Transcript - Best Real Estate Investing Advice Ever with Joe Fairless
…. sit down with their professionals and understand what they own and what the ramifications if something should happen to them…
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JOE FAIRLESS: Best ever listeners, welcome to the Best Real Estate Investing Advice Ever show. I’m Joe Fairless, this is the world’s longest running daily real estate podcast. And we don’t get into any fluffy stuff. We only talk about the best advice that moves your business forward and today we’ll be talking to an attorney who has been representing clients for over 30 years in trusts and estates, real estate planning and guardianship. How are you doing, Jules Martin Haas.
JULES HAAS: Hi Joe, how are you today?
JOE: I’m doing really well and excited to talk to you and hear you share your insights with your 30 years of experience as a real estate attorney. A little bit more about Jules. He is the founder of Jules Martin Haas, Attorneys at Law. He’s based in New York City, New York and he runs a weekly blog called New York Probate Lawyer Blog and you can say him and his team at their website. You just click through in the [inaudible] page to that. With that being said, Jules, do you want to give the Best Ever listeners a little bit more about your background and what you're focused on now?
JULES: Sure. Thank you Joe, and again thank you for having me to speak to your audience today. As you said I’m practicing for over 30 years here in New York. My practice concentrates in the area of trusts and estates. And really it’s a pretty broad area. You know I deal with a lot of probate issues, I deal with a lot of estate planning issues. And again, all of these types of things invariably cross over into the area of real estate as well and we deal with real estate, we deal with single family, multi-family homes, commercial properties, landlord/tenant issues and the real estate aspect of trust and estates is really very interesting because in most of the states that have significant value typically you’re going it find some type of real estate interest, and there are all sorts of issues as far as ownership and title and transfer matters that cross over into this field. In the probate area we deal with probating of wills, administration of estates when there’s no will, that’s an in testate estate, fiduciary accountings and kinship matters. So it’s really very broad and it’s really a very dynamic area because these are lifetime – people think of estates but they’re really lifetime and death time types of issues. So with that being said, if there are particular areas or questions that you and your listeners have just let me know and I’ll be happy to engage in the discussion.
JOE: Well I wouldn’t be doing my job if I didn’t have questions. So you betcha I’ve got some questions. Let’s talk about – and it’s going to be a broad question, then we can get more specific – but as far as the Best Ever listeners we have, let’s pretend everyone has a real estate portfolio, whether it’s one unit or whether it’s thousands of units, but we have never thought about estate planning. What should be some of our first steps based on your expertise that we should do or that we should think about when we think about keeping our estate safe and secure and planned for properly?
JULES: It’s a very broad question as you said so let me try to narrow it down to a few areas. Number one, what your listeners need to appreciate is that when you're doing any kind of an estate plan, which is a very broad term for all of the different things that people should consider, they need to deal with their planning on a state, not a real estate, a state, like New York state, New Jersey, a state level because your estate is going to be controlled by the laws of the state of your domicile. Domicile is a kind of term apart, but people who deal in real estate and many other people understand the concept, and it basically is, domicile is your primary home, where you live. So you can have a hundred different residences like Oprah, whoever, may have homes all over the world but you’ve got one basic place, that’s the place where you file your, typically your state income tax returns, have a driver’s license and whatever. So you need to think about it on that level because that’s where you should look for your planning advice. And the next basic thing that someone needs to think about is, okay, what does my estate, what is it comprised of. Now, you may have various real estate interests whether it’s one unit or 100 units, but those units aren’t just floating out there. They’re owned in a certain way and the property laws of where they’re owned are going to control how those interests may pass if somebody dies. So for instance, if you owned a real estate interest in an entity, such as an LLC, or a corporation, right, you only own an interest in that company. So if you die, what happens to that interest, because you don’t actually own the property, you own the shares in the company, you own the membership interest in the LLC. And so those entities may very well have internal agreements, like either a shareholder’s agreement or a membership LLC agreement, operating agreement, and those agreements may very well say what happens to the partners or shareholder’s interests upon death. But let’s say you don’t’ have something that formal. Let’s say you DO own something individually, in your name, you own a house or a building, it’s in your name. Again, do you own that building or house or whatever it is in your name alone? If you own it in your name alone and again I’m a New York lawyer so I can only speak for New York, but in general terms most states follow the same principles. If it’s in your