How to Invest in Real Estate with Non-Recourse Loans

Estimated reading time: 6 minutes

When using your Self-Directed IRA, there might come a time when you need to get additional funds for a deal.  Sometimes, other strategies like partnering, may not work for your situation. So, what happens if your Self-Directed IRA needs to get financing?

In this guest interview article, I’ve interviewed one of Quest’s Real Estate Specialists, and we will discuss the certain types of loans for Self-Directed IRAs, along with additional information and rules that come with them. 

Sarah:

Hi, thanks for joining me. Today, I have Courtney with me; she’s one of our transaction specialists who has been with us for quite a while. Now, how long have you been with the company?

Courtney:

Almost two years! I’ve been in the real estate industry for about six years now. I got licensed in 2015, and from there I’ve been in any type of real estate transaction you can think of from apartment locating, wholesaling, fix and flips, residential sales, new construction home sales, leases, and I’ve been in commercial real estate, too. That’s one of the things I really like about it, because there’s so many different avenues and ways to make money. I enjoy real estate! 

Sarah:

That’s awesome! I can see that passion!

Courtney:

And now, with Quest, you can buy real estate with your IRA! It’s just another thing under my belt. I’m always looking to learn and to grow and to expand. I looked at this as a stepping stone. Instead of just buying it out right personally or through an LLC, you can actually use an IRA – any type of IRAs. It’s just different rules and regulations when the IRS is involved, and it’s about being able to help investors know this knowledge and navigate the SDIRA when doing these real estate investments. It’s been a journey, but it’s been an uphill journey and I’ve learned so much.

Sarah:

I loved one thing you just said there. You said “navigating” and operating real estate investments when it works with an IRA. I love that you mentioned that, because it really is different when you’re doing things with your personal money and when you’re doing things with self-directed IRA funds. It leads me right into what I want to talk about in this article. What I wanted to talk about today is non-recourse loans. We’re going to cover a bit about what they are, when they come into play, and how they’re different from regular types of loans, etc. So, let’s jump right in. For those that might be wondering what a non-recourse loan is, can you explain non-recourse loans?

Courtney:

A non-recourse loan is actually the only type of loan that an IRA can get for financing. And with that, it pretty much takes the liability off of the IRA account or the client personally, and any other assets or money in their IRA. With the non-recourse language, it’s detailing just that in so many words. Of course, we can’t tell people how to structure that language, nor can we give tax or investment advice; but as long as it mentions that the loan is without recourse, we can move forward with the investment. Essentially, in the event of default, all the lender would be able to do is take the asset that the loan is tied to.


Sarah:

Now, with a loan like that, I would imagine you’re probably not going to see normal interest rates, right? What do those look like?

Courtney:

Those are going to be extremely higher than what a normal loan would be, because there’s no extra security involved. You can see interest rates starting anywhere from 30% to 60% (not always the case). It all just depends, and there are different lenders out there that offer different things. You have to do your own due diligence, shop around, and figure out what works best for you in that aspect.

Sarah:

I’m sure that if it’s the difference between getting to do a deal and not getting to do a deal, I bet people will go ahead and do it. You also mentioned due diligence. When getting a non-recourse loan, you want to make sure you’re doing due diligence. What type of due diligence should a client do? 


Courtney:

You really want to shop around. When clients call in asking about non-recourse loans, we share an email that first details what a non-recourse loan is. Then, we may share some lenders that we see a lot of our clients work with, just meaning that they have worked with IRAs before. But, from here, the client really needs to do their own research for what is best for them. There are always more companies out there that are willing to work with you. We cannot recommend specific non-recourse lenders, so put in that research if that property is really something that you want.

Sarah:

When clients are shopping around, do they just ask if they will offer non-recourse loans? It sounds like not everyone can do these types of loans. Do all companies do these?

Courtney:

No. So, it really just depends. It’s all about whether they’re willing to work with the IRA holder.

Sarah:

That’s important to know, thank you. What does the lifespan of a non-recourse loan look like?

Courtney:

The terms of those loans can be as long as the client works them out to be. We’ve processed some that are 20 years up to 75 years or something. It’s all about what the client can do. As long as the IRA is good and paperwork on our end looks good, they can pretty much come up with any type of terms they want.

Sarah:

And for paying back the loan. How does that work? Are there ways that they can pay that loan back during the deal? If I have a self-directed IRA and I get a non-recourse loan, can I just pay that back with my outside money – my own money? Can you maybe touch on that a little bit?

Courtney: 

Good one, yes. So, the funds have to come from the IRA, because the IRA has title to the asset and it’s tied to the loan. Let’s just say there’s an event where you don’t have enough funds in the IRA to pay the loan back. Unfortunately, the client cannot personally pay that loan back. They cannot get someone else to pay the loan back for them. What we see at that point is that it would just have to be distributed out. They would lose that asset, unfortunately, but since its non-recourse, the lender can’t go after them personally to get the funds.

Sarah:

Thanks for answering that. Well, I think you’ve done a great job of helping explain what non-recourse loans are and when you might need them. What’s one final piece of advice that you’d give someone who is considering getting a non-recourse loan?

Courtney:

I would say, just take a step back and do your due diligence. Make sure you’re really seeing what works for you, and what you’re trying to do with the IRA and also the property. It’s not as hard as a lot of people think it is, especially since we know what needs to be processed these types of deals. It’s also important that they know we’re dealing with certain compliance rules within the IRS, and that there specific documents and language that’s needed. We’re always here to help and they’re really not as hard as you think. There are a lot of resources out there; you’re not alone through this!

That’s right! If you’re ever looking for more educational material, Quest is always putting out new content via blogs and videos to help give you the tools for success. Check out our Education Center for more resources! If you have questions about starting your Self-Directed IRA to invest in real estate or just want more information about non-recourse loans, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

How to Hold AirBnbs in your Self-Directed IRA the RIGHT Way!

Estimated reading time: 4 minutes

Have you ever imagined sleeping in a railroad container or a renovated school bus? These are just some of the quirky, unique stays that you can find on AirBnb! Offering more than 5 million listings, each with their own flare, AirBnb and other short-term rentals are growing into one of the most well-known (and well-producing) investments on the market. It’s no shock that self-directed IRA holders have taken notice.

With these short term rentals, hosts can rent out their properties, whether it be an apartment, house or even a yurt, all while adding their own personal touches and structures.  With all of the freedom to make it your own, non-traditional investors are flocking to these assets. And, since the IRS does allow investors to hold real estate in their IRAs, Airbnbs continue to grow as the next great alternative investment for self-directed IRA holders, too. 

