1. Probates in Every State
If you own property in more than one state, there will have to be a probate in each state where there is property. One state (your residence state usually) will be the state where the primary probate is conducted, and the probates in the other states will be ancillary probates. If you hold property in a trust like I have in my Accumulation and Preservation of Wealth there will be no probate.
2. Do You Really Want to Give the Government an Interest Free Loan?
If you are getting a tax refund, you are giving the government an interest free loan. This year don’t have so much withheld from your paycheck. It works out best if you have to pay just a little at tax time. Yes, you have to be a better money manager, but you’ll be a lot richer. Uncle Sam doesn’t need an interest free loan from you.
3. Naming Your Trust
For a little extra liability protection, name your living trust with an odd name rather than using your own name. It will make it harder for a creditor to find your property. For example, it shouldn’t be the Jarad Severe Living Trust. It could be the Pretty Tree Trust. You can name your trust anything. Always include the date the trust was established as part of the trust’s name. Be sure you use the trust properly.
4. Social Security Trick
Have the big wage earner in the husband and wife team wait until 70 to start the Social Security payments. If you wait until then, you’ll get more each month. Have the lower wage earner start drawing their SS at an early age, then when the higher wage earner’s SS kicks in you can both collect at the higher rate. The higher wage earner will “file and suspend” their SS benefits until age 70 and you can use the lower wage earner’s SS benefits before you both retire.
5. Joint Tenancy and Kids – Bad Idea
Never put your kid’s name on a bank account, deed, or any other asset as a joint tenant. The kid owns 100% of the asset along with your 100% of the asset. (Yes, that doesn’t make sense, but the law doesn’t have to make sense.) Kids are like yogurt – you never know when they are going to go bad. If they go bad, you can lose 100%.
6. Probate Applies to All Assets
If you die without a properly written living trust, your family will have to probate all of your assets that require your signature to transfer. Probate is what you pay the lawyer and it typically takes about 10% of the estate.
7. 1031 to Get Out of Real Estate
There are a number of ways to do a 1031 exchange on a piece of real estate and “get out of real estate ownership.” There are ways you can make it so you don’t pay the tax on the sale of your real estate property. You can end up with an asset that gives you good cash flow without the management headaches.
8. Roth If You Can
You need to go to great lengths to get a Roth IRA. Once you have a Roth, even if there isn’t a lot of money in it, you can start buying property in the Roth and many other things to build your Roth fortune. If you have an AGI of over $179,000 you can’t create or fund a Roth IRA this year.
9. Laws Are Slow to Change
The “legal structure” of trusts, corporations, LLCs, limited partnerships, and other entities doesn’t change very often. For example, the last major change in living trust law was in 1978. How the entities are taxed changes frequently, but the laws dictating the legal structures don’t change often.
10. Disregarded LLC
A Limited Liability Company (LLC) where you are the only owner (member) can be treated as a “disregarded entity” by the IRS. You don’t have to file a tax return for the LLC. The LLC’s income is just reported on a Schedule C with your 1040. You still get the liability shield of the LLC, but the tax convenience of a sole proprietorship.
11. Use Government Per Diem
If you travel for business look at using the government per diems. Go to the website, Per Diem Rates and pick your state and city. You can use the meal per diem, even if you don’t eat that much.
12. Annual Gift Limits
You can give any other person up to $13,000 in 2011 and it isn’t reported as a gift. If you give an individual more than that, then you need to file a gift tax return. You can give as many individuals as you want the $13,000 and not worry about the gift tax. If you don’t have anyone you want to give $13,000 this year to, I will volunteer to be the receiver of your gift. I don’t have to report it as a gift or income. Seriously, gifting can be a good way to diminish the value of your estate.
13. Two Types of Powers of Attorney
There is a general power of attorney and a durable power of attorney. You will use the general power of attorney to sell your son’s car. The general power of attorney becomes invalid if the principal (guy who makes out the power of attorney) becomes incompetent. The durable power of attorney just hangs around in the file cabinet and doesn’t get its power until the principal becomes incompetent.
14. Second Marriage – Watch Out!
If there is a second marriage in the family, the couple had better do their estate planning, because the intestate laws will “screw” either his kids or her kids. It’s a guarantee.
15. Your Estate Includes
Your estate tax will be calculated to include your house, dog, cat, kids, car, all the other real estate, stocks, bonds, IRAs, 401(k)s, other retirement money, your life insurance face value, your little business that you’ve never put a value on, etc. Trust me, the IRS will evaluate it. It’s all there. You’re worth more dead than alive.
16. Power of Attorney
All powers of attorney automatically are void upon the death of the “principal” (the guy who makes the power of attorney). If you think you are going to avoid probate because Dad has a power of attorney, think again.
17. It’s Worth Knowing the Law
The law touches everything you do. If you understand the laws you can make more money at everything you do. Imagine the wealth you can get when you know how to structure the deal, control taxes and keep the crooks out of your pocket.
18. Good Attorney vs. Bad Attorney
It is always cheaper to use a good attorney than it is to use a cheap bad attorney.
19. Sign Documents the Same
When you are signing legal documents, such as deeds, contracts, etc., use the same signature each time. If you take title to your property using your full name, John James Doe and then sign the deed selling the property as John J. Doe, the title will be clouded (bad). Make a habit to always sign the same name. Never use nick names on legal documents.
20. The IRS Hurts
The IRS is your major impediment to financial success, either in your own personal life, or in your business. The only way to control the IRS is to know and use their own laws.
21. Man Overboard Drowning in His Asset Protection Plan
A lot of lawyers and “asset protection experts” will talk you into having a separate LLC, family limited partnership, or corporation for each one of your investment properties, business activities, and whatever else they can think up. They love it, because these guys aren’t bashful about charging for each entity they put in place. Here’s a true story about 2 doctors. The attorney had set them up with 53 family limited partnerships (one for each of their 53 properties) and had charged them $5,000 for each partnership. Then to top things off, he had made the partnerships in his state not the doctors’ state and he had appointed himself as the registered representative for each partnership. In a gesture of kindness, the attorney was only charging $1,500 per year per partnership to be the registered agent and issue K-1s to the doctors after his accountant billed for doing the taxes on each partnership.
The poor doctors called up my friend and stated that they no longer had to worry about asset protection because their lawyer now had all their money. The point is, don’t go overboard. You can’t manage the complexity of more than 3-5 entity structures in your life, unless you pay the attorney your fortune to “manage” the entities for you.
22. Living trusts are revocable and irrevocable
The term living trust simply notes that the trust is created during the life of its creator (grantor, trustor, or settlor). The trust could be revocable or irrevocable. The living trust used for estate planning is almost always a revocable trust, because the creator(s) usually want to get out of the trust if they need to for some reason. When the grantor(s) die(dies), their revocable living trust suddenly becomes an irrevocable trust. (Yes, it always happens that way, because it is pretty hard for the dead guy to revoke his trust, so the law just makes it automatically irrevocable.)
23. Land Trusts – Don’t expect protection
Land trusts are often “sold” as an asset protection tool. They don’t give you any asset protection. They are always a revocable trust. (They could be established as irrevocable, but they never are.) Revocable trusts don’t give asset protection. If they are revocable, the courts can always get the property contained in them. Land trusts can give you some anonymity if you give the trust a name other than your own name. But, they don’t offer any asset protection.