, go ahead.

James [00:06:52]:

We’ll let them Google that under the bus. Yeah. Right on, right on. So, Lee, let’s just start with what is legalese and then we’ll work it from there.

Lee Phillips [00:07:01]:

Legalese is a company that I created, started back in 85, actually, and I created it out of necessity because I was supposed to be a patent attorney and didn’t end up doing that and ended up working for myself as a lawyer. And the easiest thing for a lawyer to do is wills and trusts for Aunt Gertie and Uncle Harry. And as I went into it, I finally figured out that the lawyers were basically setting people up for trusts. And so I started to write and I started to speak, and I made a kit so that people could do their own wills and trusts, and I created Legalees, and we’ve just been kind of going ever since then.

James [00:07:51]:

All right, so tell me, the lawyers that were setting people up for failure, I’m assuming this wasn’t intentional, they just didn’t know any better, or I’m hoping.

Lee Phillips [00:08:02]:

I wouldn’t go so far as to say intentional, but well, and we may already be off topic. I don’t know, James. I guess we got a while.

James [00:08:12]:

We can go all over the place here.

Lee Phillips [00:08:14]:

As a little business owner, I’m going to say you need a Living Revocable Trust because 95% of the businesses fail within five years after the founder dies.

James [00:08:27]:

That’s just a statistic, guys, all right?

Lee Phillips [00:08:30]:

One of the big problems is the little business gets caught in the probate courts. Dad owns the little business, it’s going well, he dies, it gets caught in the probate courts, and we basically can’t do much with it for, like, a year and a half. And during that year and a half, a doctor’s office got caught in this. And by the time we got it out of probate, all the clients had gone bye bye, and no other doctor was interested in buying his practice. So you need to avoid Probate, and the device that you do that with is a Living Revocable Trust. But your Living Revocable Trust has to own the assets that you have to sign your name for. The whole concept of probate is you’re dead. You can’t sign your name on that deed. You can’t sign your name to transfer ownership of your business. So we go to court, and we have the court appoint somebody and give them the power to sign your name. That’s probate, basically, all right? And so what we need to do is play a legal trick, okay? We set up the living Revocable trust. And then we make the trust the owner of everything that you need to sign your name on. The bank account, the safe deposit box, the brokerage account, the deed to the house. The deed to the vacation house the water rights we go through and we’ve got to have the trust be the owner of everything that you have to sign your name for. Now, while you’re alive, you’re the trustee, you’re the dude. You can do whatever you want with it, okay? But when you die, technically you didn’t.

James [00:10:22]:

Own it, all right? Because the trust owns it.

Lee Phillips [00:10:26]:

The trust owns it. And this is legal heresy. Okay, James, but I’m going to say think of the trust as a little company. When the president of IBM dies, we don’t probate all of IBM’s assets. We get a new president. So when you die, we don’t probate the trust’s assets. We get a new trustee. And that guy automatically has authority to sell the assets of the trust or do whatever they want to as the trustee, the manager of those assets. So we’ve gone out and around probate. The reason the trust fails and people are getting better at this, but the reason the trust fails is the lawyers don’t sit you down. They give you a piece of paper and say, That’ll be $3,000. And they don’t sit you down and teach you how the trust works, how it avoids probate, and what you have to do to move all of your assets into this trust, this little company sort of thing. And you’ve got to do that. They don’t do that for you. And you’ve got to remember as you go through life, I don’t have a single guy hat on anymore. I don’t even have a joint tenant hat with my wife anymore. I have a trustee hat. Everything I buy, where I sign my name, has to be as a representative of the trust, the trustee of the trust. Now, you don’t need to have your washer and dryer in a trust because you don’t have to sign your name to sell the washer and dryer, do you?

James [00:12:05]:


Lee Phillips [00:12:06]:

But you can’t get into the safe deposit box without signing your name, all right? So the safe deposit box has got to be owned by the trust. You go down and you put trust name, trust date, and trustee’s name. Got to have three pieces there.

James [00:12:22]:


Lee Phillips [00:12:23]:

That’s on the signature card at the bank. And it isn’t as easy as it looks. I was married for 46 years and my wife died four years ago of a disease called ALS. I don’t know if you’ve ever heard of that one, James, but it ain’t I apologize.

James [00:12:39]:

I have not.

Lee Phillips [00:12:39]:

No, it’s by far the worst diagnosis a human can receive. And any medical will tell you that. All right, I’ll take two of your cancers, thank you very much. Now I forgot where I was going.

James [00:12:57]:

No, I imagine either had a trust or you didn’t and should have had one.

Lee Phillips [00:13:03]:

You have to have the trust. And I created a trust for my new wife and she was going to put her bank account in the name of the trust. She went down to the bank. The lady said, you got to set up a new bank account. You got to have a tax ID number. You got to do all this, that and the other. And she got me on the phone and I said, get up and walk out of the bank, which she did. And that evening, we happened to be in the grocery store, and there was a little branch of this bank. And I walked over to the counter there, and I asked the lady, I said, can you put a bank account in the name of a trust for us? And she looked at me and said, and there was a young man standing next to her. And the guy says, yeah, I was trained on that by the bank last week. I said, do you need a tax ID. Number? No, you don’t need a tax ID number. Use your Social Security number. Do I need a new account? No, I just changed the signature card. I said, will you be here tomorrow morning? And he said, yeah. And I said, we’ll be down nice know. I did a trust for a lady on the east coast, a doctor, and she tried to change her bank account, and same thing tax ID. Change account, blah blah, blah. And I talked to the credit union’s attorney. I did everything. And finally I said, lady, are you married to this credit union? She says, no, I don’t care about the credit union. And I said, go down the street and open up a new account. You don’t need a tax ID. Number. She went down the street, opened up another account. Sure enough, she didn’t need a tax ID. Number, and she moved $3 million out of that credit union into this credit union. Somebody credit union ought to be fired.

