Real Estate Inheritance (JJ 665)
Real Estate Inheritance
Transcript:
Jack Butala: Jack and Jill here.
Jill DeWit: Hello.
Jack Butala: Welcome to the Jack Jill Show, entertaining real estate investment talk. I’m Jack Butala.
Jill DeWit: And I’m Jill DeWit, broadcasting from sunny southern California.
Jack Butala: Today, Jill and I talk about real estate inheritance. Like it or not, if are a real estate investor or an aspiring real estate investor, get comfortable with the fact that you’re going to buy real estate from deceased people and deceased people’s heirs. It’s just how it works.
Jill DeWit: It’s the coolest thing as an heir by the way, I think, to find out that there’s these assets sitting around and it happens all the time. You know, you joke about, it’s like finding $5,000 in your coat pocket.
Jack Butala: Yeah.
Jill DeWit: That’s what it is to these people. It’s the coolest thing, you know and it’s such a … It’s so common, I think especially rural vacant land. There’s so many people I think out there that own property, bought property, like they were going to do their dream cabin. It’s very common, it was something they planned on doing and then they never did. It’s paid for and just sitting there.
Jack Butala: Right.
Jill DeWit: And they’ve quietly been paying the taxes for years and years and years, knowing that well, it’s going to go to the kids. You and I even look at things like right now, we’re no where near, you know, this point in our lives, but we’re looking at assets now because we’re not 20 and we have kids.
Jack Butala: Mm-hmm (affirmative).
Jill DeWit: We’re actually looking at some of our assets as we take them on going you know what this would be good to have for the kids.
Jack Butala: Yeah.
Jill DeWit: Fortunately, we know the right way to set it up for the kids, so the kids know how to work with it, and I know this what we’re going to cover, part of it in this show today.
Jack Butala: Exactly, we’ll cover it all.
Jill DeWit: Thank you.
Jack Butala: We’ll just call this the Jack and Jill Mythbuster episode-
Jill DeWit: I like that.
Jack Butala: There’s lots of myths about wills and estates and all of it and trusts.
Jill DeWit: Cool.
Jack Butala: Before we get into that though, let’s take a questions posted by one of our members on the jackjill.com online community, it’s free.
Jill DeWit: Okay, Mike M. asks, “Hi All. My current business structure is a DBA for my land business.”
Jack Butala: Doing business as.
Jill DeWit: “Of an underlying LLC, all in retail.” Right. “When purchasing property, what name should I put on the deed? My own? The DBA? Or the LLC?” This is a good question. “What are the tax implications on each? I’m about to close on the sale of my first property and a property of my second, the first for this year, and I want to get things off on the right foot tax-wise. Thanks in advance, Mike.”
Jack Butala: Good question, Mike, so there are certain legal entities that can own real estate, own real property. You as an individual can own real property, a trust can own real property, an LLC can own real property, so there’s only certain entities that can own real property. There’s a few other ones, but those are the major ones. A DBA is just a “doing business as” kind of hey, state of x, I’m doing business as this, but the LLC is behind it.
Jill DeWit: Right.
Jack Butala: So DBA cannot own real estate at all. The reason that you set up an LLC is to … It’s called a limited liability company because you want to limit your liability. If something happens that’s non criminal in nature and somebody’s got some legal things to say about it, they address it with the LLC, not you specifically, and that’s what a limited liability does for you, so buying property in an LLC is the right way to do it. That’s all Jill and I do. Do you own any property in your name, Jill?
Jill DeWit: No.
Jack Butala: I don’t either.
Jill DeWit: Never have.
Jack Butala: I don’t own any property, any real estate, not even cars and stuff I don’t think for the most part.
Jill DeWit: Nope.
Jack Butala: So everything’s in an LLC to limit liability and to answer the last part of your question, that LLC files its own tax return. You can do a [inaudible 00:04:08] there’s lots of different ways, but just speaking from experience and cutting to the chase, the more stuff that you put in an LLC, the better off you’re going to be.
Jill DeWit: Mm-hmm (affirmative).
Jack Butala: Keep your personal stuff out of it, including your mortgage, including your primary residence. You really limit the problems that you could potentially have.
Jill DeWit: Yep.
Jack Butala: Tax wise, you know, I really think it makes sense, you really need to ask and make sure you have a good tax person, but having an [inaudible 00:04:45] and the LLC’s roll all up into it.
