Roy: Good afternoon. This is Roy Oppenheim at “Zoom at Noon.” It’s hard to believe but this is our seventh week in a row that we are broadcasting to all of you our friends and clients, friends, and folks that are interested in having us give you all some sort of perspective and context of this new situation that we are all in.
We’re in a new abnormal or what some folks are calling a new American homecoming. And it’s a homecoming because we’re spending so much time at home. And at the same time, we’re also spending a lot of time trying to figure out how our lives are gonna look when this crisis is over. One of the things I do wanna talk about a little bit is how things are going to change. And of course, we’re gonna be talking about wills and estates and trusts in a second. But things are gonna look different. There’s gonna be a lot of social distancing that’s gonna be going on. In the past, only 5% of the public used to work from home now almost a third of the public is working from home.
Our law firm was founded 31 years ago. And I wanna mention that we’re here really to serve you and help you and help everyone get through this. Ellen Pilelsky my partner and wife is a major part of this. I wanna thank Geoff Sherman, my other partner who’s also been so helpful in facilitating this. And of course, Paolo Vergara and Lance Oppenheim, my son and Mia Singh all helped put this together today.
Wayne Patton is gonna be joining us in a few minutes, he’s gonna be talking with me about estate planning. Today we’re gonna be talking about preparing for the worst. And of course, planning for such situations that we all have to deal with from time to time. So we’re gonna hope for the best and plan for situations that will come on in the future.
Specifically, we’re gonna talk about the weekly unemployment numbers and then we’re gonna talk about federal aid, we’re gonna talk about estate planning. And then we’re gonna move to living wills, healthcare surrogate, power of attorney, revocable and irrevocable trust, how we title property, asset protection and other things to consider.
This is a very interesting picture, it was on the front page of “The Wall Street Journal” today, it says in German “Masks here,” it’s from the subway stations in Berlin. And this is part of what we would characterize as why there’s going to be a new normal, a new abnormal, or the American homecoming. This is a picture that we’re seeing all over Florida right now. It’s a picture of folks getting together but in a socially distant manner, and reflects how things are gonna look as we do start to come out. Our last discussion was a deep dive into the consequences of the pandemic on the real estate, this week we’ll talk about using estate planning to protect ourselves and our families. Next slide, thank you.
While some states start to ease the lockdowns and as viruses cases approach close to 3 million people worldwide, one of the things that we’re seeing is that there’s a sense of quarantine fatigue and people are wanting to try and step outside because they’re just getting cabin fever as the weather starts to improve. In that context, we need to understand that major universities such as Harvard are seriously considering deferring their classes till January and having their classes be virtual and online. And we need to understand that this situation is going to evolve in a very slow process until there’s a vaccine. In addition, large companies, large internet companies are announcing that people should continue to try and work from home at least through June 1 of this year.
The first question we have for everyone is whether…and we could pull up the first question if we can. Is when would you consider eating inside a restaurant again? Immediately upon reopening, not until there’s a vaccine, or when I feel it may be safe to do so, or you’re unsure.
[00:04:10]
[silence]
[00:04:24]
Most folks are really…two-thirds are saying that when they feel safe, they will do so. Immediately upon opening only 9%, 17% not until there’s a vaccine, and 13% said they’re unsure. So when people feel safe is when they will go back to eat inside a restaurant. Maybe folks will be willing to eat outside of a restaurant in the fresh air if there was proper social distancing, but inside is probably a bit off.
I thought this next page is really kind of a cool picture. And here you have I believe this is in Barcelona, I’m not very sure. But you have two professional tennis players who live near each other are playing off their rooftops. And it just kind of reflects how people are going to do whatever they have to do to survive and continue their respective crafts.
This has been a particularly tough week in terms of unemployment, we’re seeing almost 26 million people now that are unemployed that equals the equivalent of the population of 25 states. 25% of our workforce is either unemployed or underemployed right now. And I wanna go to the next question because it’s relevant for many of us.
Are you an independent contractor who applied for unemployment and if so, have you received your unemployment? And the question is, have applied and been declined. That is 100%…it was 100% have applied, been declined. Have not applied. Okay, so no one has received it. 50% have not applied, 22% are waiting, and 22% have applied and have been declined. But the big issue here is that no one has received their unemployment. And it seems that the state of Florida’s system probably is not consistent and lined up properly with the federal program, which allows for independent contractors. So I think they just universally denied everyone.
My recommendation is if you have been denied, and you think you’ve been denied improperly especially if you’re an independent contractor, you must reapply. There are some lawsuits that are now sprouting up against the state of Florida, and we’ll be investigating and looking into those also. So if you’ve been denied, I would apply again, if you’ve been denied twice and believe that there’s a mistake you ought to appeal it and go through either the administrative process or any alternative, contact a lawyer and see what we can do for you.
This is a very important slide because it’s gonna have to do with estate planning and what one needs to do if you do have assets. You will see the red line on top is what the new debt of the United States is going to look like. Everyone was already complaining about the debt. And as you can see the debt is going to metastasize unbelievably right now due to the crisis. The orange area is where it’s going to expand and it’s not looking very pretty. And it’s gonna have some impact on how the government is gonna try and bring that debt down in the future once this crisis abates.
I wanna talk a little bit about the Paycheck Protection Plan, it’s very interesting. The plan got expanded, but the website collapsed yesterday as well as today and so very few applications haven’t gotten through. The banks are saying that they’re still trying to get their applications in but the site as of an hour or two ago had also crashed once again. Only one in five…excuse me about 25% of small businesses have been able to obtain a successful loan from the Small Business Administration. So that’s around 5% so far. While the program is the centerpiece of the bailout so far, it has not been very successful. Of course, you have the shaming of the public companies that did obtain funds that are now returning those funds.
Estate planning 101: Wills. We have a question. Next question for everyone is do you have a will? Next question wills here we go. Do you have a will? Yes, it’s outdated. Yes, it’s current. No, but you think you should have one? No, probably do not need one. So it looks like about half of us probably should have one and don’t or may not need one. 26% have one but it’s outdated. So 30% of you all today have a will that’s current. And the rest of you either don’t have a will or have one that’s outdated. And that’s why I guess you’re on the call today and hopefully, we can give you some guidance as it relates to that.