James [00:14:51]:


Lee Phillips [00:14:54]:

So you got to play this game, and legalese prepares educational materials so you can play the game. That’s basically what we do.

James [00:15:04]:

James gotcha. So just to clarify, are you creating this educational material to avoid needing an attorney at all, or just so you know, when you’re talking to the attorney that you know what you’re talking about or what they’re talking about?

Lee Phillips [00:15:18]:

I’m in the screw the legal business. When I got sick, the lawyers threw me under the bus, and they made life hell for me, okay? And I’m just more than happy to say, no. You can do it better than 90% of the lawyers out there all by yourself, and you can do it in less time than it takes to go see the guy, the lawyer.

James [00:15:44]:


Lee Phillips [00:15:45]:

Okay, you can do this, guys. Lawyers go to school for an extra three years to learn how to speak and write so you can’t understand us. The funny thing is, if you break it down into plain English, it becomes very easy. But the problem the set up for failure is the lawyer doesn’t teach you how to move all of these assets and teach you how to buy your next piece of property in the name of the trust or how to open the bank account in the name of the trust. When you go in and open a bank account, the little girl says, well, do you want it in your name or in your wife’s name as joint tenants? And you have to say, no, I want it in the name of my trust. And you have to know that you don’t need a tax ID number. Now, my wife it was the same bank. It was just different people in the bank.

James [00:16:38]:

Finding the right person, finding the right.

Lee Phillips [00:16:40]:

Person in that bank. The set up is the lawyer gets the big bucks for drafting the trust if he doesn’t teach you how to use it. And if you don’t get that through your little noodle, then when you die, there’s all of the probate still and he gets the probate 95% of the time.

James [00:17:01]:

Oh, wow.

Lee Phillips [00:17:02]:

So it’s a double dip. It’s a conflict of interest. Interesting. So I’ve written about these legal concepts. The trust is one, LLC is one. I mean, you got lots of them. Yeah, but I’ve written and done education materials on these legal concepts for years. All right, well, 40 years, as a matter of fact. I’m getting really old, James.

James [00:17:26]:

We both are. It’s all good. You can’t avoid it. So as long as you’re upright.

Lee Phillips [00:17:30]:

Yeah, I guess upright and on the right side of the ground is a good idea.

James [00:17:34]:

All good. So it’s interesting hearing you talk about the trust thing, because I’ve been told, and I guess now that I think about this, I’ve been told by attorneys, wills and stuff like that, you can more or less do on your own with little kits, but trusts are way too complex for a normal human to do. You need the godlike power of a lawyer to help you.

Lee Phillips [00:17:54]:

Now, they’re very easy. Now, I’m going to tell you, if you’ve got a taxable estate, and today that’s worth $12 million, almost 13. So if you got $13 million in your estate, pay the big bucks and get the big law firm to help you out. There’s a lot at stake. But if I’ve got mom and dad, they got a million or two, nice house, bank account, car, a couple of these assets. No, you can set up the trust just fine. You’re not going to screw up any tax stuff because there’s no tax stuff to screw up. As long as you want the assets distributed easily, it’s a piece of cake. I can teach you exactly how to do it. The real key is you’ve got to learn how to use it. All right, but if you’re going to divide it equally between your kids when you die and you want the oldest kid and the next oldest kid to be the trustees and stuff, no, it’s a piece of cake, James.

James [00:19:00]:

All right, so when you take care of this trust, or the person that gets your information takes care of the trust on their own, who do they tell? Like, hey, I got this trust. So that when they’re dead, they say, look here to find this documentary. How does that work?

Lee Phillips [00:19:18]:

Well, you need to tell the kids, and you need to keep the trust someplace. You don’t need to keep it in a safe deposit box or anything. And in basically all states now, a scanned copy is as good as an original. Scan it, send it to your kids, sign two original documents. You need an original sign two original documents and send one to your son so that if your house burns down, we don’t lose it.

James [00:19:50]:

All right?

Lee Phillips [00:19:51]:

You can put it in a sealed envelope and tell him not to open it. It’s private. You don’t file it anywhere. Nobody knows what happens. I mean, it’s great. Jackson what’s his name? Michael. Michael Jackson. He died. And I don’t know if you remember or not, but for the first week after his death, the press was squaring off, man. They were drooling all over the place because there was going to be a family fight. That was going to be this, that and the other. And about a week into it, it came out that Michael Jackson had a living revocable trust. You never heard a thing about it after that.

James [00:20:31]:

Oh, interesting. Okay.

Lee Phillips [00:20:32]:

It was gone.

James [00:20:33]:

All right. Because you have heard about things. I think when Prince passed away, there wasn’t anything, right?

Lee Phillips [00:20:39]:

Yeah, I don’t think Prince had anything. And do you want to know the disaster for Prince? He lived in Minnesota, and at that time, Minnesota had a 41% death tax.

