Welcome to Radical Personal Finance, the show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now while building a plan for financial freedom in 10 years or less. On today's show, my guest is Jules Haas. Jules is an attorney specializing in real estate and estate planning.

Jules, you live and practice in New York City, New York State, where in New York are you? Yes, good morning, good afternoon, Joshua. Yes, my office is in Midtown Manhattan. I am at 845 3rd Avenue, New York, New York, which is Midtown Manhattan, which is between 51st and 52nd Street, for those of your audience that know the Manhattan landscape.

So I invited you on today to talk about real estate, and we'll talk about it on a more kind of technical advanced level. Specifically what I want to discuss with you to start with is the concept of entity selection. Before we do that, I'd love for you just to sketch out a little bit of your resume.

How did you get involved in the area of real estate law and estate planning law? Okay, sure. Well, I've been practicing for over 30 years, and it's sort of like many things that you do, it's sort of like where you sort of end up. When I started practicing, the firms that I work with originally dealt with estate, estate planning, all sorts of trust and estate issues, and real estate as well.

This is New York City, so it's hard to actually do anything in the practice of law without running into some sort of real estate issue. In New York City, real estate really is a very large umbrella, because you're dealing with all types of different entities that qualify as sort of real estate.

You're dealing with the regular type of real estate that you might know as a house, commercial buildings, you have condominiums, you have co-op apartments, and all of these things have various flaws and complexities unto themselves. Then you're dealing with leases and the full area of real estate. It's really quite encompassing, and New York City's certainly a very challenging and complex place for those of your audience that have ever dealt with issues or transactions in the city area.

It's a little bit mind-boggling to me to even consider the idea of trying to work in an area like real estate in New York City. I don't know, maybe I'm too much of a country bumpkin to be comfortable in that type of environment, but I've got to imagine it's led to some interesting cases for you to practice on.

Yes, it's always a challenge. Even the simplest type of transaction where you just want to do a closing can get quite involved, particularly where you're dealing with various issues concerning real estate, whether it's certificates of occupancy, whether it's zoning problems, whether it's building code issues, you name it. When you're dealing with the city of New York, you can imagine the layers and layers of regulations and conditions that you have to deal with.

Well, that's good for your job security, so we can be thankful for that. Well, that's true. I was going to say that's true, but at the end of the day, sometimes you say, "Well, this is a bit much for even this transaction," but you're right. I want to begin simple, but we need to establish just some preliminary groundwork specifically due to location.

If I'm considering – let's say I am a real estate investor and that's who our conversation is going to be geared toward. If I'm considering investment property and I'm considering taking advice, you're in New York City, I'm in West Palm Beach, Florida, and I have listeners in Wyoming. How much of real estate law is federal versus state in character?

Okay. Well, for the most part, real estate law is really state-oriented. There are buildings and different issues, environmental or whatever, that may go over into the federal area, and certainly there's federal housing and all sorts of things that you have to deal with if you're dealing with commercial properties where you're dealing with tenants that might be in federally subsidized housing, but for the most part, real estate rules and laws are state-oriented.

So I'm licensed in New York, and so I can't practice in another state, and even if – so if a client comes to me and says, "Oh, I want to buy a house. I want to do this transaction in New Jersey," which is just a stone's throw away from Manhattan, I wouldn't even begin to attempt to do that.

Quite frankly, the way real estate transactions occur are extraordinarily different in New York than other states from what I understand. In New York, I'd say there's somewhat more complexity and more formality. Many times, people that are out of state really don't understand how the real estate transactional type of approach is in New York until they – even banks don't really understand it.

I mean, many times when I've had to close loans, out-of-state banks don't really get it if they're closing a loan, let's say, on a cooperative apartment. It takes – it's not really real estate. It's really stock in a cooperative corporation. So you really have to sort of understand what's going on.

Each side has to have a separate attorney, which doesn't have to happen in other states. The real estate broker can't be the lawyer. The title company shouldn't be the attorney representing a party. So there is a lot more formality and a lot more – I don't want to say regulation but certainly rules that apply when you're dealing with New York state and certainly New York City.

So the next question I'm going to ask and is – let's say I want to purchase a rental house and I'm trying to face the decision of whether I should just simply purchase that house in my own name or whether I should try to establish some kind of entity for whichever purpose.

Is that even a question that can be answered on a national basis or is that entirely state-specific? Okay. Well, I can't speak for other states because, again, I don't practice there and I have no experience there. However, I'll make a general statement to this effect. When you're purchasing real estate or any type of rental type of property, if you're purchasing that asset in your name individually and there's some issue that arises along the lines of liability, somebody falls down in the house, the house blows up or some other incident occurs and somebody is looking to the owner of that property to sue them.

If you own something in your individual name and certainly this is the case in New York and probably prevails throughout the United States, you're going to be individually responsible for what occurred, which means that your individual assets would be subject to that liability. What you're looking to do is limit your liability as much as possible.

Now, how do you limit your liability? Well, the first order of business, of course, when you own any type of commercial entity is to get insurance. You're going to have liability insurance and certainly you should have a sufficient amount, particularly in this day and age when somebody falls down and they skin their knee, they're going to sue you for a million dollars.