Jill DeWit: Right. I’m glad you’re thinking about this now too, Mike. You’re obviously in, you’re this far down the path.
Jack Butala: Exactly.
Jill DeWit: You’ve got, you probably have your website, you know, you know you’re doing it. Finish the thought and have your tax person now and lined up, and then by the end of the year, it’s going to be a piece of cake. You will have done it all and set it all up correctly and it’s just going to be easy for you.
Jack Butala: Exactly.
Jill DeWit: Thank you.
Jack Butala: Today’s topic. Real estate inheritance, what’s you need to know and what you can just forget about. This is the meat of the show. Like I said earlier, like it or not, you’re going to be buying property from dead people and there’s a lot of things that happen, lot of choices that people can make to set up their estate so to speak, that makes this really easy, or it makes it a big huge mess.
Here’s a perfect example of what Jill and I see every single week. An heir calls us and says, “My Dad recently passed away, and I was looking through all of his stuff at his desk, and I came across this forty acres that he owns in Arizona, and I opened the file, I didn’t know he owned it, and I opened the file and your letter’s there. It’s an offer for $8,222 that you sent over in 2008. If that offer’s still valid, I’d love to do it.”
And the first thing that we say, our staff says, or Jill says to the seller, or to the son is, “Is it in your name?” And he says, “Oh, no, no, it’s not in my name, but that doesn’t matter.”
Jill DeWit: “It’s mine. I inherited it, I know it’s mine.”
Jack Butala: “Because I have a will. My Dad willed all of his assets to me. I’m the only heir.”
Jill DeWit: Right.
Jack Butala: That’s when Jill says, ugh.
Jill DeWit: It’s not that easy.
Jack Butala: Love the real estate, I love the price, and I love that your motivation, I’m sorry, I’m going to have to take a pass.
Jill DeWit: Yeah.
Jack Butala: A will does nothing to help us at all.
Jill DeWit: Exactly. Congratulations.
Jack Butala: What dad should of done-
Jill DeWit: You can sit on your piece of property and read the will.
Jack Butala: And granted we can’t choose when we die so-
Jill DeWit: I know.
Jack Butala: A lot does happen this way, but what dad should of done is either set up a trust or he should have put Junior’s name right on the deed.
Jill DeWit: Yeah.
Jack Butala: Two people can own real estate.
Jill DeWit: JTROS.
Jack Butala: Right.
Jill DeWit: Right out of the gate.
Jack Butala: Then Jill gets excited and buys the real estate and there’s nothing to do, so can that be undone. Yeah, it can, and every state’s different. There are ways, certain states you can go through an express probate or file probate documents. There’s a lot of … Regardless of where you are, there’s a lot of stuff that has to go on. In some states, Arizona’s one of them, it’s almost impossible to get it out of that person’s name without spending a few thousand dollars and six months.
Jill DeWit: Yeah.
Jack Butala: And legal proceedings, so more often than not, we just pass.
Jill DeWit: Mm-hmm (affirmative).
Jack Butala: This is one of the major reasons, why there’s so much back tax property that comes up available for sale.
Jill DeWit: Ding, ding. Thank you.
Jack Butala: Yeah.
Jill DeWit: This is what a lot of people, we know them, that started out going, oh back taxes, I’m really going to hit those up, and then they realize, all I’m finding are these problem properties. Well, this is a beautiful example and it’s true. This is what you’re finding.
Jack Butala: Yeah.
Jill DeWit: There’s a reason why they’re in back tax situations, no one wants to deal with it.
Jack Butala: Ding, ding, she says.
Jill DeWit: It’s going to cost too much money and take too long and now it’s not worth it. And you just wasted a lot of time-
Jack Butala: Well that’s what Junior’s saying, Junior is saying, “You know what?”
Jill DeWit: I’m just going to let it go.
Jack Butala: “I have a job and a life and this $8,000, this property from my dad, it’s just not worth it.”
Jill DeWit: Right, it’s gonna cost me six months and $3,000.
Jack Butala: Yeah.
Jill DeWit: Forget it.
Jack Butala: That’s exactly right, Jill.
Jill DeWit: And that’s what happens.
