Ask Joe Live Q & A – Florida Land Trusts, LLCs, and Estate Plans

Transcript:

This podcast for Florida investors and entrepreneurs who mostly have a lot of real estate, that they need to protect and other asset protection issues that are facing them and estate planning issues.

I’m Joe Siegel, I’m a lawyer here in Florida and I do asset protection and estate planning.

Tonight we’re going to cover sort of a lot of questions, that have been submitted to us.

We find that doing these live streams every, other month or so is really good because we sort of see just the same questions coming in over and over.

So I want to go ahead and go through those tonight.

The ones that we’ve had come up, regularly over the past month or so and sort of fill everybody in.

A lot of these questions I’m going to go through first are the ones that were submitted to us earlier online, prior to us getting started tonight.

And, I just want to go through those first and.

But if anybody is here watching the live stream tonight, feel free to go ahead and submit your questions in the comments below.

And, my producer, Rick Rentis, you may be able to hear him, you may not.

Will, go and send those to me so I can answer them.

But let’s get at it.

Question 1: What Is the Most Simple Way to Do Overall Estate Planning?

Question

What is the most simple way to do overall estate planning?

Setting up a will and a trust or what?

Answer

Well, there’s actually the simplest way to do an estate plan is don’t do one at all.

The state has written it for you.

So if you have anything out there, that you own, any assets, the state has already assumed who you would leave everything to, and it will pass that way.

It’s called intestacy.

The next simplest way, which we end up doing with a lot of our clients, who don’t really need a lot of moving parts, is what I call, the layman’s will.

In that case, most of your assets are bank accounts, insurance policies, IRAs, retirement accounts, things like that.

Maybe your properties are held in land trust.

Maybe you have a lot of, LLCs or corporations.

A lot of those times we don’t really, we can get away with not even having a will, let alone a trust, a revocable living trust.

So let’s say you don’t have any children and minor children.

You may have a spouse or not, but everything you have is, you have LLCs, you have land trusts, you have bank accounts.

A lot of those things we can handle with beneficiary designations.

So for the LLCs, we would list transfer on death provisions inside the land Trust operating agreement, or, on membership certificates, much like stock certificates, that list who will automatically get that company upon your death.

So that in the blink of an eye, it passes to that person or charity or another entity or whoever you want to get it.

Same thing with bank accounts, with investment accounts, with IRAs.

You’re going to want to make sure that you’ve named beneficiaries for all of those.

And then again, in the blink of an eye, you die.

It automatically passes to that person or entity or charity, whoever you’ve left that to.

A lot of people go, yeah, but what about my cars?

What about my boat, my boats, my RVs?

Those are typically handled very pretty easily, through the local tax collector’s office, who handles the tags and registrations for automobiles in the state of Florida.

Without having to go through a probate, without having a will, the heir just walks in pretty much and says, hey, this is my car now, here’s the death certificate of the person who owned it before.

They left it to me.

They wanted me to have it.

Maybe you had a personal property memorandum, which is just a sheet, may be written in your handwriting, it may be typed up listing personal property.

It can’t be cash, it can’t be accounts or anything like that.

But it could be a car.

I leave this car VIN number blah blah, blah, to so and so.

And then you sign it and date that.

If you want to change it, you rip it up, you write another one.

So you can do that with personal property.

So that is really the simplest, simplest way to do estate planning.

However, if you have children, if your plan is more complex than that, if you have children from a prior marriage, and you’re married to someone else, and they have children from a prior marriage, and then you have children from your new marriage together, you’re probably going to definitely be in the trust based estate, planning realm for those kinds of things.

So, it depends on your situation, depends on your assets, depends on your risk structure, you know, what you’re doing for a living.

If you’re retired, you’re not driving over 15,000 miles a year, you really just don’t do a whole lot that’s very risky.

There’s not a whole lot of planning needed around that.

So it depends on your situation and it depends on your assets as to how simple or how complex your estate plan needs to be.

One thing coming to us, a lot of people come to us, they want very exotic, estate plans with lots of layers and lots of things and we can do the layering just fine.

But sometimes we get down to the end and we look at it and we go, we, you really don’t need all these moving parts.

You can save a lot of money and we can do it for this much rather than this much.

And it’ll be a lot simpler to administer.

Everything happens automatically upon your death.

Doesn’t have to go through probate.

We still avoid probate, but we don’t even have to worry about a trust, you know, so.

And it saves you a lot of money and saves everybody a lot of complexity when you’re gone.

But in any event, we would want advanced directives for you, durable powers of attorney, healthcare circuits, pre need guardianship declarations.

You want all of those things still in place because regardless of what happens, you want those around.

So that should something happen and you’re now incapacitated physically or mentally, you can have someone who will still be able to handle your affairs while you’re incapacitated.

So we always recommend those if you don’t have them already, or a refresh of them if they’re very old documents.

Question 2: What Benefits Are There to Doing a Trust for Your Home?

Question

What benefits are there to doing a trust for your home?

Answer

Well, first of all, I would say what kind of trust you’re asking about.

There can be two kinds of trusts that you can hold your homestead in.

And when I say your home, I’m assuming your homestead is what you’re asking about.

A couple of benefits.