You want to make sure you've got sufficient liability if something happens on your property. In addition to that, particularly here in New York, what most commercial folks do is they will put the ownership into an entity. An entity will be typically one of two things. It will either be a limited liability company or it will be a small business corporation, you know, an S-type of a S-corp.

When you do that, what ends up happening is that your liability is going to be limited to the value of whatever that property is because there's no individual ownership. They can't go past the value of that property and look at your individual assets. You may have individual assets of, I'll make this up, $5 million, but the house that you are owning there is a million.

If it's owned in an LLC or an S-corp, that's all they could get. When you're buying any type of a real estate property or commercial property, nine times out of ten, you're going to want to put it into some type of entity for purposes of liability. Now, there may be other aspects to that as well that might give you some tax advantages, but really those are more individual issues and you really need to discuss that with your individual accountant and see how that's going to work.

If you're just buying this yourself, it's just a one-person entity, then most of the income and expenses are going to flow through to you individually. If there are a lot of folks in the company or the LLC, then obviously there are different issues that you have to consider. I don't know if that answers the question, but I think that overall you really want to think about having an entity for purposes of liability, if nothing else.

The challenge in that advice is how to figure out how to apply it to scale, meaning this. If I'm going to buy a 30-story apartment complex in New York City, without question, there will be an entity associated with it. But we're dealing on a very different scale versus me buying the house next door for $150,000 and renting it out for $1,200 a month.

When you size down the scale of the property and you start to think about the hassle, the expense of appropriately selecting the entity, of appropriately designing it and establishing it, if we're doing a corporation, when you think about the challenge of managing that separate corporation, pursuing the corporate formalities, when you think about doing that within the scale of one house, it becomes a little bit challenging.

Then you go ahead and get another one and you say, "Well, should I do separate? Should I try to separate these houses? Should I try to run this as one entity with multiple houses underneath it?" It's a little bit challenging to know what's appropriate. So how would somebody in that situation know at what point in time they should pursue the hassle and the expense of working through an entity?

Sure. I think that right at the beginning, even if you're doing a $150,000 house and in the New York City area, if you can find a $150,000 house, then that's great. But you're talking about properties here that tend to have much higher values. But even at the $150,000 level, the liability that you can incur because of things that can go wrong, such as someone getting injured, such as some catastrophe happening with respect to the property, it doesn't take that much time and effort and cost to consider taking the steps of doing it in an entity form.

So what you need to do, as any good investor would, is A) and I tell this to people all the time and it's amazing. People come and they say, "Well, I'm thinking about buying this. What should I do?" And I say, "Do you have an accountant?" I'm an attorney.

I'm not an accountant, but I say first because the accountant is going to have to keep the records of if you're having rent, if you're taking deductions such as depreciation, whatever you're doing, you're putting yourself into a world where you really need an accountant and you shouldn't necessarily be doing your own tax returns, although I know a lot of people do that with the programs they have out there now.

But I always say, "Do you have an accountant? Speak to your accountant and then speak to me." And it doesn't cost that much to form an LLC and basically operate a single person through an LLC. Now certainly, once a client is aware of the issues, then certainly they can make their own choice.

At a minimum, you'd go back to your fallback position, which is what I mentioned right at the beginning, and what you do is you have a lot of insurance. And that's really your first wall of protection. Make sure that you have a significant amount of liability insurance. And I think that a lot of people don't realize that it's not really that expensive and if you spend a couple of extra dollars, it's worth it.

And on the individual level, you can go out and attach an umbrella policy and you can probably get those types of policies right through your auto insurance or other insurance that you may have, which will add another layer of protection. And you can see if that umbrella insurance would cover any liability that may occur with respect to property that you own.

And the insurance company may say, "Fine, we'll cover it," and you pay X number of dollars more a year. But it's really worth it to get an extra million or two insurance just to be on the safe side and not have to worry about when somebody brings an action because they got injured on your property or a worker falls down or something occurs, that it's going to affect you personally and possibly ruin you financially for the long term.

So I've decided to follow your advice and purchase my rental house within a legal entity. How do I choose the correct legal entity? In New York, many times LLCs have become very popular. There's what we call franchise tax that you have for a corporation and they're very easy to be formed.

But either entity, whether it's an S-corp or an LLC, those are sort of the basic entities that people choose. And in LLC, basically you pick a name, it gets registered with the state just like an S-corp does. With a single entity, everything flows through to the individual owner, all of the tax income and expenses.

So I'd say more often than not, you'll spend a little bit of money to create the LLC, but with the operating agreement, they'll be fairly straightforward and you'll be the managing partner, the managing entity, and you'll control the company in its entirety. So it's typically a very simple and easy way to move forward.

And it might cost you a couple extra dollars on your taxes as far as your preparation, but it serves a good purpose. In my state, it's easy to establish an LLC. You can just go to sunbiz.org and set it up. You just simply file it, you pay the fee, and you get the boilerplate documents from the state.

