Well welcome everyone to another abundance group just advisor training. Today would be week five and it is July 26 2022. And the celebrations on trust advising.
No celebrations nobody's had a win with their client this week.
Yeah, no, there's there's been wins and stuff. I'm just trying to take a foot out. But I would say when for me and stuff has been, there's been some clients that have that are feeling a little more independence. And I think like Margaret even said that she she, after having a quick conversation, got her sort of pointed in the right direction. So she felt more empowered to do things on our own.
Nice. That's wonderful to hear.
Yeah. So I know that's happening all the different time. But it's we don't always capture it, I think.
I think you're right. I definitely agree with you on that. So, as promised, today, we are going to continue with our personal trust instruction, the switch to a different screen.
Just to recap what we went over last time. Last time we started up at the top, we talked about executing the trust, getting the trust notarized, then are all important playing musical chairs. Why do you want to do it? When do you do it? All that other good stuff. How do you do it? And today we're we're picking up is conveying assets and liabilities. Everybody agree that that's today?
Yes, yes, I agree. I thought that was where we finished last week, but
we finished just starting into it.
Okay, maybe that's sort of
us. Yeah. So I do not love the idea of trusted advisors doing conveyances for clients. I think that is a very bad thing to do. And the reason I say that is because there's liability in doing that. Now, Florida, and California, both have licensed document repair programs. And if any of you are interested in doing conveyances and are willing to become a licensed document preparer, we would put you on Julie bearishness team, you would work under Julie, but it could be another income stream for you. So that is definitely something open to any of our trusted advisors. Now, when you're guiding a client on getting their assets and liabilities into the trust, very first thing you want them to do is to create the purchase of assets and liabilities spreadsheet. When I'm working with clients, I usually tell them, if they can create this spreadsheet for us and send it to me, I will then add a column to it. We'll call it column I and I will go down the list of documents that are list of assets and liabilities and put in the link for the exact document they need to use. In order to get it into the trust that much I'm okay. I will sometimes review the documents or at least one or two, just to make sure that they're doing it properly. But that's where the issue is, if you're advising on creation of conveyance documents, that can be construed as practicing law without a license and that would not be a good thing. So you have to be really careful on explaining to them what they should or should not do. If you're teaching, it's a little better, but you have to really teach it. So the easiest way for them to create the purchase of assets and liabilities spreadsheet is this. There's one sheet in it currently. I have them create multiple sheets just duplicate the document in the first sheet and add it to other sheets in the same file. The first one is for all of their personal assets the others For each and every entity that they have, we have clients that have 7080 entities. I mean, that's a lot, but we have that many. So if they have multiple entities, Column G, which reads the name of trustee or beneficiary to credit to, all that means is who owns it now. So if they have multiple entities, it'll make it a lot faster and easier for them to put each one on a separate sheet, each entity or business, not each asset. The other thing I tell them is, let's say they have a piece of real estate, and they have a mortgage on that real estate, I would have them in column, I'm sorry, in row seven, list the asset. And then row eight, immediately below, it lists the liability, which is the mortgage, it makes it cleaner and easier to do the conveyance documents when you flip flop, the asset liability, the asset liability, because what the client needs to understand is in column D, and E, which is the value,
that value must be a number greater than zero. A lot of times clients will have real estate, they bought the real estate paid off the real estate, then refinance the real estate, and pulled the cash out. So they could go buy more properties. If the value of the property less the depreciation and the mortgage come to a negative number, which is quite easy to do, let's say they have a $500,000 property, they paid it off. Now it's depreciated, they've depreciated 300,000 of it. So there's 200,000 left in basis, then they go and refi for 480. That's a negative $190,000 asset value. It cannot convey assets to the trust if it creates a negative value. So by looking at the basis on one line, and the liability value on the next, it will bring to light quickly assets that maybe there's a little bit of an issue with so that we can help look at what can they do to get it into the trust without giving them a negative number. Enough to be I would advise you to contact any one of our tax people, if that happens with clients are working with, don't contact me, because it's going to create a tax consequence. If we put it in the trust, the only way we can do it is to get it to a positive number. So when that negative 180,000, they may end up having no choice but to have 190,000 in gain if they really want it flowing through the trust. It's not a lot of other ways around it. If you convey the asset, you must convey the liability, you can't leave it out. So talk to one of the tax people get their advice on what to do for that client, and then guide the client accordingly. Other than that the purchase of assets and liabilities spreadsheet should be pretty straightforward. Any questions about it before I go back to the rest of the instructions?
The only question I had was the entity type. It doesn't matter. You're just you think are you saying more like LLC S corp, C corpse that kind of entity or even trust like land trusts?
Or if they have land trusts, I wouldn't make them do a separate sheet for each Land Trust. I'd have one sheet that lists all of the land trusts and the personal property trusts.
Okay, got it. That's Thank you. Yeah. Hey, Gina, the same on mine. I've done it by the trust that it's going into because we have for personal trust or business trust or whatnot, instead of by the entity and so I'm just kind of kicking that around in my head, which is better. The
issue is that in your case, you should have a separate file for each trust. So you would have an Annie, Matt, and Andrew and on Chris's, it will combine the assets for the law practice and for Chris on separate sheets. But remember that the purchases of assets and life ility spreadsheet, it has multiple uses. So yes, we use it to help guide the client on the conveyance of assets. But it also needs to get sent in with your tax work tax paperwork for first year tax return, because they got to get the balance sheet put together, and it's this document that's going to create the balance sheet. If you have five trusts and reporting all of those assets and liabilities in a single file, it's gonna get confusing for the tax professional.