name alone, then your will is going to control where it goes. So if you’re write in your will I want to give everything to my wife, my son, whoever it may be, that will is going to control the assets that are in your name alone, and if that house or building is in your name alone, the will is going to say where it goes. But many real estate interests are not owned that way. Real estate interests may be owned jointly with somebody, and there may be joint owners with rights of survivorship. So let’s say that the building is owned by yourself, right, and somebody else, with rights of survivorship. Then, when you die, that interest is going to pass automatically, what we call operation of law, to the joint owner who is the survivor. And even if you write your will and you say that you give everything to somebody else, that survivorship interest in the deed is going to control, and it’s going to go to that other person, if it’s a different person. So when you sit down to do your plan, you really end to understand all of the ownership interests that you have, how they’re owned, in order to effectively plan it. And while I’m just speaking about this topic, just to add one more thing to enlighten everyone, instead of owning it as a joint owner, you may own it as a co-owner. So there may very well be what we call a “tenancy in common” and if it’s a tenancy in common, let’s say you own it and someone else owns it and its tenants in common, YOUR interest then will go under your will, and the co-owner’s interest will remain in the property. So what very well may end up happening is that half of the interest in that property is owned by your estate_00:09:24_ for the interest in the property is owned by whoever the co-owner is. And I’ve seen cases where there are multiple parties and various people die and they don’t do anything about handling the estate and you end up with properties that have multi-generational owners and it’s a mess (laughing). I know I’ve taken a long [inaudible] to get to this point, but again, THE most important thing is to sit down a) with professionals, and b) understand what you own, and understand where it’s going to go. And the principles that apply to real estate really apply to most other assets. And so when you're doing your estate plan, you may think well you know I’m dealing with my real estate interests, BUT you also have life insurance, you have retirement funds, you have all kinds of other assets, brokerage accounts, and the same principles apply as well. So if you have a brokerage account that has a named beneficiary, it’s going to the beneficiary if it’s in your name alone it’s going to go pursuant to your will. So you need to sit down and number one, understand what you have. I mean I have plenty of clients, in fact the other day I spoke with a client, she wants to do her will, a not very complicated estate, said she has life insurance but she said to me I better go back and look at that life insurance because I remember when I took it out, like 20 years ago, I think I named my parents as my beneficiaries, but now I have kids and whatever, you know putting my parents on there wasn’t really what I want. So you gotta go back and look at this stuff because on your life insurance, on your retirement funds, life changes. People die, get divorced, so many things occur. So you need to know where all of these things are going to go in order to first sit down and say okay, what am I going to do with my plan, how is this going to work so you understand all the different parts.
JOE: Here’s a stupid question. Why does someone need to do that? Why do they have to have an estate plan?
JULES: Well, if you DON’T have an estate plan, you can imagine the problems that are created just from the issues that I’ve talked about. So if you don’t know where your assets are going, right, there are 2 things that are going to happen that you don’t want. Number one, your intentions, your desires for benefitting the people that you want to benefit are not going to be carried out effectively. So let’s say for some reason, I’ll give you a very common example that occurs – let’s say you have an older person writing a will and they’ve got 3 children and one child lives right next door to them in the neighborhood. And the other children live over in Europe or across the country or someplace else. And this person says of course I love all my kids, I’m going to write a will, I’m going to leave everything to each of them equally, because that’s what I want, that’s my intention. But because the one child lives near this person, as a matter of convenience and without any really forethought they said, well you know, it’s hard for me to go to t he bank and I can’t get to my broker and all of this, so you know I’m going to put my one child on the account with me and I’m sure they’re going to treat their brothers and sisters fairly and I’m not worried about it because I wrote my will and everything is going to go equally to everyone. Lo and behold, the person passes away, all of the assets go to the one child because their name’s on the account and the other two kids that are sitting out there in California say hey, this is not what our parent intended. Alright? And the one child that gets everything all of a sudden says well, I’m over here, I’m taking care of mom and dad, this is really what they wanted. If you don’t’ do your plan the way you want, your intentions won’t be carried out and equally, the people that you were intending to benefit will be pretty upset. Not only will they be upset, but there’s a very strong likelihood that they’ll be hiring lawyers and be in court and expending a heck of a lot of money to fight about what there shouldn’t have been a contest about to begin with.