Holding Real Estate and AirBnb in SDIRAs

Of course by now, many know that it’s possible to hold real estate in an IRA, but it’s important to understand the rules surrounding assets in your SDIRA. Because your IRA holds this assets, it is the one who will need to receive the benefit – all of the benefits. So, what does that mean for you? Rules are put in place that say you, a disqualified person, cannot benefit from the investment. These rules also apply to any disqualified person to your IRA, including your spouse, your lineal ascendants and descendants, and any companies these people own, control, or manage.

What this means is that you could not go live in the property personally, nor would you be allowed to go and vacation at the property your IRA owned. On top of this, you would not be allowed to rent it out to any disqualified person or hire those persons to work on or manage the property, either. The IRS has made it very clear that if you plan to hold an Airbnb or short-term rental in your self-directed IRA, it needs to strictly be for investment purposes only. 

Let’s Talk About UBIT

Now that you’re fully aware what you can and cannot do with this investment property, you may think you’re absolutely ready! But let’s make sure you understand one other important factor that surround Airbnbs. Sometimes it can incur a tax – Unrelated Business Income Tax, or UBIT. As the IRS works to catch up with the increasing popularity of Airbnb investments, thankfully the rules surrounding them become more apparent and clearer to understand, which can be found at Treasury Reg. § 1,469-1T(e)(3)(ii)

For short-term rentals, UBIT could apply in some situations. Typically, a UBIT tax will come into play for short-term rentals when the average rental period is 1) seven days or less, or 2) thirty days or less and significant personal services are provided with the rental. Long-term rentals are specifically excluded from this type of tax, in most cases, but in some cases short-term rentals can avoid tax trigger, too. By extending stays for over the 7 day limit and not offering “personal services”, like maid or breakfast services during someone’s stay, UBIT can sometimes be avoided.

 “Personal Services” and Running a Trade or Business

Understanding what a “personal service” is can better help you prepare for potential UBIT taxes. It was mentioned that maid services during someone’s stay would be considered a personal service, but more general needs like cleaning in between residences between guests would not be. The same goes for other basic necessities. Providing the basics such as heat, water, and electricity would not be deemed a personal service. Personal services typically come into play when more convenience items and services are provided. When a services could be looked at as more than just a short-term rental (and more like a hotel or motel, for example), UBIT could be triggered. 

In some cases, if income generated by a property held by a self-directed IRA is deemed trade or business income, it will be subject to UBIT. What does this mean? IRAs do not have to file a return if the gross income received from the property is less than $1,000, but if it is more than that, the IRA will file a tax return (IRA Form 990-T) and pay tax on the income generated. That is why it’s important to consult with a tax attorney about the potential for UBIT. With most short-term rentals offering more and more personal touches and experiences, like food and laundry services, UBIT could be something you’ll need to factor into your investment plans. 

So, Does it Make Sense to Invest in Airbnbs?

Deciding whether or not purchasing an Airbnb or short-term rental in your self-directed IRA is a good idea will ultimately come down to each individual and their understanding of this type of investments. Being able to hold an income-producing asset that is easy to market could be a great opportunity for SDIRA investors – but it’s imperative that you’re familiar with all the rules and potential taxes that come along.  

There’s no doubt that gains received from the income your short-term rental have the potential to grow in your SDIRA to create tax-free distributions, but always make sure you’re investing the right way so that you remain safe and compliant! For more information about how to invest into Airbnbs with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

How to Submit a Real Estate Investment with the QTC Investment Hub

Estimated reading time: 3 minutes

Change the way you submit an investment with the new, online QTC Investment Hub in the Client Portal! You now have the ability to submit new real estate investments and much more in the portal – and you can talk to a live representative at the same time. This means your investments are taken care of faster than ever before, because in just a few easy steps, you can have your new investments uploaded in a matter of minutes. 

How to Submit a New Investment 

The days of emailing back and forth or picking up the phone are over! When you’re ready to submit a new real estate, simply log in to your Client Portal.  With the QTC Investment Hub, all you need to do is fill in the step-by-step investment information and funding details, then your investment is ready to be reviewed for funding. 

5 simple steps! 

  1. Log in to your client portal and under the “Investment” tab, click the green button that says “Submit New Investment” 
  2. Select the type of asset you want to purchase and what account you’d like to use 
  3. Share the investment details with us and how you’d like us to send the funds 
  4. Confirm the information and special instructions, then upload your supporting documents 
  5. Final review and last confirmation section, and hit submit! 

* Real estate investments will come with a series of specific questions and requests for supporting documentation.*

Once your document has been reviewed, you will receive an email confirmation notification letting you know your documents are ready for your “read and approved” signature. This status will also update under the pending investment client portal submission section. The last thing you will need to do is confirm the information and pay any associated fees, and you’re finished! Understand that at this point, your investment is placed in a queue for final review with our Quality Control team, but once everything has been cleared, the funds are released. 

If you have a more complicated investment, like a split asset or an additional funding, no need to worry. You can still take care of this in the QTC Investment Hub. Split investments will require information for all involved parties, which will add an additional field during the first part of the submission process. Additional investments will work the same way as regular new investments, but will allow you the option to select if the request is tied to a current investment. 

Checking the Status of an Investment 

If you want to stay up-to-date with your new investment, you can! To check the status of your investment, we’ve given you online access to your very own investment tracker in your Client Portal. Once your new investment is submitted in the portal, you can track the funding status by click on the pending investment in the “Investments” tab. 

If you haven’t logged in to your Client Portal, now is the perfect time. With all the new features, investing into real estate with your SDIRA at Quest will never be the same. If you have more questions about how to submit a real estate investment through the QTC Investment Hub, reach out to a representative today at 281.492.3434 and let us help you get started!

How to Make a Contribution to Your Account

Estimated reading time: 3 minutes

One of the easiest ways to help your account grow is by making yearly contributions. Putting in a set, allowable amount every year can propel your account forward without the funds ever touching an investment. Of course, doing investments in the account will help you make the most of your self-directed IRA and the compound interest from investments, but remaining diligent with your contributions is always one sure-fire way to know your account is growing each year no matter what. 

With half of the calendar year gone, the amount of time you have to contribute for the 2021 tax year is creeping closer than it might feel like! Rather than waiting until the last minute to get your contributions in, decide if it makes sense to send your yearly contributions in now. The last thing you want is to be left scrambling at the last minute, so make sure you’ve done all you can to maximize your accounts for the year and plan accordingly for your yearly contributions. 