So in terms of what is a will. The most important aspect of a will it determines how to distribute your assets, your things upon your death. But equally important, if you have children under the age of 18, or possibly older than that if they’re still in college, it determines who’s going to take care of them God forbid something happens to the two parents or two guardians of the children. In addition, one of the things that a will does is if you have certain passwords, maybe crypto assets it also provides information on how your next of kin can have access to that information.
So when it comes to your children, it comes to your assets, it helps decide who gets what. If you don’t have a will, then you will die intestate, which means that the state based on statutory law will decide who gets it. A lot of times it’s consistent with what you would want, but it’s not always. And so you really don’t want the state or the law to decide who gets what, you should be in charge of your own stuff. And of course, designating who would take care of your children in the case of an emergency.
Living wills, this is a document that you are going to have that is gonna direct the medical community effectively to pull the plug and not to resuscitate you if God forbid something happens to you. If that is your wish, then you want to have a living will. Many people prefer to have what’s called a healthcare… Next page. A healthcare surrogate which actually is a type of power of attorney that allows for someone else, someone you designate, a loved one to decide what is going to happen to you if you are incapacitated and unable to figure out what to do. And instead of having a living will, which would determine that you don’t want any heroic efforts that healthcare surrogate would make that decision for you.
As I said, it appoints a person to make healthcare decisions and removes uncertainty. And the surrogate must clearly know your wishes ahead of time. And so the healthcare surrogate would typically have conversations with their parent or whoever they have the right to make decisions for and they would basically give them some guidance ahead of time. If Mia Singh is around, I’m gonna have her discuss powers of attorney. I hope Mia is there. If Mia is not there then I will continue to proceed. But somehow I think Mia is having some issues getting on right now, not sure or it may be here. Mia, are you there? Hang on, one second. Okay, Wayne, are you there? I’ll let you take over power of attorney instead of Mia since we can’t find Mia.
Wayne: Yeah, I’m here.
Roy: Okay, great.
Wayne: You got me?
Roy: Yeah, we got you, go for it.
Wayne: So, power of attorney is a document that broadly speaking empowers another person to make decisions on your behalf in all kinds of different areas. Anything from banking to making real estate decisions, to making important tax elections to actually filing your taxes. This is an incredibly important document. Not just for purposes of you know if you’re incapacitated, but if you ever disappear for a period of time, you know who’s gonna continue paying your mortgage? Who’s gonna continue paying your ongoing bills or property taxes? Who will have access to your financial records?
And in some cases, if you are incapacitated and you’re in an endstage condition, you know, at that point in time a lot of people consult attorneys. And when you do that, you realize that there are certain tax elections or certain gifts that could be made during a lifetime that can be really beneficial for errors down the road.
So this is an incredibly important document. In fact, you know, while you’re alive, it’s probably the most important document to have, if you ever get into a situation where you can’t make decisions for yourself. And one other thing that I would note on power of attorney is anybody who has children who are teenagers, college-age over 18, early to mid-20s needs to have a power of attorney in place for that child. Once someone turns 18 years old, once your kids turn 18, you lose the right to make decisions for them, you lose the right to see, you know, their medical records. You lose the right to see their grades, you lose the right to see you know, any of their financial records.
And, you know, I hate to say it, but in this day and age, you know, that needs to be maintained until you’ve sort of shepherded your children to a place to where they can handle all that stuff. And actually hand those responsibilities off to, you know, their own spouse or their own family. But until then, it’s really important.
I recently was just in a situation where I was in the hospital with a 21-year-old you know, he’s a relative but mom and dad were fighting over who gets to make really critical decisions because there was no healthcare surrogacy in place, there was no power of attorney in place. There were all kinds of questions about what the outcome was gonna be for this kid. And it could have all been avoided by you know, sort of proactively having that in place. So not only do you need it for yourself, but you really need it for your young adult children, as well.
Roy: Let’s talk a little bit about the difference between durability of a power of attorney and a regular power of attorney. Because the durable power is so much more powerful because it travels through incapacity.
Wayne: So durable power…So you have different types of powers of attorney. Some states mandate that there’s only one type that can exist. So Florida for example, all power of attorneys are durable. That means that at the moment you sign it, whoever you’ve given the power of attorney to has the right to make decisions on your behalf. So you wanna be really careful when you do that. One way that I go about mitigating the risk of having a durable power of attorney because most people are rightfully cagey about giving away sort of all of their legal power to another person, is we can say, let’s execute this power of attorney, and then let me as the attorney hold it in trust for you, okay.
And I’m gonna have you sign a letter that says if any of the following things occur, right, if I’m disappeared off the face of the earth for 30 days, and no one can find me, if I’m incarcerated, or if I’m incapacitated, with no, you know, reasonable probability of coming around anytime soon in the opinion of one or two physicians, you know, whatever it is that you want, then please deliver this power of attorney to whoever the power holder is. The power of attorney exists, but the power holder can’t exercise it in any way, unless they have it, you know, sort of in their hands.
And some jurisdictions have what’s called a springing power of attorney, which means you can sort of designate the things that will bring about the power existing. Those can have some shortfalls because you can’t really anticipate. You know, we all suffer from bounded rationality, we can’t anticipate every possible scenario where we might want this so…
Roy: If I may, also a bank may not know if the power has sprung or not. And so it becomes a weird situation where you present a power of attorney and you don’t know if it’s effective or not.
Wayne: And you have an evidentiary issue as well you know. So, I will tell you that banks are tricky when it comes to power of attorney. Because you can have a fully executed legal document, and there are some banks out there that will just say, yeah, you know, we understand that this has been executed properly under the law, you have the power of attorney but they still won’t recognize it. And it’s absurd.
So I tell my clients to really make sure you have a good relationship with your bankers. And that’s important because I think we kind of…a lot of us fall into…and I’m guilty of it too, you know, we fall into the mindset of, well, you know, I bank with Wells Fargo or Bank of America, or Citibank, and Chase, and there’s one on every corner. And, you know, I do it for that convenient factor but I don’t really know a banker, you know.
You know, just to give one anecdote. I dealt with an estate not long ago where the gentleman needed a medallion stamp to have certain securities transferred. And he was incapacitated, he was unable to travel to the bank. But because he had a great relationship with his banker, I was able to go to that bank and get the person with the medallion stamp to visit my client in the hospital and stamp all the securities, you know, or all the documents to transfer securities when he signed them. So, you know, there’s some things…Now if you had a power of attorney, his power of attorney could have gone and signed those documents and gotten the medallion stamp just as well and his banker would have respected that.