James [00:20:52]:


Lee Phillips [00:20:56]:

They’re down more reasonable. I think they’re down 6% or something now. But back then, Prince lost it all.

James [00:21:09]:

Thanks for dying. Here’s our money. Wow, that hurts.

Lee Phillips [00:21:15]:

It hurts bad.

James [00:21:16]:

Dang so tell me a little bit we started talking about this a little bit before we got going. You started this business in 1985. You didn’t intend to go down to become an attorney, it sounds like, is that right?

Lee Phillips [00:21:29]:

Oh, no, I never wanted to become an attorney.

James [00:21:32]:

All right, what happened?

Lee Phillips [00:21:33]:

Well, I got a bachelor’s degree in geology and physics, a master’s degree in analytical nuclear chemistry. And I wanted to operate a chemistry company. And so I went to law school to learn how to operate the chemistry company. I started my little company and I thought, well, I really need to learn how to write patents. So I started working the patent firm at Thanksgiving. And on middle of January, I was having heart problems. I went to see my local cardiologist, the guy next door, and to my house one Sunday evening. And he, you know, he made this statement as he ushered me out of the house down the hall. He says, you know, Lee, anytime somebody’s seriously ill, they can go in the hospital, they can recover their health, they can live a normal life. And I thought yelling and I mean, you’re the cardiologist. You deal with people who die all the time. And then he said, oh, by the way. Lee, I’d like you to check yourself in the hospital tomorrow. I’m going to have a bed ready for you. I want to run a test. So the next day, I’m strapped onto the X ray machine. My wife, Christy, she’s actually up in the control room behind all with the radiologist. Three of them live on our block, our street. We live up on a little hill. It’s called Pill Hill. We have 38 MDS in the two blocks.

James [00:23:06]:


Lee Phillips [00:23:08]:

But they took her out. I noticed that. And then a very good friend, radiologist came, and he stood alongside the X ray table, and he says, well, you’re having chest pains. And I thought, well, good. I’m not a then, huh? He says, Lee, you’ve got a tumor. It’s a little over eight inches in diameter. It’s around your left kidney. It’s crowded up against your heart. Your heart’s having a hard time. I said, Well, Gary, can you take it out? And he said no. We’ve done a CT scan on your entire body. Now, Lee, you have very advanced cancer. Your cancer now involves all the organs in your body. I said, Gary, what does that mean? And Gary said, Lee, we’ve talked about it. We think you’ll live another two to three weeks. Weeks that ruins your day.

James [00:23:55]:

James yeah, that’s a bad day.

Lee Phillips [00:23:58]:

I didn’t have anything to lose. I literally became the national guinea pig. We received average cancer patient two, three treating doctors at 53. Treating doctors?

James [00:24:13]:

What in the world?

Lee Phillips [00:24:14]:

Received bills from over 250 doctors. And I know that 1000 doctors participated. The head of the NIH, the head of the American Cancer Society, called me up every year for years to see if I was still alive. I was the first person, one of the first, anyway, to have multiple chemotherapies given all at the same time. If you’re critical now, they’ll give you what’s called a bone marrow kill. They basically give you the same cocktail of six chemotherapy agents, and it’s strong enough that it kills your bone marrow. It kills everything.

James [00:24:51]:


Lee Phillips [00:24:52]:

Well, they didn’t know they were going to kill my bone marrow, and they had no clue how to dose it. So they dosed it to me at ten times what they’d dose it to a critical patient today. And it threw me into a coma for six weeks. I went into intensive care on January 23 at the University Hospital. I came out on July 4.

James [00:25:17]:


Lee Phillips [00:25:19]:

To be in ICU, guys, that is.

James [00:25:21]:

So at the time, since this was all more or less experimental, did they know you’re going to go in a coma?

Lee Phillips [00:25:27]:

Or was that like no, they had no clue what they were doing to me.

James [00:25:31]:

All right.

Lee Phillips [00:25:32]:

No clue that they were going to kill all my bone marrow. Now they harvest the bone marrow and give it back to you.

James [00:25:38]:


Lee Phillips [00:25:38]:

I mean, it was strong enough. Chemotherapy kills every cell when it goes to divide. It’s vulnerable when it divides. And one of the issues is I could give them informed consent because I knew enough of the science to know what I was doing.

James [00:26:00]:

All right?

Lee Phillips [00:26:01]:

And it kills everything. So the fast growing cells, it’s killing at a faster rate than the rest of them. Hopefully, statistically, you walk this line and it kills the cancer cells before it kills you.

James [00:26:16]:

All right, well, that’s your hair.

Lee Phillips [00:26:19]:

And I used to have more hair. Honest. James.

James [00:26:21]:

Yeah, I did, too. It’s all good.

Lee Phillips [00:26:25]:

You lose your hair because it’s a fast growing cell, and it’s killing all of those cells off. You vomit because the inside of your stomach, the squeamish cells in your stomach, are replicating quickly, and it kills all those. But it was strong enough that it killed my fingernails. I lost my fingernails. They’re a fast growing cell. You nick your eye, it heals quite quickly. I lost the surface of my eyes. I lost everything.

James [00:26:59]:

And how old were you at this time?

Lee Phillips [00:27:00]:

I was 27. We had three little kids and we lost everything.