Yeah. Well, the alternative was because we've got several different LLC to do it by LLC instead of by the where it's coming from instead of where it's going to. I think that's what you're recommending in the normal case.
What I'm saying is, each individual would have a separate purchase of assets and liabilities spreadsheet. And within the individuals purchase of assets and liabilities, spreadsheets, if they have multiple entities, then they would have the first sheet for them personally and their personal assets. The next sheet for entity number one, a third sheet for entity number two, it goes by the tax return. So each tax return each 1040 return should have its own separate purchase of assets and liabilities spreadsheet. There you
go. Okay, I think I think I'm clear now.
Is that clear? For everybody else?
Yes, yes. Yes.
Okay, yep. So, if we go back to our instructions, what I tried to do in the instructions is to list out all of the assets that they're gonna want on that spreadsheet, and give them links to the documents for doing the conveyances. So, because we work with so many real estate investors, real estate is probably the number one asset type that's on purchase of assets and liabilities spreadsheets for our clients. Now, there's, in the instructions, you're gonna see, use a warranty deed or quitclaim deed, and a bill of sale to sell each building and each piece of land separate. In other words, the land isn't included on the deed for the building. They're separate. So, if you've got a piece of real estate that's held in an LLC, that LLC needs to do an income distribution of equity to its owner, which is a sale from the LLC to the owner at basis. That's done in a single deed in a single bill of sale. Now, the owner is going to turn around and convey that to his trust. And he's going to do a deed for the land is going to do a bill of sale for the building, and he's going to do a bill of sale for the land separately. Let's say that write a deed for the real estate and two bills of sale. One for the land, one for the building improvements. Julie, anything that add about deeds and why we use warranty deeds versus quitclaim deeds versus grant deeds versus any other kinds of deeds that might be Oh, Julie. She's still here. She was here earlier. Well, here, I Ron. Julie is our resident expert on deeds. So if ever a client has questions about deeds, I send them to Julie. Julie and I recently became licensed document preparers. So she does have that credential in addition to the others that she holds. Usually, if clients are confused about deeds, the best thing they can do is just hire Julie to do it for them. One where you're going to ask a question? Or you just answered it. Thank you. Okay, good. Good, good, good. Okay, on the deed, it is inappropriate to put the actual basis value. Deeds show 10 dot loans and other good and valuable consideration, they do not show the purchase price. The Bill of Sale is what shows the purchase price. So make sure your client knows not to put the full purchase price on the deed, it would probably have issues when they go to do the recording later on. What else do I want to say about that there is a bill of sale for personal residence on real estate, real estate is conveyed at basis with one exception. And that exception is a primary residence, a residence must be conveyed at fair market value or as close to it as you can get.
Now, there's a federal tax exemption of 250,000 per person 500,000, for married couple. So if you take the basis, plus the 250, or plus the 500, and it's still less than what the fair market value of the residence is, then we're gonna have a bit of an issue because they really need to convey that property to the trust at fair market value. They could do it at fair market value and do a gift tax return for the difference between the value at fair market value and basis plus 250, or bases plus 500, the difference would be reported on a gift tax return, that's an option. Or they can put it on their tax return and pay the taxes on it. But we cannot do primary residences at less than fair market value. Now, I did have an instance recently where if they had put the house up for sale, let's say it would have been put up at $1.3 million. But they were able to find a broker who was willing to do a value opinion letter on the property and indicated that the value was 900,000. If they can find somebody who can put that in writing on a letterhead, go for it. But under advise the client that in the event of an audit, they don't want to have that be seen as tax evasion. So always err on the side of caution is what I tell the client. And I look at it like this, even though our 1041 returns are not audited very frequently 1040 returns are audited more frequently. When I'm guiding a client on what to do with conveying of assets, I literally am doing it with the expectation that both the 1040 return on the 1041 return are gonna get audited. And I'm going to do what I do to guide the process based on its absolute or definitely going to have this thing audited, even though that's not the reality, just so that we're not putting clients in harm's way. Accidentally, I want to be as conservative as possible. And if the client doesn't like it, client can always not listen to the advice. But I'm going to advise him or her on how to do it in the most conservative way possible. So that is real estate. Any Oh deeds. So best type of deed as a warranty deed. Next best type of deed as a quitclaim deed least is Grant deeds. If you're conveying on a grant deed from the client to the trust, and the trust later goes to sell to a third party. It can create issues with title insurance. Again, get began. Kevin, did you grab that and mute? Whoever that is? Thank you got it. So in that order, if someone is conveying from a land trust, to a personal trust, that's always done on a quitclaim deed from the trustee of the land trust to the personal trust by a trustee. If it is any other kind of conveyance, it's not held in a land trust it's held in an LLC, or it's held personally Only then you've got to look to that jurisdiction to figure out what is it that the recorders office expects to get? Are they expecting a warranty deed? Are they expecting a quitclaim deed? Are they expecting a grant deed?
The goal being to make it as easy as possible when the client does record. Not all clients record their deeds when they execute their deeds, yet the deed is just as valid as a conveyance to the trust. Because a deed is valid at the time of utterance, meaning at the time of execution, not at the time of recording. But if a client is choosing to execute but not record, and they're keeping this property in the family for a long time, you want to make sure that the deeds are not going to create issues, especially if the clients long gone before it ever does get sold by the trust to a third party. So they really need to dot their i's and cross their T's. And if they're not sure of what they're doing, just tell them to hire Julie, Julie charges 250 per property. If there's weird situations, and it's really a lot of going back and forth, there may be an additional fee. But it would normally be 250 for just a straightforward conveyance to the trust. Even if it's an LLC to the client, a client set a trust. So it's not super expensive. That includes Julie doing the recording virtually, she can record in over 1900 counties nationwide. So she really is amazing when it comes to doing deeds even in weird circumstances. Questions about deeds and bills of sale on real estate?
