How Clam Cakes Can Make You Millions: Johnny’s Clam Cakes

Johnny left his birth country in 1920, which also happened to be the year he was born. His mom and dad were hardworking people, but no matter how hard they worked, they couldn’t get ahead economically. They loved their little fishing village in southern Italy, but economic opportunities were limited. They felt they needed additional opportunities.

Then, after much discussion, Brittany—Johnny’s mother—and his father Catalino (Cat) decided to make a life-changing decision. They were inspired by Brittany’s first cousin, Georgeo, who had taken a trip to America as a deckhand on a passenger ship. He went with only a small bag of clothes, no additional possessions, and no money, intending to return in a few weeks after earning some money from his work on the boat. However, Georgeo never returned. Instead, he wrote letters back, explaining how he had established himself as a stonemason through hard work but there was plenty of it. He invited Brittany and Cat to join him in America, even offering to help cover the cost of the journey and provide a temporary place to stay.

Brittany and Cat took a leap of faith , hoping for a better life for Johnny. New York was overwhelming—the hustle and bustle of people, traffic, and opportunity was unlike anything they’d imagined. Cat met Paul, a Greek confectioner from Constantinople, and they communicated in broken English. Paul initially brought Cat on as a worker, but later as a partner. Georgeo wasn’t thrilled, but was happy to be reunited with family and gave Cat his blessing.

Together, Cat and Paul worked endless hours to grow Paul’s candy cart business. They shared an old-world work ethic, pride in their craftsmanship, and a love for good food. From sesame crunch candy to chocolate-dipped cherries, caramel-coated popcorn, and cool drinks, they used only fine ingredients. The business flourished, with demand so high that they struggled to hire enough people.

After ten years of intense work, both men began thinking about slowing down. They wanted to spend more time with their families and focus on their churches. Paul moved to Connecticut, where he opened restaurants and candy stores, becoming a respected community leader. Cat, however, sought something different. After selling his share of the business, he decided to settle in Rhode Island, hoping for a quieter life.

On the first day, Cat sat on a seawall in Rhode Island, looking out at the ocean as his family enjoyed a picnic lunch. Johnny was enjoying his last clam cake from a small wooden shack nearby,Cat knew this was the spot. With cash from the sale of his New York business, Cat negotiated the purchase of the clam shack from its aging owner, Mr. Taylor, who was thrilled to retire. The following week , Cat bought a three-bedroom cottage nearby.

As spring and summer arrived, Cat expanded his seaside shack, buying the garage next door to create indoor and outdoor bohemian dining. “Johnny’s Clam Cakes” became a huge hit, with lines forming every night. The business stayed busy through September, allowing Cat to return to Italy in the winters to visit family. By age 13, Johnny was running his own clam cake cart, stationed by the beachgoers and surfers, operating it during summer days and weekends during the school year.

Years passed, and the only thing that worried Cat was the money piling up. Distrustful of banks after witnessing economic hardships, he had only half of their earnings deposited, with the rest hidden in various places—behind walls, under floors, and in old clothes. This became a growing concern, especially as Johnny, now a recent business graduate from the University of Rhode Island, began taking on more responsibilities.

One morning, Cat sat down with Johnny over Brittany’s holiday cappuccino to discuss the issue. Cat explained his rationale for protecting the family’s wealth outside the banks, avoiding the risks of the stock market. Johnny was shocked to learn that in addition to the $20 million in their local bank, an equal amount was hidden in cash around the property.

“Did we pay taxes on this?” Johnny asked, concerned.

“Not yet, but now that we’re discussing it, we will,” Cat replied with a smile. Johnny knew that the unreported cash could cause serious legal problems if not handled properly.

With guidance from Chris at EstateChecklist.com, Johnny developed a plan to protect the money and establish an estate plan that would safeguard the family’s wealth for generations. They followed IRS guidelines to gradually deposit the cash, pay taxes, and transfer the money into whole life insurance policies, where it could grow safely and remain tax-free.

Here’s a summary of how they structured their wealth:

The IRS Rules (7702 and 7702A) Affect Whole Life Insurance Funding and Taxes

Whole life insurance policies offer valuable tax advantages, but it’s essential to follow IRS rules to retain these benefits. Here’s a quick guide:

1.Tax-Free Growth with Section 7702: This IRS rule defines what counts as life insurance and limits how much you can contribute to ensure the cash value grows tax-free. When structured properly, your policy’s cash value can grow without taxes, and the death benefit remains tax-free for beneficiaries.

2.Avoiding MEC Status with 7702A: Section 7702A includes the “seven-pay test,” which checks the amount contributed in the first seven years. Overfunding can turn the policy into a Modified Endowment Contract (MEC), affecting its tax advantages. Setting up the policy within these limits is crucial to keeping the benefits tax-free.

3.Staying Non-MEC to Maximize Benefits: Following IRS limits allows access to cash value through tax-free loans, while the policy’s growth remains tax-deferred.

In short, Sections 7702 and 7702A help keep whole life insurance tax-free when funded carefully. This creates a powerful tool for estate planning and generational wealth.

Using Section 72 to Access Cash Value Tax-Free

Section 72 allows policyholders to access life insurance cash value tax-free through policy loans. These loans aren’t considered taxable income, so you can access funds tax-free, provided the policy remains active.

By following Chris’s advice, Johnny and Cat transferred the maximum allowable amount yearly into several whole life policies, setting up a family trust with an estate planner. Over time, the family’s wealth grew significantly.

A few years back , at age 94, Johnny spent his last Christmas with his large extended family at their farmhouse in Italy, feeling immense gratitude for his parents’ hard work and their commitment to preserving family wealth. The family trust, now worth nearly $80 million, provides tax-free funds that support education, home purchases, and business startups, ensuring the family’s financial future for generations to come.

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