If you’re using the land trust, that typically means you’re going to have a third party trustee as your trustee.

So the name associated with the ownership of the home at that point is no longer you, it’s this third party trustee.

So your name doesn’t appear with it.

And so that’s one reason sometimes we recommend that our clients put their homestead into a land trust with a third party trustee because they will gain anonymity.

And I always say, you know, one of the biggest things that we’re doing with, we’re attempting to do with asset protection is make you look broke.

So if nothing else that you own is in your name, so if anyone is thinking about suing you and they go out to search the records and they don’t find your name on anything except your home where you live.

And they go, well, that’s their homestead and it happens to be a $5 million estate in Fort Lauderdale or something like that, they’re going to think, well, they’ve got money somewhere, so let’s go ahead and sue them.

And we’ll figure out what they have and where they have it after we get the judgment against them.

So that’s one of the reasons we recommend sometimes that you would want to put your homestead in a land trust to get total, all that real estate that you own in Florida out of your name and off the public records.

Question 3: Does a Land Trust Really Work or Is It Just Hype?

Question

Does a land trust really work or is it just type.

Answer

Well, we’re, we’re usually Trustee of over 2000 properties in the state of Florida at any time.

They come and they go.

So we’re always around that 2000 property mark.

And do they really work?

Well, it depends on what really work you’re looking for.

If you’re really looking for.

Does it really work that when someone, when the beneficiary dies, it automatically passes to the successor beneficiary named inside that trust?

Yes, it really works.

It happens at least once a month on average in our office that one of our beneficiaries passes away and the person or persons who were named in the trust to receive their beneficial interest upon their death, it automatically passes to them and we deal with it.

Does it work that that person is then able to sell the property easily and quickly without having to wait for a probate to happen?

Yes, it works.

Does it work when you have multiple properties and each one of them are held in separate land trusts so that they are separated away from each other and they’re separated away from you as the beneficiary or they’re separated away from your company as the beneficiary?

Yes.

We’ve had it happen, I have no idea how many times because it’s happened so many times where a beneficiary is sued, a judgment is entered against that beneficiary and then no one ever follows up.

They, they never do the post judgment collection work that it takes so they never discover that the beneficiary that they sued and have a judgment against owns multiple parcels of real estate because all that real estate is in our name.

And then they never followed up.

They never did the post judgment collection work because they figured that the beneficiary was broke.

So why bother throwing good money after bad?

We’ve got a judgment against this person.

We’ll let it sit out there for 10 years.

We may renew it in 10 more years.

So it’ll be good for 20 years.

And if this person wins the lottery or gets something in their name, woohoo.

We’ll have a lien on it, we’ll get the property, maybe we’ll get paid.

But if they, never do that discovery, they’ll never find it.

Does it work that people are thinking about suing our clients and then they do a search?

I’ve actually had this come up.

I had some ladies call me one time and they were, they, they had a really good case against a guy and they said, but it doesn’t look like he owns anything.

He Everything.

He.

He transferred everything to land trusts.

And I go, okay, well, he’s probably the beneficiary of all those land trusts.

And they said, oh, we didn’t know that.

I said, so what’d you do?

Well, we just never sued him.

So in that case, I’ve seen it work that they just never sued him.

And their statute of limitations have now passed, so they couldn’t sue him for the injuries.

So it’s not just hype code, enforcement violations.

Code, enforcement violation against one property.

We used to see this all the time.

We still see it all the time.

Code enforcement violation will hit one property in a county, where we own dozens of properties.

And they will come and they’ll say, hey, you know, this is called a bleeding lien.

You’ve got a, lien on this property that you’re the trustee of.

And we go, well, yeah, but it’s not the property that’s being refinanced, or it’s not the property that’s being closed, sold, so you don’t have to worry about paying off this lien or even getting a release.

And we show them the chapter and verse in the statute as well as in the, underwriting title insurance underwriting guidelines, and they go, oh, okay.

And we give them the right affidavit that they need, saying that the beneficiary is not the same as the trustee, and the beneficiary of this trust is not the same as the beneficiary of that trust, as if it would matter.

But some trustees, some title companies want that, and we provide that, and then they can go ahead and close or sell that property, and they don’t have to worry about any code enforcement liens.

So even if the.

Even if the beneficiary were the same beneficiary of property A and the same trustee on property A is the same trustee on property B, and that same beneficiary is on property B.

If there’s good enforcement lien on property A, they can still sell or refinance property B with no problems because it’s treated as if it’s in its own separate world away from this one here that has the same trustee and the same beneficiary because it’s a different trust.

So the law says different trust, different owners.

Doesn’t attach.

So you can sell and refinance.

So, yes, land trust work.

It is not just type.

They work.

Been doing them for.

Since 2002.

So for 24 years, they work.

I’ve seen Them work in way too many ways to ever say no, they don’t work.

And I know a lot of lawyers out there.

What I hear a lot of lawyers.

They go, well, why do you want to be this anonymous?

What are you so scared of?

Well, by the same token, you say, well, why are you so scared?

Why don’t you just go out there and own that truck in your own name and run up and down the road delivering for, you know, whoever?

Because we have corporations.

You’re allowed to have corporations.

You’re allowed to have LLCs, and they are for the same purpose.

