A student at the BoomX Academy asked me my opinion of infinite banking and asked me to cover it in our weekly office hours. And I admit, I had never heard of infinite banking. I didn't know what it was at all, but like you, I jumped into YouTube and typed in infinite banking. And of course that led me almost immediately to the Dave Ramsey video in which he was asked his opinion of infinite banking. And in typical Dave Ramsey fashion, he took the ready fire aim approach. And that caused controversy, which is good because now there's more of a discussion about infinite banking on YouTube.
Now remember that I am not a financial advisor, I'm not an insurance agent, I'm an attorney. And attorneys are on the side of the client and we zealously advocate the position of our client. And although my investigation of infinite banking was not in my capacity as an attorney, but just like curious and trying to help a student at the academy.
And in the academy, I do presentations, certainly, but I've learned a lot from the students and this particular student, I've learned after I came out with my conclusions, I learned that she had already invested in infinite banking, with that approach. What's amazing about her, she's only 37 years old.
And so this video explains the reasons I give my thumbs up to infinite banking and then look for the subsequent video in which we will, I will publish the Q and A about infinite banking among the students who really kind of break it down and attack it from different directions so you can make your own opinion.
One of the things I want to point out about infinite banking is that infinite banking does not refer to a product. It's a methodology. And so you've gotta get the mindset correct. The next thing to remember is my interest in it is that I'm a trust attorney, asset protection, a trust attorney, and I'm setting up trust and have since 1996, that's how long I've been a lawyer to help clients build family wealth that is generational.
And one of the things in the trust we're trying to accomplish is a way to further family goals generationally. And what we need often, in fact, in all cases is cash flow. A trust is no different than a corporation or an LLC, or even the way you run your budget. There has to be liquidity in order to buy the things that the trust needs to do to help the family.
And what's interesting about infinite banking, it is a way of storing cash. It is an alternative to a private bank and in my opinion, that's really the compelling factors that in the context of a trust, it just works really, really, really well. It's up to you to decide if it's for you, but I hope this video helps.
Welcome, BoomXers. Let's throw out the old playbook. It's time to tear down the traditional way of looking at your life and money and leverage the laws of money to our advantage. That's right. There are laws of money and those who learn and leverage the laws of money win and sometimes win big. Stay tuned as asset protection attorney, Darol Tuttle, educator, and leader of the BoomX Nation shows us how. Beginners, investors, entrepreneurs, fellow attorneys, are you ready? Are you ready?
Let's arm this bomb. Now, here's the BoomX show, the laws of money.
I'm asking what is the difference between an investment and a loan, if you think about it? Well, loan, you have to pay back. Yeah. With interest, with interest. An investment you're earning interest, hopefully. Yeah, basically. I think the definition is an investment is a lump sum deposit, an exchange for income in the future, basically.
Whereas a loan is you're making payments in exchange for a lump sum. So it's like, it's reverse. And an investment, like a loan is always somebody else's income, because like, if you're paying, someone else's making money. And one of the things that we should be thinking about is what are we paying to purchase anything?
Like debt is all about buying something that you cannot afford, that's like the definition of it. And it comes at a cost. What is the cost to own a new pickup? Now, so the question I wanna ask is can an investment be a loan? Can you have these two things that seem completely contradictory?
Like an investment is a lump sum deposit, an exchange for return in the future. And a loan is payment in the future, an exchange for a lump sum. is it possible to have both an investment and a loan? And so to illustrate the concept, I have some really simple hypotheticals that in my fogged brain from this cold I have, I hope work. Banks suck. You're never gonna get better end transaction with the bank. Right? Concede that.
Now for a small transaction, just think like $5,000 in a savings account. Well, savings account, they make like 1%. 1% isn't a lot of money but you have 5,000 bucks in the bank, suppose you had a $3,000 credit card bill.
