Episode Transcript
[00:00:00] Hey everybody, you're hearing Rick on the other side. He's producing tonight, so he's listening in and, and like he said, he'll. There's about a 60 second delay between what I say and when I say it. So if you type in your question, you may not hear the response for a while. But we are watching the chat box.
[00:00:18] Rick's going to come in and, and tell me if there's some new questions. We do have a lot of questions that came in, so we will be going through as many as we possibly can. Unfortunately, I do have a hard stop tonight at 7 o', clock, but just wanted to welcome everybody here. I am Joe Siegel. I am an asset protection real estate business law attorney based out of Orlando, Florida. We work with real estate investors, entrepreneurs, small business owners, professionals, other lawyers, CPAs, financial advisors and their clients to help them through the world of building your wealth and aspiring to a better life. Because ultimately that is our mission, my vision for all of our clients and viewers and audience members to help everyone aspire to a better life and get there. And we do that through helping you structure your entities, helping you pass on your wealth to the next generation in a way that is the most advantageous and easiest to do for everyone involved. So let's get at it. Did get a lot of questions, like I said, and we've sort of taken them all the questions that we have received so far and we have broken them down into topic areas.
[00:01:36] So even if we talk about a topic area and we move on, if you still have a question that pertain to that topic area, please do not hesitate to put it in the chat box and ask us or in the comments and ask us. And Rick will bring that to my attention. If we don't get to it, if we have enough questions, if we have enough interest, we're already talking about it. We're going to do this again on a regular basis. So we will be coming back and doing this on a regular basis with everybody because we've learned that we are in social media, YouTube, Reddit, wherever you get your answers, that we are answer engines now. No longer is the world a search engine world. We are an answer engine world. So we try to answer as many of the most common questions that we hear every day. And I've been doing this now. This is my 30th year of practicing law. I'm coming up on my 30th year. I know I look like I'm only 30 years old, thank you very much. But I am coming up on my 30th year of practice here. So I've heard a lot of questions, and I hear a lot of questions. And simply by practicing so long, I can fall into the trap of thinking that, well, everyone knows everything that I'm saying. And then I get these questions again and again, and I realize that these are fundamental answers that everyone is seeking. And one of those questions that we often get is, well, do I really need an estate plan if I don't consider myself wealthy? And I really want to focus there on the wealthy part, because a lot of people associate wealth with money, but wealth is so much more. Wealth is family. Maybe you just have created generations behind you of just wonderful kids, wonderful grandkids, and even great grandchildren behind you. You have a wonderful spouse, you just have a great family. Maybe you have a great business. You may not have the most money in the bank, but you have a rich life. You've traveled well, you have created a lot of art or just content out there. You've created a lot of knowledge. And to me, that is wealth. All of that is wealth. And even if it's not money, you want to make sure that that passes on to the people you want to have it, the people you think will most appreciate it, the people who will most, who will treat it as you would have treated it, who would appreciate it. And that sort of gets to one of my paradigms. I always look at when I'm asking clients to think about who will be their heirs, especially for specific accounts or specific businesses or specific types of ass.
[00:04:16] I go, you always ask three questions about that potential heir.
[00:04:22] Do they get it? Do they want it, and are they capable of doing it? It's called gwc, and we use it in the entrepreneurial operating system all the time when we are evaluating employees. But it's also applicable to your heirs. Do they get it? Do they grasp the concept of what you are leaving to them? Are you leaving them an antique heirloom from your family? Do they appreciate that, the value in that, that it has been handed down from generation to generation? If it's crypto, do they grasp the concept of what cryptocurrency is? Or even precious metals? Do they get it? Do they want it? Timeshares? This is a big question I often ask. If I have a client wanting to leave a timeshare to somebody, does the heir want that? Are you sure? You know, check it. If they don't want it, don't leave it to them. And are they capable? Do they have the capacity? Do they have the brain? Power, the energy, the time, the money to handle this asset that you were leaving to them. Maybe it is a. I've had a client before, they're leaving a parakeet that can live to 99 years old and the parakeet's only 20 years old and they leave it to the next person.
[00:05:30] Does the person that they are leaving that to, do they get the concept? Do they grasp the concept of having a parakeet?
[00:05:37] Do they want another parakeet? Maybe they already have 50 parakeets or maybe they hate birds completely. And are they capable? Do they have the capacity, do they understand what you have to do with a parakeet that's going to grow to 99 years old? Do they get that? So these are all things that we talk about in an estate plan. So yes, you may be wealthy in many other ways besides just money or instead of money.
[00:06:03] So having an estate plan of how you are going to figure out who those heirs are going to be, who get it, want it, and are capable of handling these assets that you have built, that you have cherished for your lifetime to now go to that, that person or it may may be an organization.