They, they provide asset protection.

They segregate liabilities.

So a land trust is yet another opportunity and a vehicle that you have to do that.

Why not use it?

It’s available in Florida.

Take advantage of it.

Question 4: Does the Beneficiary Have Authority to Sign Leases and Applications?

Question

Does the beneficiary have a direction to sign all leases and applications when the trustee, is in charge of the property?

Answer

Yes, but I don’t recommend it.

We do what’s called a power of direction as part of our land trust that says that so and so has the power of direction, meaning that they have the authority to do certain things with the trust as needed.

The reason I don’t let.

Or I’ll let you do it, I just don’t like it.

I don’t recommend it.

It is not the best practice.

I don’t like beneficiaries signing leases, signing contracts, signing notices of commencement, signing permit applications is because when you do that, you have now stuck your head up.

I like to call the beneficiary the ostrich that has its head in the sand and never pulls it out.

No one ever sees that beneficiary except the trustee.

In a perfect world, we try to keep them hidden in the background and keep them quiet in the background.

Because as soon as they pull their head out of the sand and stick it up and sign that lease, who are they going to sue?

Who’s that tenant going to sue for discrimination, for mold, for injuries, whatever.

They’re going to name the owner of the property, and they’re going to.

And they’re going to name the person who signed that lease.

So you’ve just dragged yourself into a lawsuit that you didn’t need to be in.

You just got named.

And, yeah, you can say, well, I’m not supposed to be named.

I don’t own the property.

All I did was sign the lease as a beneficiary.

Of the trust.

Okay, well, now we’ve got a good 20 hours of a, litigator’s work to defend that at, even at $400 an hour, you know, we’re talking about $8,000 there that you’re going to spend to get yourself out of it.

That if you just hadn’t signed, if you just sent the lease to the trustee and said, please sign this, and we signed it and sent it right back, usually the same business day or the next business day, you’ve saved that, you’ve saved that hassle, that energy leak, that time suck, of your life that you now no longer have to worry.

And your name didn’t appear on the, on the, the lawsuit as a defendant.

Ours did as the trustee.

So that’s why we don’t, it’s the best practice.

Don’t sign it.

Have the trustee sign everything.

Most trustees, like us, we don’t charge for signing documents.

I mean, it’s part of your annual fee that you pay the trustee.

It’s you notice commencement, leases, contracts, permit applications, notices of termination.

All that’s included in that.

You send it over, we sign it e.

Sign it typically, and it’s back to you again the same business day or the next business day at the latest.

So I know a lot of people worry about that, but, it’s, it’s.

I would be more worried about being sued if I, if I signed it myself.

Anything else?

Okay.

Question 5: How Do You Handle Homestead Exemption?

Question

How do you handle homestead exemption?

If you are private, you have to be identified with the county tax authorities.

Answer

Oh, great question.

Yeah, absolutely.

However, and you’re absolutely right about, I would say eight to 10 years ago, it was a concern because what the property appraisers would do is if the property was held in a land trust and you go and you file for the homestead exemption because you live in the property, you occupy it.

You are the one with the right to the homestead exemption and the homestead protections.

The property appraisers back in the day would list your name somewhere in their records.

So anyone searching that property is going to see your name and anybody searching your name is going to see that property.

However, over the past few years, the property appraisers have gotten much, much, much better about this.

They only list the name of the trust period as the owner of the property.

And then they have the trustee’s address as where all the property taxes go and any other notices go related to the property.

So yes, they, absolutely, nine times out of ten, they’re going to want to see the Trust, they’re absolutely going to want to see the deed.

The deed is going to have the powers on there saying that the beneficiary reserves the right to reside in the property and get the beneficial, rights for a, homestead protection and homestead exemptions.

That’s going to be in the deed.

That’s going to be in the land trust.

And they’re going to want to see that.

They’ll look at it.

They may make a copy of it, they may scan it into their system, but they keep that in a, in a part of their system that is confidential.

They’ll also want to see the beneficiary’s driver’s license or ID card to see that that has changed to that.

They may want to see, you know, other things that you can use to prove it’s your homestead, your voter registration, utility, bills that come in your name as the beneficiary of the trust in your individual name to that property.

So it all works.

Question 6: What About the HOA?

Question

What about the hoa?

Answer

That’s a good one.

The hoas.

It depends on the hoas.

Some hoas go, no, we will only deal with the people.

Well, some HOAs that are pains in the butt will only deal with the trustee.

What we typically do in that case is we will sign a proxy, to you as the occupant of the property to be there.

Now, where it really comes up is, well, you don’t have the right.

Again, they become pains in the butt.

Well, you don’t have the right to use the pool.

You don’t have the right to use the golf course.

You don’t have the right to use this or that.

In that case, a lot of times, we will enter into a lease with you as the tenant of the property.

So you can show that to the HOA to shut them up and go, no, I’m a tenant.

I’m, I get full access to all the amenities, as a tenant in the property.

And I get voting rights because the owner of the property signed the proxy to give me voting rights in the.

The hoa.

So, yes, we do have that.

There are some HOAs I know down in South Florida that will not allow a company to be a trustee of trust.

It must be a human being as trustee of the trust.

So different hoas treat things differently.