Now credit cards are like, I think the average rate on a credit card is 20%. Which is, should be against the law. I mean, like in the state of Washington, there's a law called the Usury Law. Usually law interest cannot be over 18%, but somehow credit cards companies, it doesn't apply to them, some rule.
And so 20%. Now, I calculated the interest here when you calculate these, that's not the right interest, the 500 bucks, that's not quite right. But if he took $3,000 out of his account to pay off a $3,000 credit card bill, then five years into the future, he would have $2,102. Five years, 1% interest is only $102, but at least he made some money.
Now in hypothetical number two, he doesn't have 5,000 bucks, but he wants to pay out the credit card cuz it's 20%. So what does he do? He goes, and he borrows $5,000 from the bank at 5% interest. And then he pays off his credit card. Now in five years, he's not gonna have anything cuz he never had anything in the beginning, just like not an investment, really.
The only thing that he can do is this concept of a return by avoiding a worst negative result, which is the interest. And so in five years, if the credit card company charged him 20%, he avoided that. And that's a total return of $1,372. So that's not as good as having money to start with, but if you don't have it, at least you can leverage the difference in interest rates. Right?
Now, let's ask this question, suppose he deposited $5,000 into an account that had a guaranteed interest rate of 5%. And then he took out $3,000 or he could do one of two things. He could take out $3,000 from the account and pay off the credit card bill. And it would be the same result. He'd have like $2,000 left in the account.
It would compound at 5%. It would be better than the savings account, cuz that's only compounding at 1%, but he's compounding on $2,000. But imagine if he could not take out $5,000, but rather borrow $5,000 from the same company. So he still has the $5,000 in his account, but now he has an obligation.
And what happens if you do the math is he's gonna pay off the credit card bill. So he's gonna avoid paying the interest on five years. But it will have cost him $396 in interest. So his net gain just in paying off that loan is 1768. That's that's the amount that he saved. And of course, the interest that he made over the five years is compounded on $5,000, which is a total return of $2,168.
Now, so those numbers are different. The first number was we had the savings account, 1% we paid off the loan. We made a hundred two bucks. The second one was, well, we didn't really have anything, but you could just say our return was 13 something. And this is like money in the bank, $2,168.
Now this is infinite banking. That's what it is. And to me, when I look at it, I'm like, how could anyone argue with this? Especially that I don't like Dave Ramsey. He's doing a lot of harm to a lot of people. And so I'll try to, no, in fact, I'm not gonna spare his feelings. He can't hear me anyway. But if you go onto YouTube, somebody asked him about infinite banking and he just went off about whole life.
But if you think about what Dave Ramsey's message is, this is exactly his message. Like not only should he not be criticizing infinite banking. He should be saying, this is exactly what I've been trying to teach y'all because the whole point of this is own your money. Like, if you can control your money, it's your money, you own it, and you can leverage it and you can make your money work for you. This is an example of making your money work for you.
Now, Susan, you've probably not heard this term, infinite banking. But I don't know if it's an actual, like if it's a slang, but it's describing a very particular kind of whole life insurance policy. Now, if I started this presentation, I have a client that I've invited to family leaders and he made the comment that I hear almost every time I bring up an eyelet and that is I don't like life insurance.
And they're just like immediately, shut the conversation down. Whereas if you start with the, what we're trying to accomplish, and we divorce ourselves from everything that we think we know about life insurance and like look at mechanics of it, what's not to like? As compared to a savings account, there's no comparison.
Now, the other thing that I like about it is, it's really not meant to be in an investment. We shouldn't really look at it as like a stock. Dave Ramsey is so simple minded. He rails about life insurance because to him there's either debt or an asset. That's it, at this entire world one or the other.
Well, once you become a little bit more sophisticated, you realize there's strategies and there's ways to structure money and ways to finance things in such a way that there's income producing property, there's income producing investments that really aren't even characterized by the law as an asset, rather it's characterized as income.
And so this is simple cash flow. And one person on YouTube, I really like I'll maybe, you know them Shannon, but it's Wealth Nation. Mm-hmm. Yeah. So they're really cool. I like them.
