← The Practical Planner
Loading summary
Transcript20 lines
- [00:00]
Ann
Foreign.
- [00:11]
Dave
Welcome back, everyone, to another episode of the Practical Planner podcast. I am joined with Dave and Ann today. So if you guys are long term followers, basically this podcast started with Ann and I and then we brought on Dave. So then Dave and I did it and now Ann is officially back to working. So now we have the full team here and I'm really excited for not only this podcast, but just kind of the future of this podcast. For those that don't know, right. I'm a financial planner and was an estate planning attorney at one of the top firms. And Dave has a really unique background where he's kind of done all of it. He's worked in an RIA doing planning, he's just done traditional estate planning. So we all have very different backgrounds that I think are going to help this podcast just continue to be really good. So, guys, I'm excited to hop into today's episode and it's going to be all about deed transfers. And I think this is an important topic that we have to talk about because I think one of the first things I hear from people who are on the wealth platform, and again, this is not all about wealth, but I think it's still, we still have to talk about this topic because it is pretty complex. But one of the first things that I hear from people is like, why doesn't wealth do deed transfers? And so I think, like, that's probably the best place to start this podcast of, you know, maybe we're not answering that right away, but going into the complexity of just deed transfers and deeds themselves.
- [01:31]
Unknown
Yeah. So I think the process for creating an estate plan versus creating a deed is very, very different. You know, when it comes to an estate plan, certainly every family is different. Every family has different planning needs, different customizations that may need to happen. But when you're talking about real estate and properties, that's when you really get into the weeds as far as different state law, different counties that record the property differently. So when you transfer property from one person to another or from yourself into a trust, the county that you live in are going to have different standards that they have for what needs to be in the deed, what the cost of the deed is, and how you record it, meaning how you're going to publicize it to the public, because you need to let everyone know that a deed transfer occurred. And because of all those intricacies, it would be really difficult to standardize that across all counties. And, you know, each, each property, certainly you can't just say, I am transferring my property at 123 Main street to my trust. There's a lot more that goes into it. Right. There's something called meets and bounds, where you have to draft out and talk about the different parameters of the property, as far as, you know, the legal description of the property, not just what the address is. So there's a lot of complexities that go into deed transfers that makes it a really specific process for each individual state, even down to the county level, to have to look into when people are preparing those deed transfers.
- [03:06]
Ann
Yeah. And I would say, you know, this is a decision that wealth for sure thought through very carefully. We looked at different providers. You know, there are younger companies out there that prepare deeds and they always sort of talk about the easy, quick claim deeds and deed of deed and trust and things like that, where it's, it seems so cookie cutter, but one of the issues that comes up is that in doing what. What you need to do in order to transfer your property today is to actually do a title search and look at how the property was transferred before you do the transfer today, because that may affect some of the, you know, the information that you put into your new legal documents. And one of the things that tends to happen is that you discover defects in the titling. So these, this means just problems like issues that have come up in the past and that now if you were to replicate and transfer into your new title, you're just compounding the error. And of course, you know why that becomes an issue is because if you were to pass away or, you know, sell your property, which hopefully would happen earlier than just, you know, death, you'll discover these issues right away. Right. And that might delay the sale of your property and things like that. And so we would never want to do this lightly, this deed transfer, because all of a sudden when you're coming upon the sale of your property, you discover that, you know, you should have had a title search that was much more thorough, that you should have fixed errors in the title and that just causes, you know, unnecessary, I think, risk to future transactions. And so we would rather you do this with an attorney who's going to do that title search properly because able to advise you on any of the issues that they have come up with and then be able to sort of carry forward and make sure that the title is clean when you transfer it into your trust. So that's kind of the, the thinking there as well.
- [05:11]
Unknown
Yeah, And I think that's a really important point too, because I've seen this countless times that it's not until you're going to transfer the property that you notice that something's wrong. So I, anyone could prepare a deed and then potentially go record it, as long as the county will let it be recorded. And then that person walks around thinking their property was transferred, but it might not have been done effectively. There may be some other claim out there and you're going to be walking around thinking that it's fine until that time comes much later on when you certainly do not want to be dealing with it. So that's why it's really critical to just deal with it up front.