How Much Can I Contribute to My Self-Directed IRA

Every year, the IRS sets certain limitations on the amount you are able to contribute to your IRA per year and there are specific requirements and rules that must be met in order to contribute to certain account type. Contributions aren’t required, though, so you don’t have to make a deposit every year. If you do choose to maximize your IRA contribution for the year, make sure you’re aware of how much you can put in each account.

Find the amounts below by clicking on the account for more information:

How do I Make a Contribution to My Self-Directed IRA

When preparing to make your contribution, it’s important to remember that all IRA contributions must be made via check, wire transfer, or ACH. Quest Trust Company cannot accept cash or 3rd party services, such as Paypal. We also ask that you always note which tax year the contributions are for. 

When sending in your contributions, all funding methods should have the correct vesting (Quest Trust Company FBO [Client Name] IRA [Client Account #]. If you plan to send your contributions electronically, you can find the Delivery Instructions in your Client Portal.

If you prefer to send in a check, you can send those to: 17171 Park Row Drive, Suite #100, Houston Texas 77084

As always, if you have questions, feel free to call in to our office at 281.492.3434 or schedule a consultation with an IRA Specialist HERE.

How to Navigate the New Client Portal

Estimated reading time: 4 minutes

It’s always been part of our human nature to push boundaries in order to achieve the next, great accomplishment. First, it was successfully getting an airplane off the ground. Then, we sent a man to the moon! Now it’s our turn for advancement. For Quest, our way of taking things to the next level is the Client Portal. 

If you haven’t logged in to your Client Portal recently, you might be surprised to see that we have done many updates and have added new features all across the platform, as well. All these changes and new creations were designed to make self-directing your IRA a quick and simple task. And although change might sounds a bit scary, this article is here to help you navigate your Client Portal and all the new features it has to offer!

Navigating the Client Portal

First and foremost, you’ll need to know how to log in to the portal. You can start by going to the Login page on our website by visiting questtrustcompany.com. In the upper right hand corner, you will find an orange button that says “Client Portal”. This will take you to the portal, and here, you can log in as a first-time user. Now, you will have to complete some security information, like your primary email address, the last six of your social security number your date of birth and your Quest account number, but once this is complete, you will be ready to head into the main dashboard. 

Your main Client Portal dashboard will be your one-stop-shop for anything and everything you might need regarding your Self-Directed IRA! From this main page, you have all the resources at your fingertips. On the left hand side, there will be numerous blue buttons with functions – like making a new investment or viewing your account balance. You can also view secure messages, pay expenses, submit Fair Market Valuations, and more. Simply click any of the buttons to be taken to the page of your choice. You can see an example in the image up above.

Client Portal Features

These new Client Portal features are here to provide you online access for any task you might need to complete. Whether that be submitting a new investment in the QTC Investment Hub or updating your personal or account information, you no longer have to call or email in to Quest in order to take care of your needs! If you need to view your account activity or track any of the investments inside of the accounts, all you have to do is log in to your Client Portal and you can see all the assets, reports, cash balances, and more! You can open new accounts, manage current ones, make payments for your investments – or your Quest fees – and even stay up-to-date with upcoming events. 

Whats New?

One of the biggest additions to the Client Portal is the brand new QTC Investment Hub!

The QTC Investment Hub allows you to submit and track new investments 100% online. You’ll no longer have to email or call back-and-forth. With the ability to upload all the information yourself, you can have your new investments uploaded in a matter of minutes with only a few easy steps. You can also view real-time updates for your new investment! Once submitted in your Client Portal, you can track the funding status in real time with the new Investment Tracker. 

Change doesn’t have to be scary! We’ve made these new features easy and straightforward, so even those who aren’t as familiar with online systems can still feel comfortable using the new Client Portal. You can also reference tutorial videos, created just for the Client Portal! With over 25 detailed videos, there will be step-by-step processes and other information to help you for anything you might need to accomplish! 

If you have any questions about how to navigate the portal or need help finding something inside of the Client Portal, you can always talk to a Quest specialist in live time through the chat feature. When you speak to a representative from Quest, you can feel confident that you’re speaking with an experienced, well-trained team member with extensive knowledge on your topic. Following our core values to always make our clients’ day, we will go above and beyond to ensure you’re getting the most from your new and improved Client Portal. 

If you’re ever looking for help, want to open up an SDIRA, or would just like to learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

When Does It Make Sense To Do A Joint Venture W/ Guest John Hyre – Part 2

Estimated reading time: 6 minutes

Sarah: So, with all the complexity… what due diligence needs to be taken, whether it’s on the person or on the documents before getting into a joint venture?

John: First, you look at the person and the history. It’s amazing how many people don’t look at IRA money as real money, which is ironic because it’s more precious than normal money, right? IRA money can be tax-free or tax deferred, unlike normal money. But some people – since they don’t have it in their hand – they don’t look at it as “real”, which is very dangerous. You have to actually take the time. If you’re going to invest real IRA money, do a search – not just a local search of the courthouse records or the search where they live.  You want to get more. 

Sarah: Are there any ways you suggest doing due diligence to get more information? Not just surface level?

John: Background checks nowadays are so cheap. Information wants to be free! You can get so much: every address they’ve lived or worked at, social security number, everyone they’re related to, and most importantly, a comprehensive list of both civil lawsuits and criminal issues across the country. At a minimum, ask around and search for the court records.

Sarah: I totally agree, and also look at the deal, I think. 

John: Yes. How many times have they done the deal? I tell people, “You don’t experiment in your IRA”. If the person doing the deal is new to the deal and the terms sound great, or if they’re willing to offer the sun and the moon and the stars… Why? Well, they’ve never done it. I don’t think the IRA is the place to experiment. I would use your non-IRA money. I’m going to do a reference check, and if somebody gets offended, well fine. I say “You need to go get money somewhere else.”

Sarah: Exactly, I’m doing you this favor. You’re not doing me the favor. Yeah.

John: Also, have safeguards. Have access to the bank account. If you invest in something and you’re the capital investor, always have access to a live set of QuickBooks and a bank account that ties to the QuickBooks. It better be current… And your gut. When [you] get the sinking feeling something is going on, follow that feeling.

Sarah: At the very least, if you get the feeling, go out and do more due diligence! Any other things that you should be cautious about when doing joint ventures, when self-directed IRAs are involved?

John: What’s the exit plan? What happens if things don’t go according to plan? Obviously, the plan is not for things to go bad, but they could. Things could go wrong, so ask them, “Have you ever screwed up a deal?” List those bullet points. Now, if the answer is no, I get a little suspicious. If I hear, “I never screwed up,” my Spidey sense starts to tingle. 