I do just because you didn't mention this deed and I know in mortgages normally deal with this a deed of trust. How does that work?
Kevin, you want to talk about a deed of trust or Julie, either one.
Typically, the deed of trust is just once the mortgage is established. So that's why Julie probably would need to be involved because what they'll want to do is say Oh, and lose also on to but it's a scenario where the I guess easiest way to say it is there's certain states, especially in like California, where we actually have that as our mortgage. So the deed of trust is typically once you have an encumbrance on the property. But the the key thing is going to be whether or not I guess, Gina, do you want to talk about then whether or not we're doing this with the bank's permission? Or? Because most of these conveyances? Were not basically going to the bank? Correct? Correct. So yeah, so that's
a case by case basis kind of thing. Yeah. So in commercial real estate, we don't have a lot of protection. If the bank finds out that liability was transferred to the trust, they could call the note. If the client is concerned about that, they might want to look into it in advance. But they need to be prepared for the bank to say No way, Jose, we're not doing it. Which is goofy because it's a discretionary trust. And the trustee of the trust can choose to encumber an asset with a lien. So the bank's interest is just as protected in the trust as it would be outside of the trust. The only difference is outside of the trust, if the loan went into default, they can reach any assets that person or entity owned to satisfy the mortgage, where if it was in trust, the only asset they couldn't reach would be the real estate that securing the note. But it is still a secured position. It's not an unsecured position. But again, banks don't get the trust. So oftentimes, lenders just don't get the trust and don't want to deal with it. So they'll just say no. on single family up to five doors. We have the Garn Saint Germain act of 1982 that will help to give some protection from a bank calling a mortgage do so that's a good thing, but usually on single family, clients don't even bother to let the bank know No, unless there's some extreme circumstance on multifamily that often well, and on a commercial, they will do anything to add about that.
I was going to say that the lenders should not have a problem with it and notifying them particularly if it's a commercial loan, you definitely want to do that. You say, for estate planning purposes, we're moving our property into trust. And we wanted you to be aware of that. And if they have any challenges to that, then that needs to be brought up and brought out so that they don't turn around and and start a foreclosure proceeding because you did it. And that's on the commercial side. But on the residential side, one to five units, one to four units, actually, it's one through four units. And it that is where you can use the Garn Saint Germain act in the lenders prohibited from calling wrong do.
Yep. And I have had situations where a client had commercial, multifamily and single family. And because of the commercial, he went to the lender to let them know that for estate planning purposes, he was moving everything into trust. And the bank was okay with it, which surprised me. But then he's told me why the bank was okay with it. They insisted that he reclose every single property with a new mortgage in the name of the trust. And for the privilege because they're doing all closing for every property. He was being charged almost $1,700 to do the closings all over again. Only he had about 80 Some properties. So it was not a small bill that he got from Jace. But he wanted to do it that ways. So he reclosed every single loan in the name of the trust. Only one I've ever had that happen with but
I was shocked. I would not have done that. There's no way
I wouldn't have either. I wouldn't have done it on 10 Lou, but he wanted to do that he wanted to continue his relationship with blender I'm like, wow, why didn't you just tell him you don't know what the commercial properties and be done with it. He ended up doing it on all of them. Oh, Ma. Yeah, that's now the other two things to be aware of when it comes to deeds and recording of deeds. First is transfer tax. Oftentimes, because it is actually a sale, not a gift. Oftentimes, there is a transfer tax or documentary tax that is going to be due on recording of the deed transferring it to the trust. Some states there's exemptions that allow it to be exempt, as long as there's no change in beneficial interest, which means the client cannot be the trustee. Whoever owns the property today must be the sole beneficiary at the time of recording. That's true in Pennsylvania. That's true in Maryland. I've had a lot of success with getting transfer taxes zeroed out, using the argument that there's no change in beneficial interest. It's being done for estate planning purposes in the state of Pennsylvania. Now, we also have California to deal with, and California as prop 19. Prop 19 says that when an asset is transferred to a new owner, it's going to get reassessed for property tax purposes. Unless it's a conveyance with no change in beneficial interest. Now, California's property taxes are kind of wacky, and many times properties have been in families for generations. If the conveyance to the trust is gonna cause a reassessment for property taxes. That is not a small sum of money. The guy that paid the 1700 bucks to have all of his mortgage is done all over again and reclosed. He didn't listen to instructions. And when he recorded the deed on his biggest property, he was still the trustee. Property got reassessed an additional $220,000 a year in property tax. So we're fighting it now or appealing it. We had to go like musical chairs, we had to do all kinds of stuff and so far is gonna pay it up front or they will not actually take it on appeal. So, in California, it can be nasty. clients need to understand that. And for that reason on California real estate, it is a very strong suggestion that they work with Joe McHugh to get those deeds done. Or work with Julie Barish. Joel do it if it's in LA County or there abouts. Julie can do it anywhere in California, but they need to follow the rules. If they're not going to play musical chairs and become the sole beneficiary during the time of the recording. Then they could be looking at a big tax bill for property tax purposes. And it costs questions about those topics.
Hey, Jean, its Bruce. I just want to offer that I know Joe's done some northern California ones as well. I guess he's just doing those remotely by mailing the men but he can. And he has.