Some in condominiums will say, well, you can’t lease it to these people.

So that’s where they really get.

So I would never own a condominium if I.

I just.

I will never own a condominium because I deal with this kind of stuff.

They will not allow you to use anything because they go, well, you’ve rented this property, and that exceeds our rental numbers that are allowed, so you’re an illegal tenant.

And you go, yeah, but I’m actually the owner.

I’m the beneficiary.

The.

The.

The trustees even giving you a.

An affidavit saying, I’m the beneficiary of the trust.

You just won’t take it.

And it’s like, yeah, because you’re just, you’re just nasty people to deal with.

So, we’ve actually had clients who sold their properties and got out.

Not so much because they wanted to hold their property in trust and it was so awful.

It’s just, that just surfaced how awful their neighbors were.

And they just want to get out of the neighborhood.

So we have seen that over the years.

It’s just, that’s just hoas in general or condominium associations in general.

Question 7: How Can I Hide My Personal Information as a Real Estate Investor?

Question

I, got somebody here I’m starting in my real estate investing journey and I want to hide my personal phone name and residence from public view to protect my family from potential privilege lawsuits or angry tenants that were evicted.

I’d like to learn more options for this.

Answer

The, the land trust is really one of the best.

With a third party trustee is really the best way to do that.

Doing your investments through that.

Now with that said, it depends on what kind of real estate investing you’re talking about.

If you’re talking about wholesaling, a lot of times I’ll just say just go ahead and form a Wyoming LLC where your name doesn’t appear anywhere.

Because those, you’re just getting them under contract and then you’re, you’re assigning the contract to someone else.

So it doesn’t really matter and your name’s not going to appear on anything there.

Moving your homestead into a land trust would also provide that anonymity.

But also if you’re buying and flipping 100%, if you’re buying, renovating and flipping, or if you’re buying, holding and leasing the property for long term, holding that in land trust is a nice way to do it.

Have a separate operating company that operates your properties.

As a lot of people come to property management company, to me, property managers are a term of art.

You are a licensed real estate brokerage at that point and a licensed agent if you’re property, managing.

But if you’re operating the property on behalf of the trustee and you’re the property owner, ultimately we call that a property operating company.

And that company will operate your properties.

It collects the rents, it pays bills, it hires handymen and professionals to work on the property.

It deals with tenant requests, for repairs, things like that.

But it doesn’t sign the leases.

The leases are still signed by the trustee.

You have another company that’s the beneficiary that’s probably a Wyoming company.

The Wyoming.

It’s a Wyoming company.

That’s the operating company.

So they pay rent to that based on what the lease says, all rents shall be payable to this company.

Over here.

Money flows, every month, money flows into that company.

It pays the bills, it pays mortgages, taxes, whatever repairs, then whatever’s left over, it automatically funnels transfers to the company that’s the beneficiary of the trust, your holding company.

Again, your name’s not going to appear anywhere on anything.

Another reason you don’t want your name really appearing out there.

And your phone number is, trust me, you get every text in the world, Hey, I saw you bought this property.

Would you be willing to buy another one?

Would you like to buy another one?

Would you be willing to sell this property?

I saw you flip this property.

And the reason I can rattle those off is because I get 5,000 of them a day, because we’re the trustee of all these properties.

So it’s my phone number, my address, my name that’s attached to everything.

Not only me, but every manager who’s on SunBiz listed for our companies also gets those all day, every day.

And yes, especially if you’re doing renovations and flipping 100%, you want to buy that into its own land trust, do your renovations and sell it out of that land trust and never use that land trust for anything else ever again.

Because if that buyer does have mold, they do have a problem with property.

And they go, you know what?

I’m going to sue you to take this property back.

It had termites, it had mold, it did this, it did that.

Okay, fine.

Sue, sue, sue the trustee.

As trustee of the trust, as the seller, the only asset we ever had was that property.

I’ve never had a court pierce the veil of the trust.

Never had, had, had that become a problem.

I’ve had people try, but they were never successful.

Question 8: How Should Rentals Be Structured for Asset Protection?

Question

How to best structure rentals for asset protection.

Answer

In a perfect world, you would hold each rental in its own separate land trust so that they are their own contained basket of an asset.

So if anything happens at one house, it doesn’t affect all your other rentals.

We’re going to get to financing in a little bit, so we’ll get there.

I know that’s the number one question everybody had as soon as I said that.

But the best, best, absolute best structure in Florida to hold your rentals is in a separate land trust.

Starting next month, we’re going to have series LLCs in the state of Florida.

And if a land trust isn’t possible for you because you’ve got financing or whatever, we can look at doing a, series LLC instead and use that.

But whatever you choose, best practice is to try to keep each property separated from you and separated from other properties that you own.

So that’s why we talk about land Trusts and Series LLCs, are the two big reasons, that we do that.

And that’s the best way to structure your rentals for asset protection.

Another thing to do in a perfect world, like I said, use an operating company or a true third party management company to handle the management.

And if you don’t, or if you have your own management, your own property operating company that’s doing it, carry tenant discrimination insurance as a, as a rider or an endorsement to your liability policy.

Because that’s, that’s a big case.

A lot of people bring discrimination, cases against whoever appeared at the door to rent the property to them.