James [00:27:05]:

Wow. Three kids, a wife and your young guy.

Lee Phillips [00:27:09]:

Young guy 27.

James [00:27:11]:

And do they ever pinpoint the cause or they’re just like, you got dealt a bad hand?

Lee Phillips [00:27:17]:

It was testicular cancer. Testicular cancer is basically a closet cancer today, and yet it’s the leading cancer in males aged 20 to 40. They never teach a guy that he should check his testicle like a woman checks her breast. And the nightmare was I had found the lump two years earlier.

James [00:27:40]:


Lee Phillips [00:27:41]:

I’d been to the family doctor. He’d say he treated me with antibiotics. Nothing happened. He sent me with a letter to the urologist that said, this kid has cancer. And the urologist looked at me and said, phillips, you’re an idiot, and so is your family doctor. If he’d known you’d have had cancer, he wouldn’t have sent you to see me. He would have sent you to see would it put you in the hospital, you just have an infection. And he treated me for two years as having had an infection.

James [00:28:09]:


Lee Phillips [00:28:10]:

And finally, when I had heart failure, we figured it out.

James [00:28:14]:

Misdiagnosis of the century then. All right.

Lee Phillips [00:28:19]:

So at any rate, what causes it? We don’t know. I mean, I played with a lot of ugly chemicals, I played with radiation, but it’s the leading cause in cancer age 20 to 40 in males, all right? And thanks to me, Lance Armstrong made it and a bunch of other guys, because I was the guinea pig.

James [00:28:45]:


Lee Phillips [00:28:46]:

But when I got through you’re that sick for three years, you’re now unemployable.

James [00:28:54]:

Probably a safe bet. Or challenging. Yeah. Work from home probably wasn’t much of a thing back then.

Lee Phillips [00:28:59]:

No, you didn’t work from home. We didn’t even have the Internet back then.

James [00:29:03]:


Lee Phillips [00:29:07]:

I had to hang out my own shingle and start to try and do what I could as a lawyer. I had a law degree. I wasn’t making a chemistry company. I lost my little company when I was sick, primarily because the IRS came in and closed it down. They said I owed taxes for a period two years before I’d even started my business. They came in, they took all of our bank account in the business, couldn’t pay my employees, couldn’t finish the government contracts. They took my house. They took everything I owned. The IRS did.

James [00:29:50]:


Lee Phillips [00:29:51]:

Two years later, they gave it back.

James [00:29:53]:

That was nice of them. Thanks.

Lee Phillips [00:29:55]:


James [00:29:56]:

We’re just borrowing it.

Lee Phillips [00:29:57]:

Just borrowing it with interest, I imagine, right. But yeah, I even got interest, but we lost everything. So as I went along, I started to do the trust and stuff, and then I started to look at asset protection. And what does a business person do for asset protection? We probably need to get into that for your business listeners.

James [00:30:21]:

Yeah, right. Let’s dig into that.

Lee Phillips [00:30:25]:

But I’ve kind of become an asset protection freak over the years. And when I say asset protection, your knee jerk reaction is a lawsuit. No. 56% of all bankruptcies in the United States are a result of somebody in the family gets sick.

James [00:30:48]:

Oh, okay.

Lee Phillips [00:30:49]:

Are you going to lose your business when somebody in the family gets sick? And for most of the business owners, the answer is yes. Particularly the ones that have been in business for a while. The IRS is actually your major asset protection threat. They’re taking half of what you make and yeah, they are taking half of what you make. And don’t tell me they’re not. We don’t even call it taxes anymore. We call it fees.

James [00:31:19]:

Yeah, right.

Lee Phillips [00:31:20]:

I mean, there’s the cell phone fee and there’s this fee. And I actually rented a car a while back, pre COVID in Tampa. And they must have wanted the car in Orlando because I had it for a week. And the rental fee was one dollars per day. So that’s $7. Right. I get to Orlando, the bill is over $80.

James [00:31:44]:

James wow. Fees. All right.

Lee Phillips [00:31:50]:

So you’ve got to consider the IRS is a threat and you’ve got to protect your business from somebody in the family getting sick. We can protect these assets in the business, so it makes a huge difference. Guys, do you want to launch into that? James yeah.

James [00:32:12]:

Let me ask you a question for Segue here to satisfy my curiosity. Are you having one trust for everything? Are you having individual trusts for each business or personal, like your house, cars, stuff like that, versus business? Or is it just one big trust that has it all?

Lee Phillips [00:32:31]:

It’s one big trust, okay? And the one big trust needs to own your business. It needs to own your bank account. It needs to own the piece of property. It needs to own everything.

James [00:32:41]:

All right?

Lee Phillips [00:32:41]:

Trust does not give you any asset protection. That’s a myth that’s out there. Going around.

James [00:32:47]:


Lee Phillips [00:32:48]:

Zero asset protection. The only thing it is doing is avoiding probate and making the transition, the distribution of your assets after your death easy. It does provide you with an easy way to have somebody step in. If you become incompetent and can’t manage things, then we can write it in the trust how you’re declared incompetent, and then the successor trustee can automatically take over. So that avoids a lot of problems. If you do have a taxable estate over $12 million now, it’s going to go down. It’s probably going to end up about 6 million. Trump didn’t have enough votes in Congress to make his tax laws permanent. So on December 31, 2025, ram everything twinkles back to what it was in 2017. Trump and it was $5 million back then, but it is increasing. That 5 million is increasing with the cost of living. So it’s probably going to be around 6 million in 2026.