Yeah, he has. Yeah, Julie can do it out. I've talked to Joe extensively. Remember he is my partner. Yeah. So he prefers to stick to LA County because he knows LA County. Sure. I know he's Julie's probably more knowledgeable outside of LA County. He'll do it. But he's not as knowledgeable as Julius so from an advising perspective. It is still better to use Julie outside of LA County. Makes sense. Okay, can we move on to vehicles or anybody else have questions about real estate? Questions or comments? Julie, are you back by chance? I'm here. Do you want to talk a little bit about the differences in warranty deed, quitclaim deed, grant deed, etc. And why you use one versus the other?
I can that's not a problem. Typically, the name warranty deed means that you are warranting or guaranteeing the title that there are no title issues. But I had an issue where a title company would in Texas specifically where they wouldn't accept a quitclaim deed. Even though quitclaim deeds are legal in Texas, the title company wouldn't accept it. So we had to do a warranty deed. And the difference between the two a quitclaim deed is you're just transferring your interest in the property to the trust, you're not guaranteeing their note liens, you're not guaranteeing anything is just you're transferring your interest. The warranty deed, your, you are warranting, as I said earlier, and guaranteeing that that the title is clear and clean. The grant deed is really specifically it's very confusing. A grant deed in California can be either the mortgage is what I would call it, or the grant deed is the deed whereby you're transferring the interest in your property. My inclination is to not use a grant deed because it's just to me it doesn't have as much weight or as strength as either a warranty deed or a quick claim deed. Would you agree Gina? Yeah. And as I said, Texas does allow quitclaim, but the title company wouldn't take it. So it is goofy. And a lot of times, I've had to call the clerk's office or the recorders office and ask them, which would you prefer? For example, even though electronic notarization in Texas is legal. The clerk said we prefer that you not do it. Which is crazy, because Texas is one of the certified states for remote online notary. So
each makes less less sense to me than the first.
Yes. And, for example, Maine, I have someone on here who I'm doing a deed for Maine. Maine will not accept no electronic signatures, notarized signatures, but we'll allow the electronic recording of the document.
Now that's even goofier Come on. Seriously. Yeah. Wow. That's nuts. That This is why Julie is our resident expert when it comes to deeds.
It's it's not in Florida, I'm easy. Florida is super easy. We don't have to do musical chairs, we don't have to do anything simply that we do it for estate planning purposes, boom $10, you pay doc stamps or transfer tax on that $10. And that's it.
Wonderful. So our attempt,
Florida is God's country go right.
We are working on a plan for a white glove done for you service that can be offered to clients, especially for ultra high net worth clients, they need it, it's not just that they would want it, they need it. Especially when you get clients that have several 100 properties. So it's not ready to go yet. So I'm not going to talk about it in any more detail. But know that it is something I'm very interested in having. It is not something that will be offered to every client. If they're not the right kind of client offering a done for you version of implementation is going to make us have so much gray hair. I don't know how else to say. But for the right clients, it is something I'm interested in offering. And Samantha will definitely be talking to you about how you can help me with that. Okay, no problem. I knew that thank you. Okay, so let's move on to vehicles. Vehicles are easy. They conveyed to the trust at Kelley Blue Book value, tell them to be honest about the value, they shouldn't try and stretch it to get higher demand No, just whatever the value is on Kelley Blue Book. That's what the value is. Now they have to convey the asset. And they have to convey the liability. If they have a lease, it's just an assignment of lease document. If they have a loan, it's a bill of sale, as well as an assignment of note. There are two documents for vehicles. One is the bill of sale for motor vehicle. The other is the transfer of motor vehicle. They asked for almost the same info. But in some BM B's, they will not take the bill of sale they want the Transfer Vehicle form. So whichever one they want, you've got I usually tell clients don't even think about going and recording it at the BMV right now. Because if they do, I can't think of any state where this wouldn't be true. They will have to pay tax on the sale. No questions asked. I tell them just hang on to the paperwork. It's legal, it's in the trust. It's enough to add the trust as an additional insured on the automobile insurance. And just hang on to it until you're ready to sell the car or trade it in. So I did it on mine last year was so easy. I brought in my assignment of lease form I brought in my transfer of a motor vehicle for him. I gave it to them when they then got a my new car and took title to my old car. They then filed the paperwork and showed the chain of title and everything was great. I didn't have to deal with it at all. It just so much easier and less expensive to do it that way. But they do need to get the paperwork done and executed. So it should not wait on that. Any other questions about motor vehicles? Okay, other assets. Other assets can mean just about anything, appliances, household furnishings, jewelry, I have a very expensive guitar. Literally any asset that adds value can be conveyed to the trust. If there's a liability attached to an asset, it goes with the conveyance of the asset. So I had someone who had just bought a new bedroom set and a new mattress and boxspring to go along with it. And they had taken out financing for 12 months same as cash. So when they convey bedroom set and the mattress and boxspring they simultaneously did an assignment of note to assign the 12 months same as cash to the trust and now the trust owns it the trust can legitimately pay for it doesn't matter what the asset is, as long as it's legal.
Gina, how critical is it that you get every last lawn mower and tool and, you know, musical instrument in the trust? I mean, you just continue to own it yourself, is it going to have major implications?