But in most cases, you would have a hard time convincing a banker to do that. So you know, cultivate good relationships you know, with people that you do business with, and these companies that you do business with. Because a lot of things depend on relationships in order to even get these legal documents recognized.
Roy: I wanna move on to trusts, both revocable and irrevocable trust, Wayne. If you could explain briefly what a revocable living trust is, and then when it’s advisable to use one and when it’s not advisable to use one.
Wayne: Sure. So a revocable living trust as its name suggests is a trust that can be revoked, canceled, terminated at any time during your life. And the trust for all intents and purposes is you. There’s no distinction between you and the trust as a legal existence. It doesn’t exist on its own like a business entity would. It literally is just a pass-through entity that is a reflection of you.
The time you would want to use a revocable trust is anytime you have an estate that would be subject to probate. So you know, most states have a very low threshold for when your estate would be subject to probate. And if you’re above that threshold, let’s say it’s $75,000, for example, and you die with more than $75,000, your heirs have to go to probate court. You have to have a personal representative represent your estate. By statute, you have to hire a lawyer to take you through the probate process and fees are mandated by statute there. And it can be an expensive and drawn-out process.
Roy: And let’s explain that the probate process is really set up for the utility companies and the credit card companies, is it not?
Wayne: Absolutely 100%.
Roy: So just explain that because people don’t understand that.
Wayne: I mean, it’s so that everybody gets a chance to…essentially any creditor that you have essentially gets to come in and make a claim and say…And then a court has to sort of adjudicate what gets paid and what doesn’t get paid before there’s anything left for the heirs. So what it does is it makes the process a lot longer than it otherwise would be and it sort of diminishes and eats into your estate.
Roy: Now, of course, the creditor still can get paid but it gets more difficult because they don’t know really if you even died or not because it’s all done behind the curtain as opposed to open in front of the whole world to see in a public forum, such as a court. And so when it’s in a revocable trust, no one will even know that you necessarily passed away. It doesn’t mean that the bill shouldn’t be paid but there is no process to force you to pay those bills.
Wayne: Exactly, right. You know, in most cases, you still have to…well, in every case, you still have to present a death certificate, right, to a court and go through that process. It could be a summary administration process or whatever. But the assets don’t have to go into the court registry and be subject to the process, right. When you die, your revocable trust becomes irrevocable, right. So all of the assets in there are held for the benefit of your beneficiaries that you’ve designated in the document. And it actually is an extremely strong form of asset protection if the revocable trust is drafted properly meaning that it has a spendthrift clause in it.
A spendthrift clause is a provision in a trust that says that the beneficiaries can’t essentially sell or otherwise distribute their beneficial interest, it’s personal to them. That means none of their creditors can touch it. That means their spouses can’t touch it in the event of a divorce. When people come to me, and they’re the beneficiary of a revocable trust that’s become irrevocable because somebody has passed away, I always tell them, you know, leave the assets in there for as long as you can, because you can still use them, you can still invest them. But they’re not subject to claims of your personal creditors.
Roy: So in terms of revocable trust, you can really have two kinds where you put all your assets right away into a revocable trust or you have a will that pours over into a trust upon your death, correct?
Wayne: Correct. In practice, when you execute a revocable trust, you want to execute…contemporaneously you wanna execute an assignment of interest of all of your personal property into the trust. And that would include things that are titled like, you know, you would specifically say things that are titled like vehicles, it’s my intention to transfer them into the trust right now. And the reason is because anything that is not transferred into the trust will still be subject to probate. So it’s a huge mistake, you know, people invest in setting up a revocable trust, and then they don’t properly fund it.
Roy: And that happens almost every time.
Wayne: Yeah, I mean, if it’s not properly funded, the assets still have to go through probate. Now the court is very specifically directed, put this, “I will these assets into my revocable trust.” So you do still get the asset protection benefits for your beneficiaries but you don’t skip the probate process to the extent that you have assets that are not titled properly. So, it’s really important to make sure you fund it.
It’s very simple, the trust uses your social security number as its tax identification number. Typically, it’s as easy as a phone call or a quick visit to your bank to have all of your personal accounts titled in the name of the revocable trust. You do an assignment of interest that says all of my personal property so all of your furniture in your home, for example, any collectibles that you might have, any artwork, any jewelry, rare coins, you name it. And then that will also specify anything that’s a titled asset such as vehicles, boats.
Now, another little tidbit there is that under the law in the United States, membership interests in limited liability companies are considered personal property. So a general assignment effectively transfers as LLC interest into your revocable trust. Any stocks closely held companies, you know, some of us still have stock certificates that have physically been issued to us, you wanna make sure that those have been registered in the name, you know, funded into your revocable trust. So that those things all skip the probate process.
Roy: Quick question. One of the things that people ask is should their real estate be put in a living trust particularly their homestead? And I know that’s a question that comes up so regularly.
Wayne: So, depending on where you live, it might or might not make sense to put your homestead into a revocable trust. In Florida, it does not make sense, in my opinion, to put your homestead in a revocable trust. And the reason is that Florida appellate courts are split on whether or not you lose the homestead exemption by virtue of putting the homestead into a revocable trust.
The Constitution says to have the asset protection benefits that it has to be titled in the name of an individual. So some courts have in my opinion, rightly concluded that well, a revocable trust is no more than an extension of the individual, it’s not a separate entity. But other courts have said no, that language in the constitution is very specific and so we’re gonna make, you know, an exception here and not provide the homestead protection. You know, we’re unlikely to get a ruling from the Florida Supreme Court anytime soon on that, because there are so many ways around it. And it’s not an issue that becomes material or that you see very often.
Roy: You also have a title insurance issue, don’t you, wouldn’t you say?
Wayne: Yeah, I’ll defer to you on that because you have the title company. But certainly, if you change title without writing a new policy that becomes a concern.
Roy: So there are other ways to effectively keep your homestead out of probate and not do it through a living trust that we can talk about later in the seminar, right?
Wayne: Sure. Absolutely.
Roy: Okay, very good. Let’s move on to irrevocable trust, if you don’t mind. Let’s talk about when they’re used, and what they are, and what their purpose is.