James [00:34:12]:


Lee Phillips [00:34:13]:

If you want to die, James, now is a good time to die.

James [00:34:17]:

I’m going to delay that for a bit, regardless of what the taxes are going to look like.

Lee Phillips [00:34:21]:

But the trust will allow you to have husband pass the 12 million or 6 million or whatever it is, and the wife husband and wife can both get 12 million if you have the trust. All right, that makes it easier. Actually, you can do it now through a system that the IRS calls porting. If I die and I leave $2 million out of the 13 million, let’s say, then there’s 11 million left, right? I can file papers with the IRS and port that to the second spouse.

James [00:35:00]:

Oh, wow. Okay.

Lee Phillips [00:35:01]:

So when the second spouse dies, they have my 11 million on top of whatever they would normally get. But the trust is basically probate avoidance.

James [00:35:11]:

All right? So it’s interesting you say that there’s no liability protection, because I swear that I just read a book on LLC stuff. I’m not saying you’re wrong. I’m not smart enough to even talk about that. I guess I’m just asking because I swear that somebody said something about trust being a way to essentially, when you get sued, it’s not the trust getting sued. It’s you. And you don’t own anything, so therefore the trust is protecting you. But is that not the case?

Lee Phillips [00:35:46]:

The trust will not protect you, okay. Unless it is an irrevocable trust.

James [00:35:53]:

Okay, so here we go. Okay.

Lee Phillips [00:35:56]:

Irrevocable trust in place. It’s gone. It is not your property anymore. You can’t even get the benefit of that property, all right, unless you’re in a state that has what we call an asset protection trust. Alaska Trust. It started in Alaska. They call it a legacy trust, whatever. And we don’t need to get into those. Let’s talk about how you structure your business so that if somebody in the family gets sick, you don’t lose it.

James [00:36:23]:

Yeah, let’s start there.

Lee Phillips [00:36:25]:

I think that’s an important thing. How long have we got, James? I’m not keeping track of 20 minutes. We better hustle in.

James [00:36:32]:

All right.

Lee Phillips [00:36:36]:

An LLC is the tool that you’re going to use. I’m just going to tell you that. I’m also going to tell you that if you have a corporation, you need to convert it to an LLC yesterday, you will not have a corporate legal structure. There are always exceptions to these, but 99% of the time, the answer is no and hell no, okay?

James [00:37:02]:

You will not LLC taxed as an S corporation.

Lee Phillips [00:37:07]:

Well, the advantage of an LLC is one of them. I can tax it any way I want. The LLC was created 1977 in Wyoming. And the first question was, okay, Mr. IRS, how are you going to tax this new animal? Took the IRS 20 years. Always takes 20 years to come back and say, we don’t care. You get to pick how you want your LLC taxed, okay? So you can have it taxed under subchapter S of the IRS code just like you can a corporation. You can have it taxed under chapter C of the IRS code, just like you can a corporation. And so you get to pick the tax structure. That’s a big advantage. But let’s look at the asset protection. When Wyoming created it, they married partnership and a corporation. We got half the DNA from the daddy corporation. We got the corporate shield. The corporate shield protects me from what happens in the company.

James [00:38:18]:


Lee Phillips [00:38:20]:

So if there’s a slip and fall in the company, the tenant slips and falls, sues me. Somebody buys something that’s bad, whatever the corporate shield protects, the owners got the same corporate shield. But if anybody asks the lawyer, the lawyer will say there is no asset protection for a partnership. Isn’t that what you’ve always heard? Partnership does have asset protection. And I’ve got to give you a history lesson so you understand it. 400 years ago in England, me and James and Joe, we start a business. It’s a beautiful business. We worked 30 years on the business. Joe screws up. I’m not sure how you screw up in England 400 years ago. You didn’t pay the king. You hit somebody with your horse, you got divorced, whatever. Joe has a personal problem, his creditor. The guy suing him gets a judgment against him. They take away Joe’s partnership. By definition, Joe’s creditor mine and James’new partner. They can come in, they can do whatever they want. They sell the company. James and I have nothing to say about that. Wait a minute. We didn’t do anything wrong. Joe screwed up. And the Brits said that’s not fair. So they created a law which said when Joe’s creditor gets a judgment against Joe, the creditor has to go back to court and get an order which charges Joe’s debt against our partnership. If our partnership declares a profit. Joe doesn’t get it anymore. His creditor gets it.

James [00:40:14]:

Got it.

Lee Phillips [00:40:15]:

Okay, so they have to go back to court and they get what’s called a charging order in legal terms, they have an economic lien against the partnership. Now, they can’t tell me and you, James, how to operate it. They can’t tell us when we declare profit. They can’t tell us anything. They just stand there and wait until we declare a profit. So what does that mean? What that means is when they married a partnership in a corporation, we got the daddy corporate shield, but we got the mommy charging order. So when one of the members owners of the LLC gets sued, you can’t come and get the assets of the LLC. All right, I’ve now protected the business. When the family declares bankruptcy because somebody gets sick, they can’t get the business assets.

James [00:41:18]:


Lee Phillips [00:41:19]:

That’s huge, James.

James [00:41:21]:

Yeah, extremely.