JOE: So, in that example, having the one kid’s name on the account supersedes the will that the person who passed away drafted?
JULES: That’s correct. It’s a joint tenancy, it’s a joint account. Many times, people, they just don’t think about it, they’ll go with the child to the bank – I mean, this is just one little example, they’ll go with the child to the bank and they’ll say listen, I can’t go to the bank, my son’s here, how can I do this – and the bank rep doesn’t appreciate what’s going on.
JULES: Oh, put the child on the account with you. No problem. Well sure, 5 years later when the person dies with this joint account, it IS a problem because the mom and dad’s no longer around to say hey, that’s not really what I intended. So this happens automatically, all that child has to do is bring a death certificate in. Under the law the presumption is that the money goes to that child. So you end up having a big fight and it’s something that could be avoided by sitting down and thinking about the plan. And that’s just sort of a simple example, and I’ll give you another one. Let’s say that you don’t’ get around to doing a will and let’s say that you want certain people to have certain things in a certain way and you never write the will. Well, under the law in states, your state, if you don’t have a will it goes to whoever the law says it goes to. So under the law there’s an order of priority. It goes to a spouse, it’ll go to children, it’ll go to parents and brothers and sisters and their children which are nieces and nephews. But let’s say your intent was to say hey, you know, I really want my estate to go primarily to my one niece, or my one nephew, my one child or my one friend, but if you don’t write a will, that will to happen and the law will say well, it goes to your next of kin and your next of kin in New York, the formal term is “distributes”, it’s going to be on that order of priority under the law. Again, your intentions will never be carried out. And this happens a lot, where you do have people that are very close with other people and let’s say they never get married but they’re lifelong friends or whatever, and they have next of kin that they either have no relationship with or maybe do not even know. There are many cases where people have long lost brothers, sisters, nieces, nephews that they haven’t seen in decades, they may love in other parts of the world and when you go to figure out their estate, not only does the estate go to them but you gotta spend half a year trying to find out who they are, and using a genealogist in trying to track them down. So the possibilities of a person’s assets and their estate being left in a way that either they or their intended beneficiaries expect is just innumerable. So that’s why sitting down and trying to do something is very important.
JOE: Based on your experience working with real estate investors, what would be the best ever advice you could give them as it relates to your area of expertise?
JULES: My advice is to sit down with their professionals and understand what they own and what the ramifications are if something should happen to them. And depending on the complexity of their ownership, putting into place the proper mechanism for assets to be dealt with. So let’s say you have a partner in real estate, let’s say you have a partner in a business, you may have a small corporation where you need a shareholder’s agreement or an LLC operating agreement, and these things can provide for how the interest in those entities would pass if somebody dies. I always tell people to sit down, either with an attorney, sit down with their accountant, understand what they have. In many cases it may very well be a lot simpler than they think. It’s not that hard to do and there’s no cookie cutter answer for people’s planning because everyone’s life experience is different. There may be divorces, there may be children from second and third marriages, there may be adoptions, there may be all sorts of post-divorce agreements that have different requirements, or business agreements that have different requirements. There may be debt issues that have to be considered, or other financial considerations. There’s life insurance and retirement funds and all sorts of things that come into the mix. So when people say real estate planning they’re thinking of you know something high falutin’ – but it’s really not high falutin’ – in most cases it’s very simple. You know nowadays the federal estate tax doesn’t kick in, forgot the exact number, I think it’s 5.3-something million dollars this year. And so for many people you don’t even have to worry about estate planning from an estate tax standpoint. And when you put together husband and wife and you combine the amounts that they can transfer tax free, you're doubling that into over $10 million. So people think of estate planning, oh I have to have a lot of money to do this. Well, most people don’t have that kind of money as far as worrying about an estate tax issue. But even if you have $100,000 in a bank account and you don’t deal with it correctly, your estate plan is not going to be effective. So everyone should at least sit down and think about okay, this is what I have, I have these assets, this is how they’re going to be dealt with if something happens to me. The planning really accomplishes a lot of things other than just a will, you know, there are health care proxies which deal with what happens if I can’t make health care decisions for me. There are what are called living wills that express someone’s intent not to be on life support. There’s power of attorney. There’s living wills that can be set up to deal with the disposition of assets and life time disability. So there are just a lot of various considerations and it’s not really high falutin’ stuff. It’s pretty basic. Sit down and say okay, this is my will, I want everything to go to my wife. If my wife’s not alive, to my kids and make sure that your assets are set up in a way so the will or your asset holdings are going to go where you want them to go. You know. Another area that you see quite often is folks get divorced, and that’s fine and they’ve got all these agreements and whatever, but they’ll have a life insurance policy or retirement fund, and they won’t take the divorced spouse off. And depending on the law and when it’s done and it gets very complicated, does that divorced spouse maintain any right to receive that asset because you didn’t think about taking them off it after you got divorced? There are laws that can deal with this in some ways and agreements that people have but sometimes it’s not effective. So you really have to be aware of what you're doing and like I said it’s really to that complicated. It’s really sort of basic when you sit down and you think about it.