No, we're going to have a poor overwhelm that clients can execute that basically says when they die, if there's anything that wasn't specifically conveyed, it pours over into the trust anyway, it usually doesn't make that much of a difference on a demand note if you've got every tool or not. And so I created a household inventory sheet for people to use. It's in the conveyances folder. That household inventory form is really helpful. What's it called home contents inventory worksheet. And if they just take this out, print it out, they can go around from one room to the next in their home, and just make a list of all the things that they have. Now, the way I created this, I did it so that it can be used for two things at the same time. Number one, it can become an exhibit to a bill of sale to convey all of the household furnishings up on time. To do that, all they really need is what the value of the asset is at the time of the conveyance. However, it can also be used to send a copy of the home contents inventory worksheet to the insurance company that's insuring your home. To do it that way, it's a really good idea to at least put in the manufacturer, the model number, any details you can put in there, serial number, etc. So that it really does identify it for insurance purposes. If they're going to have to do something to document it for the conveyance, why not do both things at the same time. I've even suggested to clients that for things like collectibles, that they should actually take a picture of each and every item in the collection. In addition to outlining each and every item and the value, so that in the event there is a total loss, whether from a fire or theft or some other reason that I'm not thinking of they've got the proof that they've already submitted to the insurance company, which is gonna get them a much higher amount in the insurance payment. So if it increases their demand known and it helps protect the stuff and its value, even better, why not use it for both things. They could always do it in two phases. Initially just do a short version, get the values figured out, use it as an exhibit to a bill of sale and then over time go back and fill in the details so you can eventually get it over to the insurance company can be done either way.
Yep. On the worksheet it's gonna go through room by room, the things that you're likely to have in each room. I don't think that I missed anything. But if anybody thinks of something that should be on you let you know and I can always have it added. It includes your laundry room, utility room crafts, room, bedrooms, living rooms, dining rooms, kitchens, etc. If they need more space than just having duplicate one of the bedrooms and make it into the next bedroom. I don't think I put something in here for a garage. Oh, outdoor seasonal, that sort of us. Oh, I did put garage and storage shed. So it's pretty comprehensive. Even the attic isn't that because my folks have a ton of stuff in their attic basements in there. And there's several pages of additional items that they could add in if they needed to. So
where do you want to add value at the current time?
Ah, where would I put that? I usually cross out purchase price and put purchase price slash current value. So let's say I bought a sofa in fact, I have myself as being delivered tomorrow. I just bought a new sofa 6004 97 I think is my purchase price. If I go out and look for what I would convey it to the trust that if I hadn't bought it in the name of the trust, which I did, I would probably see somewhere around 5500 to 5900, it's usually a little less than what you would have paid for it. And I would just show both numbers on that. That's the hardest part of this, this particular worksheet, hardest part is getting all the values, because you got to figure out where you're gonna get them from. And you want to use fair market value, which means you're gonna have to go look up online, each and every one of the assets. If you've got a lot of stuff, and you're not a minimalist, then that can take some time to put all together. If you want to group it together by category, all the sofas come up with an amount, all the silverware come up with an amount, they can group it together by categories to, it doesn't need to be totally exact. It needs to be a best guesstimate. But just like with everything else with the trust, a reasonable standard applies. So however, they're going to value all of the household contents, make sure it's consistent from one to the next. And if there's a way for them to come up with a justification for it, Google things like how do you value your household contents? How do you value it for insurance purposes even. That would be a reasonable standard that you could use meeting minutes to document. And in the event of an audit, you'd have a lot less of an issue. You might even call your insurance company and ask them if they have anything they can share with you on how to value the contents of your property.
I can't think of anything else related to other assets old jewelry, with jewelry, if they have an appraisal does not need to be an appraisal within the last 90 days. Unless they want to add it as scheduled property on their insurance, then that usually has a deadline, you can't have an appraisal older than X number of months, it's usually somewhere between three and six months. Do they have to get an appraisal if they don't have one? No, they don't not on jewelry. But again, reasonable standards. So they may not be able to convey it at the full value. Unless they go and get an appraisal done. It's a good argument to make in the event of an audit. If the asset is valued for insurance purposes at the same value it's being conveyed that makes for a much stronger case of why it was sold to the trust at that amount.
One second.
Tech that was supposed to be at three o'clock us showing up at one nice. Okay, so we're gonna hurry. Notes Payable and other liabilities. I get asked at least once a week, can I put my student loans in the trust? Anybody have an answer to that?
No, like No is the answer. Yeah,
no. The answer is
no. If it's not a loan for past education, and you're now going to go to school after inception of the trust, that totally can go into the trust no problem as long as it's for a trustee or beneficiary. But if it's old student loans and the education predated the trust, nope. And that's true of any kind of liability if it predates the trust, nope. So a lot of times when the client's trusts brand new, and they can't yet get credit cards for the trust, the only way they can get credit to use for the trust is to assign a current personal card to the trust. Well, they really should pay the balance off before they do that. Because otherwise it's going to be an accounting nightmare. Whatever outstanding balance that is on the day, it's being conveyed to the trust and used for the trust, the trust can't pay whatever the balance is. So they're gonna have to personally pay part of it and have the trust pay for the new purchases and trying to keep that straight. Really difficult. I recommend going and getting a secured card if the only card you have have balances and can't afford to pay it off, go get a secured card in the name of the trust by its trustee and use the new secured card, just have a card that you don't have to have that accounting nightmare with because it really is a nightmare to try and do it with a card that you're carrying a balance on. And do all the other things we teach you to do. Like, once you've got your trust set up, go apply for your DUNS number, and start establishing corporate credit sooner rather than later, we will have one of our training calls on corporate credit for both of the trusts. So I'm not going to touch on that in detail here. But know that that's the credit card situation. Any other loans, if the asset is being conveyed to the trust, then the loan can also be conveyed to the trust. Next part is going to be going into trust bookkeeping. Before I go into just bookkeeping, any other questions or comments related to conveying of assets and liabilities?