Sarah: Right. It’s so important to lay out your exit strategy. While we’re kind of talking a bit about structuring, in your opinion, what’s the best way to structure a joint venture?

John: The lawyer answer is “It depends.” Go for simplicity, like it was with a note. If it gets the job done as simpler, we’re going to do simple. If a note is not good enough, then LLC, because that’s my default. I can get out of an LLC much easier than is the case with a corporation (or LLC taxed as a corporation). Really, the entity choice is an LLC or a C corporation. Simplicity says we pick the LLC and it’s the right choice maybe 97% of the time. My default choice will be an LLC. The complexity of the operating agreement will be driven by the size of the deal. Size matters. 

Sarah: You say your choice is an LLC or C corporation. Why is that?

John: Why do I prefer LLCs? They provide the asset protection shield. Unlike trusts, they’re way simpler and way cheaper. I’m only going to use a C-Corp if there’s a really good reason, which is usually UBIT, and I’m only going to use a trust if there’s a really good reason to justify the added complexity, because I can form, run, and exit out of an LLC easier. If you make a mistake in an LLC, unwinding it is much easier than unwinding a C-Corp or a trust. 

Sarah: Makes sense. Now, I think we mentioned this, but let’s talk about disqualified persons. What if someone’s trying to do a joint venture with a disqualified person?

John: Be really, really careful. Let me tell you what people hear: “You can do a joint venture with a disqualified person, subject to the details.” And the details matter a lot. Who’s contributing money? I need to know precise details. Who’s going to be on the board of directors? Who’s going to be an officer? Who’s in charge? Who’s getting paid? Now we have 30 to 40 questions. The biggest danger of partnering with a disqualified person is that you have to show that the disqualified person did not need the IRA to do the deal. That’s a very simple example. The first thing we ask people is, “Is there a way to not do this deal with this partner?”

Sarah: How do people determine this?

John: So, we’ll show how each of your IRAs could have partnered with someone else on the same terms, because the deal was so sweet. Show how somebody else would have been willing to do the deal, and write it down and record it. It has to be real. Actually lay out the deal and show how real people would have done the deal.

Sarah: And it’s important to have that documented, like you said, in an email thread or something.

John: That’s better evidence.

Sarah: Okay, say somebody, hasn’t really done the appropriate due diligence or educated themselves on what’s allowed, and then they find themselves getting in trouble. How common is it to get in trouble? And what happens?

John: I don’t know that I have a good statistical sampling for that. By the nature of my practice, I’m kind of like a cop who sees a lot of crime, so I think there are more criminals. I know it’s frequent enough that a lot of really good people who put a big chunk of their life into their IRA, lost a big chunk. I know that there are a lot of predators and a lot of those predators are so good at appearing to be something other than sociopaths.

Sarah: I could definitely see that. I’m going to finish with just one follow-up question. What’s one piece of advice that you would give someone, a new investor or an experienced investor, who’s looking to do joint ventures with a self-directed IRA involved?

John: Be willing to pay the price. The price involves understanding IRAs. You guys do a lot of excellent education. Learn how to ask the narrow focus questions on the clock, while asking the big question as part of Quest’s educational presentations. There’s a lot of upside, but joint ventures are an expensive way of doing business. Loans are much cheaper. I’m not saying joint ventures are bad. I’m just saying it’s a more complex, expensive way to do things, so the upside really needs to be worth it. It comes back to your due diligence and making sure that the upside is there.

Sarah: Right. Don’t experiment with your life savings. Definitely not.

John: Yeah! Experiment with the drinking money! 

Sarah: You’re so funny, John. Well, I really want to thank you for taking your time on a Friday. I really do appreciate it. You’ve been so fun to interview. I’ve interviewed quite a few people and I’ll just say, the banter has been really enjoyable! 

Joint venture can be good investments if the details make sense, and we hope this article has given you a bit of insight into how these deals work! If you ever have questions about how to do join ventures with your IRA, you can give a Quest representative a call at 281.492.3232, and we’ll be happy to help! To learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

When Does It Make Sense To Do A Joint Venture W/ Guest John Hyre

Estimated reading time: 6 minutes

Joint ventures might be difficult for some, but not for the experts! In this 2-part guest article, tax attorney John Hyre joins me to shed light on joint ventures, when and how they work, actual case studies, and other helpful tips you should consider before entering into a JV with your Self-Directed IRA. If you have ever been curious about joint ventures and how they work, you’ll want to keep reading. Below, you’ll find part 1, which will ease you into the basics and guide you through real life examples!

Sarah: Today, I brought an expert with me. John, can you give me a little bit of your background? Who you are, how you got started?

John: I’ve been practicing tax law for 25 years. I have my own firm, and it’s really small. The good news is you deal with me, and the bad news is you deal with me. I got into self-directed IRAs right around the time Quincy did. Of course, he went in deeper initially than I… And he just started filling my brain! I mean, I knew IRA things. I had just been in my first IRA audit. I have taken SDIRA’s to Tax Court…. At that time, I wasn’t as focused on IRAs as I am now…. Ever since 2010, after I had my first audit and tax court case with self-directed IRAs, which is pretty rare experience, I’ve been much more heavily focused. Word got out. People are like, “Look, this guy’s actually been there.” From then, it’s just really snowballed to where, I would say, the practice used to be about 90% real estate. I’d say now it’s about 50% IRAs, 40% real estate, 10% other, and people can find us. 

Sarah: What are some of those, real quick? 

John: There are several places:  taxreductionlawyer.com, as well as taxreductionclass.com.

Sarah: I appreciate you giving me a little bit of your background. So what we’re going to be talking about today…those joint ventures. Let’s start from the basics. Tell us… what is a joint venture?

John: We’re going to have a very broad definition. I think we’re using the term joint venture in the normal human sense, not in the lawyer sense. Let me start with the less relevant definition… the lawyer sense of joint venture is really a very narrow thing where we agree for a temporary time to joint venture. Oftentimes, there’s not even a separate entity set up. We just agree to partner for liability and tax purposes. That narrow version of a JV is not always desirable. The larger version of the term, which normal humans use, is anytime you partner with someone – even if it’s in an LLC, a limited partnership, a corporation – you’re partnering, not lending. I think that’s the main distinction. You always start simple, and if the complexity pays for itself, you add complexity. But, if simple does the job, do simple. It’s cheaper and easier. Lending is simpler and easier and cheaper, but it doesn’t always get you what you want. That’s why, in some cases for example, where you want an ongoing business relationship or an ongoing share of the profits, you deal with the complexity of a JV. So, I’m going to say a joint venture is when people partner, usually through an LLC, sometimes through an LP or an LLP or sometimes just with a handshake.