Jack Butala: Now, here’s the good news, we have some members who have made it their career to undo these problems for people for free, so in Junior’s case, we have a specific member in Colorado and what she does, is she says, “You know what, I will solve this for. I’m going to pay you $100 and I’m going to pay all the fees to get this back to where it needs to be. Please sign this, guarantee me that, you’re going to sign everything that I send you, and I’m going to give you $100 and we’re going to make this whole thing go away for you. So you can make a career out of this.
Jill DeWit: Right.
Jack Butala: We have chosen not to do that for a bunch of reasons, but my whole point of the show is this, if you get to know these laws and these rules and how to undo them.
Jill DeWit: Mm-hmm (affirmative).
Jack Butala: And how to locate the people who are actually going through this and help them, you can do very, very, very well.
Jill DeWit: Mm-hmm (affirmative).
Jack Butala: There’s a whole little sub section real estate investors that make a career out this. Just like tax liens is a sub section.
Jill DeWit: Exactly.
Jack Butala: Did you have a story, before the show you were talking about a story, talking to sellers, and they’re not yet deceased.
Jill DeWit: Right.
Jack Butala: But their older sellers and they-
Jill DeWit: Right. You covered the items, but that’s what I was just thinking. This is something I do all the time when I talk to people and they’re calling in, they want to sell their … They think they want to sell their property, we’re not at the right price or whatever it is, you know, one of the things I do for them is you know say they’re 92, they always share this stuff, and I’ll say, look, you know thank you very much, nice talking to you, and she’s like, “I’m gonna keep it for the kids, it doesn’t work for me.”
But I will really at least try to help the kids and say, “Look, Mrs. Smith, please promise me you’re going to at least put it in your daughter’s name now or put it in a trust or something because you’re 92, if you don’t do it before you pass, they’re not going to be able to work with it.” I try to help the sellers and tell them that, you know that’s just me, but they need to do that, so that was my little story. I’ve done that many times trying to help people.
Jack Butala: Here’s a tip. If you have parents who have a lot of assets like this and you want to avoid all the problems, I mean, start to finish, avoid every single problem and taxation. Now you didn’t hear this from me, by the way, confirm what I’m about to say with your lawyer or accountant or whatever-
Jill DeWit: You do know that this on like iTunes and everything, right? And all over everywhere.
Jack Butala: Let’s say you have … Another thing that happens all the time is, someone passes away and the surviving spouse has no idea that they’d been collecting real estate for 42 years.
Jill DeWit: Right. Oh that is the funniest thing, that’s so true, like how are they going to do with all this?
Jack Butala: The best possible thing that you can do, if you have a bunch of real estate, and you want to pass it on to your children, is to re-deed the property in both of your names as joint tenants. So if you and Junior own 4,000 acres in Texas and you pass away, he immediately owns 100% of it, and it’s a non-taxable event. It happens at the moment of your death, he owns everything. He has to file no paperwork, join tenants with rights of survival ship.
Jill DeWit: Rights of survivors ship.
Jack Butala: JTROS. For $12 you can file a deed, that’s a service we could provide.
Jill DeWit: And you could put three people on there, four people on there, five, so what it means is, say there’s three of you on there, say it’s you, or wife, and your son. What happens is, if you one of you passes, now the other two assume the rest of it, now they own it 50/50 basically. Like Jack said, they have to do nothing. It’s really nice, so when it comes time that they decide they want to sell it, now the next person passes, and then the one person is left, same thing, he gets the whole thing. Then when he sells it, he’s the only one that needs to sign. You want to show too that … I do, show that these people passed on and all that good stuff, get a copy of all that good stuff, but-
Jack Butala: You can do it with bank accounts. You can do it with cars, any type of asset, whether it’s real or personal, real property or personal property, you simply add somebody to the title or to the deed and now you both own in and it transfers. It’s a non-taxable event. I can’t express that enough. If you just sign a will, one single piece of paper, I will everything to my son, there’s huge estate tax issues, and probate issues, and all kinds of stuff that goes one.
Jill DeWit: Exactly.
Jack Butala: Are we over simplifying, yeah, but what’s important here is that as a potential real estate investor or an existing one, if you’re an existing one, you know all about this. It’s really, really important to be aware of the fact that this is reality. What people really think especially if people pass away unexpectedly and the kids are just left to deal with the stuff and they have to go to work on Monday.
Jill DeWit: I know.
Jack Butala: They will call you with desperation.
Jill DeWit: Right.
