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Estate Planning: How to Protect Your Assets and Your Family’s Future
23 Plays2 months ago
In this episode, Matt Rhine sits down with Nicole Hewitt, a seasoned attorney specializing in estate planning, elder law, and business planning. With years of experience, Nicole breaks down the essentials of estate planning—what it really means, why it’s important for everyone (not just the wealthy), and how proper planning can prevent future family conflicts. From wills and trusts to the nuances of managing real estate within an estate, Nicole explains how to effectively plan for the unexpected.
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Transcript
Introduction to Hosts and Estate Planning
00:00:10
Speaker
All right. And hello, everybody. This is Matt Ryan with All Roads Lead to Real Estate. And I am happy and very excited to get to meet, um not necessarily me, but meet in this capacity. ah We actually have offices adjacent to each other in the same building. Yeah.
00:00:27
Speaker
And so this is Nicole Hewitt, and she is an attorney, and she has helped me personally, professionally, and and so she's just a great resource that I've referred some of my clients to over the years. And what she specializes in is estate planning,
Why Estate Planning is Essential
00:00:43
Speaker
estate administration, elder law, special needs planning, business planning. It's just basically my go-to person, not just her, but the attorney she works with, her team, ah for all my needs. And so, first of all, thank you. They're doing that for us over the years. And and so I just have so many questions and so many things that I think I kind of summarize a lot of what you do um in my day. And so I thought it would be nice to bring you in and kind of straighten and get it straight from your mouth this time and and kind of kind of tee this up, because I think at least for myself, I believe your phrase was I kind of have to become an adult at some point. I didn't have a will. I had no estate. I didn't have a trust.
00:01:24
Speaker
I really had nothing and I had three small children still do um and I had nothing. And so it's something none of us like to think about, or at least I never did. And it's kind of like adulting is almost the way it is adulting.
00:01:37
Speaker
It and it's just I don't think most people know where to begin. And, you know, the questions I'll have for you are going to be based on what most of my clients say to me. Most of them don't have much in the way of estate planning or a will or a lot you know or maybe they have a basic will, but no real fault has been brought into it.
00:01:54
Speaker
And they don't like I'm helping them buy a massive asset. And sometimes it's just like when I listen to how they're either going to title it or their fault process, I'm just like, God, I wish you could speak to someone who's a professional and not me. That's not my specialty.
Nicole's Expertise and Estate Planning for All
00:02:09
Speaker
That's yours. um So first off, once again, thanks for coming. So when you hear this, oh well, I guess let's back up. I just want to first kind of give you your credentials a little bit. So you're not your run of the mill average law firm because you are also you guys have a title company as well. Correct. Lawyers Express title. And so you you have a little bit more experience in a wider range, I think, than some of the attorneys I've dealt with in the past.
00:02:32
Speaker
Well, I think the big thing is is because if we have the title company, we can deal with the real estate aspects of planning because real estate, like you mentioned, is most of the time people's biggest asset. So there's a lot of estate planning firms out there that deal with estate planning in a vacuum. but um And then when it comes time to deal with the real estate, they're like, well, we don't do that here. Here's who you have to say. but So we can do it all, which is definitely gives us a big benefit.
00:02:57
Speaker
Yeah. And so, you know, I wanted to shout this out because we we wrote it down because you' I didn't know where you went to school. You went to some nice schools. You've been ah you've done well. I've been to a few schools. I was a professional student for several years. I would say so. So Loyola University, then you went to Georgetown for your master's in taxation and then University of Baltimore to get your law degree. And and you've been doing this um for a long, long time. Yeah. Yeah. So ah you would never know it, of course, but ah but certainly doing it for a long time and you've been a general counsel executive director to national mortgage ah Broker um you were an associate with a large Baltimore law firm. I mean, it's just really interesting You went to two of the big five accounting firms probably out of college. I'd imagine yeah out of my master's program I work for Arthur Anderson and then yeah and Ron took them down nice um and then Ernst and young so yeah, I I had so many friends at Ernst and Young. They recruit heavily at at campus. I'm sure they did. Oh, they wind and dined and like, that's how I ended up there. But it's good experience and it opens the doors. um Oh, super fun. Yeah. Yeah. Anybody in their 20s? No, I'm dead serious. Anybody in their 20s working at a big five again? Happy hours and the fun. I mean, you work hard late hours, but you know, they serve you dinner, you know, you make great friends. Yeah. Good place to be. Well, it's it's quite the yeah, you've you've done the schooling ah part. So um so the first thing I want to kind of understand and ask is just why should people care? um Because if if you're listening to this and you don't have too much in the way of planning, maybe you're younger and in your mind, you're like, I don't need to think about that yet.
Consultation Process and Costs
00:04:34
Speaker
Or maybe you don't think you have enough assets and you're like, I don't need it. I'm not worth twenty million dollars. What's yeah the difference?
00:04:40
Speaker
So why should people care in the first place to think about estate planning? And and I guess that, you know, that part of a dark secret we don't want to think about. Well, I think the biggest problem is the word estate planning. Like there needs to be a different name for it because estate planning means I have a ton of money and I need to plan for it. So I think that's part of the problem. sure um So it's almost like life planning is really what it should be. So if you have a bank account, you technically have an estate plan. So I say that anybody, as soon as they turn 18, they need to start their life planning. So it doesn't mean you need a will. It doesn't mean that you know you need to plan for assets that you don't really have, but it's like planning for your life. So advanced medical directives and powers of attorney.