Whole life insurance is a rip off or is it just a rip off to those who don't understand it? My name is Carmen, and I'm Darius. And insurance is mandatory for most things in our life. Well, the most important things like our home. We have to have insurance for our house. Even if we're renting, we have to have renter's insurance. We have to have car insurance and we even have insurance for our electronics and not to mention our electronics. Yeah. And not to mention the bank. Mm-hmm. We have insurance for our money and our bank up until 250,000.
He goes, look, it's a place to store money. It's money storage. That's it. And as compared to a bank, it's way better. The other thing too, it's still life insurance, man. And so when you pass away, you have a tax free guaranteed death benefit. What I left out on this was, imagine if you passed away in that first year and your investment was now worth $50,000.
Dave Ramsey, I don't give a flyin' F, what you think about whole life. There's nobody on the planet that's going to say investing 5,000 and getting $50,000 back for the estate with six months later is a bad investment. And so the other thing too, is this comes with no risk. The only risk would be default of the insurance company and in Washington, it's insured.
Mm. And so, you gotta look at it as something as safe as a bank that you control. And so to me, when you said infinite banking to me in that email, I'm like, what the hell is she talking about? I don't even know. And somehow in my mind, I immediately converted that like within 24 hours to family bank because in office hours, how many times have I said it?
Like, a trust is like a family bank over and over and over again. But I've never had like the mechanism inside of the trust to pull it off. Right? Because I've always just looked at it as there's a trustee and they have stocks and bonds and mutual funds like everybody else. Well, that's not really like a bank.
Banking is different than investing. And so, I'm gonna pause there for a minute. See if anybody has questions. I notice that my, my presentation was so persuasive and articulate that Susan got up and left.
I kind of learn from public speaking that when the audience gets up and leave, it's time to shut up.
I'm gonna work on the style of this. I'm really not feeling very, very well, but I'm gonna work on the style of this presentation because the problem with I B C.
It's another YouTube channel. That guy is an insurance broker salesman. Right. And so you've got wealth nation and then that guy, and they're too extreme. They're both very good, but he's like spreadsheet number, blah, blah, blah. Very, very, very technical. The second thing is a wealth nation is more big picture concept.
Where those light bulb will go off with wealth nation and then you can dive deeper into the details of the financials with the other guy.
I hear these horrific stories of whole life insurance and how people are just scammed and ripped off. It is typically when one is interested in the cash value, they purchase a policy and it is not set up for high cash value.
It's structured in a fashion where it's very, very high commission typically to the insurance agent, which means it's more weighted toward the death benefit. And the cash value is not attractive. That's where we see low growth rate on whole life insurance policies, specifically around the cash value. So safety, no matter what happens, your money will continue to go up over time.
Liquid, we can access the money anytime. A unique feature to the cash value in a life insurance policy is that once you have money in cash value, if I let it sit and grow, that's assuming it's earning 5% for simplicity. If I just let it sit and grow and earn 5%, it'll continue to earn 5%.
If I elect to borrow against the policy, let's assume that you have a hundred thousand dollars in cash value and you borrow $50,000 against that policy. There's $50,000 remaining, but you will continue to earn that 5% net growth rate on the full $100,000 as if you never touched it in the first place. Meaning there's no lost opportunity cost and your money continues to compound.
So where it's liquid and I can access it any time. The other feature is that it constantly compounds. A lot of real estate investors and business owners are very attracted to the product for that specific reason and then tax free. But we have in bold caps there. If, if I do things properly, the policy continues to grow tax free and I can access it tax free.
But there's, you know, a solid insurance company, there's not, not a lot of choice and it just kind of comes down to the spreadsheet. And so before I go to the application and trust, Susan, are you grasping the concept?
