Tag: Real Estate Law

Decisions Decisions…LLCs vs. Land Trusts for Real Estate Investors?

Good Information from Steve Gibbs of Gibbs Law Firm:

standing man and 2 way street to illustrate decisions involved in choosing an LLC verses a Land Trust?

Hello Friends & Colleagues!

This week’s topic is a key asset protection question for real estate investors who hold multiple properties.  This question concerns how to hold real estate investment property, and this depends upon the goals and preferences of the investor.

The 2 most common “recommended” ways to hold real property investments are an LLC or Land Trust.

Exploring the pros and cons of these estate planning options is the stuff of this week’s article.

For Florida Investors Doing Estate Planning, Florida LLCs and Florida Land Trusts Are Both Effective Ways To Hold Real Property Depending Upon One’s Goals.

An Easy Way To Think About The Benefits and Detriments of LLCs Verses Land Trusts Is That LLCs Are Arguably Simpler To Establish and To Administer Whereas Land Trusts Offer a Some Added Asset Protection Benefits.

LLCs are extremely simple to set up in virtually every State and everyone in the real property world, from brokers to County workers, essentially knows about them.  This means that people are not typically confused by your asset protection structure (of holding assets in an LLC) and this means that your daily life may be less complicated.   LLCs are extremely flexible, and if prepared properly, offer key asset protection benefits.  Of course, by prepared properly, I mean that setting one up yourself without an Operating Agreement may not be an effective strategy, whereas, getting professional help and creating a solid LLC structure goes a long way.

If you set up an LLC for estate planning purposes to hold your real property investments, you’ll need to decide whether you’ll be the only owner of the membership units (a single member  LLC) or whether you’ll have other partner members (multi-member LLC).  In many jurisdictions, such as Florida, multi-member LLCs offer a more solid asset protection plan than the single member LLC.

My recommended process to create an LLC is to file Article of Organization with your State of choice and then have supporting documents created to support your LLC.   The State will require a renewal fee every year and you’ll need to decide who your Registered Agent will be…whether you or a third party.   For more information about what should be considered in creating a solid LLC, visit our previous post.  After this, the real property may be transferred to the LLC and you’re good to go, noting that the LLC needs to be administered with certain formalities.

The Land Trust option is different because it typically is not filed with the State and thus offers greater privacy and anonymity.  A Land Trust is essentially holding real property by contract.  So, the Trust document (contract) is created and the Trustee (who must be a third person or entity) is appointed by the Trust.  The Trustee will essentially hold the real property for you or your entity of choice as the Beneficiary.  So, privacy is an added benefit for Land Trusts.   Key disadvantages in my experience are that City and County officials tend to more easily become confused by Land Trusts.  You also need to be comfortable essentially conveying your title to a third party as the Trustee if you go this route, noting that the Trustee will be bound by fiduciary duties and the terms of the Trust.  Land Trustees often charge annual fees as well.

If you decide to go with the Land Trust option, you can still utilize an LLC as the Beneficiary of the Land Trust, so as to essentially double your asset protection.  For more information about Florida Land Trusts, visit here.

Real Estate Investors In States Other Than Florida, Texas, Arizona, Ohio, Illinois, Indiana, North Dakota, Virginia and possibly California, may not have the estate planning option of a Land Trust.

The states referenced above are the only ones that have land trust statutes and generally the real property must be situated in the State that the Land Trust is created.  This is a key distinction with LLCs because a Florida LLC can hold real property located in Texas, and this is usually the case with LLCs in various States.

Moreover, the Trustee ideally should also be located in that same jurisdiction as the Trust and the real property, so the rules are more restrictive than LLCs, because the LLC Managers can be anywhere although the Registered Agent must be locally based in the State.  Also, with Land Trusts, if you have multiple real properties in the same State, they must be “contiguous” (next to each other) in order to title them in the same Land Trust, and this is not the case with LLCs.

Of course, all of the above is a basic distinction and a great asset protection plan may utilize both Land Trusts and LLCs.  All of the above should also tie into your overall estate plan and this may require directing the real property in your LLC or Land Trust to your Revocable Living Trust upon death.

As always, I hope this clears up a bit of confusion and…

Until next time.

SJG

Contact Gibbs Law Office Today.

For estate and business attorney service in Fort Myers Florida, call us at 239-415-7495 or contact us online to schedule an appointment.

Gibbs Law Office, PLLC
8695 College Parkway #2330
Fort Myers, Florida 33919

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To Landlord or Not to Landlord?

The need for Rental Properties is on the rise in SW and Central Florida and many are jumping in with both feet.  Problem?  They are making Newbie mistakes.  Mistakes that are easy to avoid with a bit of thought and lots of preparation.