00:05:25
Speaker
um Set this up for people in 1818 because here a lot of people don't think about this your 18 year old is now going away to college and they're gonna be halfway across the country and God forbid they end up in the hospital and You try to call the hospital and say I need to find out what's going on And they're like well of this person's over 18 can't give you any information even if it's my son or my daughter. Hypo privacy rules are very protective. So you know if you want to get that immediate information and you're not there, if you have a healthcare directive, you send it over to the hospital or the doctor, right they can talk to you and tell you what's going on.
00:06:04
Speaker
Interesting. So that's that's and that's interesting to know. So I guess where does it start? So when the fact that I never did it, I can tell you I can speak personally. I never wanted to think I was in my 20s or early 30s. I'm going to live forever. I don't think about that. yeah You know, so it's just something I never wanted to consider.
00:06:22
Speaker
And by the time I did consider it, I did have a fair amount of assets and I have rentals and I have a business and I have all these things and I didn't know where to begin. And I was kind of embarrassed to even admit that I had no plan and nothing in place.
00:06:35
Speaker
I think the stat is 20% of the country actually has a plan. So if you don't have one, you're in the majority. so And most people do come in. They're like, we're really embarrassed. We haven't done this yet. We have these small kids. um We should have done it years ago. And my answer is always like, that's okay. You're here. You're ahead of the curve. It's fine.
00:06:52
Speaker
Right. So I guess what does that initial consult? So if someone came to you with something similar to that, what would I guess how does it start or what does it look like? And imp potentially like what are some of the costs associated with this? I mean, every every attorney's process is different, but my process is this.
00:07:09
Speaker
um We have clients fill out a questionnaire. We gather a lot of data. And a lot of times people are like, well, why do you need to know all this? And it's because estate planning is not just these documents. It's looking at everything. It's how are things titled? Who are your beneficiaries? um It's really looking at the whole picture. So they fill out a questionnaire. They come in. We meet. We spend an hour or two hours, whoever long is needed, to really get through and delve in, find out what matters to them.
00:07:36
Speaker
um Find out what their planning goals are. And I always like to point out, this is a like in a vacuum type of thing that you're doing at this moment. It's not gonna be your forever plan, especially somebody who comes in and they're in their 30s or even 40s. Like we're gonna revisit this every couple of years or at least look at it. We might not update it for another 10 years, but we're gonna keep revisiting it because it might change. So we're gonna come up with a workable plan that meets everybody's goals. We get documents drafted and then we sign documents at kind of our next meeting.
00:08:05
Speaker
But it's kind of not done there because we're looking because we're looking at assets. Sometimes we're changing titling. Sometimes we're updating beneficiaries. Sometimes we're recommending, you know, maybe you need to look at more life insurance or, you know, as people get older, maybe you need to be looking at long term care.
Understanding Trusts in Estate Planning
00:08:20
Speaker
You know, so there's all different conversations that we're having and tax factors are a big thing, too. So so I mean, in if I had if I had a very simplistic plan or I didn't have a ton of assets, what could someone expect to pay roughly? like What's the range?
00:08:35
Speaker
So the range, you know, I always laugh about this because you could go to the person on the corner, you know, you have those corner shops in Baltimore City where they do a estate planning, your DWI, um your bankruptcy, you know, everything all in one. You could spend $600.
00:08:51
Speaker
For an estate planner who does this and is seasoned, you're probably looking at, you know, somewhere for an individual for three documents, wills, powers of attorney, medical directives, you know, give or take around the $1,000 range anywhere, you know, $1,000, $1,200. So you didn't mention trust. So is that something you recommend for certain people? And what does that imply? because some people use the word trust but have no idea what it means. right right but So explain a trust and kind of what the benefits might be and when should I consider a trust. So there's a couple types of trust. So you have freestanding trust that are created today and then you have trust that are created in your well and they don't come into existence and last worst case scenario, you're gone and then they come into existence. So I'll start with the wills with the trust inside of them. okay So that's really great for people with young families.
00:09:42
Speaker
they're in the phase of their lives where they're just starting to accumulate assets and it's really we're planning if the worst case scenario happens and both parents pass and how do we make sure that you know maybe the equity in the house you know the bank accounts and maybe that life insurance money funnels into a t trust for those kids because you never ever ever want to leave anything more than, well, in Maryland now it's $20,000, anything more than $20,000 to a minor. Because as soon as you do that, it has to be administered by the courts until they're 18. But then when they're 18, they get it. And as we know, you don't want an 18 year old to potentially get a lot of money right because people don't think about their life insurance. that's That might be their biggest asset. So if you have a million dollar term life insurance policy and you pass, you know, this could be significant money going into a trust. And as a reminder for people, if you don't have that type of policy in place, a term million dollar life insurance policy, at least I have a couple of them. It's like 500 bucks each. They're a year. yeah yeah Very affordable relative to the coverage. Mine expire in 20 years. I took a 20 year term just to get me through to the kids or at least in college or through college. It's just that that window. And then after that, the needs diminishes the theory. correct
00:10:57
Speaker
ye so okay so you have that so that's inside of the will that's inside of the will and it doesn't come into existence unless you pass away so now why wouldn't i just have the trust out from day one why would i put it inside the will is it It's normally a cost thing because it's cheaper to do it that way. And if you don't have a ton of assets, then that's the most cost efficient and easy way to do it. um But then you get into revocable living trust planning. And that is, think of a revocable living trust. And this is where people get like, you know, very confused about what it's all about. Think of it as like a person. It's like an entity.
00:11:33
Speaker
ah lc um So basically you create this trust and you dump everything that you own into the trust. So that house that you have, you put it in the trust. Revocable Living Trusts are great for people that own a multi-state property because if you own a house here in Maryland and then maybe you have your beach property in Delaware, and maybe that like snowbird place in Florida and you pass away, you could have probate going in every single state.