[00:06:21] My mother in law had thousands of books when she passed and we gave books, different book sets to different libraries, depending on what the types of books were, because we knew that only certain libraries wanted certain historical books and certain books from certain areas. So you have to think about these things. And you doing an estate plan, if you're doing it right, you're sitting down and you're thinking of all these things, you're not just going, okay, I'm going to leave everything to my children and they're going to have to figure it out. It's grasping and grappling with these types of hard questions about your heirs. And then you're also going to do the same thing with your fiduciaries. The person who's going to be what we used to call the executor, now we call them the personal representative of your will. Or they may be the trustee of your trust, or they may be your durable power of attorney, or they may be your designated pre need guardian. All these are people who will be in charge of your body, your property, your life, your assets while you're alive or even after you're gone. And again, you're going to run through that same paradigm. Do they get it, do they want it and are they capable of dealing with it? If you're a private lender, maybe you have tons of private mortgages out there and you go, okay, well, I'm just going to leave everything to my child. Well, your child is maybe an environmental scientist in Alaska. Now you've got to think about, well, they're in Alaska and I'm in Florida. How are they going to handle these mortgages? And they don't deal with mortgages. So instead maybe you put those into a trust and you have a friend who, you know, who is very good with private mortgages, and you leave them in charge of that for your child. Your child will get it, get the money from it, but this friend who understands it will administer it and wind it down and reduce it to cash for your child.
[00:08:09] So these are all things that you have to think of when you're doing estate planning. So, yes, for me, I don't care how small your wealth is or how large it is, you still need to do an estate plan.
[00:08:22] And it doesn't matter what age you are, especially if you have children, young children, or if you have older children, or if you have children from separate marriages that now you're bringing together. I call that the Brady Bunch family. All of these are ripe for a great estate plan. That's a really good question. We always talk about asset protection because a lot of people contact us. And I always talk about asset protection on a scale. And there's an arrow at the top and it's pointing up and it goes red at the top, and it turns yellow in the middle and it's green at the bott. Imagine that top is someone who has a lot of potential liability. Maybe they drive tens of thousands of miles a year. They're on the road all the time. That's a high risk of being potentially sued. Maybe they're in business and they sign a lot of contracts. They personally guarantee a lot of loans. That's a high risk for being sued. They have employees. That's a high risk of being sued. They have more than they have a rental property, period. They only need one. You only need one. One rental property with a tenant who puts a trampoline in the backyard right there. A child is hurt on that trampoline, they're damaged. For life insurance specifically says we don't cover anything to do with the trampoline injury.
[00:09:41] So now, not only is that property at stake, but everything else that they own, if they've not structured it right, is at stake. So those people, and also, of course, any professional, if you have developed a patent of a body part, maybe you are an orthopedic surgeon who developed a new screw to hold in cables on a broken leg, in a hip replacement surgery or something like that. Those are extremely high risk types of people. So they're going to be in the red. You know, I always say the person who's at the tip top of the red, it's the orthopedic surgeon with several patents who owns a horse farm up in Ocala where they rent out stalls to other people to come and ride horses and board their horses there. And then they've got a yacht out at Melbourne and they've got another house in Orlando, and then they've got their, their practice, they've got their office building, they've got employees.
[00:10:34] Those people are beyond red in that red. Now coming on down, you got sort of, you got to look at it as well. Now I'm in the yellow zone sort of. I got to be careful that I'm early on in starting my own business. I may have an employee, but not a lot of employees.
[00:10:51] I'm not really signed lots of contracts yet, but I'm probably going to someday. So those I'm. I'm sort of in the yellow category and really down the green category are folks, you don't drive much. You're like me. You live in a neighborhood, and if you drive more than five miles away from your house, you put on scuba gear because it's like, wow, I'm going out of my comfort zone here. So I really need to, to prepare for that. For me, I live in College park, which is right outside of Orlando, Florida. And every time I have to go down to Disney, I feel like I need to suit up because it's just so far away from my house. But if you don't drive much, you're retired, you're not signing any more contracts, you have no employees, you work a W2 job, and you go from your home to your office each day. You work. Really, your biggest risk is driving a car. You don't have any rental properties or anything like that.
[00:11:41] You're down in the green zone. I go, we're not going to be too overly concerned about your asset protection. So the folks in the red were really focused on asset protection for them. And the expense of protecting their assets will be definitely worth it because their risk level is so high. Once you get down in the yellow or the green, we weigh that and go, you know, you really, we really don't need to set up all these structures and separate entities. For someone like you, it's just a waste of your money to do all that work.
[00:12:14] If you're really not doing anything. You know, for you, you could just really get really good car insurance and then carry an umbrella policy that covers you on your car if you cause damage that exceeds your policy limits, and then also have a rider to that that it will cover you as well for additional coverage if you were hit by someone that doesn't have enough insurance.
[00:12:37] So that usually brings me in. When you're down in the green, I'm not so concerned about asset protection for you, but for both, everybody from red, yellow, green, we don't just think about asset protection. We also think about avoiding probate. And a lot of people go, well, and that's where the estate planning comes in. Everybody goes, well, why do I need to avoid probate and an estate plan? If it's done well, you don't have to go through probate. So let me explain what probate is. First. Probate, in Florida especially, is a court action. There is a probate judge in every county, or two or three, depending on the size of the county.
[00:13:16] And when a person dies, that judge oversees the collection of that person's assets. And it all goes on forms that are publicly available to anyone who wants to walk into the courthouse and view them, and they will see everything that that person owned, and then they will see all the debts that they had, and they make sure all those debts are paid off. And then whatever's left over is used to then distribute according to what the person's will said, or if they didn't have a will, it will pass according to what the statute says. And if you don't have a will, the state has written a will for you.
[00:13:54] But all of that is public. It's right out there. So everybody sees everything you had, everything you owed, and who is getting what and how much.
[00:14:03] So if any of your heirs have a big judgment against them, if they have an insane spouse, if they, you know, all these other things that could, if they have an addiction issue, they're going to get that asset whether you want them to have it or not, and they're going to take it and they're going to lose it, usually pretty quickly.