Just a question for the record. When people before they start this, should they have separate addresses for their business dress and a separate address for their family trust?
Good question. They can have separate addresses, they don't need to have separate addresses. Now, I have been told when it comes to building corporate credit, that if both the business trust and the personal trust have the same address, that might be a strike against you in building corporate credit scores. Other than that, it's not necessary to have two totally separate addresses.
Right. That's why I was asking because you mentioned the corporate credit. Okay, and we're still referring people to Utah for the for either
address, South Dakota, not Utah.
Sorry. Okay, thank you. That's where Prime alliance is. Okay, South Dakota. Yeah,
if you go to the bottom of abundance group.com forward slash vendors, there's a mail service that can act as what's called a personal Registered Agent. So on behalf of the trust, you can sign this little piece of paper, appointing this service as a Registered Agent for either or both of the trusts. That just gets filed with the Postal Service is the trust ever got sued, it could get sued in a way that the mail service could actually sign for service. Any other questions about assets and liabilities and getting them into the trust? One other comment about it. If they have a business trust, and their income in the business just is not strictly passive income, like from rent, lease, or intellectual property income, or capital gains income. It's not one of those to the business just should not own the assets. Because the only way we can mitigate tax liability using the business trust is by making use of an equipment and intellectual property lease. To do that, that means that the personal trust holds the assets and leases the asset to the business trust for up to 70% of the net profit in the business. I have a lot of clients who have partners, and their partners aren't necessarily getting trusts. So they don't want the asset out and the client's personal trust they wanted in the business trust. And they're totally free to do that if they choose to. But it's going to mean they're not going to get anywhere near the level of tax mitigation that they could have had. The only way you can get tax mitigation on active business income, if the business trust owns the assets, is by taking whatever the net profit is passing it through to the personal trust and then having the personal trust, donate it to the foundation. The business just can also donate it. So either you're gonna have to take all your profit and put it into the foundation. If you have active business income, or you need the person won't trust to hold the assets or it can be leased to the business trust. I have a relatively new client who happens to be a CPA, he hasn't even been on any calls with us yet. And he, he's young, he's 40 years old. He's not opposed to paying some taxes, but he thinks he's paying way more taxes than he should. So he's setting up a business trust and a personal trust, he's putting his assets in his personal trust and leasing them to the business trust. And he's made the decision that he's gonna use actual fair market value for the lease payment, he's not going to just compute 70% of the net profit and use that number. In his case, that would mean a lease of about $700,000 a year. So he's making about a million net. And he thinks that that's way too high, given what assets he has in that business. So he's choosing a number of around 50%, he's gonna have a $500,000 annual lease payment, he, he loves that idea. And he knows it's gonna mean he's gonna pay taxes on it, probably 30 to 40%. And he's good with it. So it just depends on the client. Some clients are so opposed to taxes, they want to stretch everything to the absolute limits, they can do that if they choose, not something, I think is a great idea to do, especially if you really understood what I said earlier, that during implementation, I approach it with the idea that it is going to get audit it if you stretch it, and it is going to get audited. That could be about St.
VENA to add to that I had a conversation with a CPA. And the story is that the conference room was painted, and there was one end of the wall that was black. And then all the way through the room were different colors of gray. And so there's a dark gray, medium, gray, light gray, and it went all the way to the other end, and there was a white wall. And then the CPA brings his client in. And he says, Okay, this is what this is, you tell me which area of the room you want to sit in. And we'll talk about your situation based on that.
I love that idea. Oh, that's too funny. But it's the God's honest truth, isn't it? When it comes to this kind of stuff, there's all these shades of grey, and there's white on one end and black on the other end. And how how tolerant of risk is your client, I would love to develop a risk assessment for clients to take in the onboarding process. So that as trusted advisors, each of you can get a better feel for how risk tolerant or risk averse the client is. Because implementation is always going to have choices. And it comes down to how risk tolerant they are as to how they're going to choose to do it.
Yes, in my trust training, I have something called the paranoia scale. Ask people to look at the paranoia scale and choose where they are on there as to how much they're willing to do based on the paranoia that they have.
Absolutely. And, you know, the paranoia skills, a great example, too, I love that you do that. But from one decision to the next might involve a different kind of risk. And so sometimes they're on one end of the spectrum on one kind of risk and a different end of the spectrum on the other kind of risk. So you really need to come, we need to come up with a risk assessment that can look at all the different kinds of risks, give them examples and stories, maybe even call it the paranoia scale by Lou Brown. And get them to help us serve them better. By helping us understand where they're at. Once we understand that it makes it so much easier to guide what they're going to do. All we can do as advisors is advise, it is up to us to tell them when those risks don't expect the client is going to know that there's risk. Let them decide for themselves how far down that scale they want to be.
But an example for that is have a client that has a limousine company and we ended up putting each limousine in its own trust, so that it would separate the liability of the limousines from one another. Because, you know, crazy thing really
good ideas. Absolutely. And the other put every limousine in a separate division in a business trust, if you had a business trust,
yeah, you know, I need to circle back to him and sell him the business trust, he definitely needs it. And there's another one that has daycare centers. And that would be from a risk assessment standpoint, you know, very high risk a probability versus somebody that owns land. And when it doesn't have any kind of income or activity on the land, you know, there's, there's so such a big range of spectrum based on what people own. And like you said, it really does depend what's in the portfolio, because some things could be very low risk, and other things could be very high risk.