Lee Phillips [00:41:22]:

I mean, I’ve seen a lot more people lose their business because of a personal screw up. You get divorced, you get sick, you hit a kid in the crosswalk on the way to church on Sunday, they take away the business. Now they can’t get the business.

James [00:41:41]:

All right?

Lee Phillips [00:41:42]:

The corporation does not have charging order protection. It’s only the mommy partnership. So if you’ve got a corporate legal structure, get rid of the thing and get an LLC. It’s easy. Your state has a piece of paper that you file that says, I want to change from a corporation to a LLC. Now, the IRS doesn’t know whether you have a corporate legal structure or an LLC legal structure. They don’t care.

James [00:42:17]:

They just want the money.

Lee Phillips [00:42:19]:

They just want the money. But that means when I make the swap, I keep the same tax ID number. I keep paying my taxes just like I always did. All right, so there’s no disturbance in the LLC world or, excuse me, the IRS world, but there’s a huge difference in the corporate structure versus the LLC structure.

James [00:42:42]:

Okay? All right. Can you see? LLC is much simpler.

Lee Phillips [00:42:48]:

Well, it’s about the same as a corporation, okay?

James [00:42:51]:

I mean, there’s less paperwork, isn’t there?

Lee Phillips [00:42:54]:

Well, they say there’s less paperwork. Utah, where I’m licensed, even has a law which yeah, you don’t have to worry about formalities in an. Oh, well, that’s a bunch of BS. In my opinion, they’re setting aside LLCs every day of the week in Utah courts because, look, the corporate shield is the identical corporate shield of a corporation. When you get into court, the argument is, is this corporate shield going to protect you from the lawsuit that’s coming against the company? And the argument is, your Honor, this company is a scam. I mean, he treats it as his alter ego. He uses the money to go down and pay for a vacation for his wife and him. He never holds meetings. He commingles the money. He doesn’t hire and fire people. Right. He doesn’t do all of this stuff. And over the decades, we’ve developed a formality associated with proving to the court that this corporate shield is real? Well, if it’s got the identical corporate shield, isn’t the argument in court to do away with this corporate shield going to be the same if it’s an LLC or a corporation? And the answer is yes. So you’ve got to follow what we call the corporate formalities.

James [00:44:28]:

Got you that’s. The meetings, the notes, all that crap, all the stuff, okay?

Lee Phillips [00:44:33]:

I’ve got a list of 16 or 18 of them I give people, all right? But you’ve got to follow these corporate formalities. So that’s the same in an LLC, in my opinion, okay? And I’ve seen it be the same in court, but there’s no formalities associated with the charging order. You get that? Now, there are a number of states there’s about 15 of them now that say I have to have two members in order to get this charging order protection. Look at the logic on it. The first case was Olmstead down in Florida. Basically, there was albright in Colorado, but it was Whacked. Mr. Olmsted is a dirty dude in Florida. He embezzles tens of millions of dollars from Floridians. The government puts him in jail, and he’s got all of these tens of millions of dollars sitting over there in an LLC, and the government says, OK, give that money back to us. And Mr. Olmstead sticks his tongue out at him and says, this is an LLC. Florida law says the only recourse that you have against that LLC is a charging order, and you can wait until I declare a profit. I’m sitting in jail. I ain’t declaring many profits, boys. And he told the Supreme Court justices in Florida to go pound sand.

James [00:46:06]:

Wow. All right.

Lee Phillips [00:46:07]:

One problem with that, there’s a lot of sand in Florida. The Supreme Court justices in Florida ain’t interested in pounding sand. So they scratched their little noodle, and they said, wait a minute, wait a minute, Mr. Olmstead. You don’t got a Lee and James. This charging order crap was to protect Lee and James. It wasn’t to protect Joe. Mr. Olmstead. You don’t got any lee. And James. Henceforth and forever in Florida, a single member, single owner LLC don’t get charging order protection. Screw you, Mr. Olmstead. So we now have about 15 states that have gone along with that logic and said, I need two members, which is logical, okay? The concept wasn’t to protect Joe. It was to protect Lee and James.

James [00:47:06]:

Interesting. It’s interesting you talk about that because you’re looking at it or you’re presenting it as protecting the business from the person. I always looked at the LLC as protecting the person from the business. Whereas, like, somebody slips and falls.

Lee Phillips [00:47:20]:

It has that corporate shield, but it has this other piece that lawyers never talk about, and this other piece is almost more powerful than the corporate shield.

James [00:47:30]:

Yeah, I never thought about it that way. That is intriguing. I love it.

Lee Phillips [00:47:33]:

Look, if you’ve got houses. James I’m a real estate investor. I got five units. In the 2008 910, I saw people lose 30 units. They’d have this one go bad, they’d give it back to the bank. The bank would sell it and there’d be a deficiency.

James [00:47:52]:


Lee Phillips [00:47:53]:

Then the bank would come to the individual and they’d go to the next piece of property because they owned it. Even if it’s in a corporation. They go to the next piece of property and they sell this piece of property. There’s a deficiency, and they go on down. Wait a minute. The corporation has a corporate shield. How did they get from this unit to the individual to go to the next unit?

James [00:48:18]:


Lee Phillips [00:48:19]:

You signed the mortgage personally. I’ll guarantee it.

James [00:48:25]:

All right, so you’re talking about personal guarantee on the loan?