Wayne: Sure. So, irrevocable trusts are used for a lot of different reasons. Most notably, they’re used for life insurance. So there’s a kind of a quirky part of the tax code that says “Life insurance proceeds in order for them to not be considered part of your estate for estate tax purposes, the person who dies cannot have any incidents of ownership in the life insurance policy.” So what that means is that the most effective way to own a life insurance policy and make sure that the proceeds that are paid upon your death are not included in your estate for federal estate tax purposes is to relinquish incidence of ownership. And you can do that with an irrevocable trust. They’re colloquially referred to as ILIT Irrevocable Life Insurance Trust. And essentially what you do is you…
[00:28:51]
[silence]
[00:29:23]
You know, once you’ve gifted it, you’re in a situation where somebody else controls it. You can continue to gift money into the trust every year for the payment of premiums and the policy stays in effect. And then when you pass away the beneficiaries that you have named inside the life insurance trust are then the beneficiaries of all those proceeds. And the proceeds are not part of your estate. Now, the beautiful thing about this kind of planning is it provides really good asset protection because you have relinquished all control you’ve made a completed gift.
So whether we’re talking about life insurance, or we’re talking about other types of assets that you wanna provide protection for, an irrevocable trust is a good way to do it. The trick is that to use an irrevocable trust for asset protection purposes, you really do have to make a completed gift. You have to be willing to sort of part with the asset and to say, okay, I’m giving this away to somebody else.
There are all different kinds of varieties of these if you are getting close to the estate tax exemption. And a lot of people go, “Yeah, you know, it’s $11 million for an individual, $22 million for a couple, I’m probably not gonna get there.” Well, maybe, maybe not. Remember that chart that Roy showed very early in this presentation that showed how the debt issued by the federal government is going to essentially eclipse the economy compared to what it’s done in the past? That has to get paid for somehow.
So, in my opinion, it’s unlikely that we’re gonna continue to see an $11 million per person estate tax exemption. It’s probably… And listen, we’ve seen it everywhere from, you know, $1 million bucks, to $5 million bucks, to $11 million. And it ebbs and flows, depending on who’s in office and what administration is in power and you know, what legacy they want to leave.
Roy: I think if you surveyed a group of estate lawyers right now, they would say that there’s a high likelihood that that $11 million or $22 million numbers is gonna be cut way back to maybe 5 million or even below that. Because it’s easier to collect taxes from people who don’t vote than from those who do vote. It’s called a death tax because people who are not voting are the ones who are effectively paying that tax.
Wayne: Sure. And it’s an onerous burden. I mean, it’s a 40% tax on everything that’s right now above 11 million, you know. In the George W. Bush-era it was as low as a million dollars. So, you know, it’s really something to consider. Right now you can effectively gift up to $11 million and if they change it in the future, you’re locked in having gifted your $11 million.
Roy: So we’re gonna talk a little bit about asset protection planning, but irrevocable trusts and gifting are a major part of asset protection planning. And asset protection planning includes really two things, protecting yourself from creditors, third parties in case you’re in a car accident or in some situation where you may have to pay a business partner some money. And then, of course, the other asset protection is you’re trying to protect yourself from taxes. And that’s probably the biggest way of trying to protect yourself from a creditor is Uncle Sam and he could end up being your largest creditor and the person you’d have to pay the most to.
So we have till the election probably and then maybe till January, but rest assured that once this crisis is over, this will be one of the first areas that Congress will try and get funds from in order to bring the government’s debt down.
Wayne: They’re gonna be in a grab for assets from anywhere they can get them. I mean, if you think about it, April 15th is payday for the federal government, right, they pushed that down the road. They have deferred FICA taxes, you know, the employer portion of FICA taxes. Effectively, you know, anything that’s due this year, they’ve pushed those obligations into 2021. A lot of states have issued moratoriums on property taxes, that funds schools, that funds your local fire department and police. You know, they’re gonna need to refill the coffers at some point, that money is gonna have to come from somewhere. Sorry, Roy, I can’t hear you, you’re muted.
Roy: This is one of the first places that they’re going to look when things get back to normal. Can you hear me now?
Wayne: Yeah.
Roy: Okay. Let’s talk about titling of properties because that’s another way to really protect yourself. And people need to understand the different ways that you title property, both real estate and bank accounts could have a major impact on who you leave your assets to and also how it affects your creditors and your loved ones.
Wayne: Sure. So depending on where you live in…and I don’t know if most of the people on the webinar right now are Florida residents or if it’s a diverse group of people. Not all states recognize all of these, and not all states recognize them all for the same types of assets, okay.
In Florida, we’re lucky because we have tenancy in common, joint tenancy, and tenancy by the entirety. Tenancy in common is ownership of an undivided interest in property. So if Roy and I owned an acre of land together as tenants in common, we each own an undivided one-half interest in the property, we each own one half of each grain of sand on that piece of property. It’s not like I have the north half-acre and Roy has the south half-acre, we have an undivided interest. Absolutely no asset protection for tenancy in common.
The only thing you’ve done in terms of providing a little bit of protection for tenancy in common is you’ve created a hurdle for a potential creditor of one of the tenants. And that they have to go through a partition action to essentially you know, replace that person and then get the property sold. If that’s even a possibility under state law where you live.
A joint tenancy is a little better. It’s a tenancy in common but it has right of survivorship included in it. So you know taking the example a little bit further if Roy and I are joint tenants on an acre of land and I die, Roy automatically gets my interest. It doesn’t have to go through probate court, it’s a transfer on death automatic. He can present a death certificate to the clerk of court and be put on the deed as the sole owner of the property.
And then we have tenants by the entireties. Tenants by the entireties is a joint tenancy but it can only be established between a married couple. And the interesting thing about tenants by the entirety is it does provide asset protection by statute or by common law in many states. So you have to do a little bit of research to see if tenancy by the entirety is available in your state. But as long as you are married, assets that are titled tenants by the entirety are protected against the creditors of either spouse. Now both spouses…
Roy: Not from both spouses but from either spouse and that’s where you…
Wayne: Right. So both spouses have a common creditor then the assets can be reached.
Roy: For example, if a husband is driving a car and he owns the car and gets into a car accident, and he has a bank account that’s tenants by the entirety with his wife, that bank account can’t be touched because she wasn’t the owner or the driver of the car. But if he’s driving a car that she owns, or if they were both driving the car at the same time, which is impossible. So let’s just say one drove the car and the other owned it, technically, they both could be sued. And that bank account could end up in the bank account of the person that they hit or that sues them.