- [05:48]
Ann
And maybe we can give some examples too of things that our council have told us they found and that, you know, you and me, Dave, in our practice have found in deeds. And first is, you know that the recording wasn't even effective, right? You prepared all the legal paperwork, you had it notarized, and yet somehow it didn't go through and wasn't recorded properly. So you didn't properly notify the rest of the world that this property is in your name. For example, you can also have a lot of sort of breaks in what's called the chain of title that happens. And this happens a lot. Like kind of the muddiness of who owns what can happen a lot actually during intra family transfers. Like, you know, you have mom and dad who owned a piece of property like the res, their home in their own names as, let's say, joint tenants. But then dad passes away and dad had, you know, a document, a will that said, instead of giving this outright to mom, I actually wanted to go into a marital trust. People make those decisions. And then for whatever reason, when the estate was being administered or the trust was being administered, that title never made it into a marital trust. Instead it just went into mom's name or something like that. All of a sudden, legally speaking, you have the wrong owner on that deed. And so, you know, you don't want to carry forward that mistake. And an attorney may have to do two deeds to fix your, you know, to, to make sure that they're tracing that chain of ownership correctly. And then the other thing that I've seen and this happened in my practice, you know, I practice Perkins Cooey like a very, very large law firm. And sometimes clients would come to us and had another attorney transfer property. People make mistakes, typos. And you have something called an APN number, an assessor's parcel number that is attached to every, you know, discrete parcel of property. That's not just the address, right. 123 Main Street. As Dave was saying, but there's actually like a string of numbers attached and people just swapped numbers, made a typo in that, and all of a sudden you have to clean that up as an attorney. And that, you know, quote of I'll do this for fix fee for 500 bucks, like, becomes this enormous project. Dave, maybe you have some examples too, because you practiced in a jurisdiction that has complex deed transfer requirements too.
- [08:13]
Unknown
Yeah. Massachusetts is not fun in a lot of respects. I love living here. But administratively, the way it works with the government as far as efficiency is not so, you know, in Massachusetts, there's all different types of land and you have no idea what it is based on optics on. There's really no way to know what type of land you are have, because there's recorded land, there's registered land, and then there's land court land in Massachusetts. And these are all separate types of property that has really no independent legal significance except for in Massachusetts. The way that they record the property and it affects, you know, the way the deed is prepared, it affects the price of how much it costs to record it, the process for recording it. And it's really difficult to know. And if you don't have someone preparing that deed and recording it who knows that process, there can be a lot of back and forth, a lot of delay. And obviously, you know, we know in estate planning, anything can happen at any time. And if you delay getting that property into the trust because you're dealing with all these administrative headaches, something could happen and that could cause a probate or whatever the case may be where your estate plan isn't as effective as it could be if you had just got it in efficiently. And also the costs will go up because if you try and do it yourself, you can't do it. And then you have to have someone clean it up that's just gonna raise, raise all the costs for everyone.
- [09:41]
Ann
And I think as an advisor, what can be so frustrating about this process is just the unpredictability. Because what you want is, is to be able to counsel your clients on, you know, hey, you've done your trust, now it's going to be like, easy. You need to transfer property into your trust for X, y, z reason. Let's do it. And then there can be this unpredictability in the outcome and especially the cost. That can be frustrating. I remember I did deed transfers for a client who was living in Japan and he had properties in Hawaii, in California, in and in New York. Right. It's actually like for the ultra High net worth space, like not completely uncommon to have real property all over the place. And the cost that came in because we did have to contract or hire and work with local council, came out to be completely different by state. California was the simplest and the most least expensive and kept to the estimated fee. So that was awesome. Right? Then Hawaii was like crazy because they have something that's a little bit like Massachusetts. There's like land use court that you go through and you like don't know which property is which. And if you happen to hit the jackpot and it's land use court, like it just becomes this whole project. So Hawaii was pretty crazy. And then New York as well, because county by county they have different tax forms. And so it turned out Hawaii was most expensive of that project. And so from the client perspective, they're like, why did I pay like literally thousands of dollars in difference to do the exact same thing for three pieces of property? And that can be frustrating as an advisor as well to have that conversation and that range of outcomes that makes sense.
- [11:21]
Dave
Well, maybe what's helpful to talk through is like, what happens when this gets messed up? Right? Because you know, wealth is taking the stance here that like, hey, there's a lot of liability here if things get messed up. You know, we'd rather just contract an attorney to help do this. So like, what really happens if this gets messed up and how do you fix it?
- [11:38]
Ann
Dave, do you want to take that one first?