00:12:00
Speaker
And I like to clear up the misconception of what probate is because hands down, everybody always walks in and says, I hear probate's this like ugly thing, but I have no idea what it is. So first thing, wills do not avoid probate. People think that all the time. So basically the probate process is either this, you have a will and somebody has to take that will down to the register of wills and get letters of an administration and open a formal estate for you.
00:12:28
Speaker
And by doing that, that allows you then to or your personal representative then to go out and collect those assets that you own, collect them, takes about nine months, the process, and then ah ultimately at the end, the people named in your will get the assets.
00:12:46
Speaker
um And so what does that, so I guess you said it doesn't avoid the probate period, but having it, what's the big benefit then? Well, the benefit is you have the ability to to direct who's in charge of the process and who gets the money. So if you don't have a will, then the state of Maryland has rules on who's in charge of the process and the state of Maryland decides who gets your assets. Got it.
00:13:09
Speaker
So that's the benefit of having a will. If you don't have a will, the process is still the same, but again, the state decides who are those people. right That's the difference. And from what I understand, at least my clients and even my own mother, I remember having these conversations. She's just like, when I'm gone, I don't want any of you kids fighting over it anything. That was like her big thing. She's like, I don't want you guys you know fighting over money or the house or whatever, because that was her biggest fear. yep And you want to keep the family together when you're gone. that's Most of us, that's what that's what the goal is, right? You hope you're building a little family unit. And just because one of us isn't here, you hope it stays together. yeah
00:13:45
Speaker
And sure guarantee, if you don't plan, there will be fighting. right I have rarely in my 25 years seen a family that gets along after the pro or after a probate process or after so after somebody passes when there is not planning in place. It's hard enough when there is planning in place. They're still fighting, but if you don't have it,
00:14:07
Speaker
Inevitably somebody thinks that somebody's stealing from someone or somebody's doing something wrong and family doesn't talk afterwards Yeah, it's I've seen it. I've seen other people I've it's just it yeah money screws things up as soon as it gets in um in the mix and um So it's one of the reasons I wanted to have have it and I also felt I didn't want my kids at age 18 for example to have have money, your life insurance money. i'm just I want them to try to have a productive life, go out and get a job, a career and have something on their own. I know I lost my father early and we had life insurance money and I always, I'm a big advocate for life insurance because without it, there's a very, very high likelihood we would have lost our dairy farm. I wouldn't have gone to college. It would have been a very different world.
00:14:51
Speaker
And so, but it was in a trust and it was out of my little paws. And I had to wait until I was 30 to have access to any of it. And um as a result, I like to say I forced me to really have a career. And in now I've never used the money because I'd never used it. I think if it was accessible to me at a younger age, I might have used it as a crutch. But your path may have been very different. It really could have been. Yeah.
00:15:16
Speaker
So it's what I think about with my kids. So I'm glad you helped me out. But you did ah you did a trust for us. And one of the things I wanted to discuss, it's like so what happens after because it's a term you haven't used yet with my um with my revocable trust. Right. What happens when I die? What what happens at that point? OK, so basically you create this trust, you put everything that you own into the trust so that when you pass,
00:15:42
Speaker
It's really seamless. So you have named in that trust who your backup trustee is going to be. um If you're married, it could be your spouse. If there's some planning going on in there where you want you know somebody else to help out the spouse, um then you could put somebody else in place to help. And then you also have somebody named in there. So when you're gone, they can be that trustee. So they step into your shoes.
00:16:05
Speaker
when you're gone, and there's none of this probate that we just talked about. That doesn't really exist. um So assets are titled in the trust, so it's really seamless where that new trustee has access to everything. So if you have a continuing trust where it's gonna remain in trust for your children, then it's just gonna keep on going. It's there, it's accessible, you know your family doesn't skip a beat because the money is there. And if you have life insurance, because we can't put that inside of the trust, with the revocable trust, we just generally don't just because you've already bought that policy and it's outside,
00:16:35
Speaker
we make it payable to the trust. got So we get around all the minor rules and things like that where it just goes from point A to point B. Money is accessible. so And so is that the big advantage to having the trust set up earlier and spending the money to get all that figured out rather than just having it inside of the will? Yeah. So basically I tell people you either spend the money and then do the work now or you let you you set up the framework so that, you know, family members, whoever have the framework to do the work later and, you know, spend the money then. And i I want to highlight a piece that you helped prepare for me and work through this because because of my real estate portfolio, I have a wife, read a spouse that that doesn't like real estate. right That's not her thing. Yeah.
00:17:19
Speaker
um She would have no idea how to manage it. it's It's just not her wheelhouse. And so I thought if I left this earth in two years, what in the world would she do? It'd all fall apart. yeah Like she doesn't even know the addresses of the homes, yet alone who lives in them. john That's not her thing. And that's just our relationship. So you helped me have a co-trustee set up who is super responsible. He's his former CPA. He's a good, good friend that I've known forever.
00:17:45
Speaker
And he he's in real estate. And so i I just that was something I didn't know I could do. And so she won't be left um scrambling. And if there's a plan in place that and then you can compensate that individual inside of the ah trust and they have powers to make decisions and to basically sign off on decisions ah along the way. ye And i that was something that I didn't know that you could have set up in advance. Yeah, the cool thing about trusts is you can design them exactly how you want them. but So normally when I'm meeting with people, I'm like, okay, so let's start off by saying, what are your goals today? What are your wishes? Because I can.