And so it’s really important, even with cars, that people who own cars drive their own cars, or even better yet, just lease a car so neither spouse owns the car. But you don’t want a situation where the husband drives the wife’s car, the wife drives the husband’s car. Of course, you could have umbrella insurance that could mitigate that but taking that off the table for a second. You wanna make sure that if you’re driving the car, of course, no one is driving a car right now anyway, so it’s almost immaterial.
But assuming you were driving a car in those normal times you should be driving your own car so if you’re in an accident your assets, if they’re held by the entirety with your spouse are not subject to a credit. And also, whenever either of you sign a personal guarantee, never, ever, ever both sign a guarantee. And in fact, banks are really not allowed to make both spouses sign a guarantee if it’s like the husband’s business or the wife’s business. And they can say, I’m sorry, I’m just not signing this. And so that guarantee has limited teeth to it if, in fact, all the assets are held by the entirety. You agree with that, Wayne?
Wayne: I 100% agree with that. And one other little distinction, some states that actually allow tenants by the entirety you know, they don’t allow for personal property, right so it’s only for real property. So there are some limitations and it varies based on the state.
One other sort of analogy to draw, and that is if you live in a state that’s a community property state, okay. Community property is tricky because if you’re married all assets that accrue to either spouse are considered community property. It’s all considered like tenants by the entirety property. However, the debt of either spouse is considered a marital debt also, right. So, you know, you kind of gotta be careful you have to know if you’re a community property state, an equitable distribution state. If you have tenancy by the entirety available to you or if you don’t, these are all really important planning questions to take into account when you’re setting up a plan. Or even you know, when you’re establishing a new business entity.
If you live in Texas and you’re creating a new LLC, for example, and you’re married, it’s probably a really good idea to have your spouse waive their community property or quasi-community property interest in that LLC. Because you don’t want any potential liability that arises from operating a new business to be a marital debt, right. Part of what I do as an asset protection attorney, is I’m trying to compartmentalize and parse that and say, look, these are… And the main reason for doing that it’s just so you, in your mind, have identified what risk really exists and where it is, and how you’ve mitigated it. And just to be aware of it. Now we can’t totally get rid of risk, but the worst thing in the world is to have risks that you don’t even know about in your portfolio, right.
Roy: Wayne, I’m gonna interrupt you because we have a number of questions. First of all, if you have any questions now is the time to get them in there. We have about six questions I’m gonna take a break and ask a few questions here. Let me see, this was an old question but we’re gonna go back to it. My unemployment was denied, claimed ineligible without an explanation. What can I do now?
I said very clearly what you should do, you should reapply. And if you get denied again, you’re gonna need to contact an attorney because the state may just be playing games with you and everyone else and they’re gonna have to be kept accountable. What would you suggest for a banking relationship in a Venmo world? Wayne, I’m gonna throw that at you.
Wayne: I mean, you’re never gonna be able to completely replace, you know, real human relationships. Venmo is great you know, it makes it very easy to transfer money. It’s sort of changed the world in the sense that…You know, I like it because you don’t really have the excuse anymore when you go out to dinner with your friends. Well, assuming we ever do go back out to dinner with friends again. Or where your friend says, I don’t have cash or I’m gonna pick this one up well, why don’t you just send it to me via email because you could do that very easily now.
It certainly has created convenience but there’s nothing that’s gonna replace a personal relationship. I think a bigger issue than that is, you know, turnover at banks because you know, there’s not a lot of people that stay in the same job anymore for a long time. So it’s harder to establish those long-term relationships. I say just make an effort to do it, even if you once in a while, just…You know, I go into the same branch of two different banks a lot, and they recognize me, they know me, they know me by name. I went to the manager and introduced myself.
And sometimes, you know, the world that I operate in of offshore trusts when people get to a little higher and more sophisticated level of asset protection, there’s a lot of international trust companies and bankers and protectors that will require you to have a reference letter from an existing banker. Because they wanna make sure that you’re not involved in funding terrorism or laundering money. So, in a Venmo world, it can be easy to just kind of bury your head and not do it. But I’d say make the effort to go introduce yourself and be on someone’s radar.
Roy: Thank you. Next question, Is it bad to have a vehicle in a revocable trust? If you get into an accident can’t they go after the other assets in the trust?
Wayne: Yes, and it doesn’t matter because the revocable trust provides you with no asset protection. It provides your beneficiaries with asset protection when you die. But when you’re alive, that revocable trust is you, there’s no distinction. It’s not a separate entity. So the answer to the question is it doesn’t matter if your vehicles are in or not in. The only reason that it matters is that your vehicle might be probated, or you might have to have your estate probated just because you didn’t have a vehicle assigned to the trust.
So, when we get to the part about offshore trusts, an international irrevocable trust for asset protection the answer is unequivocally no. Do not put your vehicles into a trust that is created specifically for asset protection purposes. Unless it’s a 1974 Ferrari that sits in a warehouse and never gets driven, right.
Roy: Next question. Spouses can’t be trustees of irrevocable trust. Is that correct?
Wayne: Maybe, it depends on what you’re trying to accomplish with the trust. But generally speaking…so for an irrevocable life insurance trust, for example, you almost always want to appoint somebody in the original document who is not considered related or subordinate to you under Section 672 of the Internal Revenue Code. Now, you can appoint your spouse as a successor trustee as long as it’s done in the original document. But typically, for asset protection purposes, if you’re using an irrevocable trust, you want it to be somebody who’s arm’s length from you, and that could be a CPA, it can be an attorney, you can use a trust company.
Roy: I’m not big on trust companies, but that’s for another day [crosstalk 00:45:12.329].
Wayne: I’m not either. I agree with you on that.
Roy: A lot of times people use trust companies because they know their banker like you were talking about, but then the banker leaves and you get some new person who’s a faceless person who you have no relationship with, problem. The relationship doesn’t go with the person to their next bank or they may retire. So what you think is good today is gonna be very bad for you tomorrow.
Wayne: Absolutely correct.
Roy: Let’s go to ladybird deeds versus life estates in terms of titling real estate especially your homestead because there a lot of people who have been asking about that. Very good. So let’s talk about what a ladybird deed is, and let’s talk about what a life estate is, you know, in terms of real estate.