- [11:41]
Unknown
Yeah, sure. I mean, I mean, you know, it's, it's going to depend on what gets messed up. But like, for example, you know, common things that can happen is if the tenancy is wrong when preparing a deed. You know, we have different, different types of tenancy, joint tenancy with rights of survivorship. There's tenants in common, there's tenants by the entirety. There's all these different types of ways that property is held. And if it's not carefully adhered to by the person who's preparing the deed, whether it be going into the trust or going to another person, whatever the case may be, there can have significant ramifications for what happens when you try to sell the property or what happens when someone passes away as to how it's going to pass. So that's the first thing to be really, really careful of. The other thing is, you know, like Ann was mentioning, if there are just errors that happen, whether it be someone had a typo, someone described the wrong property, which, believe it or not, happens quite often. They get the, you know, they get the Parameters of the property a little bit long. Wrong. That's a scenario where you could be causing dispute later on when the property is being transferred. And now you're talking about potential litigation, potential legal costs. So it's not rocket science, certainly for people who know what they're doing in this space and they do it every day and it's second nature. But for people who don't know how to prepare them and they're doing it for the first time, or they're kind of taking a shot at it, thinking they can't mess it up. You can mess it up. And if you do mess it up, it's going to be a headache that you're not going to know about until much later on. And there will be legal costs and it will be frustrating.
- [13:36]
Ann
Yeah. And I'll just say, you know, one point that Dave made, and I feel like that could be a whole other podcast episode, if you guys are interested in talking about that, is, you know, the differences in different types of titling that he mentioned. It's like joint tenancy, tenancy by the entirety, tenancy in common. I'll just give you an example here. Tenancy by the entirety, which is only available to married couples in certain states, carries asset protection with it. And if you didn't know that and you bought your house, you know, with your spouse, and your spouse is in a high risk business of some sort where your personal assets could potentially be, you know, subject to creditor judgments, demands, you could have protected your home by actually owning it as tenants or, you know, a tenancy by the entirety, whereas that, that asset protection is not available to you. So that's the type of decision that I think people make off the cuff when they purchase a property without realizing some of the consequences. And we could definitely talk about some of that, but you might want to correct that before you fund it into the trust because ideally your trust would keep that kind of character to that property before it was funded. So we find here in California, for example, that a lot of attorneys need to do two deeds when they're doing the work of transferring your property, you and your spouse's property into your trust, because they realize that community property didn't attach or somehow something like that happened. And so you first need to transfer it into community property and then do the transfer from your own names, as, you know, spouses, community property, into your trust to get that character to attach.
- [15:16]
Unknown
And it's not always just the deed too. The other thing is that sometimes there's these side documents, these ancillary documents that need to be prepared along with the deed. In certain states, like for example in Massachusetts, obviously where I'm from, one of the big things is the homestead protection. You don't actually get a full homestead protection like you get in other states. So homestead basically protects a certain value of your property from creditors if they come to sue you. They can't force a sale of your property if you have homestead protection. Well, actually in Massachusetts you actually have to file a separate form to get the full level of protection on your property. And if you don't file it, then you have a lower level of protection. And so that's a situation where if, you know, you had some kind of generic deed service prepare this, that kind of covered all states, they may prepare a homestead, I mean, I'm sorry, a deed. But just do the deed, get it recorded. But there'll be this really important other aspect that you need to be have recorded to maintain this protection that you'll be missing out on. And I'm sure you know those nuances exist across states and for us at.
- [16:30]
Ann
Wealth when we choose. And I, I'm sorry, you know, this podcast usually is like general education, but I feel like this must be said about how we go about picking our attorneys as well. We actually do pick attorneys who practice day in day trust and estates law and then happen to also do real estate work as part of the trust and estates planning package. And the reason we do that is also because based on the kind of titling that you have, they can have a conversation with your clients about what happens upon death. Because there can be different outcomes. Who the heirs, the natural heirs might be and whether or not the trust terms will attach and actually be the dispositive terms. You know, the, the way that the asset will pass at death. There can be some interesting outcomes here. So something called right of survivorship is different based on the way that the property is held. And so you may not even realize that you have a survivor who is going to take the entire property. And your trust has nothing to do with what's going on, you know, with, with the, how the property will pass. So that's the type of conversation that like an estate planner is particularly. Well, you know, like it's going to be sophisticated and be able to have that conversation with your client. And we think that's really important as well.