00:18:25
Speaker
the magic maker, I can create whatever you want in this document sure um within you know the framework of the law. So you tell me what you want and I will kind of legalize it and make it official. So yeah, you're a great example of how you put these great safeguards in place that if something were to happen to you, you're not your your wife's not going to be in a situation where she's like, oh my gosh, where is everything? What ah what do I do?
00:18:49
Speaker
You have it all set up. Well, one thing I haven't done, you gave clear instructions. I've yet to do it, but you wanted a master folder of some kind where we have all our passwords and logins and just, ah yeah, we never did that. So, you know, I have a new thing now that I tell people, what's and that is this.
00:19:05
Speaker
If you have an iPhone, make sure that all your passwords are in like the passwords portion of that. And then all you need to do is make sure your phone password is somewhere. Because if you have if somebody has that phone password, then that's like the keys to everything else. They can reset something online, you know, they can get your emails and then they have access to those passwords. So because it's hard because your passwords are always changing.
00:19:30
Speaker
And I use this program that's called LastPass. If you ever heard, there's several out there that do it, but it creates this crazy long password that's a jumble of numbers and symbols, and it saves it. It's on all my devices, and it uses my face to unlock it. Really nice. um But I don't use the Apple stuff, but it's all I think it's all the same. I could give her that access. and Give her that access, yep. And it and it'll be fine. so um So basically, having a plan, even though none of us want to think about this fault, most of us don't,
00:19:58
Speaker
is worth it, ultimately.
Real Estate Titling and Privacy Strategies
00:20:01
Speaker
100%. I mean, sorry to say, it's a guarantee. We all are going to die one day. We are. Yeah. Can't avoid it. But they say death and taxes is the only things. That's it? Guarantee is the life. The more I get, the more I recognize that is very true. True words have never been spoken. Yeah. And so, yeah, so we got that going on. So as it relates to real estate, one of the other questions I have is just,
00:20:22
Speaker
People like I have investors and I have people just buying their primary residence and they want to know how to take title to their home yeah or their investment properties. But let's start with the primary residence. So there's a couple reasons you might want to consider it. Obviously, most people put it in a personal name.
00:20:38
Speaker
They put it in their personal name. And if you're married, always have it as um what we call tenants by the entirety. That is a husband and wife titling. um It provides creditor protection. So if one spouse gets sued, um then they can't come and attach the house if you get a judgment against you. Unless, you know, the judgments against both spouses because they were both wrongdoing.
00:21:01
Speaker
that's very important to note. So if I do something in my real estate business and I get sued because the home is titled with my wife Rebecca and I, they can't go after my home. They can't go after your home. So you're guaranteed to be able to protect that. The same thing happens like with certain, like your brokerage account. i Make sure it's titled as husband and wife. um It's just an asset protection thing that you can do. So real basic. I mean, nothing fancy there. I don't think I did that either. Boy, i'm um yeah I should be writing notes to my own podcast here people. because I should have done that as well. um Okay, that's smart. But then here's here's another one too. A lot of people buy houses um before they're married. Like, you know, say they're engaged and they buy a house. Make sure you're buying it as joint tenants, meaning that if one person passes, the house automatically passes to the survivor. And then once you get married, you have to actually retitle the house.
00:21:54
Speaker
by virtue of getting married, it doesn't change your ownership. got it You need to actually change it with that magic husband and wife tenants by the entirety language. And then you get that asset protection. Got it. And that's not hard to do everybody. So it's contact the title company. Maybe Lori's express title here. Exactly. But ah your title company can read titled the paper for you very easily. ye Not super expensive either. No.
00:22:15
Speaker
Okay, so that's the first and most obvious way is put it in your name. So what happens if I am successful, you help doctors, attorneys, all these people that don't necessarily want their name or their family name on the home. So it's searchable and you can find it really easily. So what do you do in that situation? I know we were talking about this earlier. There's some really creative planning that you can do. So for instance, you can create a trust. You can call it ABC trust. It doesn't have to have your name on it.
00:22:45
Speaker
um You have somebody in place as trustee that's not you for the purpose of the transaction. That person signs all the paperwork, does everything. They can be an accountant, an attorney, somebody. so i I've done it. so um And then I sign for the transaction and in the purchase. And then once the transaction's over, I come off.
00:23:05
Speaker
that leaves it very private. Nobody's name is on the house other than this trust that has an ambiguous name. So nobody knows that you own it. So great creative way of doing it. Another way of doing it is- Well, I wanna double click on that for a second. So if I wanted to, let's say someone couldn't find me, I don't know, a creditor, for example, or I was involved in a lawsuit, is it very easy to go around it and figure that out or is it truly that difficult? It is difficult. So if a creditor would have to, you know,
00:23:34
Speaker
Creditor would have a really hard time figuring that one out. They would have to they would have to be in the know somehow Got it um now if you're getting sued you've got to disclose what you have so it's you know a different ballgame But sometimes this is what I've understood you attorneys like to look up ah the asset sometimes before you determine is it worth a lawsuit because if they appear not to have a nickel or no other assets it it Might decrease the likelihood of being involved in the lawsuit in the first place Because you got to tell me I've heard this statistic and I don't even want to make up the number because it's not right. But your the likelihood of getting and involved in a lawsuit dramatically goes up once you're worth every million dollars. Well, I mean, it's always like the kind of everybody says you do the deep pockets. Right. So why spend all the money if you're going after somebody that doesn't have anything. Right. So, yeah, I mean, it's not a bad idea to put it in such a way where at least it's not obvious. You have to do some digging.