Wayne: So a life estate is an interest in real property that only lasts for as long as you are alive. So if I have a life estate in a farm in Central Florida, there has to be a remainder interest. So somebody is going to own that property in fee simple absolute that means complete unfettered ownership when I die. But until I die, I have all right use and title and enjoyment of that property.
Life estates are very interesting because if you have a remainder interest in a life estate, that’s considered a vested property right, so it’s something that could be taken away from you. So you would wanna have some asset protection for your vested remainder interest. If you’re the holder of the life estate, that could be considered an asset as well, right.
I mean, if you had a beautiful home on the beach, and you had a life estate in it, and let’s say you got into a terrible car accident, and there was a judgment against you. And this house rents for, you know, $25,000 a month, that life estate can be taken away from you. The creditor can essentially take the house for your life until you die, and then the remainder interest goes to whoever the remaindermen happen to be.
So, life estates are interesting, they’re kind of an interesting phenomenon on property law. Where they come into play for estate planning, is what you mentioned Roy, and that is the ladybird deed. And what a ladybird deed essentially says is, I, Roy Oppenheim, reserve a life estate for myself, remainder interest to the Roy Oppenheimer revocable trust, right. And when you die, your revocable trust becomes irrevocable and now the remainder interest is protected in ironclad.
Now one other little interesting wrinkle here is that you do get homestead protection for life estate, but you just have to meet the other requirements of the homestead. You have to meet the other things that are required of you in the constitution in order to have homestead. So you have to reside on the property, right, it has to be your home, where you live. And then you do get the homestead protection even for your life estate. So a creditor couldn’t take it away and then rent it out and collect the rent.
Roy: Of course, that changes if it’s a life estate and you end up in a nursing home and you still own the home but you’re not living there anymore. And that’s where you get a wrinkle and that’s why I prefer ladybird deeds to some extent, because you may be able to obviate some of those risks.
Wayne: Sure, yeah. And actually, you know, outright gifting at some point and then there are some other things that you can do with the home as well. You can set up specialized types of trusts for them, called Qualified Personal Residence Trust. That gets more to, you know when we’re in a taxable estate situation, which we may see more of, but there is good asset protection for those types of trusts as well.
Roy: I hate to say this, but this crisis is probably gonna be good for lawyers like yourself because it’s gonna lower the estate tax to a level where people are gonna have to do more planning again. And so those of you out there who say, you know, I don’t have the kinds of assets that are going to ever require me to do estate planning. Let me be the first one to break the news to you that most of us are gonna be doing estate planning at some point in our lives again because we all are gonna have to pay for this collectively for what’s going on here. And so it’s the new reality and it’s part of that new abnormal that we’ve been talking about.
Let’s talk about asset protection a little bit if we can go to the next slide. One more. And talk about what asset protection really means and the different tools we have to protect our assets.
Wayne: Sure. The easiest way to define asset protection is that it is proactive planning that is intended to place your assets beyond the reach of potential future creditors. So, it’s planning that you implement today. That means if you get sued tomorrow, the assets that you’ve placed into that plan are off the table, okay. So we talked about tenants by the entirety. Tenants by the entirety is a form of protection that is either provided by statute or by common law, but it has some weaknesses, right. Divorce, the death of one spouse, both spouses being jointly liable for some reason.
And you know, Roy talked about, you know, married couples not being able to be forced to both sign a guarantee. While that may be true, you never know what a judge or a jury is going to do. So we have bad results in the legal system all the time. And if a very persuasive plaintiff’s lawyer is able to say, “Yeah, I think husband and wife should both be found liable,” then all the assets that you’ve had, titled as tenants by the entirety, are now at risk and subject to being attached, levied, garnished, you name it.
So asset protection is planning that’s specifically done to sort of mitigate that. It’s like everything we’ve been discussing in terms of estate planning, healthcare surrogacy, power of attorney, irrevocable trust, your will, and your affirmative asset protection planning. You’re doing all of this proactively so that you can take control right now, you can make these decisions that don’t leave your loved ones in a lurch when they’re mourning you because you’re gone. Or when they’re facing an intensely stressful situation because you’re in the hospital or you’re missing or, you know, they don’t know what your wishes are. They don’t know know how you’d like things to be handled, right. And this is just another opportunity for you to make sure that your assets are there for you, for your own care, and for your own well being.
Roy: In terms of tools, I wanna talk about exempt categories of assets that are typically not subject to creditors, where you still have some control over. I think that’s really important that people understand.
Wayne: So you have listed here on the slide 401(K’s), pension plans, IRAs, anything, that’s an ERISA type of plan. The United States Supreme Court has said that IRA should be afforded that sort of same level of protection. We talked about in Florida, your homestead exemption. In Florida again, annuities, life insurance policies, all exempt assets. Now, you talk about a place like California, and the landscape changes very quickly. California says yeah, insurance policies are exempt assets to a “reasonable extent,” right.
Well, what I think is reasonable and what somebody else thinks is reasonable, two completely different questions, right? And the question that you have to ask yourself is, do I wanna leave this in the hands of a jury? One other point is that there are all kinds of exceptions that are found to exist a lot, right? So if you use domestic entities alone…I tell people listen, if you use a properly formed domestic entity that gets you like, 85% of the way there, right. If you have a good multi-member limited liability company, and you’ve placed assets in it, you’re using it to manage family assets. Or if you have a limited partnership, you have really strong documentation, you have great operating agreements, or a great partnership agreement that gets you pretty far down the road.
But we have this thing called piercing the corporate veil, we have reversed veil piercing. And we have people that don’t operate their entities properly, right. So they allow their family limited partnership to actually take on a liability that it shouldn’t have because they’re supposed to be passive entities that don’t take on risk. They hold assets, and then they’re supposed to eliminate the risk from your portfolio. So they can get you pretty far down the road of protecting your wealth, but they don’t get you 100% of the way there. Because you always still have to deal with the discretion of a judge or a jury who might or might not like the planning that you’ve put in place.
Roy: And of course, the other way to protect your assets is some sort of managed gifting where you’re allowed $15,000 a gift to each individual. Husband and wives can give 30,000 to a person. And so there’s a way to flatten your estate in terms of the IRS or in terms of just making sure you don’t have too many assets so that if you do have a creditor that comes knocking that those assets aren’t even in your estate, of course.