And if it was a property, management company or if it’s a property operating company, whoever the human being was who was standing there, they will be named in the lawsuit as the agent for the property operating company as well as for the land trust, to rent that property to this person.

And they can, you just want some insurance in place to cover that, if you can help it.

Question 9: What Changes Should Be Made to a Single Member LLC to Provide Better Protection?

Question

What changes should be made to a single member LLC to provide better protection?

Answer

And I want to talk about any single member llc.

A lot of people go, well you can form it in Wyoming and Wyoming has single member LLC protections.

And you’re absolutely right in Wyoming, if you live in Florida, Florida does not give a whit about Wyoming law saying that, well we have single member charging order protections in Wyoming.

They’re going to go, yeah, but you’re in Florida.

And in Florida where the injury happened, where the problem happened, where the contract breach happened, whatever happened that brought this lawsuit happened in Florida, you live in Florida, you’re the only member of that llc.

So I’m going to order you to give them your membership interest in that LLC and now they own everything that the LLC owns.

So you always want to have multi members if you live in Florida because Florida does not recommend recognize single member charting order protections.

So what we do is we will typically amend and restate your operating agreement.

We completely amend and restate it with, which means we replace it with a whole new operating agreement.

The company stays the same, it’s all there.

We just redo the operating agreement and our operating agreement makes it a multi member llc.

We come up with other members.

It can be two spouses, we’ll get to that in a little bit.

That’ll be the next question actually we get to.

It can be spouse, it can be parents and children, assuming the children are over 18 years old.

It can be a friend, it can be irrevocable, living trust that you have for your children.

It can be other entities that your children own.

But the big thing, a lot of people go, yeah, but if I add these other people to it, then that means they get part of the money.

They also get a vote.

Even though I may own 51% they’re still going to get a vote and I don’t want that.

So in that case, what we do, it just says they have to be members.

It doesn’t say that they have to be economic members, it doesn’t say they have to have a right to vote.

So our operating agreement to convert it from a single member to a multi member llc, we add additional members, we come up with those with you, working with you as to who those members are going to be.

But again we then designate those as class B or class C members.

They have no right to vote or they have no right to vote and they get no economic interest.

The reason we have those two classes, it’s very convoluted.

It’s tax related for S corporations.

If the prop, if the company is an S corporation, but need to say, I don’t want to get in those weeds here today, I don’t want to go down that hole.

So, but that’s how we do it.

And now it’s a multi member llc, even though those other members may have no vote, even though they may have no right to ever receive a distribution.

And then what we do is with your membership interest, you are the economic member, you are the voting member.

You then mark your membership as transfer on death two.

And it’s typically to the class B or class C members.

So upon your death it’s automatically going to go to them.

And now they own class A, they own the whole company.

Again you avoid probate.

By the same token, you’re getting multi member charging order protections while you’re alive and then even after you’re gone, if there’s more than one other member in those classes, then they’re also getting multi member protection as well in there to do that.

Alternatively, sometimes if it’s a trust based estate plan we’ve created for you, we will name your trust as the transfer on death.

So it’ll go to your trust and then the trustee takes over your class A membership and deals with the company.

And so the non voting, non, economic members just continue on in their respective powerless positions inside the company while the trustee, the successor trustee of your revocable living trust takes over the day to day operations of your company, which is usually going to be to wind everything up, reduce as much to cash as possible and then distribute it out according to whatever your trust agreement has said to do.

Question 10: Does a Spouse or Adult Child Satisfy as Additional Members for Protection?

Question

Does your spouse or adult children satisfy as additional members for protection?

Answer

Technically you and your spouse can be partners in a partnership rather than as a married couple.

Florida does recognize Tennessee by the entirety.

So there’s two ways that you and your spouse can own a company or own property.

You can own it spouse A and spouse B.

As a married couple, 100%, that’s, that’s considered like one entity owns 100% of the, of whatever it is they own, whether it’s membership, interest in LLC or real estate or a mortgage or whatever or, and then, and then also what that means too is when one dies, it automatically goes to the other one, the surviving spouse with, without any probate or any problems.

But for legal purposes, well for IRS purposes and for legal purposes I’m always concerned that would be considered one member.

So you’re not getting the charging order protections.

Another issue that we have is anytime you are a partner with your spouse in an entity, so maybe let’s say we do it as 50% spouse A.

50, 50% spouse B.

One issue that we run into there is you still have the same problem that you, if something happens that someone has the right or the ability and they can sue both of you, then outside, as an outside creditor, they sue both of you.

Then it doesn’t matter that you’re in a partnership because now they’re just going to get a judgment against both of you.

And even though it’s just 50, 50, they, they can now take both of your interest because they can take the whole thing.

They wouldn’t just get a charging order.

So for that reason you typically always want someone else who’s not likely to be sued with you.

Now it comes down to, well, when am I going to be sued with my spouse?

Very easily.

The car is in spouse A’s name.

Spouse B wrecks the car.

They’re going to sue spouse B as the person who is driving the car.

They’re going to sue spouse A as the person who owned the car, or maybe the car is owned by spouse A and spouse B and spouse B was driving it.

They’re going to sue both spouses as the owner of the car and one spouses as the driver.

And it could exceed your limits.