00:24:27
Speaker
Yes, it makes it a little little bit harder for sure. Got it. And if like you said, if you have if you're successful or you have patients, if you're a physician, like you might want to do it just for privacy reasons. Just for privacy reasons. So you could do it that way, or you can create an LLC. Again, XYZ LLC, something very ambiguous. You make the the main business address of the LLC. A lot of times people will do my office. um They'll make me the resident agent.
00:24:54
Speaker
And again, nobody knows who owns that LLC. The LLC purchases the property. Now where people decide whether they want to do the LLC or they want to do the trust, that comes down to if you have a loan. um A lot of times from a lending standpoint, you get preferential lending. If it's a t trust with an LLC, the rates tend to be higher. right So that's why you might choose one over the other. But if you're paying cash, you can pick and choose.
00:25:18
Speaker
Yeah, that's right. I'm like, yeah, I've heard that people like half jokingly say, look up Oprah, you're not going to find the home she owns. Like you just, you won't, if you know, you'd have to know somebody that knows somebody right or see her physically leave the house because otherwise you're not going to know her assets. No, she's not in public record. She's planned and done things right.
00:25:35
Speaker
and That's right. So that's one thing. So as an investor, so this is a question I hear a lot. So as investors, they want to protect themselves. So when you buy a home, you want to put it into an LLC for protection purposes. yeah So help explain what considerations an investor should be thinking about when they buy, let's say, their first rental property. um what should What would you tell them?
00:25:58
Speaker
So in a perfect world, you are going to create the LLC before the purchase and you are going to buy that investment property in an LLC. Now, practically speaking though, if you're buying it with cash, certainly that's the way to do it. But once you have loan factors that come into it, then it's a different ballgame. So, um you know, again, once property is in an LLC, it's now business investment property and lenders are, you know, you get higher rates.
00:26:27
Speaker
You go into the commercial world, that's what you're referring to. You are going into that commercial world, correct. So you're going to get a higher rate. um So what a lot of people will do is they will buy it in their name, they take the loan, take the loan, and you know maybe their intention in the beginning is it's not going to be a commercial property. um And then eventually they do convert it to that and then they maybe put it into an LLC.
00:26:52
Speaker
Now, the caveat is, is once you make that transfer, you are in violation of your loan. So it makes it a little hairy when there are loans. So we always have to warn people that that that's a risk um by doing that. um It's always easier when you're you have cash, but reality is.
00:27:09
Speaker
Yeah. And so the lawyer in you was safeguarding that conversation and that comment. Oh, I could feel it. It was almost painful um because it's it is what a lot of people do. Yeah, they do do it. So they take it out in their personal name. I get a fantastic rate because it's I'm personally liable for the loan. That's not my LLC. They might have little to no assets in it.
00:27:31
Speaker
And I take possession. It's on its own record that it's mine. So it will initially get recorded in my personal name. And the loan isn't my personal name. And I don't mess with the loan at all. I go and I change the title to my new LLC I just created, which you can do very easily. yeah And if it's a sole member LLC, it's very there shouldn't be a tax consequence associated. so There's no transfer of recordation taxes on the transfer. Most states have exemptions for doing that. Maryland does so.
00:27:59
Speaker
Yeah, and so you can do that pretty easily. um Well, very easily. yeah And then it's just the quote unquote risk is associated with the fact you're violating your loan terms. You're violating the loan terms. Because if you change title, they can make it callable. Correct. They can say, listen, you borrowed three hundred thousand from us for this house. We want all of it tomorrow. Correct. yeah um But the do on demand clause. Do on demand. So the reason why most people feel comfortable with that, how often have you seen that clause get kicked into effect?
00:28:25
Speaker
I've never seen it get kicked into effect. What I tell people is, is that if you don't pay, you're going to go. No different than if you didn't own it in the LLC. So if you stay current, you've never missed a payment, you know, it's rented out, you're, you're, you know, a good landlord, if you will, and you're, you're, you take that responsibility seriously.
00:28:45
Speaker
You shouldn't have an issue. You shouldn't have an
Managing LLCs for Real Estate Investments
00:28:47
Speaker
issue. But but we need to know that this is you're in violation. Yeah. And that's a risk you have to decide whether you're willing to take or not. And in addition, if you have a higher rate and you think you might refinance in the future, you don't want to put it in the LLC either potentially, because again, you're back in that same scenario as you're not going to get those preferential rates.
00:29:08
Speaker
And I've had scenarios because I'll say I've done this, and I've done this in the past, right? So I've determined, oh, I could refinance. I think I had a five and a half percent rate on one of my, it was like a triplex, a three unit building. And I didn't do it. I didn't want to refinance to get because rates at the time were like three and a half. Yeah. Even for an investment property. These were the gold days a few years ago. I didn't do it because I'd have to retitle it to my personal name. And at that point, I was told I could have recordation and transfer taxes. When you take it back out, you have the transfer rec taxes. So now you're paying several thousand dollars for that. And then I yeah i'd have to refinance. And then if I wanted the protection, and and I had to put it back into the LLC. right And so I just said, screw it. The loan balance wasn't super high. The benefit to risk didn't make sense in that scenario. um But it's important people know that is an option.
00:29:56
Speaker
It's an option. And if it's not an option and you're not comfortable with it either, then my advice is get a really big umbrella policy. Ensure yourself. So if, you know, somebody is going to sue you that you have the coverage. And at the end of the day, too, <unk>mlord are or are you a good landlord and you're taking care of your property? As long as you're doing the right thing, you're going to be OK. Right.
00:30:19
Speaker
Well, and that's the question because every they think I'm an attorney half the time, which I have to remind them I am not. I don't play one on TV. They're like, but they want to know I want to protect myself. Every guru, every class discusses you need to get an LLC to protect yourself. yeah They're not hard to form. Very simple, straightforward to help all my clients figure this out.