[00:14:21] So in some ways, we also do consider asset protection, even as part of estate planning, because we're looking to that next generation that's going to get that asset. We are looking to go, do you have any. Are any of your heirs going to potentially lose whatever you leave to them very quickly, because they have these other issues going on in their life that they could lose it?
[00:14:43] So the reason we try to avoid probate is because it is Lengthy. It is expensive. There's a lot of paperwork. The court is overseeing it and it's extremely public. What is happening to avoiding that probate? Sort of brings us to the next question. Does having a trust mean that I avoid probate entirely? And it can if done properly. So when we say a trust based estate plan, what we're saying there is you will have a will.
[00:15:10] And that will says, I want to leave everything to my trustee. It's called a pour over will. Some of those wills also go, well, I want to leave $1,000 to ASPCA or something and then everything else goes to this. Don't do that. You should always just pour everything over to your trust.
[00:15:28] And now we've got this trust. Now the trust is private, so the court does not oversee it unless something goes horribly wrong. It's not filed with the court. There are no inventories of everything you had and who gets it and how it's distributed. It is a private document between you and the trustee and then after you're gone, between the trustee and the beneficiaries of the trust. And inside that trust, our trust is, we call, it's like a giant Milwaukee toolbox and it has every tool in the world you could think of. I mean we can do drywall, we can do roofing, we can do electrical, plumbing, H vac. We can do everything with that trust because we will that big toolbox in. And that trustee goes, well, I need to help avoid creditors of this heir who has gotten into a lot of trouble in signing some big contracts and they've been sued and they have judgment creditors. So I'm, I've got a, what's called a spendthrift clause in there. So they're not going to get their money all at once or at all until this judgment is gone. And I'm going to hold this money for them and their creditors can't come and take it. And if they need anything, I can pay it to them, but it can dribble out if needed. They, they're not going to get all this money at once and the creditors are just going to snatch it out of their bank account. If there is a child or an adult with special needs, that trust, our trust agreement has terms in there that allow that trustee to set up a special needs trust or a supplemental needs trust for that, that person that, that beneficiary that puts all the money, their money goes to the side and says, hey, this money can only be used for any expenses that are not already covered by public assistance. Medicaid ssi, ssd, supplemental Secured income, Social Security, disability income, income, whatever it may be.
[00:17:20] So it does not automatically. They don't get all this money and now they lose their benefits. And now they have to spend down this money for their care. And once that money's spent down, then they have to go back and reapply for their benefits again, leading to a potential lapse in coverage for their care.
[00:17:35] So the trust is again, it's private, gives every, everything goes into it in a perfect world and you don't have to go through probate. What you want to do though, to help make sure you avoid probate, it's called funding.
[00:17:49] And you want to make sure that you fund that trust. And funding it means that you, just before you, you pass, you get as much into that trust as possible, you fund as much into that. You, you deed real estate into it or LLC interest into it, houses, cryptocurrency, bank accounts, whatever you can, you try to go ahead and deed them straight into it. Now, an alternative to that sort of brings us to our next question because Nigelle is asked about taxes on houses obtained by Ladybird Deed. And a Ladybird deed can work with a trust very well. And let me explain what a Ladybird deed is. Ladybird deeds are also called enhanced life estate deeds.
[00:18:34] So for instance, I would deed my property from Joe to Joe for his life. And during his life, Joe is allowed to lease, sell, encumber and convey this property and do anything else he wants to it. And then upon Joe's death, this house automatically goes to so and so. So in the blink of an eye, once I, once I pass, the property becomes the property that that property, that real estate passes to that next person named in the deed. And you can name your trust as that next person in the deed who gets it. So upon your death, that property will automatically roll into the trust. They record your death certificate. Boom, and it goes over. Now Nigella is asking particularly about taxes on a house obtained by Lady Bird Deed. And I don't know, you know exactly what kind of taxes you should talk about. So I'm going to talk about both of them. First, let's talk about the real property taxes on the property.
[00:19:24] In Florida, if a property is an investment property, the valuation cannot go up by more than 10% a year or the rate of inflation, whichever's lower. If it is a homestead property, it cannot go up by more than 3% a year or the rate of inflation, whichever is lower. So if you've owned that property for 20 or 30 years, then the property may be valued much for tax purposes, much, much lower than what its true value is on the market.
[00:19:55] So you're paying taxes on this lower amount and then the market value is still much higher than what you're actually paying taxes on. So it causes you to have a tax savings in real property taxes that you're paying each year. The problem becomes is as soon as that property changes, title changes hands, that cap comes off and the taxable value is now the market value, or close to it. And so your taxes increase, your real property taxes increase a lot on that property. So as far as real property taxes go, when the life tenant goes, when they pass, and it then goes to the next person on that deed, yes, the value goes up. So real property taxes will go up in the following tax year.
[00:20:42] So that's one kind of tax. The next kind of tax is I would consider capital gains tax for the person who gets the property. So let's talk about capital gains taxes on real estate. Capital gains tax is the difference. It's a tax on the increase in value.
[00:20:59] So very simply, if I bought a property at $100,000, an investment property, I bought an investment property at $100,000 and I sell it for $250,000, two years later, I will owe capital gains tax on that additional value of $150,000.
[00:21:17] And the capital gains tax is about 20%. Some people have a 7%, what they call a Medicare kicker, so that it's a 27% tax on that $150,000. One way around that is that you can, of course, 1031 exchange not what we're talking about here, but you can 1031 exchange that property and roll it over and buy another property for investment properties. Does it work for second homes or primary residences? Those are all treated differently.