Lee Phillips [00:48:28]:

Yeah, personal guarantee on the loan on this piece of property and there was a deficiency.

James [00:48:33]:

Got it.

Lee Phillips [00:48:33]:

That means everything you own stands behind this. So they go to the corporation, they take the stock, they sell the assets, they go to the corporation, they take the stock, they sell the assets. But if this is in an LLC, they come and get me. I declare personal bankruptcy. They still can’t get that other unit.

James [00:48:52]:

All right. Interesting. Okay.

Lee Phillips [00:48:57]:

This is a big deal.

James [00:48:59]:

It sounds like a huge deal. That’s why we’re talking.

Lee Phillips [00:49:02]:

That’s why we’re here. This is the LLC. I’ve got a 14 page ebook called the LLC Mini Course. And it goes through all this in detail. If you guys want it, they can go to Legalese. Legales.com. James and I’ll give them a copy of it.

James [00:49:26]:

James oh, that’s awesome. Awesome. Legalees.com? Yeah.

Lee Phillips [00:49:31]:

There’s only one L. It’s a pun on my name, right?

James [00:49:34]:

Legalese.com. James.

Lee Phillips [00:49:39]:

James that’s just your name. Okay.

James [00:49:41]:

Very cool. Yeah, it’s interesting. Just I’ve been in business well, 2006, I started my first real business and went through the classes, got the LLC. And it’s just one of those things that I was told to do, but I really didn’t understand it. And I still hear stuff, interviewing people like you, where I’ve been around for a while. Not nearly as long as you, but a while in the business world.

Lee Phillips [00:50:07]:

Yeah. Dirt hasn’t been around as long as I have.

James [00:50:09]:

James but I feel like this should be simpler. I feel that I shouldn’t still be learning something about this. Like this should be learning about how a light switch works. You flip it up, it goes on. You flip it off, the light goes off. End of education. But it seems like there’s more and more and more to learn about this stuff. It’s interesting. Fascinating.

Lee Phillips [00:50:30]:

Here’s the issue. You can learn a lot about it, and it gives you power. For example, taxes. I told you they were your biggest asset protection threat. You’ve never had your accountant bring you in, put his arm around you and say, we need to teach you how to use your little business as a tax shelter. Your little business is the most important tax shelter that you have, James. Just generating numbers and giving them to the accountant, and he plugs them in your taxes at the end of the year. Wait, you’ve got a great accountant, don’t you? Well, yeah. Your accountant will not teach you how to use your little company as a tax shelter. The reason is, as soon as he starts to teach you anything, he becomes liable. There’s no liability in taking your numbers, putting them in the computer and spitting your taxes out, is there? No, but as soon as he starts to teach you, he’s now liable. He will not teach you. And yet if you understand the taxes behind your little business, you can make more money. You can’t turn the crank any faster, James, but we can give you a 10% or 20% bump in income if we understand taxes.

James [00:51:49]:

All right, so where do you go to get that education?

Lee Phillips [00:51:52]:

We got to do another hour with you. I’m sorry. See, this is how the lawyer lines him upself up to get more business, right?

James [00:52:03]:

Yeah. Just put a little carrot in front of us here.

Lee Phillips [00:52:07]:

You did hear about the lawyer that had the farmer as a client? He needed a signature. So he goes out to the farm and it’s early in the morning, the misty is coming off the grass and sure enough, the farmers out in the middle of the cow pasture. So the lawyer starts across the cow pasture and he’s three piece suit and he’s trucking along and he steps in this big pile. I mean, it’s still warm, it’s steaming. And he looks down at his leg up to his ankle in this big pile and he says, oh my gosh, I’m melting. You get in a minute. Okay, guys.

James [00:52:43]:

Oh, it’s awesome.

Lee Phillips [00:52:47]:

I love lawyer jokes.

James [00:52:49]:

So it’s so funny you talking about the accountant. I just interviewed a guy on this podcast a few weeks ago and he said essentially that the accountant doesn’t want you to make money because the accountant is then going to give you a big tax bill and the accountant doesn’t want you to be mad at him. So the account is essentially going to hope, not show, but hope that you don’t make money in your business.

Lee Phillips [00:53:16]:

I don’t know that I’d go that far. They don’t care if you make money or not. All right, but you need to understand the tax implications of what you do. It’s a mindset as you go through the year and do this deal or that or the other, you have to also think, what’s the tax consequence? Could I change this deal to get a better tax outcome?

James [00:53:41]:

All right. It’s so interesting that you mentioned that because I reached out to my past accountant to try to get a meeting in September, October, before tax year.

Lee Phillips [00:53:52]:

To plan your taxes.

James [00:53:53]:

Yeah. To just go over my stuff and say, what are some pieces of the puzzle that I should move before it’s too late for this upcoming tax year?

Lee Phillips [00:54:02]:


James [00:54:02]:

The guy would not take that meeting, so he know, you really don’t need that. I’ll see you next year.

Lee Phillips [00:54:10]:

Or a lot of times I’ll put my money where my mouth is in my office. Now, I have a former special agent, special auditor to the IRS. I have the former head of the Western Division of the IRS. I got a lot of accounting and tax power in my office, all right? And they’ll go through and they coach little business guys through how to do this.

James [00:54:31]:


Lee Phillips [00:54:32]:

All right, somebody’s got to sit you down. You only need it once or twice, one year or two years, and then after that, you figure it out and.