00:30:38
Speaker
However, what is the advice that you give generally speaking? Like, why do I want it in an LLC? How many homes could I yeah or should I have in an under one LLC is the general framework of answering that question would be helpful. Yeah. So some people feel like they need to create a new LLC for every property. And I strongly discourage that.
00:30:58
Speaker
First of all, because every year you have to remember to file your personal property tax return. It's a $300 fee every year for that LLC. It's just keeping good standing. Keep it in good standing. It's a lot to maintain and keep on top of. So my rule of thumb is this. And I'll add to that, you have to file a separate return for your LLC, typically. And my accountant has always charged another 750 per LLC return. Now, every accountant could be different or if you do it yourself. But my total cost per LLC is over $1,000 a year. right it's just It adds up. it adds up and so and
00:31:29
Speaker
To backtrack a little bit, there's a couple types of ownerships of LLC. So if you're like a single person that owns an LLC and you want it to just be treated as what we call a single member limited liability company um with no special tax elections, basically the IRS looks through and that income goes on your Schedule C and there's no separate filing. right Now you can also elect to make it be treated as an S corp, which sounds like yours are,
00:31:53
Speaker
i I have some of both. Some of both, okay. So my real estate practice where I actually sell homes for a living as a realtor, that I file that as an S-Corp and I pay myself a salary. But all my LLCs that I own my properties in are past due entities on my actual return. On your actual return, yep. So you know based on that, some you might have to file tax returns for, some you might not have to file tax returns for. So there's different you know there's benefits to the LLC too. There's so many great tax things you can do by creating an LLC.
00:32:22
Speaker
um
Professional Team Importance in Management
00:32:23
Speaker
So anyway, you have all these LLCs, so one maybe for holding property, you have five properties in Baltimore City. Hold it in one LLC. I have a client who then goes and buys an apartment building. Okay, we don't want to commingle that with those individual row homes we own in the city, we want to create a new LLC for that. And why not?
00:32:45
Speaker
because it's just kind of segregating your risk, really is what it is, keeping different properties in different places. Plus, too, you know maybe that you know that apartment building that you're purchasing, you're going to renovate, you're going to keep it for a little while, and then you want to sell it.
00:33:00
Speaker
It's better to sell from a cell from a owner's standpoint to sell that LLC, then there's no transfer and recordation taxes, because you're selling the LLC, not the underlying property. So there's a lot of tax advantages. You're selling the company, not not ah and the property is just owned by that company. Company, right. Correct. So there's no deeds to be recorded. So that's preferable. Now from a buyer standpoint, probably getting into too much tax, the buyer generally likes to buy the asset, um but Well, and then you don't know the liabilities that LLC has generated. Correct. There's some risk. If it's depreciated, you're buying the depreciated the depreciation. If you do accelerated depreciation, it could have already been captured by the other owner. yeah And so now you don't have that benefit because it didn't get transferred in your name from scratch. From scratch, yeah. That's why ah CPAs have their own specialty. Exactly. So you have to have a great CPA in ah in addition to someone like yourself. Yeah. I mean, the the team is this. Right.
00:33:55
Speaker
CPA, financial advisor, attorney, realtor. I mean, you really, everybody should have a team. You have a team and if you think you are the team, like if you're an individual and you're like, I don't need all those people, I know everything, I meet these people. You don't know what you don't know. You can't be an expert. Nicole's over there doing this for 10 hours every day. Like there's nuances and little situations that can occur like the fringe. I refer it to it as like the fringe cases that sometimes a specialist, their value becomes dramatically more apparent.
00:34:25
Speaker
And I feel like some of us don't know when you're in that rare, more, more rarefied area you have it and until it happens. Right. Until someone passes away and then you realize X, Y or Z happened and you didn't anticipate it.
00:34:37
Speaker
right where i didn't I didn't know you could do that. yeah Google doesn't tell you everything. You think it does, although don't even get me started. I just listened to a whole thing about that. We are being ah ah curated what we see on Google and all these other platforms. Pretty crazy, pretty scary. So don't think that it's the same for all of us either.
00:34:57
Speaker
So we all see something different. Yes, you do and it's curated to your instead to make it more relevant to each of us But in reality it could be altered if you so choose and there's no regulations on this So scary things. Yeah. Yeah. So it's like when that ad pops up and you were just talking about it, you know? Yeah. Well, that's the less benign or whatever, but it can influence potential everything the way we think about subjects and people and celebrities and politicians and everything. Yeah. So that just kind of spits out the facts. It doesn't know your situation and that's the difference. So you could do all the research that you want online, but it doesn't know you.
00:35:33
Speaker
Right. Yeah. And we're all different. And I personally like to pick up the phone and pester someone when I have questions and they know my situation, my family, they've met everybody. I don't know. I feel I still want a human.
00:35:44
Speaker
Yeah, I'm the same way. I'd rather talk to talk to a human than, yeah you know, yeah chat with somebody online. I got it. So, OK, getting back to this, because it's like one of the biggest questions I have. So you you so is there I have heard and I'm going to repeat it here and see if you think it's accurate or not. But normally I've been told if you have assets, let's say the three hundred thousand dollar four hundred thousand dollar rentals.
00:36:06
Speaker
put two or three in there, but once it's a little over a million, you should get a new LLC is that advice someone gave me simply because it limits your risk. So if I have a lawsuit against one of those properties, I don't want two or $3 million dollars worth of assets. And I mean, that's a good problem to have, but you don't want them all to be attached to each other. Is that a fair statement?