Not Knowing the Local Laws:

There are very specific laws governing Landlord-Tenant relationships.  These laws vary from state to state, county to county , even city to city.  In many counties, there are Apartment Owner groups.  If not, there is plenty of information online or at your library.

One example is the timeline a deposit is to be returned when a tenant vacates the property.  Laws that dictate written communication between landlords and tenants concerning late notices.  A few minutes researching these laws can save you lots of time and money when the tenant moves.

But it is my friend’s daughter renting the apartment –

Your prospective tenant can be your best friend, a friend of a friend or even a family member.  Just because you are told they are a great renter does not make it true.  A background check and a credit check should be done for all prospective tenants.  I have known family members who do not have an inkling about their sibling’s poor payment record or even evictions.

There are several online credit report applications for landlords.  Some even  cost below woman-construction-carpenter-installing-electrical-box-power-drill-on-white$50 per applicant.  By the way, ALL prospective tenants should have background checks.

What is a reserve and why do I need one?

Many Landlords do not estimate their expenses properly.  The lawn, the pool company and even bug control are the norm.  But many landlords forget regular maintenance and repair from wear-and-tear.  There are replacement costs and always unexpected repairs.

A reserve or extra funds for emergencies should be set aside each month from the rent to cover these unexpected expenditures.  A Landlord needs to estimate these expenses and put them aside from the collected rents.  Also, only plan your expense reserve based on 10 or eleven months rent.  There may be a month or two the property sits empty between tenants.  Just because the income stops, does not mean the expenses stop.

Renters’ Insurance for everyone.

This should be a no-brainer but one part is overlooked many times.  The apartment and tenants are always covered.  What is forgotten most often – the tenant’s belongings.  The landlord may be responsible if a leak, for instance, ruins the tenant’s furniture.

In some states, a landlord can demand the Tenant to carry Renters’ Insurance.  Check your state and local laws.  Always protect “your stuff” and “their stuff”.

If you are unsure of your local laws, check with the local Housing Authority, the Library or the Board of Realtors.  Many times, books on Landlord-Tenant Laws are available.

Mike Cathell,
Broker/Owner, Investment Property Consultant

Real Estate Services of SWFL, LLC
Real Estate Services of Citrus County, LLC

Cell:  (239) 770-6250   Fax:  (239) 288-2505
Email:  InvestSWFL@gmail.com
 
Real Estate Services of SWFL, LLC
#Florida Real Estate     #Cape Coral Real Estate    #Fort Myers Real Estate
#Real Estate Investing   #Property Investments   #Wholesale Properties
#Wholesale Florida Properties  #Property Rentals

 

 

Lose Your Camel? 3 Reasons To Use A Trust For A Small Estate.

photodune-4691635-camel-xs

Hello Valued Friends & Colleagues!

Today’s great topic warrants some poetic philosophy:

“You have lost your camel, my friend.  And all around you people are full of advice.  You don’t’ know where your camel is.  But you do know that these casual directions are wrong.”   Rumi

There is a great deal of information out there about trusts and estate planning. One common misnomer is that “estate planning” only applies to the wealthy. Another common misconception is that trusts are only appropriate for those who have millions of dollars. So this week’s topic is my attempt to dispel the myth that a family trust is something reserved for the Kennedys along with that Rembrandt in the sitting room and beluga caviar.

Here are 3 reasons why trust planning may be even more important for a small estate than for a large estate.

1. Small estates do not have the luxury to pay seasoned experts to resolve issues with the estate. Often times, small estates can become every bit as complicate as large estates. For example, issues with numerous beneficiaries can arise or creditors can come out of the woodwork.   If there was no trust planning then all of these issues must be resolved in probate through the court system and regardless of the size of the estate, if things get complicated it will get expensive to resolve. The problem is that small estates often do not have the budget for this work and the proceeds to beneficiaries can be become very minimal or even extinguished by legal fees and court costs. These scenarios can be minimized or eliminated by proper trust planning.

2. Probate requires a lot of time and this burden can be more traumatic for small and medium sized estates than for larger ones.  To add to the reasons discussed above, small estates may need to liquidate assets quickly in order to create cash flow and this can become difficult where an probate process has been required and the parties are all awaiting a court order before real property can be sold or other assets liquidated. Larger estates can often hold and bear this burden easier than smaller estates.

3. It can be more difficult to obtain help with smaller estates than larger ones. Simply put, lawyers and accountants swoon to scoop up the larger estates for the simple reason that they are a big payday. On the other hand, smaller estates may be shunned as unattractive and families can face frustration in finding competent counsel and tax advice in settling these estates. For this reasons, family members seeking to resolve small estates often need to advance fees out of pockets to procure the professional assistance that is needed.