[00:21:43] So there's a lot more parts to that, but we're not going to get into that. But the thing is, is if I gave that property to a friend or a child while I'm alive, they and I bought it for $100,000 and it's now worth 250, they take it at my same basis. The hundred thousand dollars I paid for it is called basis.
[00:22:05] And if I give that property to them while I'm alive, they now took it at $100,000. So if they sell it tomorrow, they also have the same exact capital gains tax I would have.
[00:22:17] However, if property passes at death to the next person, they get what's called a step up in basis on the date of death. So if that Property is worth $250,000 on the day I die.
[00:22:31] If I left that property to my child by my will, if I left it to them through a revocable living trust, if I left it to them through an enhanced life estate or Ladybird deed, any of those, or in some states they have transfer on death deeds that operate the same way. If I left it to them in any of those, as soon as I died, it goes to the next person, it goes to my child, for instance.
[00:22:57] My child gets that step up in basis automatically.
[00:23:01] And it doesn't matter how it passed to them, it passed to them as a result of my death.
[00:23:06] So the valuation stepped up and it's now worth $250,000. So if my child turns around, sells it tomorrow for $250,000 and it's worth $250,000 as their basis, they have no capital gains tax at all.
[00:23:20] So for a large extent, what we try to do is we try to make sure that properties pass at death as much as possible. We do not like to make gifts during life. Where we would recommend making a gift during life is let's say you just buy a stock or you just in a brand new company, or you just started a brand new company and you see that it's going to go up in value exponentially over the next few years. At that point we recommend, okay, well let's make the gift now when it's really low in value, and we'll go ahead and gift it out of your estate and gift it to whoever you want to have it, whether it's through an irrevocable trust or some other or vehicle. We gift it now and now they get it and they're going to enjoy the appreciation.
[00:24:04] So it cuts down on their capital gains. Well, it cuts down on your capital gains, but it also cuts down on the size of the gift in your estate. So you're not leaving that to them when you die. So let's say you start a company and your stock, you know when you start out is worth $350 a share when you start the company.
[00:24:21] And then a few years later you're getting ready to sell the company and it's going to sell for a billion dollars. So the shares are worth millions and millions of dollars. And you go, oh, okay, well let me leave these to my children. Let me go ahead and give them to my children. Now you could actually be creating a pretty bad taxable gift tax event for them, depending on how much it is. So if you'd given them that stock at $350 or even $500 years before, and then it grew. Then when you all went to sell the company, they would just get it. And they've. Yeah, they've, they've had a large appreciation event too, but as have you. But it's not part of your estate, it's outside of your estate that all that growth happened because it's not yours anymore. You put it into trust for them. But that's a different, different issue. But yes, for the issue of taxes on a house obtained by a Lady Bird deed, capital gains tax. We always recommend if you do get a property as soon after death as possible, number one, you're going to want to have it appraised. So you have an appraisal in your file in case the IRS ever asks. And then you sell it.
[00:25:29] And as soon as possible, if you want to, to go ahead and just get the cash. And you won't have capital gains tax hardly at all, if any, because your basis is whatever that value was on the date of death. So that leads directly into the different types of trusts. So I've sort of mentioned irrevocable trusts a minute ago. I've talked about land trusts, of course, I've talked about living, revocable living trusts. So let me just sort of talk about the differences in them first. First, let's talk about a land trust because we deal a lot with land trusts and land trust is especially in Florida, Illinois, Indiana, they're used a lot and they are arrangements to hold real estate or interests in real estate because they can also hold mortgages. But you have a third party trustee who holds title to the property, they hold the legal and the equitable title. So they have the right. They not only have their name on the the deed and on the property appraiser's website and their address and everything, but they also have the equitable rights to lease, sell, encumber and convey the property.
[00:26:35] And their name appears out there. But then they have a trust agreement, a written agreement with the beneficiaries where the beneficiaries have the power or another person with the power of direction has the authority to tell the trustee what to do. And under the terms of the trust, the trustee is not allowed to do anything with that property without either the beneficiaries or the holder of the power of direction telling them this. So as far as the world is concerned, title agents, attorneys, everybody else who's looking at that, there's magic language on the deed into the trustee that says, hey, this trustee has the power under the statute to lease, sell, encumber and convey the property without reviewing the trust agreement itself. So there's no need to ever know who the beneficiaries are. You just deal directly with the trustee.
[00:27:21] So the trustee signs mortgages, signs leases, signs permit applications, contracts to sale, contracts to buy, everything dealing with this property. And the beneficiaries get to hide in the background. They stay in the background, quiet, no one knows who they are. And it's a great way to keep your name off the title. Also, the law has said, and case law has said that if a property is in a land trust, then, number one, the trustee is not personally responsible for anything that happens at that property, and the beneficiaries are not responsible for anything that happens at that property so long as they did not personally cause the injury.
[00:27:59] So if you are the beneficiary of a land trust and you go to the house and you assist your tenant in setting up that trampoline, and later a child is injured on that trampoline and they sue, they're not just going to sue the trustee, as trustee of the land trust that owns that real estate where the injury occurred, and the owner of the property, they are going to also sue you because you helped set up a trampoline that caused this child's injury. So don't.