00:36:26
Speaker
It is. So I mean, I think, again, it's a person by person analysis and it's a risk assessment. But if you have $3 million dollars in properties that are low risk and they're similar, then maybe it does make sense to put them all in. um But if you have, you know, say two really high risk properties, then maybe you do want to just keep two in an LLC and limit it to those two.
00:36:48
Speaker
Well, and then what's the risk? I've heard that it's just people can go and puncture the LLC puncture that protection, right? And go directly after the individual. What's the likelihood that will happen? So so that's why I said earlier, like if you're not a slumlord. So if you're somebody and you are a bad actor and you are being a really bad, you know, owner and you're not maintaining your property and you're disregarding hazardous things.
00:37:12
Speaker
then yeah, they can what they call pierce the corporate veil and they can go after you personally. But if you're doing it right, you're running everything through your LLC, you're not commingling personal funds with business funds, and you're really truly running it as a business, right then generally a court's not going to pierce that LLC and go after you personally.
00:37:32
Speaker
Interesting so it's only truly for bad actors. I honestly didn't know that distinction I thought they just go where the money is so if I could try anybody could sue anybody They might go after your LLC and you personally but a judge may be like nope, that's in an LLC They have operated this as a legit business. They've run everything through they've done everything right therefore we're gonna limit it to this what would you say to someone if they want to be above board and run it correctly and How do I verify or justify to say, like, yep, I'm running this legit? yeah So what what are the couple of things you would say you got to make sure to do XYZ?
00:38:07
Speaker
Number one, make sure that property's titled in the LLC. I can't tell you how many people come in to me. They're like, yeah, I got the LLC, we're operating the business. I pulled the deed, the property's still in the individual name. Like, you know, the right hand's not talking to the left here. I wouldn't judge care that I had it in my personal name and I transferred it into an LLC after purchase. No, that's fine. As long as at that point you have a separate bank account,
00:38:30
Speaker
The tenant's paying rent to your LLC. And the lease is in the LLC. The lease is in the LLC name. If you had a lease in your personal name, assign it to the LLC. You have insurance in the LLC name. So really, you want to make that a complete separate entity. So you could pick up tomorrow, sell it to someone else, and they could just carry on immediately. Nothing technically happened, at least from the tenant standpoint. From the tenant standpoint. If you have somebody coming in to do a repair,
00:38:58
Speaker
You're paying them from that LLC checking account. And the way it was described to me is once I had my LLC set up and I'm helping a client do this right now, we're just helping him buy two currently. um And so I'm helping him set this up and I'm grateful you basically reassured me of what I've said to him already.
00:39:16
Speaker
And ah so we've set it up. He's going to get it transferred and and essentially all those protections. I said to get a bank account set up to get a savings account because you have to have your rent income separate or not. Not just that, the escrow the escrow or your deposit. ye So if you're charging $2,500 a month in rent, you need the deposit to go in a separate account, can't commingle. no And they're in the LLC's name. and um And I get a a credit card in the LLC's name because when I get a home warranty or when I pay for something, I want it to stay separate. yes And then you get this beautiful world of tax write-offs. And that's what you mentioned before. And I don't even want to get started on that because that's not necessarily your specialty. but
00:39:57
Speaker
look into that because you could really get benefits of the LLC when you utilize all the write-offs that these small companies can afford. Absolutely. And that's where when you create that LLC, hopefully you have a good accountant and you can advise you on what to do. And there's no rule that says you have to make money, everybody. So just because you have a company, there's a lot of them that lose money legally. Yeah. And it's actually a tax shelter at that point. Absolutely. So you just have to put all your expenses through, put everything through.
Comparing Trusts and Life Estate Deeds
00:40:23
Speaker
correct yeah So there's lots of ways to do it. So I just wanted to touch on that. And once again, you need to talk to an attorney as well. So your situation could be different. This is generalized advice. yeah um It served me well. I'm just glad to hear it and reiterate it again, because. Validates what you're saying. Pretty much. um And so the other thing, we brought it up earlier and I wanna bring it up again because it's important. So when do I know it's appropriate to, let's say I've owned my home and my wife's name and my name for years, when should I consider putting this into a trust, a living, like either a revocable trust or try to put it in the estate name? Like when do people, when should they consider that and why?
00:41:04
Speaker
Okay, so there are there's different trains of thought. There's some attorneys that are like, but all they do is trust, trust, trust all day long and that's, it's a one size fits all. I don't think it's appropriate, revocable trusts are appropriate for everyone. I think for the right person, it's a wonderful tool. So if you have multi-state property, as I mentioned before, hands down, best way to avoid multi-state probate going on, you should have the revocable living trust.
00:41:30
Speaker
um Excuse me. If you have several accounts, if you have accounts, you know, brokerage accounts and multiple bank accounts, it's a great way to streamline all of your accounts into one location um so that if something happens to you, somebody's not going to every bank in town trying to like figure out and close things out. but So that's an important um reason to do that.
00:41:51
Speaker
Um, if you are somebody that is fortunate enough to have amassed a good amount of wealth and you need to do some tax planning, it's a great way to do some tax planning with inside the trust document and the ravicable living trust grows with you too. So I have a lot of clients that might be right near the edge of needing to do some estate tax planning and we're like, okay, let's be proactive. We'll put that ravicable trust in place now. And as you hit that point, but we will amend and we'll start editing it to, to put the tax planning in place.