Sarah: And what are your thoughts on that?

John: I don’t recommend the handshake agreements, but I’ve seen it done. It makes me nervous, but I understand why people do it. They want to cut out some of the expense and they’re comfortable with the risk.

Sarah: Now, ok, you just mentioned risk. Can you talk about some of the dangers when doing a joint venture?

John: Sure. When you’re a creditor and you’re lending, it’s simpler and cheaper. The agreements rarely need as much revision. Second, typically as a lender, you have a lien. I don’t like unsecured loans. Sometimes they make sense. Oftentimes, it’s a rip-off. I prefer secured loans. If you have security, it means that if something goes bad, you get the first shot at whatever’s left. If you’re going to do a loan, you control the process. It’s your title company. You issue the instructions to make sure that you actually have a lien. Joint venture? You typically don’t have a lien. I’ve seen some where people negotiate a lien as part of it, and that can get a little complex and ticklish, but it’s not impossible. Typically, in a joint venture, you’re putting up equity, so the risk of loss is greater… but the converse is usually true. In most cases, the potential profitability of a JV is greater than the note. Now, there are always exceptions.

Sarah: So then, what’s the upside?

John: Well, there’s always a trade-off. That’s life. Nothing’s ever perfect. The operating agreement is more complex, but you can put almost anything in it. I mean, you can put some crazy things in terms of interest or depreciation deduction. You can say, “I get the first 20%, and then we split it 50/50, unless it’s a Thursday, in which case you have to microwave a cat and you only get 10%.” I mean, I’ve just seen some crazy stuff in operating agreements! But, as long as everyone’s an adult and has a clue, you can do that. So, the upside is flexibility. Sometimes you can structure things in a way that a note is just too rigid. A note doesn’t really let you get to that structure. It’s a trade-off.

Sarah: So, you led me into this similar question perfectly. Why would somebody choose to do a joint venture?

John: Again, the note is cheaper, safer, but less flexible. I’ll give you an example. The problem with a shared appreciation mortgage is that once someone pays off my principal, I stop participating in the profit. Let’s say they have an insanely profitable deal, and let’s even say that I drafted it. So, I get half the deal, 50% shared appreciation mortgage, but they pay off the principal. Well, now I stopped participating. That makes me sad. With a joint venture, you can have a more permanent agreement. Now, we have to be careful in an IRA. Anything the joint venture does, your IRA did. Again. Anything the joint venture does, your IRA did. 

Sarah: That’s really important. I’m glad you said that. You must keep that in mind when you’re dealing with these entities. 

John: With most joint ventures, what we call “pass-throughs” (the limited partnerships, the LLC, the handshake partnerships), there’s a potential for the joint venture to commit a prohibited transaction. If it does, it’s often also attributed to the IRA with negative consequences. Well, here’s the good news. The penalty with prohibited transactions, where your IRA blows up, is only if you commit the prohibited transaction. If someone else causes it, then there’s just a 15% penalty on the transaction per year, which is way less most of the time. That’s much better than your IRA going splat. Likewise, activities in a JV that would give rise to UBIT (such as borrowing) will cause UBIT in IRA or 401k owners of the JV.

Sarah: So when do you use the JV? 

John: It’s when debt won’t do, when debt doesn’t get you what you want. I want to be in forever. I don’t want them paying off my principal. I want the perpetual ownership. But is that worth the cost? Because there’s the cost is dealing with people like me and there’s just more complexity in an operating agreement when compared to a loan. If there’s enough money on the table, it often is worth it.

Part 2 coming next week!

Prohibited Transactions and Disqualified Basics Interview with Quincy Long

Estimated reading time: 12 minutes

Understanding prohibited transaction rules and how to follow them is arguably the most important part of self-directed IRA investing. Sometimes, it’s easy for new IRA investors to get caught up in the excitement of possibilities that come along with self-directed investing strategies that they forget to take the time to research what isn’t allowed with IRAs. This is a very important topic when it comes to making sure your IRA stays compliant with the rules and regulations of the IRS. 

The purpose of this article is to ease anyone who is new to self-directed IRAs into the topic of disqualified people and prohibited transactions. I have Quincy Long with us, the CEO of Quest Trust Company. He is joining me to talk a little bit about prohibited transactions and what that really means in relation to self-directed IRAs. 

Sarah: Quincy, for those that may not know who you are… Can you tell me a little bit about yourself and how you started Quest Trust Company, formerly Quest IRA?

Quincy: Thank you. Yes, I actually had a bad day in the title company business. I was a fee attorney for American Title Company. I got in a scuffle with one of the realtors because of loan papers. Of course, the lender didn’t get it to me till 30 minutes before their closing. So, I was bored one day – kind of getting bored with being a title attorney. I had called my service provider for my self-directed IRA, and they said, “Oh, by the way, if you want, you can be our first affiliate in Texas.” When we did that, we formed a company predecessor called Entrust. Over the years it became a franchise. Then, we busted up the franchise and went our separate ways three years ago. Now, we turned into a trust company. We’re a fully licensed custodian for IRAs and other trust activities in Texas. I am the CEO, chairman of the board, and majority owner.

Sarah: Thank you for giving us a little bit of your background and how you started Quest. I love hearing the timeline. Now, when people are getting started and first discovering self-directed IRAs, we hear a lot about the benefits and what makes them great, which they are. Now, there are some things that people need to be aware of, though, one of those topics being disqualified people and prohibited transactions. Can you tell us – just very simply defined – what is a prohibited transaction?

Quincy: To define what a prohibited transaction is, you have to start with who or what is a disqualified person. And that’s a person that the IRS thinks is too close to you to make it “an arm’s length transaction”. The whole purpose of the rules is to keep certain people from interacting with or benefiting from transactions in your account. So, for example, a prohibited transaction is a sale and purchase, or exchanged for real estate between an IRA and a disqualified person. If you wanted to buy a house in your IRA, you could. That’s not a problem. But, if it’s from or to a disqualified person, then it’s basically a no-no; you can’t do that. The deal is that a prohibited transaction is simply one word on that list, that statutory list. The disqualified persons are not able to enter into deals with the IRA directly or indirectly, nor benefit directly or indirectly. 

Sarah: Let’s talk about this disqualified persons list. How can someone determine who is a disqualified person? What are these rules?