[00:28:25] If you have properties in land trust and you're the beneficiary, don't do work yourself at those properties because that is where you expose yourself. Stay in the background, stay hidden. Yeah. Okay, I got a message. I'm in the chat. Where is the chat? Probably up here. Where is it?
[00:28:45] Just read them off to me. Rick, what are the, what are the questions in the chat? Oh, good question. One of the questions is how. How powerful is a Florida land trust for asset protection? Is it more powerful than llc? In some ways it is, because it gives you the asset protection in addition to the anonymity. So no one knows your name. And I like to describe asset protection as there's horizontal asset protection and there's vertical asset protection. So horizontal is sort of this. Let's imagine you're up here as the human being who can be sued. It acts as a floor between you and all your assets, and it also acts as a ceiling between your assets and you. So it keeps you away from each other. So anything happening down below does not hurt you and anything happening to you does not attach down to them. Also, it provides vertical asset protection because each property will be in its own separate land trust and there are walls between them. Because just because something happens at one land trust, it does not bleed over onto the other properties that are held in other land trusts. By the same token, in addition, you have this anonymity. No one knows who you are.
[00:29:52] No one sees your name as the owner again, unless you walk in there. So don't, don't do that.
[00:29:58] That's why I like it. In addition, because if someone never sees your name attached to a property, whereas with, if you're on an, if you have an llc, a Florida LLC that owns the property, your name appears in SunBiz. So anyone looking up who wants the property, they see the llc, they look you up, they may see that you're the manager of the property of the LLC and they're going to probably pull you in somehow into the lawsuit against regarding that property or vice versa. Someone is suing you personally. They search and go, oh well, he's the manager of all these LLCs, he must have money. So let's go beyond, let's really sue him. And really it puts a target on your back. So the anonymity keeps that target off your back. A lot of people go, but why can't I just use a Wyoming LLC to own it? Those are totally anonymous. No one ever sees my name from a Wyoming llc and I can just own the property there. Well, I was in title for over 20, 22 years or so and I know how easy it is for an LLC to sell property. You basically walk in, you sign a affidavit, you flash some documents to the title agent and you can sell that property or you can mortgage that property, or you can lease that property to a tenant and collect first and last month's rent and a security deposit.
[00:31:08] Just saying, yeah, that's my llc. And no one can look that up on the any public record to confirm that you are truly the owner or whoever is walking in is truly the owner of that LLC and thus controls that property. So I don't like too much anonymity associated with real estate because it's just, it makes fraud. Stealing the property, stealing the equity leases, stealing rents is, is not good in a lot of ways. I prefer when it comes to real estate, especially investment real estate in Florida, use that, use that Florida land trust with a third party trustee, not, not you, not a friend or anybody else that can be traced back to you, a completely third party trustee to be your, your trustee. So no one can trace that back to you. Did we have another question in the chat? Rick? Cool Rick tells me no more questions. So One of the things is pay on death transfer on death. A lot of people think that that also solves their problem for smaller estates. I will often recommend to clients to, hey, just use transfer on death designations in your LLCs. Use transfer on death designations and pay on death designations for your bank accounts and investment accounts, name beneficiaries of your IRAs and 401ks and all that kind of stuff. If you're not worried about the heirs who are going to get the money, don't worry about it. Just go ahead and use beneficiary designations and we call that the poor man's estate plan.
[00:32:29] You can just handle that. That way, however, the problem becomes if you become incapacitated, if you don't have a durable power of attorney with one of those fiduciary with a power of attorney principal agent working for you who gets it, wants it, and is capable of doing that, that can cause a lot of problems with your money. If you don't have a guardianship in place, a pre need guardianship designated with a person that gets it, wants it, and is capable of doing that for you. I've taken care of your body and have taken care of your accounts. Even if you have pay on death or transfer on death designations, all that can just be blown by those people if they are dishonest or if they're incompetent. So you just want to be very, very careful. And no, it does not provide the same protections as a properly funded revocable trust, because you can instead put all those accounts into a revocable trust and then that will be used to pass those accounts onto your beneficiaries of your trust after you're gone. And in a way that also protects that money for them so they don't just happen to lose it. So let's say your child has a massive judgment against them. Maybe it's child support, maybe it's alimony, whatever. They got this massive judgment against them. You pass. And lo and behold, a $200,000 account is pay on death to them. They get it and the spouse comes in, says, thank you very much, I'm finally getting my alimony and my child support. Whereas if it was inside a revocable living trust that had spendthrift provisions, it would go, and the child would say, okay, Great, I've got $200,000 in a trust account now, but I can't touch it. And the spouse comes and says, well, I want that money. The trustee and the court's going to say, no, you can't touch it because it's not their money to be taken, it's still inside the trust.