That’s why, another reason we always recommend carrying a commercial, not a commercial, a liability umbrella policy for 2 million or so to make sure that if you do have that accident and you were driving your spouse’s car and we’ve done everything else right, and it, it’s like, well, we screwed up, you know, I drove my spouse’s car and I wrecked it.

So now they’re going to sue both of us and everything we have is owned, either 50, 50, both of us, or both of us together as a married couple.

We’ve screwed everything that we just tried to do to hide it and protect it.

So at least we have this umbrella policy that you hope the plaintiff’s lawyer says, okay, we’re going after the limits of the liability policy and the, the umbrella policy and we’re going to take all that and we’re going to leave everybody alone.

We’re good.

We’re happy, Max.

You hope that’s what happens.

And really that big tasty umbrella policy out there helps, to do that.

Does a spouse or adult child satisfy as additional members for protection?

Yes, I just covered that.

And they can do, it.

And again they can be non voting and, or non economic, meaning they don’t get any, they don’t have a right to, any distributions from the company, members of the company, and they’re still members for multi member purposes.

Question 11: How Practical Is the Florida Land Trust if a Person Is Planning to Get Financing and Insurance?

Question

How practical is the Florida Land Trust if a person is planning to get financing and insurance?

Answer

Okay, so there’s two big questions there, financing and insurance.

Number one, financing.

Well, no, let me, let me cover insurance first because it’s easier.

Yes, insurance is difficult, to get in Florida, period, regardless of how title is Held.

If property is not held in a human being’s name, and this is in any, in, in any state, this is the case.

If it is not held in a human being’s name, it’s held in a trust, an llc, a corporation, whatever.

You have to.

Then your insurance policy, your hazard insurance policy will cover the property against storms and fire and things like that.

But it will specifically say there is no liability coverage because that’s just the way insurance works.

So you have to get a separate liability policy that covers the liability of someone slipping and falling, getting injured, whatever may happen at the property.

So for that reason, you know you’re going to have an insurance issue.

We have some great insurance agents we work with that we can refer you to if that’s the case.

But that’s going to be the case.

Whether it’s in an LLC or a land trust, the real estate, you’re going to have that issue with insurance that the liability policy has to be a separate policy.

Answer

Now it comes down to financing.

This is where the rubber meets the road.

Because of course there are a lot of lenders who just say, no, we do not lend to land trusts in the state of Florida.

There are a lot of lenders who do, DSCR loans, dc, dc, sr.

I can’t remember if it says C or cs.

I’m very tired tonight.

But those loans, where they are just looking at the property and the income from the property to underwrite the loan, they will typically, a lot of those lenders will say, sure, I don’t care how it’s title, as long as the right people sign the note in the mortgage and then we have the personal guarantees, we’re good.

Other larger private lenders like that, the big investor lenders, they have gotten their money from, pension plans and large insurance companies.

And they have made a promise to those that, hey, we will only lend to LLCs.

And they’ve just.

And they lend across the country.

They lend in all 50 states.

So to keep it simple, they go, we just lend to LLCs.

We will not lend to human beings.

We will not lend to Trusts, we won’t lend to corporations, we lend to LLCs.

Some of them go so far to say we will only lend to Delaware LLCs that are single purpose entities, special purpose entities where the, they have bankruptcy remote members and springing managers and all those other stuff.

So we’ve, we’ve had to deal with things like that before.

So it depends on your lender as to what they’re going to do.

But there are lenders out there who will do the land trust.

We are hopeful that with the new series LLC statute going active in July 1, we are hopeful that that will open up, that some of these lenders will say, oh, okay, well it’s a series llc.

So this protected series owns this property and that’s our borrower, that protected llc, series llc.

We have not seen the forms that Sunbiz, the division of corporations is put out yet for that.

So we don’t know how much it’s going to cost to file those protected series.

We don’t know what the articles of organization are going to look like to create a series llc.

None of that’s done yet.

As far as I know, I haven’t seen it yet.

So you know, we’re just sort of hanging out, waiting to see.

We have done series LLCs in Texas, we’ve done them in Wyoming.

I believe I’ve done one in Illinois before.

So they’re out there.

But each state is very different how they handle it.

And Florida has adopted the statute, the uniform laws statute and made it theirs.

And so it’s very particular in how you have to name your company, how you have to set it up.

And in any event, just as I would argue with a land trust, I always recommend opening a separate bank account for each property.

Which sort of goes back to the earlier question about what’s the best practice for asset protection for residential rentals and things like that.

I always recommend keeping a separate bank account per property.

This is a, it’s actually required in Texas if you’re using a series llc.

And I believe I would say it’s definitely the best practice to do anytime you have multiple properties is have a separate bank account for each property to show that it was your intention that that property operates on its own, by itself, and then pays its bills on its own and then everything pours out.

Courts, judges like to see that should it ever go to a judgment, it just makes a lot easier and keeps, just makes it more definite that it’s not going to bleed over onto all your other properties that you may own in that protected series llc.

Or maybe if you have separate land trusts, if somehow, if they find out who all the beneficiaries are in post judgment collections, and start coming after you in post judgment discovery.

Question 12: House Hacking, Co Living and Operational Structures

Question

House hacking, co living and operational structures.