I'm trying, because I've got dogs and people hammering and compressors and everything going at same time, but yeah, I am. I ah, I'm in a weird place with life insurance. I don't know, like Karen said, or what age is too old to get whole life insurance. And how does that all work is where it's going through my mind right now.
I wish that Karen had showed up because this is what I would tell her. I go, okay, look for the rest of my presentation and the rest of office hours, I want you to, we're gonna follow one rule. The life insurance that you buy to pull this off is not on your life.
Because like, once it's on your life, then you start thinking of it as life insurance. But to really emphasize, it is life insurance, but let's just insure somebody else. I actually worked tangentially on a case. Did you know that all the big banks buy life insurance on their employees?
It's called bank owned life insurance. And I worked tangentially on a billion dollar, over a billion dollar portfolio of just whole life insurance policies for Washington Mutual. Remember that bank Washington Mutual. And when I first encountered, I was like, what? And then I was like, yeah, you can buy life insurance and then insure somebody that you have some connection with.
That's perfectly fine, but you own the investments. Well, it's whole life. So there's a big cash value in the policy. And then there's the death benefit on top of it. And if the bank needed, it logs onto the bank's account statements as an asset. It also can be taken for income without invoking a tax.
And so these banks have this secure, guaranteed, tax-deferred asset on their banks, which just allows them to borrow more money and have more money and do all this stuff. If you look at it that way, then you start to think, oh, oh wait a second. This is actually, it's like an important, valuable asset.
The insured is irrelevant. I say it's irrelevant because, as soon as you start thinking about life insurance on your life. Well, who gives a shit? You're gonna be dead. Right? So just think of it as life insurance on somebody else's life.
Hi. Say something, Karen, we're waiting for you. So you're talking about whole life and so you have to apply for an insurance policy in the beginning, right? Yeah. But we're suggesting that academically, like a trust could own life insurance and your life would not necessarily have to be the life they insured.
And so if you look at the like banks, we pointed out that banks own life insurance on their employees. The reason they do that is because they can carry that asset on their books. They can have access to the cash value. They can take a loan at no tax. It's tax, deferred investment. And it pays out on the death of the employee, tax free.
And so what's not the, like, the banks are like, this is amazing. And so they look at it as an investment and like a trust, like a family-owned bank is a trust. That's what a trust does for more than one life. And so, you could structure your trust. For example, let's not use your trust for because that's very personal to you, but let's suppose a trust for the benefit of your kids.
And then if there's anything left over for their kids. Well, you could insure the life on one of the kids, if you wanted to, because you still have access to that cash value that's at a better I mean, it's not super sexy, 5% rate of return on the cash value. It's guaranteed, right?
So it's not gonna be like stock market rate of return, but you're not taking the risk of the stock market and it's tax deferred. So I think it's gonna, could work really well in trust. I went on WealthCounsel this morning, and so these are like a thousand of some of the best lawyers in the country. Right? So I put on the list serve, I never thought about a special kind of whole life policy inside of a trust. It seems to me like there wouldn't be a tax consequence for that. What do y'all think? I haven't logged in to see what the lawyers think about it. I can almost guarantee you there'll be crickets.
Like there won't be a response because nobody knows what the hell I'm talking about because I hadn't heard of it either, really. I mean, hadn't thought of it. We used to use ILITs a lot more than we do now because the federal state tax credit amount, when I started law was 625,000 bucks. I mean, granted that was back in when this American revolutionary war had just ended.
So, but that was a subtle joke about my age, by the way.
Thanks for listening to another episode of the BoomX show laws of money podcast, where asset protection attorney, Darol Tuttle breaks down the complicated rules of estate, retirement and even long-term care planning. You can listen to past episodes of the BoomX show by going to boomxshow.com or subscribing right from your smartphone's podcast player.
To take a deeper dive join as a free member in the BoomX Academy and you'll be automatically enrolled in the show's companion courses where you can find enhanced content and many of the show's important episodes. Enroll now by visiting boomxacademy.com. That's boomxacademy.com.