[00:34:17] So again we're talking about funding the trust. So whenever we're doing that, we want to make sure the deeds have deeded properties into the trust. We want to make sure that you may have those pay on death provisions. If you don't go ahead and change the names on the accounts to your revocable living trust while you're alive, you can set them well at pay on death to my revocable living trust for LLCs and stocks, especially for closely held companies, family owned companies, a lot of times we will do transfer on death designations on the membership certificates or if the operating agreement allows it depends on what your buy sell provisions are. And death provisions are inside your operating agreement. But we review those and we work with those and we craft a way to make sure that your interest in that LLC or in that corporation gets into your trust either at death or before death so that it will not have to go through probate. Beneficial interest in land trust, that's the easiest one to do. You just doing it. We do an assignment of beneficial interest from you individually to your revocable living trust while you're alive. Boom, it's taken care of. So we don't have to worry about that. So as soon as you are gone, it's inside the trust already and the trust trustee administers it by the terms of your revocable living trust, which becomes irrevocable upon your death and you're taken care of. So the revocable living trust, it means just that, it's revocable while you're alive. You can revoke it and you can change it, you can amend it any way you want to while you're alive. An irrevocable trust typically will set those up for someone who may have heirs that are very young, but they want to go ahead and like I said make those gifts now to them or they want to set up additional trusts that are irrevocable that can act as other members of their other LLCs or act as a limited partner in a family limited partnership just to create additional members or partners limited partner so you get charging order protections as a multi member or multi partner partnership. So we'll create irrevocable trust that way. Now they that that's what they mean. They say what they mean. They are irrevocable. You cannot revoke them at all. Once they're done, they're done. Anything you put into them, that is a gift, it is made. It is if you have given it to the beneficiary already.
[00:36:40] So it's out of your estate, it's out of your hands. It's not calculated as part of your estate for state taxes, you and all that. So it works out really, really, really well for those purposes. And irrevocable trust can be used for lots and lots of other things. But yeah, we definitely, we definitely do that. But you just want to make sure everything is funded in. Now the big thing is after acquired property. So we do this estate plan. We know everything you own on the, you know when we do it and we get everything funded into it. But then later you go and you may sell a house out of, you know, that was in a revocable trust or whatever. You sell the property, you close an account and you move the money over to another account and now it's titled just in your name. You have to watch what you do in the future. You have to make sure you title everything properly into your trust going forward as well. So it's not a one and done kind of thing. And I, and I have way too many clients who come to me who have gone to other lawyers, they've set up their trust documents, they've done everything for them, but they never funded it, they never put anything into it. They simply got a big thick binder that told them, hey, this is everything you need to make sure goes in there and that's on you. Now we don't do that. Our firm, we try as best as we can. We try our best to get everything we possibly can, especially real estate, especially business interests, into that. Now accounts, you're typically going to do that on your own, working with your, your bankers and your investment account advisors. They're going to make sure that all that gets titled properly for you.
[00:38:02] But we just try to make sure that you understand going forward you have to do that and we try to reach out to you annually to make sure to think about it. Did you buy something? Did you have another child? Did you have another grandchild? Did you move to another state? Did something happen that. We need to revisit this plan and make sure that everything still meets what it is intended to do. So now let's just talk about. So that's all for. That's, that's estate planning in a nutshell. And that's everybody who's down the green area or even mostly the yellow area. You're not really worried about asset protection, but we want to make sure we avoid probate. And now we know why we want to avoid probate. But now we have the people who are moving up into red and we're, and we're going to talk about asset protection strategies now.
[00:38:49] So what protections do I gain protection from creditors using trust? Well, like I said, for irrevocable trust they are away from you and so they're not owned by the beneficiary yet. And they're not owned by you either. They're held by the trustee for the benefit of the beneficiary. So that provides creditors protections for that beneficiary. And it's also no longer in your state, so it's not yours. So they can't go take it out of that trust and say give it back. Now let's say you have been sued and the lawsuit is pending and you go oh wait, now I'm going to quickly create, you know, million dollar irrevocable trust for each of my children to get this money out of my hands and into their hands. But the lawsuit's already been filed or I've already signed this personal guarantee on this $10 million loan. Let me go and move all this money out. And then two years later you default and they come after it. That's called a fraudulent transfer. Depends on the facts. It's very fact heavy. But there is always a chance and we always tell people to watch out for this, that that creditor can go, you did all this to fraudulently transfer this away from you so that I can't get it. And the court is going to say pull it back and they will order it to come back and come in there. Now there are other kinds of trusts, Domestic asset protection trust. A lot of states have these now. Nevada was the biggest one for a while, everybody went to Nevada. Ohio's become very popular.
[00:40:10] But these are trusts that you create. They have to have a third party trustee who is completely unrelated to you in any way. You can put money, you can put accounts, you can put LLC interest, you can put land trust interest, you can do all that into that D A P T and those are statutory creations.
[00:40:27] So typically with a regular revocable living trust if you, they're called self settled trust. You can't put money into a trust. In Florida for instance, you can't say, well I'm gonna put this into a revocable trust and I'm also gonna put a spendthrift on it. Meaning that if my creditors sue me, they can't take what's in that trust. You can't do that, you can't make yourself the beneficiary put the money into it and then say, now my creditors can't touch it.
[00:40:55] That doesn't work in Florida.
[00:40:57] We don't have a statute that allows that.
[00:40:59] Places like Nevada, Ohio and other states that have adopted domestic asset protection trusts do have those statutes. And those statutes usually say, well, if you do it the right way and the trust has the right language and you use a third party trustee the right way and you fund the property into that trust after so many years, like in Nevada, it's two years. After two years of that trust existing, your creditors cannot touch it. You put it in there and you have complete control of it. While you're doing great, you have complete, you can revoke it, you can do anything you want. But as soon as you fall into distress, after it's been there for two years, the creditors cannot touch it.
[00:41:38] So that's a domestic asset protection trust.