Yep. And that's why we did the business, just the way we did it with the divisions, talk about a great tool for reducing risk, oh, my gosh, that is the single most powerful tool we have for reducing risk.
So Trump's bookkeeping is an entire call unto itself. So I'm not going to jump in the bookkeeping today. But that will be where we pick up next time is with trust, keeping and keeping from the business trust versus the personal trust, it's identical, it's not done differently. The only difference is there's more chart of account numbers for business trusts than there is for personal trusts. But the same principles apply. I am not an accountant, I don't ever want to be an accountant. I don't come from a financial background. And figuring out bookkeeping was one of the hardest things I've had to do with regard to the trust. So you'll notice from time to time that what we do with our books, it might change a little bit from one period of time to another. And it's just because I'm not an accountant, and I'm having to learn accounting. So we've got lots of brilliant accountants in our midst. And I will look do you guys don't want to in the areas in which I struggle, but the basic principles are really the same from the business trust to the personal trust. If you understand bookkeeping, for a business entity of any type works the exact same way with both the personal trust and the business trust. Just know that bookkeeping is absolutely crucial to the long term success of the trust. If clients aren't keeping good books, the trust is going to end up in trouble at some point, it's just a question of when you cannot document too much with the trusts. So document as much as possible and go a little overboard if necessary. And bookkeeping is one of the things you use to do that. So what do you guys taken away from today's call?
Gina? I have one question. If we go back just a little bit. This Anthony. Yeah. So um, one of our conversations like last week, we had a case that had few assets, like fixed assets that were not depreciated. And they had some intellectual property that was not established on the balance sheets. But clearly, that seemed important from our conversations, especially in relation to establishing a lease or licensing agreement for the use of that IP. Could you quickly touch on IP, when it needs to be established and conveyed? And, you know, we talked about the values. So I feel pretty comfortable with that. But just IP in general, was something that I didn't know much about
many different forms of intellectual property. And I plan on going over this Anthony because it's in the business trust instruction. So I'll go over this again, when we talk business just today we're talking personal trust, okay. But there's many different kinds of IP. There's books, there's info products, there's coaching programs, there's SAS platforms, there's software. There's client lists, prospect lists, operations, manuals, all of those things are intellectual property. There are two parts to the valuation discussion. There's How do you value the IP for purposes of conveying it to the trust and then there's a How do you price the lease or licensing agreement between a personal trust and a business trust, they're totally different things, they're not one in the same. If the client's balance sheet did not have any of the IP on it originally, when we go to convey it, we probably should not convey it at a big number. unless we've got documentation, otherwise, that could be a giant red flag with the IRS. There are several different formulas for valuing intellectual property. And there's at least four or five that are really mainstream just google how to value intellectual property, you will see what I mean. So unless clients have records and books to prove the IP existed prior to the trust, and now we're going to convey it to the trust, and they can form a reasonable basis for using one of the various methodologies on valuing it, then we convey it to the trust at a nominal sum, like between $10 and $100. And leave it at that. Then we turn around and do the valuation on how much should the lease agreement or licensing agreement be for that IP. Now, IP is one of the few assets that can be held directly in the business trust, because it creates passive income, not active income. So there's no issue with a partnership, having a division in the business trust that owns the IP is still going to get 100% tax deferral. When we go over the business trust itself, we'll be going over ways of valuing the IP to get it into the business trust, and valuing the IP for purposes of lease payments and licensing agreements. Awesome. Does that answer your question?
Yeah, no, I'm definitely looking forward to the business trust, because that's exactly the question that I have right now, kind of valuing to get into business trust, and then at what value to do the lease payments and
the kinds of businesses that they have Anthony, I can't believe the balance sheet didn't at least carry goodwill as a line item.
Or goodwill, I believe is is an excess of purchase price over the fixed assets and overall value. So goodwill is really only established when you purchase the business. So I don't think that they would be able to establish it. But clearly the majority of the business value is based on their intellectual property. So that's definitely kind of a big question mark, for me, because that's really exactly what they're selling when they go to sell the business.
And the other thing to look at is how to value a customer database or client database, Google that phrase as well. Okay, it usually comes down to an amount per client or customer. And that the older the business is, the easier it is devalue the client list, because they have historical numbers, and they can go and see how much was the customer worth? Well, we can then determine by a two times or four times multiplier, how much value to put on it, when it's being sold to another entity. Yeah, so
they have a idea that the sale of the customer list is essentially going to be over two years half of the annual revenue of the client per year over that two years. So they get essentially the multiples 1x gross revenue from the client. And guess what my question is how to get that into the trust. You know, not at that value out there. So they're not just fully paying all the capital gains before they put it into the trust? Is that nominal value of 10 to $100? Sounds like
what? Yeah, if it wasn't on the balance sheet to start with, and they don't have documentation as to what it costs them to develop the client list. Right, then just go with the nominal amount. Okay. Perfect. We'll do is the lease payment piece that we really need to work on for them?
Right. Gotcha. Okay, definitely answered my question.
Thanks. Any other questions before I ask for takeaways?
Yes, just a question because someone mentioned clerk office earlier. Is it ever recommended to put a copy of your certificate of trust in a clerk office and then let it marinate for 30 days and take out a certified copy and keep that
at home? Marinate for 30 days and then take out a certified copy.