Okay.

Domestic real estate house hacking or co living strategies.

Answer

I’m going to assume in this case there’s two ways of co living that I always hear.

Number one is you’re just taking in roommates, it’s your home and you’re just taking in roommates.

In that case if it’s your home, I say make it your homestead and have roommates if you have to.

I, I don’t recommend roommates.

That’s another best practice, of mine.

Free advice.

Don’t, don’t have roommates if you can help it, because they’re hard to get rid of and, and they’re like fish.

After three, three days they start to stink.

But that’s one way of co living.

The other way of co living is it’s pad split maybe where you convert a property basically into.

They don’t like the words but I say it all the time.

Boarding house where you have multiple bedrooms and multiple people living there under one agreement, a membership agreement with a company and then that company and then that company helps you place people in these rooms under their membership plan and then they pay so much per week, or per month to live there in that property.

For those I definitely recommend, if you can do it, do a land trust drop back.

Would have it in its own LLC or protected series llc.

Do not own those in your own name.

And the reason I always warn about these, co living situations like boarding houses where you have multiple unrelated people living together in a home.

You may have now you have six or seven bedrooms and a house that was originally four bedrooms and you may have one or two people per bedroom.

So you could have up to what, 12, 14 people living in this property.

You know, have maybe a lot of cars there.

You’re going to run a foul if there’s an HOA.

You want to talk about making an HOA mad?

Try having 15 cars parked at one house.

They don’t like that.

Try having all these people trying to show up and use the tennis courts at the pool or the pickleball courts at the same time.

It doesn’t go over well so it can cause problems.

But the bigger issue I’ve always been concerned about on these properties is a fire.

If the house catches on fire and people can’t get out.

It’s the reason we have so many rules around boarding house situations.

Because in the 1900s, 1800s, it was not uncommon for tons of people to die in fires in houses because they were not built for code, for a lot of people to be able to, number one, be notified there was a fire and to escape quickly and safely, or to put the fire out easily.

So, those are.

Or, or one of the tenants is a, serial killer or, you know, whatever it could be, they’re just a bad person and, a criminal and you just don’t catch it.

Now, other problems arise out of that with your neighbors or with the other people in the home.

So it’s a, it’s one of those things you would definitely 100% want to have in its own land trust away from you and away from everything else you own.

And if you, if you’re getting financing and they won’t do the land trust, drop back, do the protected series llc, use that and, get the lender to allow that to happen.

Question 13: Should a Single Person Use a Trust as a Second LLC Member?

Question

If you are single with no children, can and, or should the Florida LLC have a trust, Personal property trust, revocable trust, living trust, as a second member?

Answer

Good question.

If, if you’re single, no children, you definitely want to try to get another member.

And yes, one of those.

Usually what I don’t.

Personal property trust is a common law trust.

I always worry that that would be seen just as another revocable trust.

You and your revocable trust, you and your personal property trust.

As far as the law are concerned, it’s all you.

It does not exist beyond you.

It’s not an entity, it’s not separate from you.

So we have a lot of people who go, okay, well, I’ll just go form another company in another state and that’ll be my other member.

And I go, well, if it’s still you, it’s still you.

The court’s going to do the same thing.

They’re going to go, well, it’s not really anything different.

One thing that they definitely will say is a second member or a second partner is an irrevocable living trust.

So yes, if you set up an irrevocable or a charitable trust, if you set up another trust that is an irrevocable living trust, that truly is another entity and you would want someone else to be the trustee, you’re not the trustee of it.

You’re definitely not the beneficiary of it.

Someone else is a trustee of it for another person.

Now that owns 5% or so of the company, you now have a multi member llc.

Answer

Same thing you can do where it’s non economic, non voting and, or however you want to do that.

But that truly creates another member.

But like I said, a revocable living trust doesn’t cut it.

Personal property trust probably doesn’t cut it.

Most likely doesn’t cut it.

Another LLC or another corporation where you’re the sole owner probably is not going to cut it.

But an Irrevocable Living Trust, 100%, it has its own tax ID number.

It files its own tax return every year, a 1041.

It is like another person, another human being.

And you can set that up.

And then you could have, if you have, you know, single, no kids, you may have friends that you really like, but you don’t want to give them any interest in your company right now.

But maybe in the future you’re like, okay, I want to take care of them in the future.

So I’ll set up an irrevocable living trust for that friend or those friends, that group of friends.

And when I die, I may just leave the company and everything it owns to that irrevocable living trust which will take care of my friends.

Or like I said, you can name a charity in that trust.

It’d be a charitable trust that is going to get all of that, in the future.

That it’s really tough.

It is tough being single, no kids in the United States because it does make it hard as to, okay, well, who do I leave my stuff to?

But then it also makes it hard as well, who’s going to be my other member with me as well on my company?

Question 14: Do You Ever Recommend or Use a Manager Trust to Maintain Privacy?

Question

Do you ever recommend or use a management trust in order to maintain privacy at the state registration level for Florida LLCs?

Answer

Yes, we do.

We have a mechanism.

We call the manager trust and that trust, we set it up and we give it some crazy name and you’re typically the trustee of it.

You are the trustee of that trust and the company is the beneficiary of it and you are the manager.