[00:41:41] Those are good. I mean, they've never, I don't know any cases that have tested them in Florida. But one of the things that we are always concerned about is a Florida judge goes, well, that's nice in Nevada, but these properties or the assets that they're trying to take are here in Florida. And I'm going to throw you, I have your body here in Florida, we'll throw you in jail for contempt until you get that trustee to send everything back to us and deed it to these creditors who you owe money to. So that's a danger of those. Offshore trusts are typically used for much larger states. So that's the, you know, the orthopedic surgeon with patents who has the horse farm and the yachts and everything else they're going to have, usually have an offshore trust. And it's usually people with a million dollars or more liquid that they can take. You create a trust offshore, you have the trustee offshore. You usually open a bank account in another country like Switzerland, and you move the money there and that trust owns it. You're completely in control until you fall into distress. You've been sued, you're under distress, you're under a court order or whatever. At that point, that trustee goes for the Cook Islands or Nevis or whatever.
[00:42:53] You may set up a Nevis llc. You have a Cook Islands trust, owns the beneficial interest in the Nevis llc. And then the Nevis LLC opens the Swiss bank account and holds that. And then they find out, wait, he's transferred $5 million to this offshore trust and we want it back. And the, the court will say, well, order the trustee to send it back. So you're going to send the letter and the trustee's gonna go, wait, sign this affidavit saying that you are not under distress and you're not under a court order telling us to do this, and you're not gonna be able to do that.
[00:43:22] So the court's gonna say, well, you know, we can throw you in jail or whatever, but you've complied, you've done everything you had to do. The trustee in the Cook Islands is the one saying, no, we're not going to give that money back. And they have to go to the Cook Islands to sue and they have to bring a whole lawsuit there and do that. And it is not easy. Cook Islands does not like those lawsuits. So it's just very, very difficult. So it gives you negotiating power to settle that debt, that judgment debt, for a lot less than what is actually owed under the judgment in most cases. So for very high risk clients like that, we would look at an offshore asset protection trust for those. Yeah, let's say a bad accident happens in a rental property owned under Florida Land Trust, would a judge be able to pierce through the trust and place judgment on beneficiary? We have never had that happen. And we have no case law where they've pierced through the trust. The only time we do have one case, it's out of the bankruptcy court out of Daytona, where the beneficiary was also the trustee of the trust. And the bankruptcy judge said, the trust fails, it merges. So your beneficial interest merges with the legal and equitable title held by the trustee and it is all one in the same person. So it's as if the trust doesn't exist. That's one case we have that definitely happened with a land trust where the guy just screwed up. And typically that's where you're going to find these. They're going to be in bankruptcy courts where the creditors are saying, wait a minute, this property, he owns this property and it's worth millions of dollars and we're owed millions of dollars. But he's saying he has nothing. And he's saying, well, yeah, it's in a land trust over here, but you're the beneficiary, you're the trustee and you're stupid. So we're just going to take it.
[00:45:07] But we've had cases where we've had clients who have massive judgments against them and they are the beneficiary of the trust.
[00:45:17] But if the creditor never does what they call debtor proceedings, where they send you questionnaires, they put you under Deposition under oath to disclose everything you own. If they just never do that, you're under no obligation to tell them, hey, by the way, I'm a beneficiary of these land trusts that own all these properties free and clear. And so, so they, they don't come through. Now, if they do that, let's say they do get that judgment against you, they do the debtor questionnaires, they do the debtor depositions, and you do have to tell them you have to disclose everything you own, including land trust interest. At that point, they're not really piercing the bell of the trust.
[00:45:57] They're simply going to the court and saying, hey, your honor, they had this, we need a court order to the trustee saying that we own that beneficial interest now. And we've had that happen. That does happen. But simply because an accident happens on that property, if you, again, if you had no hand in creating the situation or the dangerous condition that caused that injury to that creditor, they have no reason to come through it. We have had people who have tried, tenants who have tried to pierce through that trust to come after the beneficiary. And judges have consistently just said, it's like, you know, if you own stock and if it's an LLC and you own the benefit, the membership interest in the llc, the judge is going to go, well, you didn't name that person. You've not given us any claim or evidence that that human being did anything. So why would I let you come through? You've not made any claim that the LLC was a sham, that the LLC was set up for a fraudulent purpose or anything like that. So, no, I'm not going to let you just come through the llc. I'm not. By the same token, I'm not going to let you just go through the trust and go right to the beneficiaries. So we've been very fortunate in that we've never seen it happen where they've come after that. If the goal is to continue a business and keep it self contained, would the interest be passed through a TOD provision in the operating agreement or as part of the living trust?
[00:47:21] And that's really, really good either way. You can do it either way. Again, I always tell people, let me read your operating agreement, and I go straight to the death provisions, because most operating agreements have a paragraph or section that deals with what happens if a member dies. If you're the sole member or if it's a family, it's all the family and they have an agreement.
[00:47:45] Typically, in that case, I'm like, let's just go ahead and transfer. We're going to do a transfer of membership interest from you individually to your trust right now.