Yeah, so you kind of like, have it on record. So if something happens to you or anyone and they can't get to your paperwork in your will not your home, but it's on the record is what I'm trying to say like, we know that you you keep it at home, but I'm saying is it ever recommended to first the first question would be to put a certified copy, I mean, to put the certificate of trust on the in the clerk office and have it recorded. And then the second one would be you and I think I forgot the word. Anyway, it'll sit there for 30 days, and you could take out of take it out a certified copy of it, because it's almost like even heard of that before. Yeah, it's kind of like putting a notice out there. So instead of putting a notice in the paper saying, Hey, you claim this if you don't take this, it's mine, whatever, you know, like a DBA people do with DBAs and stuff like that. Sometimes. It's like it's the common law way to put something on the record and then let it in, curate and then you curate, and then you take it out 30 days later, I was just asking if you if it's ever recommended, it came. That question came to me before and I've had just brought it up with someone mentioned clerk office.
I'm trying to think of why you would need it to be certified, especially if you're using the property or no property versions of the certification of trust, because they both lists successor trustees, and the property version will also list beneficiaries, both of which can be changed, as you know, by the trust protector effortlessly. So getting a certified copy, what is it certifying other than it is in existence? And by virtue of having the notary stamp, authenticating the signature and validating the idea of the individual? And know that you need anything more than that? Julie, can you think of a good reason for doing this?
Julie must be on phones today.
No worries. I just Yeah, I was just curious if we
should put a copy back. But I didn't hear the question. I apologize.
So Samantha was asking, If I ever thought it might be helpful to file a certification of trust with the clerk's office, let it marinate for 30 days, and then go and get a certified version of the certification of trust. And I can't think of a reason that that would be necessary. The signatures authenticated and the identity of the individual signing it is authenticated by the notary, can you think of a good reason for doing a recording like that, to get a certified copy of it?
There's no reason in my opinion to get a certified copy of it. Because the the if it's notarized the notary has actually certified the signatures via identification or personal knowledge. And I I did hear the original question. And it seems as if they want to use it as a way of notifying the world that there is a trust and it exists. And if something happens to them that they need to look to that trust. That that would be the only reason in my opinion why it would be there.
Right? That's correct.
And that's what I would think too. But that's an event that maybe you're listing somebody else that would take over in your place if something happens to you, but they aren't aware. Where do they go to find out they're they're aware, but our successor trustee has to sign off on the initial trust anyway, when it's notarized, so they would already know.
Often oftentimes that's not true. The successor trustee isn't brought in until they they actually accept the position act. Yeah. And in some instances, some people do ask their successor to come in and sign in, they're already aware. What I'm finding is not a lot of these trust is many people haven't even designated a successor. And when we start talking about doing musical chairs, they freak out. Oh my God, who would I ever give this to to run? And trust? Yeah, in my opinion, and I know Gina, you're short on time. These are things that as a trusted advisor, we You all have to start getting them to think of that, because mom and dad or or the trust protector and the trustee can be riding in the same car and you just never know what happens. Yeah. And if nothing, and if nothing is put down, who steps in?
That much more important with minor children?
Correct? Yeah. And Julie will have to probably revisit this because there's some new stuff that we're starting to learn, that you might not be aware of, since you're busy as well. But Cynthia Shriver is diving into in terms of the common law side of things
I've been in, I've been privy to some of those. Yes,
yeah. So it's one of those things where there's a whole other rabbit hole possibly will have to deal with, right, but we'll deal with that in the future.
Right? Yeah.
But I think you need to push people to really start thinking about it, even if they don't do musical chairs, if they've not got anybody listed. They really need to think about it.
It's a mandatory field on the new client questionnaire. So I don't know why they don't have anybody listed. They need to list somebody.
So Julie, are you saying that if somebody has, if you're notarizing, someone's trust, and they have their appointment and acceptance of first successor trustee, or trust protector, that they aren't also getting those pages, notarized?
Oh, they shouldn't? They shouldn't we should be? No, they should not. The successor trustees acceptance is accepting the position of trustee. Only the initial trustee is called an initial trustee. Every trustee thereafter as a successor, or even a co trustee is a successor. So if it's a situation that's adding someone as a successor trustee, who will be taking office immediately, then they should be signing it. But until they're actually accepting position, they do not sign the acceptance of successor trustee appointment.
That must be reading it differently.
The trust protector is signing the document or the trustee is signing the document naming the person but the person accepting the position isn't signing?
Correct? Not until they step up and office.
Oh, that's where I was. I was thinking both of them had to sign but only the trust protector sign Correct? Yes.
Yeah. Yeah. And a lot of banks will not set up a trust bank account for an irrevocable trust without a successor trustee being named. Because think about it, if the trustee, something happens to the trustee, the bank needs to know who to deal with on behalf of the trust. Sure. So it would be whoever that successor trustee is. So I've had like Fifth Third Bank, they would not open the account without naming a successor. They don't care so much about the successor trust protector, just the successor trustee. That makes sense. So yep. Oh, okay. Any takeaways today? Give me one takeaway. Anybody?
For me? As usual, it's just like, you know, it's like being in a car going 50, you know, 60 miles an hour with no windshield.
Cute, Julie. Thank you. That's why it's all recorded. Right. Right, I miss.
My biggest takeaway was not preparing the conveyances for the client.
Yeah. And this has been an ongoing issue and people. Sorry, no, go ahead.
I'm saying I think when they first get the trust, they think that's what you're supposed to do is to basically do conveniences and stuff for them. And then somehow, they learn that way. But we have to put it in their mind that, you know, they they need to learn how to do the convenience and we can assist them with that. But that's like a liability that they need to take on
and make them remind them you are a trust advised or you're not a trust doer. Okay, I gotta run guys. I got somebody at the door, buddy. Thanks.