Quincy: You have a statutory defined list of disqualified people. The list is kind of long, if you get to digging into it. [It’s] your spouse, your parents, your grandparents, your kids, your grandkids and their spouses… all are disqualified. But why? That’s the important question. They’re disqualified because they are related to the owner of the account, which is a fiduciary. When you have a fiduciary, the fiduciary brings along your family and any corporation, partnership, or trust where he or she owns a controlling majority interest in. And if the entity is disqualified, then a whole bunch of other people come in, too.

Sarah: So, one question that we get a lot… brothers or sisters, aunts and uncles. Would this be blatantly prohibited?

Quincy: No, it would not be blatantly prohibited. But remember, we have either direct or indirect. I have a perfect example from a story when I was younger doing the actual transactions. A guy called me up and said, “Can I loan money to my brother?” Well, it’s not disqualifying; your brother’s not a disqualified person. But, if there’s any way that this comes back as some benefit, that’s going to be prohibited. He said, “Well, I was going to loan the money to get the maximum amount personally.” Well, that’s taking two steps to do what you can’t do in one. That’s an example of the indirect benefit rule. He was going to benefit personally and indirectly. He knew he couldn’t transfer it directly to disqualified persons. But, he just took two steps. The list of disqualified persons is fixed. It’s a complicated list to decipher, and if you’re not even used to reading statutes (and I’ve written some materials to make it clear), it’s still a long list and it’s fixed by statute.

Sarah: I agree, it is definitely complicated! And it can get even more difficult to understand when you factor in direct and indirect benefits. Can you go a little bit further into what that exactly means?

Quincy: Well, the IRS is not crazy. They know that if they don’t have some rules, that you’ll just do anything and move money into the account. They’re trying to avoid you benefiting now, because it’s an individual retirement account, not an individual NOW account, right? So, retirement is the key. When you put the retirement age – or some other qualifying distribution – then that’s when you’re allowed to take it. You really have to look at this as “you” and “I”, or “Mr. IRA”, as we call him. Mr. IRA is a separate legal person from you. And, because he’s a separate legal person and you are his fiduciary or caretaker, you’ve got to do everything for the benefit of Mr. IRA, not you or any other disqualified person like you. So, you say, “That’s my money!” Well, no… it’s Mr. IRA’s money. Mr. IRA may be generous and give you some money. You have to do everything for the benefit of Mr. IRA. Now, direct and indirect. Directly, well, you can’t buy a house from your IRA and your IRA can’t buy a house for you or anything like that, simply because it involves a disqualified person, which is you. That’s one of the things you can’t do.

People then come up and say, “Well, I have this idea. All of my friends started the LLC, so I’ll sell it to my friend and then have my friend sell it to me.” Again, that’s just taken two steps, which you’re not permitted to do. That’s indirect benefit. 

Sarah: Right. And those examples are really helpful. 

Quincy: The other thing is that it also comes in the context of whether an entity, a partnership, trust, corporation, or estate is a disqualified person. Then, the rules say that several other people are disqualified, too. This is where the indirect rule comes in to play. Ownership of family members of the fiduciary (the IRA owner) and also their ownership percentages are attributed to the fiduciary. So, for example, I own less than 50%, because I own 48%. My wife owns 48% and a non-related party owns 2%. I’m good, right? Wrong. Her ownership is attributed to me, because she’s one of the best qualified people. You can try to stick another party in there or some other fact in there, but it’s not going to work.

Sarah:  What are some of the most common prohibited transactions that you’ve seen people involved in?

Quincy: So, I don’t know what the most common one is. It’s more like… the most common way to do prohibited transactions is by not understanding what it is that you’re doing. And that, again, starts with a list of disqualified people. It gets complicated for people to understand. Also, another thing that they fail to understand is that a transaction can be prohibited under more than one section. So, they say, “The entity is not disqualified. I’m done.” No, you’re not. There are a few more things you’ve got to ask. There still could be a prohibited transaction under a different section. The mistake is not understanding how to analyze it in this sense. See, 100% of the time, there’s always at least one disqualified person involved and who’s that? 

Sarah: The IRA. 

Quincy: That’s correct. People don’t get this concept. So, the question is never “is there a problem?” or “Is there a disqualified person”? The question is, “is there a disqualified person acting in an inappropriate way,”? In this case, inappropriate meaning, in violation. Without that understanding, people think they can get away with stuff that they can’t, because they’re not remembering that the rules apply indirectly, as well as, directly.

Sarah: I think that’s a good way to answer that question, because there really aren’t “common” prohibited transactions. If you understand what you’re doing, hopefully you’re not going to be involved in them at all.

Quincy: And we do a lot of educating.

Sarah: We sure do. We actually have a really good class on our YouTube page about ways to avoid these common mistakes. It also discusses disqualified persons, but let’s talk about business partners. Can my Self-Directed IRA enter into a transaction with my business partner who is not a family member? What if they are a family member?

Quincy:  Well, that, of course, depends on the facts and circumstances. Here’s what it depends on: if you, the IRA owner, control 50% or more of an entity of some type, then that entity is disqualified. That’s the first step. Then you bring in a whole bunch of other people who are disqualified. Once you are, the entity is disqualified. That would include 10% or more partners in the entity. So, the answer to your question is… is it owned 50% or more by you or your family members (which again, their ownership is attributed to you)? That’s where it can be kind of tricky. You’ve got to go into this, that, that if not this, etc. And the thing is, we’re used to analyzing it every day. We don’t give advice, but we educate people. We were just kind of used to it. 

Sarah: Right, not everyone is, but that’s where we come into play. Now, let’s say they hadn’t taken the time to educate themselves.  If the IRS were to catch the IRA owner that has done a prohibited transaction, what would happen?

Quincy: What would happen is, the IRA would become disqualified and not an IRA, basically, as of January 1st for the year in which the prohibited transaction took place. And all the money that you thought you were earning in the SDIRA? No.

Sarah: Losing all the money you had been saving does NOT sound like fun. 

Quincy: And that’s not all, though. The prohibited transaction rules also have a penalty for any other disqualified person participating. As an example, suppose that I loaned money to my son or daughter. Well, they’re disqualified persons under the family rule. A loan to them from me, directly or indirectly, is going to be a prohibited transaction. There can be penalties for the IRA owner, as well as for other disqualified persons who may have participated or benefited from the transaction.

Sarah: It’s best to just not get involved in one in the first place. So, Quincy, what are some of your top few tips for people that are starting to invest with their self-directed IRA? What tips can you give to help ensure that they don’t find themselves involved in a prohibited transaction? 