Jack Butala: I mean we get these calls every single week.
Jill DeWit: Yeah, they don’t know what to do.
Jack Butala: Mm-hmm (affirmative).
Jill DeWit: It’s true, they’re looking for help.
Jack Butala: They just want to fix it at any price, right.
Jill DeWit: Exactly. Well you know what too, here’s another thing, they are afraid of the taxes. The property taxes. A lot of times, they really do just want to get rid of it, and get it off their plate. They don’t want it. They’ve all talked about it, nobody wants it kind of thing and they don’t know what to do with it, and they know these tax bills are going to keep coming and they’re a little scared by them, so you really are solving a problem.
Jack Butala: Ever since the down trend that we just had whatever, I think it was five years ago, in 20111 or 2012, people … A lot of sellers I’ve spoken with said, do you know what, I don’t want to get behind on my real estate taxes because I don’t want to go through a foreclosure, so they believe, and this is not true-
Jill DeWit: Yes.
Jack Butala: They believe that they will personally be harmed in some way or their credit score or whatever by the fact that you stopped paying property taxes on a mortgage free property like rural vacant land and that’s just not the case. What ends up happening, and you know I never realized this, what ends up happening when you send a bunch of mailers out, people are going to call you for legal advice.
Jill DeWit: Mm-hmm (affirmative).
Jack Butala: And they’re going to expect you to help them in exchange for the fact that you’re going to buy some undervalued property, so be prepared.
Jill DeWit: Do you know what I find so funny, they do call for legal advice all the time and it’s so funny the ones … Sometimes they’ll call, they think they’re calling the assessor, like we have something to do with it. They’re calling and they discuss their taxes, like what the heck, it’s hilarious. What I find interesting is, a lot of people don’t know this, so property taxes, it’s basically a non-event, the county’s going to take it back, it’s not going to be a ding on your whatever, it’s gonna go, but what’s funny is an HOA, they’ll take it back before the county, isn’t that interesting. If you don’t pay, if there’s HOA fees, they almost have … What is that, Jack? It’s like they’re number one, they jump in before the county and take the property.
Jack Butala: Here’s the real answer, so there’s lien positions-
Jill DeWit: Why is the HOA before the county?
Jack Butala: It’s not.
Jill DeWit: Oh.
Jack Butala: It’s after the county.
Jill DeWit: That’s why-
Jack Butala: Property taxes, they just-
Jill DeWit: They just jump in, they’re aggressive and they just do it.
Jack Butala: Yes.
Jill DeWit: Thank you. Also, I thought-
Jack Butala: HOA’s are for profit organizations and they’re usually a lot more organized than a county.
Jill DeWit: That’s true and they know how to file all the forms and just take the property.
Jack Butala: Because they know if the property takes … If the county takes it back, they’re in a secondary lien position, they’re never going to get their money.
Jill DeWit: Exactly.
Jack Butala: So they have to file first.
Jill DeWit: It’s that funny.
Jack Butala: Yeah, not really.
Jill DeWit: No, it’s not, but funny, odd, not funny ha ha. Thank you, Jack.
Jack Butala: Well, you’ve done it again, you’ve spent another 15 minutes or so listening to the Jack and Jill Show, join us tomorrow, where we discussed establishing seller trust. Oh my gosh, Jill, it’s show number 666, what the [crosstalk 00:16:39] does that mean?
Jill DeWit: That’s scary.
Jack Butala: We should’ve have skipped that one.
Jill DeWit: Whoa, we should’ve skipped that one, like the 13th floor.
Jack Butala: Yeah.
Jill DeWit: And we answer your questions should you have one, post it on the jackjill.com online community, it’s free.
Jack Butala: You are not alone in your real estate ambition.
Jill DeWit: That is scary.
Jack Butala: 666.
Jill DeWit: Thank goodness it’s not like on a Friday … wouldn’t it be funny if show 666 was Friday the 13th, thank goodness that’s not happening.
Jack Butala: It’s not. I was checking when to see it airs and it’s not, that’s good.
Jill DeWit: No, it won’t. We are good, so cool. Hey, share the fun by subscribing on iTunes or wherever you are all listening, and while you’re at it, rate us there. We are Jack and Jill.
Jack Butala: We are Jack and Jill, information-
Jill DeWit: And inspiration.
Jack Butala: To buy under valued property.
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