00:42:21
Speaker
And so what I hear in this and what I hopefully were conveying, there's a lot of nuance to this. It's not a one size fits all. And what i what I always feel bad is that when someone, let's say you have parents that are older and you're taking care of them. And I know that this is a big part of your business. It's it's really the adult children that are now starting to go, okay, like mom and dad are getting older. ye We have no nothing in place and I need to get things set up for them. yeah and they come to you and it's like a mess. and i'm ah and And sometimes they come to me and they don't even know it's a mess and I have to inform them, you need to get something figured out here ah because there no one like no one talks about this stuff. No, probably for you. It's like, I need to sell mom or dad's property. And you're like, okay, but do you have the authority to sell the property?
00:43:04
Speaker
And they they don't know what to send me and no one's educated them. And sometimes they get either taxed like crazy because it wasn't protected or they lose some ah like they lose control or so they start fighting. And then it's not what their parents might have wished for. And they'll tell you like I know they didn't want Johnny to get X, Y, Z or whatever. Well, so you bring up a really good point that I think is so so important to point out here. So many people, parents get older and they think, oh, I'm going to put like daughter or son on the title to my house because that will just take care of it. And, you know, they'll get it when I'm gone or they can manage the property for me. That is a horrible tax play. Ninety nine point nine percent of the time, because if mom or dad ah has bought that house 40 years ago,
00:43:49
Speaker
They probably bought it for a lot less than what it's worth today. And when you put your child on that house, they get what we call carryover basis. So they take it in their hands at the value you bought it at. So if they then, if mom or dad dies and they go to sell the house,
00:44:06
Speaker
You know, maybe it's worth $500,000 now, but mom or dad bought it for $50,000. They have capital gains exposure on $450,000. So the solution is you want to always inherit that property upon death because you get that step up in basis. So if they had just inherited either through a will, through the wonderful tool of a life estate deed that I love talking about, it's a way to put a beneficiary on property um through deed titling.
00:44:34
Speaker
We're going to discuss that in a minute. Okay. If you get inherit the property that way, you get it upon death. So if that property, a date of death is worth 500,000 and you sell it for 500,000, you've just eliminated all capital gains exposure. Okay.
00:44:49
Speaker
so So is it titled in, let's say your mom's name is Susan. That's my mom. but Susan has it in her name. And so you just it's so nothing happens while she's still living and she's living there. Nothing. So you do a new deed. And basically what it says is Susan has the right to live there for her life. But if she dies owning this property, it automatically passes um to son, daughter, who it could be multiple people.
00:45:14
Speaker
So, um you know, it could be just Matt or it could be, you know, Matt and Matt and your brother, like you both get it. um But at that point, there's no probate. If you wanted to sell it, all you need is a death certificate.
00:45:28
Speaker
so what easy So is that better than titling it into the trust, for example? So this is this is a great tool. i get I get so many older people that will come to me um and they'll be like, my neighbor just did this revocable trust and they told me I had to have it. And so we delve in and we find out, okay, they have their house, they might have a checking and savings, and they might have a retirement account. That's not a candidate for a revocable trust in my mind.
00:45:54
Speaker
You need more assets and more moving parts. I just can't justify charging thousands of dollars for this document they really don't need. So we can achieve the same goals. Let's go ahead. Let's put beneficiaries on your bank accounts. Let's do this life estate deed and put a beneficiary on your house. And let's make sure you have a beneficiary on that IRA. We're gone. We've taken care of it. It's been great.
00:46:16
Speaker
and then do the living directive and the... We do the advance directive, we do the power of attorney, then we do a real basic well just to make sure we're appointing people who should be in charge.
Conclusion and Contact Information
00:46:24
Speaker
Right. And we're done. And you're protected. You're protected. So, I mean, I think that's a good place to kind of wrap this up because it doesn't have to be all that complicated. It doesn't. The majority of people, that probably encompasses all they need.
00:46:36
Speaker
It does. And so, you know, get in there. It's it's not shocking, but kind of shocking that 80 percent of Americans don't have a play like any plan in place. And so hopefully people hear this and they want to at least get educated. So what's it cost to have a consult with someone to figure out what your needs are?
00:46:54
Speaker
So for us, our consult is $310. So for $310, I could figure out what your advice could be, and then make a decision once I hear your recommendation. Correct. And so you know it's sitting there. It's really delving in, going through your assets. And part of that consultation, it's great. You leave knowing, OK, I'm going to retitle this, or I'm going to change my beneficiary here. So there's actionable items right after that consultation. so Well, that's, yeah that's great. and And so I want to wrap it up. I could go on forever talking to you, but um I think that's all great information. And once again, it's, you know, Nicole here, I'm going to put your information in in the bio so people can connect with you. Um, your local here in Maryland, central Maryland, Baltimore County license, Maryland and Florida. So do both states. And how many people have properties in both? it There's a lot there. Yeah, as people get older, you really see people, you know, moving down to Florida or, you know, yeah there's a lot of people moving to like North Carolina, South Carolina, but yeah Delaware. But yeah, not as much Delaware, it seems like anymore. Yeah, people want more.
00:47:53
Speaker
Is that essentially what it is? Yeah, it is. Yeah. What about Texas? I heard Texas is like the new spot. Have your clients go in that direction? Not so many from here, but I hear there's a lot of people from like Midwest or like Chicago, they go to Texas. California. So. Well, it's all, there's no tax, right? There's no income tax down there. There's no income tax. So a lot of people, what they do, if there are business owners, they take up residency in Florida, then sell their Maryland business. And then there's no income tax on the sale of that business.
00:48:23
Speaker
You're kidding me. Nope. So that's why a lot of business owners become snowbirds. Interesting. Well, that's a problem I hope to have. I know, right? Well, once again, thank you for joining me, Nicole, and I'll see you at the office soon. That's right. Thanks for having me. Thanks.