Quincy: Figure out what to disqualify. Make a list of every transaction and try to determine whether they are not disqualified persons. Always start the list with yourself, or the owner, as the first person on the list. Even if it’s not prohibited, you’re always on the list, so you can’t benefit directly or indirectly. Understanding that is critical to the rest of it. Once you do that, you go through the rules themselves. They’re not too hard, well, don’t seem too hard until you get down to some of the other ones. So, it’s understanding who to disqualify and what the direct or indirect part in it is. Even worse, when you go down the list and then say you can’t provide goods, facilities, or services. What the heck does that mean? It’s pretty easy. Let’s start with those goods, like building materials or something like that. They’re physical, tangible things. Also, if you have a piece of property in your IRA, can you donate all of the materials to build a house on it? No. Then, facilities… that’s self-explanatory. If you have our own warehouse, can you keep your junk in it? No, because that’s providing facilities. But what is services? Nobody knows. Nobody knows what the definition of service is, but can you go down to stay in your beach house in Belize that’s owned by your IRA? No, because you’re benefitting yourself.

Sarah: Those are great examples, and I often have investors ask me questions about those exact scenarios. 

Quincy: If you have to ask yourself the question, “Is this a prohibited transaction?”, then it probably is in one way or another. Do you just get the “ick” factor? If you can’t go to lunch with your friend, the IRS auditor, and laugh about what it is you’re doing and share it directly with him or her, then you probably shouldn’t do it. It’s probably prohibited in some way or manner or could be. If you have a situation and you’re not sure, get a lawyer. Get somebody who’s familiar with these things. Don’t be myopic. Don’t be focusing on whether the entity is disqualified and then stopping there. You have to analyze the whole thing for the whole length of the transaction and decide whether you could have a problem in the future.

Sarah:  That’s a great answer, and I was going to add one other thing, but you kind of took the words right out of my mouth. If you’re reading this and ever have questions or suspicions, you can always call us and we can provide as much education as possible. Like you already mentioned, we don’t provide any tax, legal or investment advice, so seeking an outside professional would probably be a really good option if you have more in-depth questions. Any final remarks regarding prohibited transaction information that you’d like to share before we hear about it?

Quincy: Just don’t do it. You can do a whole lot of transactions and make millions of dollars tax-deferred, and in some cases, tax-free. It’s not worth it to play with the rules. 

Sarah: You’re so right. Not when it’s your life savings. Absolutely not. Well, thank you so much for your time! I know this will be very helpful for those trying to understand prohibited transactions and disqualified persons. 

Following the prohibited transaction and disqualified people rules will help ensure your account stays compliant with the IRS and doesn’t incur any hefty penalties. If you ever have questions about a potential investment or scenario that might be prohibited, give a Quest Trust Company Certified IRA Specialist a call at 855-FUN-IRAs (855-386-4727). To learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

Top 5 Reasons Why Americans are Turning to Self-Directed IRAs

Estimated reading time: 8 minutes

We’re about half way into a new year and it’s time to get serious about your financial outlook for 2021.  Self-Directed accounts are changing the traditional ways of investing and helping people take more control by giving them more freedom.  I’ve compiled a list of the top 5 things you need to know about Self-Directed IRAs that is sure to change your views on investing and get you on the path to financial freedom this year.  

1. Self-Directed IRAs Allow Investments Beyond the Stock Market 

I can’t tell you how often I’ve been at a networking event chatting with someone about Self-Directed IRAs and they are absolutely blown away by the things they never knew were possible inside of these accounts.  Many Americans believe the myth that stocks, mutual funds and other traditional investments are the only options available to them, as this is typically what the major financial companies offer.  However, Self-Directed IRAs open the Narnia-like door for the curious investor to a secret world of investments, filled with entrepreneurs and real estate investors earning tax-free money.  All jokes aside, Self-Directed IRAs have a lot of mysticism around them that is funny to me, as this has been my world for the last 8 years.  

I’m a big believer in having a variety of investments in your retirement account to hedge your bets and hopefully mitigate the risk of losing your nest egg.  The beauty of Self-Directed IRAs is that you can reach true diversification, by investing in alternative or non-traditional investments, such as a real estate, private companies, oil and gas, promissory notes and much more.  Why not have your foot in both the public and private side?  In addition to having the opportunity to invest in alternative assets, Self-Directed IRAs also give investors the key to their metaphorical investment vehicle on the journey to retirement, allowing the account holder to choose all of their own investments.    

2. There Are 7 Different Accounts You Should Consider for Self-Direction

There are so many different accounts available for alternative investments, including Traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, Individual 401(k)s, Coverdell Education Savings Accounts (ESAs) and Health Savings Accounts (HSAs).  Not only can all of these accounts invest in things like real estate or private companies, but they can also be combined together to purchase a single investment too.  All of the IRAs can be utilized to prepare for retirement and build your nest egg, each with their own unique benefits.  

Traditional IRAs could offer tax deductions for your contributions and could be a good option for where to move an old 401(k) or other plan from a previous job.  Roth IRAs are my personal favorite account, offering the possibility of completely tax-free distributions in retirement.  Employer plans like the SEP, SIMPLE, and Solo 401(k) are great for small business owners, allowing them to make large contributions. A Coverdell ESA is a great tool for building money tax-free to pay for your children’s educational expenses like tuition, books, or school supplies, all the way until they reach age 30.  A Health Savings Account can be invested and grown to pay for health expenses for yourself and your family tax-free.  I love having an HSA because I never have to think twice when medical expenses present themselves, big or small.  An HSA can be used to pay for vision, dental, medications, x-rays, surgeries and so much more, all with the big perk of coming out tax-free.  

3. The Investment Possibilities Are Almost Endless, But Be Sure to Consider the Restrictions 

When real estate investors begin to realize the many incredible investment opportunities that exist in these accounts, I always enjoy watching the wheels turn and hearing “So I can do…” or “Wait, so I can do that too?”  I’m in full Cady Heron, circa 2004 mode like “the limit does not exist.”  Might be showing my age with that reference!  Self-Directed IRAs are great for the do-it-yourselfer type, as they allow you to invest in an almost endless variety of alternative assets. From the basic to the unusual investment, there’s something for everyone here.  At Quest Trust Company, we process around 1,000 investments a month and see our clients investing in a multitude of things, including rental properties, flips, seller financing, apartment complexes, commercial real estate, oil and gas, livestock, shares in all types of private companies and one of the most popular being promissory notes.