Wayne: Hundred percent correct. And one other little trick is that you can gift up to five years in advance into like a 529 plan. You know, so if you have kids that are going to college and you want to remove some assets from your estate, or you wanna protect those assets. Now 529 plans have varying degrees of asset protection based on where you live because there’s all kinds of different interests in a 529 plan.
You know, one person is considered the owner of the plan, another party is concerned the beneficiary of the plan. So, if the owner is sued are the assets safe? If the beneficiary is sued are the assets safe? These are determined by state law. So again, you kind of have to drill into the law where you live to see if you’re protected that way. But yeah, you can gift up to…you know, you can take that 15 or almost $15,000 and multiply it by five and you can give that today. And you can’t give that same person $15,000 for the next five years, but at least you’ve got it on the books right now.
Roy: So one thing I wanna talk about is when we do these kinds of conveyances, whether they’re gifts, or we put money into a pension plan, or we put money into our homestead, we have to make sure that we do it in a timeframe that it doesn’t trigger the notions of fraudulent conversion and fraudulent conveyance. And that means you can’t have someone knocking on your door, meaning that you’ve been served a lawsuit and that you know you owe this person money as a matter of law and start transferring assets. These transfers typically have to be done before you’re in the soup. Is that right, Wayne?
Wayne: That is 100% correct. Even more than just that it’s not just being sued, it’s anybody having a claim against you. So for example, if you’re a doctor and you have…Let’s say you’re an orthopedic surgeon, right and a student gets hurt on the soccer field, you know, 5 miles from your office. Well, that’s not your client, right. But the second that student presents her or himself in your office for your advice about their sprained knee, or whatever it is you have, whether you’ve performed surgery, whether you’ve done anything, that person is now a known potential creditor. Because if you’ve entered into a relationship with them, and if at any point along the line you commit malpractice, you’re on the hook for it, right.
So, once that person presents themselves in your office, you really can’t do asset protection to protect yourself against that person, even if you haven’t done the surgery yet, right. Fraudulent transfer, the way it’s defined in statute is any transfer that’s intended to hinder, delay, or defraud a legitimate creditor.
Roy: That’s the important thing, they have to get your frame of mind. It’s not absolute liability, the intention is not important.
Wayne: Absolutely.
Roy: So if transfers are occurring in the ordinary course and you’re always gifting your kids, or you’re always [crosstalk 00:58:15.104].
Wayne: Absolutely.
Roy: …that’s part of a process and procedure that wasn’t intended to defraud the kid who came into your office before you did the surgery. So the key is…
Wayne: Absolutely.
Roy: …that you have plans in place that look like you’re doing something in the ordinary course and you’re regularly doing it and not just doing it specifically because of a unique situation. And so that is the key here is they have to prove Mens Rea, they have to prove intent. It’s not criminal fraud, but it’s civil fraud. And to prove that you still have to prove what was going on in your mind at that point in time.
Wayne: So, I really hate the definition which is any transfer that’s intended to hinder delay or defraud because people automatically go to you know, the criminal component. So I actually change it when I do presentations and speak about fraudulent transfers. And I say any transfer intended to hinder, delay or defeat the claims of a legitimate creditor. And that actually makes more sense. Statutes are changing the titles of them from fraudulent transfer to avoidable transfers they’ve been kind of sensitive to that.
Roy: Anyway, let me go to some questions here. If I may, we’re probably book like two or three minutes, I hope that no one minds. We do have a few questions, right here. Okay. Does right of survivorship protect from probate in Florida?
Wayne: It depends on the asset. So if it’s your homestead and you’re married, the home still actually has to go through the probate process. But the process for distent is spelled out by statute so that would have to be probated. If you have a joint account with the transfer on death designation, the answer is no, that does not have to go through probate.
Roy: So what’s the best way to title vehicles for asset protection? I think we kind of talked about that but you can repeat it real quick.
Wayne: Well, I think what you said before is the best way for asset protection and that is don’t own vehicles, lease them, number one. Number two, if you’re going to own vehicles and drive them, have them titled in your personal name, and then have the remainder of your assets in some kind of protective entity. Whether that’s a family limited partnership, a multi-member LLC, an offshore trust, some combination of all of those things.
An offshore trust, by the way, is a trust that you set up for your own benefit. So in that regard, it’s similar to a revocable trust, the difference is you actually get asset protection for an offshore trust because the offshore jurisdiction that we use has a statute in place that provides for the asset protection of those [crosstalk 01:00:53.986] assets.
Roy: Your mentioned leasing a vehicle is the safest right, you did say that?
Wayne: Yeah, it definitely is the safest. And then the other thing that you could do is…You know, I’ve had some clients who sort of insist on creating a special purpose LLC just to hold their vehicles. But that does nothing for you if you don’t have a commercial vehicle policy in place for that LLC. You still wanna be named as an additional insured. And then really to sleep well at night, you wanna have an umbrella policy too.
Roy: And really the [inaudible 01:01:20] it doesn’t matter how you title any of this if you have a good umbrella policy, and then you have insurance. I wanna go to the next question. How often should you update your will and trust? I’ll take a first stab at this. It really depends on your circumstances, if there are changing circumstances, if there’s a change in your wealth, if there’s a change in having grandchildren or great-grandchildren, things of that nature. If someone passes away, those are the kinds of things that would require you to change your will. But I would think every few years is probably a good time to have a checkup. What do you think, Wayne?
Wayne: I agree completely. I do lots of reviews of estate planning documents and what I have found a lot of times is that certain documents like a power of attorney, for example, the statute changed not that long ago. And if you have an older power of attorney, it might not be effective at all. Now, it’s effective in the sense that it was executed properly at the time that it was created. But if you take that into a bank, and ask to recognize it, it’s a long shot that they’re going to.
So you wanna have documents that are updated I say at least every five years if you haven’t had a significant event. And then if you are having significant events, you know, contact your attorney and say, listen, I’m buying a bunch of investment real estate. Or, you know, I’m taking you know, an early distribution from my 401(k), because I wanna invest in x, y, or z and I can’t do it through that vehicle. How do I continue the protections that I had?