JOE: Makes sense. Really quick, we’re going to do a lightening round. Are you ready for it?
JULES: I am ready for it.
JOE: Alright. First a quick word from our best ever partner:
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JOE: Alright Jules, what’s the best ever book you’ve read?
JULES: The best ever book, ever ever?
JOE: Ever, ever baby.
JULES: Ever, ever, I’d say To Kill a Mockingbird.
JOE: What’s the best ever personal growth experience and what’d you learn from it?
JULES: Hmm. I’d say that participating in sports at whatever level is probably the best growth experience for dealing with people and various situations.
JOE: Okay. And what specifically did you learn from that?
JULES: Well, I’d say I learned to deal with people competitively and respectfully, and to play by the rules.
JOE: What’s the best ever way you like to give back?
JULES: I’d say that I feel that in my practice and advising people and having them thank me for helping me with whatever issues they’re facing is very satisfying to me.
JOE: What’s the biggest mistake you’ve made so far in the business?
JULES: We don’t make mistakes. (laughing) Clients come to me. We don’t make mistakes.
JOE: What’s something that’s happened in the past where if you could back and make a different decision, what is it?
JULES: Again, I have a rule, I do not relive the past. I only move forward. So I can’t say that there is anything that I would change. I know these aren’t exciting answers…
JOE: … well, no..
JULES: … they’re pretty basic rules that I live by.
JOE: Yeah, but I can tell you I’ve made 10 mistakes in the last 10 days in business and I learn from it, I don’t live there but I learn from it and I improve my business. So from over 30 years, your business is operating the same way because you’re approaching it as though you’re right out of law school? And you haven’t improved anything as a result of things you’ve learned?
JULES: I would say that we improve every day by just living. Every day is a learning experience, but I wouldn’t say that there’s been any mistakes.
JOE: Hmm. Okay. What’s the best place the best ever listeners can reach you?
JULES: People can get me on my phone number: 212-355-2575. You can certainly email me at email@example.com and you can certainly just Google my name, Jules Haas, and all my information will come up.
JOE: Estate planning was the focus and [inaudible] talk (with us) today about how to sit down with a professional, make sure you understand what you own and what are the ramifications of that ownership transfer, once, not should something happen to us because something will happen to us eventually, we’re going to die. And the components of that estate planning or some of them at least, which is the will, the health care proxy, the living will, power of attorney, lifetime disability and the importance of it to have this in place so that our desires are actually played out once we die or once we’re incapacitated for how we intend them to. So thanks so much for being on the show, hope you have a best ever day and we’ll talk to you soon.
JULES: Okay Joe, thank you very much again for inviting me. It’s been a pleasure.
[are you looking for a hard money loan or do you have a mortgage note that you want to sell? Then email firstname.lastname@example.org If you recognize this company well that’s because David was a Best Ever guest on the show, episode 122 David Campbell and you can email him at email@example.com If you're looking for a hard money loan or if you have a mortgage note to sell]