However, there are some limitations for IRA investments outlined in the Internal Revenue Code, including investments in life insurance contracts and in “collectibles,” including things like art, antiques, most coins and alcohol collections.  There are also restrictions in regard to the transactions that are permitted when investing your Self-Directed IRA.  Disqualified persons are prohibited from engaging in certain transactions with the account and spoiler alert – you, most of your family and your companies are considered disqualified.  Prohibited transactions include things like buying or selling, lending money, or furnishing goods or services between the account and the disqualified persons, just to name a few of the major transactions to avoid.  For example, I couldn’t direct my Self-Directed IRA to purchase a rental property I already owned personally or have my spouse do the fix-ups on my IRA owned property, as this would be considered a prohibited transaction.  However, I can invest in a rental property I don’t already own and hire a non-family member contractor to fix up the property all day long.  These rules can certainly get complex, which is why we are so focused on not only educating our clients but also in educating our staff to be the best possible resource for Self-Directed IRA education in the industry. 

4. Self-Directed IRAs Can Lend Money, Mutually Benefiting the Lender and Borrower

I’ve heard Self-Directed IRAs sometimes have the nickname of a “real estate IRA,” as this is one of the most common investments people associate with this type of account.  As I mentioned earlier, real estate is really just the tip of the iceberg.  One of the most common investments we see our clients do at Quest is lending money out of their IRAs to other investors.  You might be thinking, “I would never lend my retirement account to someone,” but if you think about it, banks do it all the time.  With the proper due diligence and mutual understanding, private lending can be a great way to passively get involved in real estate without the active management of the toilets, tenants and details that it takes to manage real estate.  It goes without saying what the benefit is to the borrower, but essentially, privately borrowing funds creates your own private bank where you can negotiate the terms of your loan to fit your needs.  Imagine having access to almost an unlimited supply of funds available to you for funding all of your deals.  Sounds pretty enticing, right?  For lenders, imagine being able to have a relatively secure investment, the ability to negotiate the terms of the deal upfront and the peace of mind that you’re perhaps improving the community by lending money to a real estate investor looking to fix up a property.  It’s great to make profit off of an investment, but it’s an even better feeling to make profit and do good at the same time.  That’s the type of investment I can really get behind.

5. Not All Self-Directed IRA Custodians Are Created Equal 

If you think back in the deep recesses of your mind, you might be able to vaguely picture your elementary history teacher writing on the chalkboard and teaching on the Declaration of Independence.  I might be grasping here, I didn’t go to elementary school in the United States – ha! Learned something new about me.  But, undoubtedly you’ve heard that all men (and women) are created equal and we’re all entitled to life, liberty and the pursuit of happiness – a true statement we should all consider more often as we live our day-to-day lives.  But, I’ll get off my soap box and tie this back to Self-Directed IRAs now.  Investors have needs that we, as Self-Directed IRA custodians, have a responsibility to meet.  As more and more Americans declare they’re in search of true financial independence and looking for a means to take control of their own future, it seems that Self-Directed IRAs will continue to rise in popularity.   But for those on the quest to self-direct, look no further than…Quest – see what I did there?  At Quest Trust Company our clients are entitled to specialized service, account fees that are reasonable, funding timeframes in the shortest time possible and education of the highest quality.  If you didn’t already notice, that spelled out SAFE.  So make the SAFE choice and choose Quest Trust Company.  We’re founded by investors, for investors and are constantly shaping our systems, advances and customer service around what the real investor needs.  

Anne Marie joined Quest Trust Company in 2013 and currently serves as Sales Officer. After graduating from St. Edward’s University, Anne Marie pursued a position as an IRA Specialist and in 2014, received the designation of Certified IRA Services Professional from the Institute of Certified Bankers. In 2020, Anne Marie received the Think Realty Honors Award for Real Estate Investing Services and was featured on the 2021 cover of the Think Realty magazine, as a woman to watch in the industry.

Anne Marie is one of the lead female educators at Quest Trust Company, with a passion for making the topic of saving and investing fun and approachable, even for the newest investor on the block. She loves to teach people how to take control of their retirement through her experience at Quest and from personal experience doing her own note investments starting in her early 20s.

Born in Australia and holding dual citizenship in both Australia and the United States, Anne Marie loves to spend any spare time exploring new places with her husband

What is Elder Fraud and How do you Notice It

Estimated reading time: 3 minutes

Aging is inevitable. As you continue to get older every day, it’s important to understand how to protect yourself and your assets from those looking to take advantage of older, more vulnerable investors. The term that has been given to this practice is Elder Fraud. Many people don’t realize how common it can be for scammers to target elders, and this is something that continues to increase. In fact, the fastest-growing form of financial fraud is elder abuse.

What is Elder Fraud? 

Elder fraud occurs when someone abuses the position of trust or influence they have with an elderly person (usually 60+) in order to gain access to that older person’s assets and/or cash money. Due to weakening mental and physical health among the elderly, they have become easy targets for those looking to commit financial abuse. Typically, these scammers try to locate those that seem to be vulnerable, lonely, isolated, or mentally and/or physically disabled. Elders that are unfamiliar with handling their personal finances are also an easy target for financial abuse. 

Common Scams Used for Elder Abuse

Financial abuse can come from anyone, but it often occurs between an elder and someone they know.  In some cases, financial professionals – like portfolio managers and investment advisors – can use their authority and access to accounts to commit elder fraud. Below is a chart that lists some of the common ways scammers, both known and unknown, may try to take advantage of an elder.  Tactics include: intimidation, using a power of attorney, lottery/marketing/phishing, sweetheart schemes, home repair fraud, home loan fraud, and identity theft. 

How Can my SDIRA Custodian Help?

Your custodian is there to protect you as much possible, while still remaining compliant. As a self-directed IRA custodian, Quest and others will provide as much education, due diligence trainings, and awareness information as we can in order to equip elders and their family with financial abuse knowledge. At Quest, we make it a priority to give you as much education early on so that you don’t fall victim to elder fraud scams in the future. 

If elder abuse is suspected by a Self-Directed IRA custodian like Quest, we are required to report the suspected abuse, even if proof is unavailable, as this is not required. Certain indicators can lead a custodian to suspect elder abuse is occurring. Changes like customer behavior or appearance, the type or frequency of transactions (increased withdraws, unusual funding, excessive amounts, etc.), physical injuries, disorientation or confusion, and even changes in who performs the transaction or who is with the customer at the time of transaction can all be potential red flags. 

Elder abuse and fraud is a serious offense and shouldn’t be treated lightly. If you suspect that you or someone you know is falling victim to elder fraud, contact your custodian immediately. Although these accounts are self-directed and require client due diligence, we can provide helpful resources and information. To learn more about how to protect yourself or someone you love, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.