As for Rumi, his point is well observed. Many people simply follow the crowd, going along the path of least resistance and thus avoiding planning and this is especially prevalent in smaller estates.

The path of intentionality is required to really engage in your estate planning.   I contend that the naysayers suggesting that trust planning isn’t necessary for small estates have not considered these and other questions and simply may be those who are “full of advice”, but you know that these casual directions are wrong.

So the take away here is a simple reminder to be intentional in your life and family.

I hope this is helpful…until next time.

SJG

Property Manager – Yes or No?

One of the most asked questions I hear from Investors as they grow their portfolio is “Should I hire a Property Manager?”  No easy answer!  Fist you need to assess your interest in facing and dealing with tenants.  A Property Manager is the barrier between you and tenants.  You need to ask yourself:

  • Am I a people person?  Everyone who has ever written a resume claims to be one but do you really want to face your tenants when a problem arises?  Do you want to drive to the property to ask for a late rental payment, for example?
  • How far away are my properties?  If your property is a long distance , then most certainly you need a property manager located close to the property.  Your manager is your eyes and ears for the property.  Our manager takes one day a week to drive past homes to view the property for the owners.
  • How much time do you have to devote to managing your portfolio?  Do you have a full time job and Real Estate Investing is done as a second income or to secure your retirement?  Working a full time job does not allow you to get to your properties on a regular basis, especially if you own 10 or more properties.
  • Do you have the skills or contacts to handle maintenance issues?  Property Managers are either skilled at repairs or have a list of repair shockedvendors they know and trust.  If these vendors receive regular business from the Property Manager, they will respond quicker and even sometimes offer a discount to owners.  If you do not have a manager, guess who answers the call when a hot water tank bursts at 3:00 am?  Plus, do you have a plumber that will respond at that time?  Experienced Property Managers do!
  • How often are you aware of changing landlord laws in your state?  Do you know the eviction process if needed? or even more important, are you willing to go through the eviction process on your own?  Many Property Managers take the time to become certified in their profession.  During this process, they learn the sites and techniques to stay on top of the ever-changing laws.  Experienced Property Managers keep their owners up to date on changes that affect their portfolios or taxes.
  • If the property becomes vacant, do you know how to advertise the opening?  How do you qualify the applicant?  Do you have the correct leasing forms and credit check release forms?  Successful Property Managers do!

In summary, do you want to hire a property Manager?  My answer is definitely a YES!  You need to weigh all the factors but remember your time has value.  Do you have the time to do what an experienced Property Manager can do for you?

 

Mike Cathell,
Broker/Owner, Investment Property Consultant
Real Estate Solutions of SWFL, LLC

Cell:  (239) 770-6250   Fax:  (239) 288-2505
Email:  InvestSWFL@gmail.com

Should I put my Florida homestead in my living trust?

Hello Friends and Colleagues:

So I’m fighting off the Florida summer heat and the doldrums to continue to deliver great estate planning content to you offered like no other law firm.

One question that has often come into my practice, and has actually been the subject of some debate within the legal community, is whether a Florida Homestead should be titled into a revocable living trust?

This question arises due in large part to the unique homestead protection offered under the Florida Constitution. First, when we talk about homestead protection in this context we are not talking about the tax exemption status offered by the county of residence. Rather homestead protection in this context refers to the protection against creditor attachment or protection against liens and/or judgements filed against the homestead by a creditor of the homeowner.

Florida is unique in offering 100% homestead protection provided the real property meets the requirements of 1/2 acre within a municipality or not more than 160 acres outside of a municipality.

Where things got a bit dicey for awhile related to an inconsistency between the 4th Circuit which held that homestead protections were secure within a living trust and a Federal bankruptcy case which seemed to suggest the opposite. Consequently many practitioners were opting not to title homestead property into living trusts for many years. The inconsistency in the court decisions has since been remedied such that now it is clear that full homestead protection is afforded to homestead real property that is held within a revocable living trust.

As a side note…you need to be sure to understand the difference between a revocable and irrevocable trust because the homestead protection is not available for irrevocable trusts.

Another nugget…recent Florida legislation also allows a homestead to be afforded full protection if held in a Florida Land Trust…the topic of a future article.

The take away is that if your homestead is not in your revocable living trust you should have it looked at by your favorite Florida estate planning attorney, hint, hint…

Until next time friends.

SJG

Steven Gibbs, Managing Attorney

Gibbs Law Office, PLLC

8695 College Parkway, Suite 2012,

Fort Myers, FL  33919

Phone:  (239) 415-7495

Fax: (239) 243-9029

Email: info@gibbslawfl.com

Can Your LLC Be Pierced By A Creditor?

Hello Friends and Colleagues!