- [17:50]
Dave
Yeah, that makes a lot of sense. So I think we've kind of now understand the complexity of this, why it's important to get it right. I think maybe the only last Thing to talk about is like, when does this matter? Because I think maybe people are like, d transfers. How important is this? And you know, the time that this starts to make sense is when somebody finally does set up a trust, right? So maybe you bought your house, you know, you haven't had to do any deed transfers. You got the deed completed, and then now you're like, hey, you know, my financial planner is said, hey, it probably makes sense. You live in California. You might want to look into setting up a revocable trust. And that's the time where it starts to make sense to say, like, okay, we need to get this right. And for me, I just tell all my clients, anyways, book a time with an attorney on well's platform, review your plan, make sure everything is right, and then get those deed transfers done. So it's still a seamless process. It isn't the same as obviously like clicking through go get it notarized. You still have to work with the attorney. But the other thing and that you recommended to me a couple of years ago was, hey, anytime you have a client who's going to buy a house, even if their trust isn't set up right, they could start@wealth.com, go name their trust, and then go get two deeds, right? They get the one deed regular in their name, and then they get one deed in the name of the trust. So once the time happens that they are ready to do it, all they need to do is go get it notarized. And so I thought that was a really great pointer for my clients that I wanted to share with. You know, everybody listens to this podcast.
- [19:15]
Ann
Yeah, we're all about practical advice here on the Practical Planner. And so if you know that at some point it's likely that your client is going to want to transfer a piece of property from their own names into their trusts, you might as well just get the paperwork teed up. You don't have to wait for that moment. Especially because the title company might be amenable to preparing both at the same time. Right? They have, it's just like copy pasting for them, except they change, you know, the grantee and the grantor, you know, too. So it's, it's easy for you to say, hey, I'm buying the property right now. Title company, go prepare this. You know, where I receive the property in my own name. But can you just tee it up for me with the second deed where it's now going to be from my name to my trust name? And your bank may actually say hey, if you have a mortgage and you're involving a bank, they might say, hey, to get the best interest rate, it does need to be in your own name first. But then honestly, in a few months, we won't care as much. And then you can transfer it into the name of your trust. And so you kind of play that game a little bit. And so you might as well prepare that second deed if the title company is is game to do it. Why this? You know, deeding becomes important. I think of it as like four, four points in time. One is when you purchase the property. If you already have a trust or an LLC and you know it's going to end up in it, why don't you ask, you know, all the parties involved, the title company, the bank. If you can just do the transfer directly into your trust. So instead of your own name, you know, just cut out the middleman yourself and just put it in your trust name. Sometimes that doesn't always work, so you need the two deeds. The second time is when, if you don't have an estate plan and you want to fund it, finally you finally got your trust done, now you want to do the actual transfer. The third is mortgage refinancings. Oftentimes when you're refinancing, the bank will be like, you have to take it out of the trust again, put it in your own name so you can get the best interest rate and then put it back into your name. Just please don't forget to do that. Okay, so refinancing as a third time in place and the fourth is really for your purposes. It matters when you sell the property potentially as well, that the trust will come into play. There might be, you know, titling issues, and the fifth really is death, but that's really for your beneficiaries to worry about when there are issues.
- [21:43]
Dave
Yeah, fair. Okay, perfect. Well, I feel like that's everything that we needed to cover as it relates to deed transfers. Unless you guys have anything else you want to add.
- [21:50]
Unknown
I think, I think the only other thing I'd want to add is like one level of anxiety I've seen, certainly from clients and even some advisors, is, you know, you talk about transferring property into a trust, you know, is that going to affect my mortgage? No. There are laws that protect against that. There's something called the Garn St. Germain Act. Certainly, you know, you want to be careful and, you know, every situation is different. But in most circumstances, it doesn't matter if you transfer as far as your mortgage, they're not going to be able to call the note on the loan. As far as whether you're going to be able to take your capital gains tax exclusion if you sell the property, the IRS isn't going to see a difference between yourself or your revocable trust if you own it. Things like homeowners insurance shouldn't affect that. Sometimes you just want to make the house as the trust as an additional insured. But all things being equal, usually you're not going to break anything. By putting your house into a revocable trust, you be able to retain all of the legal benefits that you have personally in pretty much all circumstances. Obviously there could be circumstances where there's a unique state or county, but in almost all circumstances you shouldn't have to worry about that.
- [22:59]
Ann
And that's why the attorney is also involved to have that conversation with you.
- [23:03]
Dave
Exactly. Exactly. Okay, perfect. I think that was a great way to wrap up. So everybody, we appreciate you listening. Hopefully you're as excited as we are to have all three of us back and doing this podcast together. But please rate and subscribe and we'll see you back for another episode in a couple of weeks.