James [00:54:39]:

You can go, well, so that’s perfect that you say that, because I try to tell my accountant, from my point of view, this is like you’re playing Monopoly, but you only get page one of the directions. You don’t get page three or two through four or whatever.

Lee Phillips [00:54:52]:


James [00:54:53]:

Just show me page two through four, and then we can play this game a little bit better. Or I can play this game.

Lee Phillips [00:54:59]:

I can’t show you. As soon as he shows you that’s, one, he’s removed the mystique of the accounting profession, and two, he’s become liable because he said you should do something.

James [00:55:11]:

All right. Interesting. Well, yeah, I mean, that’s a much needed service, I suppose the IRS is.

Lee Phillips [00:55:18]:

And you know what the whole problem is? It’s the lawyers. They’re going to sue. If we could get rid of all the lawyers, this would be a nice place. Sad that 95% of the lawyers give the other 5% of us a bad name.

James [00:55:36]:

Fair. Totally fair. There’s a reason that they exist. But, yeah, I think that’s been a profession that’s been exploited or has exploited us, I guess.

Lee Phillips [00:55:47]:

Yeah, I think that’s the way it is.

James [00:55:50]:

Fair. Well, Lee, I feel like we got to set up another time to talk about accounting, because that is a huge thing in the business world. I mean, asset protection is one thing. Having assets to actually protect is another.

Lee Phillips [00:56:06]:

Business. Your two tax shelters are your little business and your real estate, all right? People in business and people that invest in real estate get rich often. More chance, right. But most people, even the business people and the real estate investors, don’t understand that it’s actually the taxes that are making them rich. Trump can’t let you see his tax return. Even the real estate investors would go berserk if they actually knew what all the tax laws associated with real estate was and how really cool they are.

James [00:56:46]:

Oh, my goodness gracious. I feel like I got to know this because I have one commercial real estate property I’m looking at more, but it’s a mess. High interest, high prices kind of thing.

Lee Phillips [00:56:58]:

Well, you get rich in that. But part of it is it’s the tax shelter. And if you maximize the tax shelter and the business and the real estate investing, you get rich faster.

James [00:57:10]:

All right, I’ve seen some crazy stuff, buildings and donations and stuff like that. And almost every time I ask, where did this person get their money, real estate has been the answer. I dare say all the time. I mean, I’m sure there’s one where they inherited the money, and the person they inherited it from made it from real estate. But it’s crazy.

Lee Phillips [00:57:33]:

There are three true forms of wealth, James. Oil, gas, minerals, natural resources. You can’t play that game, it’s too expensive. Stocks, securities are a real form of business, but the Harvard statistic is 95% of the people that go into the market on their own lose money.

James [00:57:51]:

Oh, interesting.

Lee Phillips [00:57:52]:

The third real form of wealth is real estate. And you can do that one.

James [00:57:58]:

Interesting. I love it. This is perfect. Well, Lee, would you mind if I get you on the show again? Sure.

Lee Phillips [00:58:05]:

I’m having fun. I don’t know about having fun, and then it’ll be over, right?

James [00:58:11]:

Yeah, right. You didn’t even talk about the stuff you did with the supreme Court, so I mean, you got a lot to share, so it’s impressive resume, and you’ve been an incredible guest, so I appreciate you being on the show.

Lee Phillips [00:58:26]:

Thank you.

James [00:58:27]:

And I dare say that you offered a bunch for the listeners as well. Let’s go through that website one more time where they can get the LLC mini course.

Lee Phillips [00:58:36]:

It’s just legalese, legal and then e e s.com.

James [00:58:43]:

James, easy enough.

Lee Phillips [00:58:45]:

14 page ebook on what I call the LLC mini course.

James [00:58:50]:

All right, cool. Love it.

Lee Phillips [00:58:52]:

For business owners, nothing. It’s yours.

James [00:58:55]:

Sweet. I love it. I appreciate that. That’s super awesome. This has been Authentic Business Adventures, the business program that brings you the struggles, stories and triumphant successes of business owners across the land. We’re locally underwritten by the bank of Sunpray. If you’re listening or watching this on the web, if you could do us a huge favor, give us a big ol thumbs up subscribe and of course, comment below. Let us know your war stories about LLCs corporations, liability and asset protection and all that jazz. Or some questions for Lee that you may have for the next time that we have him on the show. My name is James Kademan, and Authentic Business Adventures is brought to you by calls on call offering call answering services for service businesses across the country. On the web, at callsoncallcom. I’m messing that up, aren’t I? Woo. And of course, the bold business book books of the entrepreneur and all of us available wherever find books are sold. We’d like to thank you, our wonderful listeners, as well as our guest, Lee Phillips, the founder, chief what did you say? Schmuck of Legalese Corp. Lee, can you tell us that website one more time, just for fun?

Lee Phillips [00:59:58]:

It’s now a legalees LLC. Got to correct you there.

James [01:00:02]:

Oh legalese LLC. Got It.

Lee Phillips [01:00:04]:

But legalese. Legalees.com.

James [01:00:10]:

James excellent. Past episodes can be found morning, noon and night. Podcast Link found at drawincustomerscom. Thanks for listening. We will see you next week. I want you to stay awesome. And if you do nothing else, enjoy your business.

Lee Phillips [01:00:24]:

You It’s.

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