[00:47:56] Now, if it's not that way, maybe you have a business partner who's completely unrelated to you by blood or marriage, and it's truly a business relationship. Maybe you have a lot of partners in it. At that point we typically say, well, you're going to have to go back to the other members and we're going to need approval. And what we're going to do is we're going to change your membership interest to transfer on debt. So while you're alive, you will be in control of your membership interest. You get the distributions, you have your vot, you exercise your membership interest through voting individually, but upon your death, it automatically passes as a transfer on death to your trust. But if I'm ever representing the other members or if I'm ever representing the LLC on the other side, I step back and go, that's all fine and well, but we want the member to sign, to consent on behalf of the trust to consent to the terms of the operating agreement. However, it may be amended in the future so that your trustee in the future doesn't come in. And then all the other members pile on and say, well, no, you're just an assignee member, you're not a real or a transferee member, you're not a real member, you have no rights, things like that. So in that case, we're really reviewing the documents to make sure we're not going to put everybody in a position that once you're gone, the other members turn on each other or the trustee turns on the other members and causes a lot of problems and friction for the company that basically can can hobble that business. We want it to continue on and wind out. However you have agreed for it to wind out. In most cases, what happens is that trustee continues on with your membership interest and upon your death, that interest is then bought out according to the terms of the operating agreement. Or all the others members get together with the trustee and go, hey, if you want to just stay in, we can keep you in. And now we'll just keep going as it is. And you operate, you vote their membership interest and you get their distributions as we continue on.
[00:49:57] But it really depends on the type of company and the operating agreement as to how we're going to structure that to do that. Okay, yeah, we're going to end up at 7. I've got another class right after this that I'm actually Taking, I'm not giving that starts at 7:30, so I'll have to eat in.
[00:50:14] But question is, what percentage of homestead properties are affected by higher property valuations when transferred to a Florida land trust? If that happens, what's the remedy?
[00:50:23] Fortunately, over the past few years that percentage has been zero.
[00:50:28] We've had a really good relationship with the counties. We are our, our affiliated company, my land trustee.com is a third party trustee and we're the third trustee for well over 2,000 properties in 65 of the, I believe 67 counties in Florida.
[00:50:47] So we deal with property appraisers across the state all the time. And what we found the property appraiser's biggest objections are there's two. Number one, the deed says that the beneficiary's interest in the trust is a personal property interest only.
[00:51:04] Therefore we take that out of the deed. There is no requirement by statute that that be in the deed. So we take it out. And then the second objection that the property appraisers have is that it does not state either in the trust or the deed that the beneficiaries of the trust retain the right to occupy the property or reside in the property as their homestead or primary residence.
[00:51:27] So we have a paragraph in our deeds that put the property into the land trust. We have a, a paragraph about that big that says exactly what the property appraisers look for. So with those two things, the property appraisers are typically just fine with it and they do not increase the value. They don't take off the save our homes and they don't do that now. They don't remove the exemptions. Now what happens is a lot of times they, they go deed change, take all the exemptions off, take the caps off, reassess and lose homestead. So you have to watch and we always tell folks, we have a, actually we have a video that comes a QR code that comes with every trust that we create. Now that you watch the video and it's a, and also it's a playbook, a few pages that says watch your homestead. You will get a trim notice. You will get notices from the property appraiser. If that happens, you must respond. And sometimes the property appraiser says, well, I need to see the trust. And yes, I believe I saw a question from Frank later down the list that says but you say don't show it to third parties, but you do have to show it to the property appraiser if you want to get your homestead exemption or keep your homestead exemption and those we've, we've talked to many property appraisers and they go, yeah, yeah, yeah, we take it, we keep it. That is not subject to public disclosure at all. That is completely private information that is never subject to public disclosure.
[00:52:51] So, and I've actually had this question today down in Miami Dade County. They said, well, they're going to take their property in.
[00:52:59] Doesn't the property appraiser as their homestead, doesn't the property appraiser still list their personal names as the homestead owner, as the occupant? And I just told him, I said, call the property appraiser and talk with them. So they called, talked with them and came back. And the property appraiser in Miami Dade said, no, no, no, no, we don't do that anymore. We list the name of the trust as the owner. We do not list the beneficiary's names. But yes, to get their homestead exemption, they will need to show us a copy of the trust that shows that they are, as humans, the beneficiaries. And then, of course, they still have to prove that they do occupy the property with utility bills, driver's license, voter registration, tax returns, something along those lines to prove to us that they do reside in that property as their homestead. And in that case, the property appraisers have always, traditionally, especially at least the last five years or more, the property appraisers have said, no change. That's no real change of ownership, period. It's, you've really just gone from legal title, your name is on the deed to equitable title. You own the trust. So we are not going to reassess, we're not going to take off the caps, we're not going to take off the exemptions and make you completely start over from jump. We're just going to keep it going with the homestead as it is. Same thing applies for investment properties with the 10% valuation caps. We've had clients, as long as the beneficiary of the trust is the same as the current owner that has been getting those exemptions, same thing, you have to show the trust to the property appraiser. They keep it all secret, but they, they have been very amenable to all of our beneficiaries and just said, okay, legal title to equitable title, we're not changing.
[00:54:36] That is not a change of title. That will trigger reassessment and loss of caps. So with that, I think we're going to wrap it up right there because that's. We've been an hour exactly we do have a lot more questions. Like I said, we'll come back. We'll let you know when we're going to be coming back with more Q and A session. It's been great participation. We love hearing from you guys. We love these questions because again we are an answer engine. We try to answer everything that we can these these questions for you because we love clients who are educated and it just really makes our lives easier. It makes your life easier. So hang in there. If you need us, call us go to our website aspirelegal.com or mylandtrustee.com depending on what you need.
[00:55:23] We can help you out. You can book an appointment there. You can book discovery calls, whatever. You can make orders. You can order land trust, you can order llcs. You can order deeds. Just about everything you can do right there on our website if you need anything so please do not hesitate to call and until then thank you guys for coming. And until later, trust this.