That’s one other interesting point is that if you have an asset that’s protected, like your 401(k), and you need to liquidate that for some reasons, you wanna liquidate it into another entity that’s protective because then it’s not considered a fraudulent transfer, you’ve gone from protected to protected. When you go from protected to naked now you’ve got an issue. And then if you have a creditor that was looming during that time, going from protected to naked to protected could actually be deemed a fraudulent transfer.
Roy: I wanna just go these last two slides if we can because they’re really important. Let’s talk about the formalities of the execution of these documents because typically it’s not something you can just do at home without any assistance.
Wayne: So any testamentary disposition typically…I’m gonna speak to Florida, every state will be different. But in Florida, any testamentary disposition has to have two witnesses who are present with the person making the disposition in the same room, all three people contemporaneously at the same time, okay. And then what we do is, we have what’s called self-proving affidavit. And a self-proving affidavit is a notarized document that is signed by those two witnesses that basically is their sworn testimony that says, “Yes, we were with the person making the disposition in the room. And under oath, we swear that all three of us were in the room at the same time that there was no duress, the person appeared to have capacity.” And then that’s signed.
And that’s what’s called a self-proving will, or a self-proving trust because you can take that affidavit to court and it validates the trust or the will or whatever the other form of testamentary disposition might be.
Roy: Now, what’s nice starting June 1st, you’re gonna have remote online notarization, which will allow for the execution of these documents through electronic means. Where the notary actually appears electronically, just like I’m appearing right now. And as long as you provide the appropriate proof of who you are, and there’s evidence that there’s no influence, undue influence those documents will be able to be executed without having the notary physically present. And in some cases, even the witness could appear remotely also in some circumstances.
Wayne: Yeah, that’s gonna be interesting when all that is in effect. There are typically a lot of documents that have to be signed when you execute an estate plan. The power of attorney, for example, every paragraph by statute, that you want to authorize a person to be able to act on your behalf has to be initial. So I’m not sure how all of that is gonna be handled, but it will be…it definitely is going to change the world. And the world is already changing, right I mean, people don’t wanna get together as much now as they did once upon a time. So we’re gonna see what shifts are going to occur.
Roy: And this last slide is important, it’s a little detailed but you know, there are some things we wanna emphasize here. Number one Florida doesn’t have an inheritance tax it’s just like federal income tax for inheritances above a certain dollar amount. And we talked about it being over around $22 million. Other states do have inheritance taxes, but Florida does not. And I’ll let you Wayne go through the rest of these points because they are critical.
Wayne: So as we talked about the federal estate tax kicks in at just north of $11 million, 22 million for married couples, and that is portable. So if you’ve maintained separate estates from your spouse and you die with $1 million, and your spouse dies with $19 million, there will be no estate taxes to pay. The unused portion of your estate tax can be ported to your spouse. This was once upon a time that was not very long ago, by the way, this was incredibly important. We have portability and the estate tax exemption is $1 million or even $5 million there are lots more people that fall into that category. And you know, I think we could even have a reduced estate tax like you talked about or a reduced exemption.
And one other point to what Roy said before, and that is, yeah, there’s gonna be a grab, you know, there’s gonna be an increase in taxes wherever those can be made. And if you think, yeah, I’m not gonna be anywhere near there, think about the amount of money that the federal government is pumping into the system right now. They’re doing that to try to avoid deflation, of asset prices, of wages and things like that. But at the end of the day, if they don’t do that just perfectly, it’s going to result in inflation. That means there’ll be a lot more money in the system, which means wages will be higher, which means you’ll pay more for things, which means you’ll have more money in the bank and get to that estate tax exemption much more quickly.
We talked about gifting as part of the strategy. You can give $15,000 per year to as many people as you want to. If you’re married, you can give a joint gift of $30,000. Again, that’s portable, if your spouse doesn’t have 15,000 to give to their nieces, nephews, sons, daughters, aunts, uncles, whoever you wanna make the gift to, but you do, you can give your 15,000 and then you can give 15,000 on behalf of your spouse as well, right. So it’s a married couple formula.
Roy: Let’s talk about not-for-profits and spouses real quickly.
Wayne: Sure. So, there is no estate tax at all on gifts to spouses. So everything is portable, you can set up a revocable trust so that your spouse, you know, continues to be able to enjoy all of the assets or they can enjoy those assets if they have a particular need. And then when they pass away, your designated beneficiaries become the beneficiary that receive those assets. And then what did you want to talk about?
Roy: [inaudible 01:08:56] you can.
Wayne: Yeah, you can give as much as you want. In fact, if you get to a point where you’re close to the estate tax exemption…and again, I think that’s gonna be a much bigger percentage of the population in the relatively near future. You can start talking about things like charitable lead trust and charitable remainder trusts. Where you can actually, you know, create a trust and sort of take the benefit of the assets that you contributed to the trust, but you also get a tax benefit today, as long as the charity is the ultimate beneficiary at the end of the day.
Roy: That’s why you can have people like, you know, Bill Gates and other folks like that, Warren Buffett, who are giving away substantial portions of their wealth because they’ll avoid paying any kind of inheritance tax on that money that they give.
Wayne: Absolutely.
Roy: So, anyway, I kind of wanna wrap up here. First, I wanna thank Wayne. Wayne is a new addition to our firm, he’s of counsel. He’s obviously in charge of estate taxes, and estate planning, and asset protection planning. And I’ve known Wayne for many years, we’ve worked together and I’m just thrilled to have him on board. Obviously, if you have any questions about estate planning, I suggest you call our office, ask for Wayne, you can ask for me, we can work on it together. We’ve worked on a number of estates together already over the years. And as you can see, we have a great camaraderie. And so we’re thrilled to have Wayne on board. And again, thank you for joining us.
At the same time, if you have any questions about where your unemployment check is, you have any questions about how to get out of a real estate contract, if you’re a landlord and you’re trying to figure out how to collect rents from your landlord. If you’re a tenant, and you’re trying to figure out how to pay your rent, or if you were or a mortgagee and you’re trying to figure out whether or not you should be paying your mortgage. These are all the issues that we’re dealing with 24/7 on a remote basis. And this is the new normal, the new abnormal part of the New America that we’re talking about that we’re all in this together. And we look forward to seeing all of you next Tuesday at “Zoom at Noon.” Roy Oppenheim, all the best, stay healthy. Thank you again, Wayne. Take care, buddy. Bye-bye.
Wayne: Thanks, Roy. Bye-bye.