So many business owners take steps to address housekeeping issues during the summer because there may finally be enough time to focus on “protection” verses “production” before things ramp up for the season and approaching Holidays.
Housekeeping would include making sure your business entity binder is being maintained and up to date.  Your business or investment LLC is in place to protect you and your business; however, often an LLC is vulnerable to be pierced by a creditor?
Understand that “piercing the veil” means to disregard the entity as a legitimate business entity and thereby a creditor could gain access to the owner’s personal assets…so this is very important.
A few common pitfalls where an LLC may become vulnerable to piercing the veil are:

1.  Failure to maintain adequate business records…

Do you keep an LLC Binder with relevant business records in it?  What are relevant business records you might ask?  Generally, you need your annual meeting minutes included in your LLC Binder.  Minutes from your annual should include a summary of business conducted at your annual meeting…this would reference any changes agreed upon by the board of managers throughout the year, major expenditures for assets or personal having been approved, business strategy analysis or changes, etc.  Other records may include resolutions of the managers concerning major decisions or records of the assignment of membership interests to new members…again the list could go on.  The important point is that there is a paper trail in place to support the legitimacy of the independent business entity (apart from the individual owner/s) because a creditor would seek to discredit the legitimacy of the entity if seeking to pierce the veil.

2.  Commingling of personal and business assets…

This issue often is the product of disorganization as much as one of malice…in other words this may not be intentional but owners often times pay personal expenses from the business checkbook or pull out cash for personal reasons.  Other concerns may be using business assets for personal reasons or otherwise treating the business entity as an “alter ego” of  the owner.  In seeking to pierce the veil, a creditor will content that the business entity was not legitimate because it was simply an “alter ego” of the owner/s.  They way to prevent this, in general, is of course to treat business and personal matters separately and document all personal debits from the business as distributions.

3.  Signing business documents in personal name…

How documents are signed, especially contracts, is extremely important and often overlooked.  Generally, business agreements should be signed under the Company Name (LLC name) as Manager.   If a business owner consistently signs personally, a creditor could utilize this fact to again argue that the LLC was simply an “alter ego” for the owner.

So friends, we’ve covered a few of the big pitfalls.  Just know that there are many areas of concern when maintaining your business entity and that competent legal advice is needed to address the specific circumstances of your business and assets.

I hope this was valuable…until next time:-)

SJG

Steven Gibbs, Managing Attorney

 

Gibbs Law Office, PLLC

8695 College Parkway, Suite 2012,

Fort Myers, FL  33919

Phone:  (239) 415-7495

Fax: (239) 243-9029

Email: info@gibbslawfl.com

 

Legislation Affecting Real Estate

From National Association of Realtors November, 2013 Newsletter:

Senate 3% Cap Bill Introduced
On October 28, 2013, Senators Joe Manchin (D-WV), Mike Johanns (R-NE), Carl Levin (D-MI), Pat Toomey (R-PA), Debbie Stabenow (D-MI) and Mark Kirk (R-IL) introduced S. 1577: The Mortgage Choice Act. The legislation is identical to H.R. 3211 in the House. It would make adjustments to the Truth in Lending Act’s (TILA) definition of fees and points to ensure greater consumer choice in mortgage and settlement services under the Ability to Repay/Qualified Mortgage (QM) rule. S. 1577 endeavors to restore a competitive market among lenders by clarifying and rationalizing the definition of fees and points to reduce this discrimination. By doing so, S. 1577 will ensure that consumers have greater access to mortgage credit and also more choices in credit providers. Without S. 1577, both choice and access will be severely reduced, affecting countless consumers and those who serve them. NAR is asking both the Senate and House to ensure the legislation is enacted before the QM rule takes effect in Jan. 2014.

Flood Insurance Affordability Bill Introduced
On October 29, 2013, Senators Robert Menendez (D-NJ) and Johnny Isakson (R-GA) introduced the NAR-supported “Homeowner Flood Insurance Affordability Act” (S. 1610), to delay unintended rate increases under the Biggert-Waters law and its implementation. Representatives Michael Grimm (R-NY) and Maxine Waters (D-CA) have introduced an identical bill in the House (H.R. 3370). The bipartisan measure essentially calls for a 4-year “time out” on further implementation of the rate structure until FEMA completes the affordability study required by Biggert-Waters and also proposes a regulatory solution to issues found in the study. The bill’s delay would apply to any property that is grandfathered or purchased after July 2012, including second homes and commercial properties. The other property owners will still see any rate increases capped at 20-25% a year. The bill would also create a Flood Insurance Advocate within FEMA to investigate and assist property owners with verifying the accuracy of flood insurance rate quotes. The bill was introduced with an impressive list of 15 Senate and 65 House original sponsors. NAR will continue pressing for additional co-sponsorship and urging its immediate consideration by Congress.