I’m sorry, that trust is listed as the manager.

So rather than your name, it may list, you know, the, this, the Smith and Jones trust, as the manager of that llc.

And then it’ll have an address with it and that address is usually not tied in any way to your home or your business.

A lot of times we tell people you know, always choose, an address, whether it’s a UPS box, a USPS box, Kinko’s, FedEx, whatever you happen to use for your, your mailbox, for an office address and that way it’s not tied to you.

And then that box, if it, if you own real estate and you’re getting paid rent, that mailbox should be located in the same county where your property is located.

Because whenever you do a three day notice, the tenant has to be able to hand deliver the money to you within three days.

And if it is outside of the county where the property is located, you add five days to that because now they can’t hand it to you because they can’t drive one county over or two counties over.

They have to drop it in the mail.

So now they get five days for the mail to get it to you.

So every three day notice turns into an eight day notice.

So for that reason we say always choose a mailbox address that’s local.

Even if you do a USPS post office box, you now get a street address with that PO Box if you want it.

So just understand that too.

If you ever sign up for a I like PO Boxes at post office.

This is because post offices don’t go away.

UPS stores can go away, Kinko stores can go away.

But U.S. post offices, typically they sign 99 year leases.

They’re typically not going to go away during your lifetime.

But yes, that, that would definitely be one of those things.

You can use a manager trust, that is who is listed as the manager and now your name.

If someone searches that company, they’re not going to see your name.

And if they search your name as an officer of the company, of any company, your name is not going to appear there.

Also what goes hand in glove with that is using a registered agent.

That’s not, you use a professional registered agent.

Our company we, we have another company that, we do that, we do that in Florida actually.

And then we have a relationship with another company that does it in the other 49 states, plus Puerto Rico and Guam and everywhere else, that you can use as a third party registered agent because if you take the, the pains that the, the only person listed on that Florida LLC is this manager, llc, this manager trust at a PO Box, at a post office box address somewhere.

And, but then you’re listed as the registered agent or you list your home address as the mailing address or principal office address of the company.

You sort of blew it.

So that’s why I just always say keep your address out and keep your name out as much as possible out of Sunbiz.

As you can.

Question 15: Can I Move Into a Property Purchased Through a 1031 Exchange and Make It My Homestead?

Question

I hold a rental in a land trust which I purchased using a 1031 exchange.

Can I move into the home and make it a homestead?

Answer

Oh, okay.

So you bought the property.

So you relinquished an investment property and you used the money from the sale of that property to buy a replacement investment property.

Now you want to move into that property, that formerly investment property, and make it your homestead, your primary residence, presumably so you can live in it for two years and sell it a couple years later, or sell it in two years and you get to exclude some of the gain off of that.

That way you can.

The question comes down to how long have you held it?

How long have you held that replacement property as an investment property?

There’s no hard and fast rule.

I think most CPAs would say that you have to have held it for at least one tax year.

If not two.

Two would be better.

Five would be great.

As a replacement property, because that shows that your intent was to truly hold this as an investment property.

You rented it out, you advertised it for rent, you didn’t spend time there, as your primary residence.

But yes, you can do that.

It’s just when can you do that?

And that’s the gray area.

Like I said, my, my rule of thumb has been hold it for at least two tax years.

As in, in.

In as the investment property.

Then you can retitle it into your name and move into it.

You probably won’t be audited, but you could be.

Also another thing you got to think about is depending on how that was taxed.

If that prior company was taxed as an S corporation, which it should not have been for a long term hold, as soon as you convey that property out to your name and then you move into it as your primary residence, you have now made a distribution out of that S corporation.

So that’s bad.

That’s really bad.

Because it’s just like you just distributed a ton of cash to yourself and it’s taxable.

It’s a taxable event.

But if it was a pass through entity or disregard entity, if it was a partnership or whatever, now you take title to it, typically you’re going to be okay.

It’s not going to be a taxable event.

But that’s just one more bug I put in people’s ear whenever they’re considering Doing this, anytime you’re moving it from an entity to yourself, think, of how that entity was taxed.

If it was taxed as a C corp or an S corp, that would be a taxable event when you convey it to yourself and then move into the property to make it your homestead.

So a couple of things there.

Timing and tax treatment that you really need to be paying attention to to make sure that you’re not going to hurt yourself, by triggering an audit, by not holding the property long enough, with the intention of holding it as an investment and also creating a taxable event by making a massive distribution to yourself totally, by accident, not, not paying attention to what you’re doing.

Closing Remarks

So with that, I think we’re going to call it a day.

It’s been an hour, and I don’t want to bore everybody, so thank you all for coming in today.

Thank you all for listening and paying attention.

We’ll do this again.

Like I said, we only got through about, ten of the questions and we had close to, oh my gosh, we got close to 20.

We got through 11 written questions and then the questions that were also why you guys were here.

Thank you all for participating.

Tell you what, what I’ll try to do is answer these other questions in videos that are coming up, in, in one offs throughout the next month or so.

It gives me some good content to create.

And as always, if you guys have any questions about anything, reach out to us.

And if you feel like you’ve gotten some value, please comment.

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Let your friends know.

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Let everybody know that we’re out here, and we’re here to help you.

And until later, have a great evening.