Discussing the possibilities and future at the intersection of healthcare and commercial real estate
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Private banking is a fascinating topic that can be a very practical tool for today’s physician investors. I invited Seth Hicks of Private Banking Strategies on the podcast to uncover the benefits of private banking for physicians.
Seth is an attorney, private banker, and asset protection expert who helps high net worth individuals become their own bank and set themselves up for successful generational wealth building. Join us as we discuss how private banking can help you protect your assets, keep what you make, and enjoy better tax advantages.
[2:18] Seth’s 3 decades of experience protecting assets
Seth has been practicing law for about 25 years and focused on real estate transactional work. He worked at a large law firm in Dallas for many years securing large big box bank transactions so he took his expertise and started working with a boutique firm where he did real estate transitions, commercial business transactions, and even took on some trial work and litigations on occasion.
[3:24] The core benefits and value of private banking
Seth’s is the COO of Private Banking Strategies, and their mission is to help people take the banking equation back in their own life so that they are able to protect their assets, keep what they make, and have a lot better tax advantages.
With private banking, you are able to utilize a carefully structured whole life insurance policy to function as a private family bank. Some of the benefits of this are asset protection, tax free growth within your bank, financial privacy, and being able to use the same dollar more than once.
[5:40] How to create a bulletproof vault and keep what you make
If someone experiences a windfall, whether that’s the sale of a building, business, or cryptocurrency investment sale, they want to keep and take home what they have accumulated in that windfall.
One way that you can do this is by putting it all into a private vault that is asset protection. In many states, they asset protected by legislature meaning they are completely off the table from creditors if you have a liability.
Being a physician is a higher liability profession so this is something that a lot of our doctor clients are concerned about in the event of a liability or excess verdict situation. They don’t want to lose everything that they have worked so hard to create, especially their family security.
The way to create this bulletproof vault would be to take a windfall amount and begin to fund your own private bank and whole life insurance policy. The good thing about this is that it is a financially private transaction and it avoids big box bank bail in potential.
[9:33] Why good insurance coverage isn’t enough
Seth had a physician client who lost a malpractice suit and had to start over from scratch at 60 years old. Although he had good insurance coverage, he was hit was an excess verdict and it wiped out his entire wealth accumulation that he had been building for over 30 years.
It was really a tragic situation, but it is one that is easily avoidable if you’re structured in the proper way.
[11:06] How to borrow money from a life insurance policy
You can borrow money from your whole life insurance policy by effectively funding your bank with annual premiums. There is a particular structure in which you maximize your cash value in your bank and you are able to take that dollar that you have funded your bank with and pull it out and invest it in whatever you would like.
[12:22] Tax differences between using your 401k and a life insurance policy
Unlike 401Ks, 403 B’s, and other qualified government plans, you don’t pay taxes or other penalties when you’re pulling this cash out so you’re not losing money each time you move money around.
[13:20] A transaction walkthrough
For example, if you have a $100,000 asset and you have $100,000 in your private bank, you can effectively purchase that property outright through your private bank.
You would also make a loan to the borrower or to the entity that’s on title. Then, you would make sure that payments come back to your bank that replace that $100,000.
You need to make sure that that money just doesn’t evaporate, because sometimes money has wings and is ready to fly off, especially in windfall situations so if you don’t have a specific plan in place to make sure you’re getting the money back, you may wonder where it went in 10 years. So this is a technique to get the money back and also protect the asset, because you will have that lien in place.
So you fund your policy, you fund your premiums with $100,000. You take that same $100,000 right back out and you purchase this piece of real estate. And then you’ve got cash flow on that. You’ve got rents, and you effectively pay back your mortgage to your private bank through those rents. And your cash value increases with every dollar, dollar for dollar that you pay back.
And so you go out and you look for another opportunity that exists and you acquire a second property and you do the exact same thing. Now depending on how much money you have got in your private bank will depend on how many assets you can acquire with only your private bank money.
Now, of course, you can use third party financing and we could use the principle of leverage, you could take that same $100,000 and you could spread it over five properties with 80/20 financing. So you got 20,000 down on property 1. 20, 000 down on property two, and three, and property four, and property five, and you’re using bank financing for the other 80%. And your cash flow just increased fivefold, right?
And so now you’ve got five times that rental cash flow coming back into your bank. And you can effectively take out the third party financing one property at a time in a very rapid fashion. So that you’ve used the principle of leverage and your own private banking system to accelerate your ability to capture the equity in those five properties. And it doesn’t matter if it’s a medical facility or apartment building or single family homes. It’s the same principle for all of those assets. I know your folks are focused on medical, commercial, but the same principle works throughout.
[16:21] Tax-free growth
The best part of private banking is really that it is tax free. Many folks like John F. Kennedy and Ray Kroc, the franchisor of McDonalds, used this tool to create wealth because it has some really great tax advantages to it.
At the end of your lifetime you will be able to give whatever assets you own to your family without having to worry about the amount being cut in half.
[18:51] The calculations behind maximum whole life insurance availability
The maximum amount that someone can take out in a whole life insurance policy depends on their financial position and overall wealth. If you’ve got substantial wealth, you can create substantial policies.
If you’re going to try to take out multiple millions and annual policies every year, then you need to be able to back up why you need that much because they’re going to be paying out multiples of that in death benefit if you happen to die in the next day but the actuaries are really good at determining these things.
[20:12] Seth’s first job
Seth’s first real job was practicing law at a law firm but his first ever job was being a lifeguard in high school.
[20:35] What Seth would be doing if he wasn’t a private banker, asset protection expert, or an attorney
Seth loves his current job but he thinks being a NASCAR driver would be a cool career.
[21:14] What Seth is currently reading or listening to for news, information, or inspiration
Seth doesn’t focus too much on the media or news because he’s not usually a fan of mainstream media but does dabble in some alternative media from time to time.
[24:12] What Seth does for healthy self-care
Seth really enjoys being active and tries to hit the gym at least three to four days a week. He is also his kid’s soccer coach so he keeps very active.
[24:34] Seth’s thoughts on whether leaders are born or trained
Seth believes that some leaders are born but most are trained.
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