How do you decide if those boilerplate documents are sufficient for your real estate operating activities versus the need to establish custom documents? Well, obviously you would speak with a professional advisor, most likely an attorney. But I would say that for the most part, your basic operating agreement for an LLC for an individual is going to do the trick.

It gets obviously more complicated when you've got partners and you need agreements and who's going to be the managing person and all of that, and who's going to make the decisions. Then you get into areas that are much more complex. And if you're doing S-Corps, you have shareholder agreements and things that get fairly complicated.

But for the most part, following the roadmap that you just gave, you can read through it. There are some services out there that might provide you with a bit of an explanation. And like anything else you do now you have the internet, you can do your own research, so to speak, and understand what it is that you're dealing with, and then go ahead and begin.

And like I said, speak with an attorney, speak with your accountant and other professionals. You know, it's always a good idea also to speak to people that are in the industry, so to speak, that do the same thing or have done the same thing that you want to do, and see what their experience is like and what they've done.

And again, you can get this information online. You can probably find some real estate groups in your locality. And I'm sure that there are loads of networking places you can go to where real estate people meet whether it's real estate brokers, people that are investors. I mean, in New York, obviously, you can go to networking groups all day long and do nothing else.

There's loads of them. So that's a good way to become experienced. Whenever I have clients coming in, they've never done something before and they don't have any experience, I just encourage them to go out and understand what they're doing. The most important thing when you're buying real estate, whether it's for investment, even for your own residence, is to understand what you're doing and to have a plan.

Understand what the cost is, understand what the expenses are going to be, understand what the mortgages are about that you're going to incur liability for and how the mortgage is going to work. And it may very well seem daunting at first, but it's like anything else. Once you start to look into it, you become familiar, like anything you do.

Buying a car. If you're buying a car, you're going to go online. You're going to go do a lot of research and say, "Listen, which is the best economy car in its class? Do I like this? Do I like that?" You're going to go into 15 dealers. And so you do the same thing when you're buying real estate.

And it's a very important thing because you're risking a lot of money. Because not only are you risking the money you're putting in, that's personal assets that you have, many times you're going to go and get financing. And so if your rental property is not going to work out, you're going to end up like a lot of people have over the last 10 years, getting stuck in a situation that you can't afford.

And that's the last thing you want to do because it's the last project you're going to be in because you're going to ruin your credit and you're going to not be able to succeed as you wanted to do. So I may have diverged off of your original question, but I think that due diligence, understanding what you're doing, getting as much information as you can, speaking to as many people as you can, and understanding the different aspects of the investment and the entity that you're going to be using will be worth your while.

So that's the most fundamental advice I could give to anyone really in any field, but particularly when they're starting to look to invest in real estate. Let's say that my highest priority in my real estate activities, whether it's for personal properties that I want to own for my own use or whether it's for rental activities, is privacy.

And I'm willing to pay for that privacy. How do I purchase and own real estate in the most private way possible such that it would take a very determined investigator a very long time to be able to connect the ownership of a property with me? Well, it sort of goes back to what entity do you want to use?

So obviously if you buy something in your individual name, somebody can find out who owns that property very easily by just looking at the land records and seeing who owns the deed. So that gives you no privacy. And just as a note, and I'm not sure how the records are down in Florida or West Palm, a number of years ago here in New York City, they introduced probably the best system imaginable.

It's called ACRIS, and I don't remember what ACRIS stands for, but it's A-C-R-I-S. And for the five boroughs of New York City, you can look up all of the real estate recorded documents for any piece of property. So if I'm looking at a property in Brooklyn or Manhattan or wherever it is, I can basically go to my computer and I can look up by what we call block and lot or by address or name, and I can find that property and I can look at the deed, I can look at the mortgage, I can look at all of the recorded documents.

So it's a marvelous system to understand what's going on with any piece of real estate. And like I said, if it's in your individual name, I can tell you in five minutes who owns that property. Now, if the property's owned in the name of an LLC or a corporation, obviously you're going to see ABC Corporation.

Well, again, you're not going to know who owns ABC Corporation. So then if I'm looking to do an investigation, what would I do? Well, I might look at the tax records, try to see where it's sent. It might be ABC Corporation, Care of, John Doe or something like that.

Or I can go and look at the certificate of incorporation or the filing certificates for the LLC and see if there's a ... because there'll be an individual name many times mentioned in those documents so that I can find that individual and see who's connected with the corporation. Now, obviously if you're getting more sophisticated and you're getting into other levels, you can have one entity owning another entity.

And then you have various layers of entities owning various pieces of property. So you have ABC Corporation owning XYZ Corporation, which then owns the property. So depending upon how much secrecy you want, you can try to create as many layers as possible. At the end of the day, if I really want to find out about something in this day and age, you can probably trace something back if you were caught enough at it.

Right, right. And I'm not here referring to ... I mean, you give the FBI warrants and time and there's almost no secret that can be kept. So I'm not referring here to ... Yeah, exactly. No. But you know what? I can dial up a private investigator, which in my practice we use now and again for various things, which is no bad connotation.

But many times we need to find a person that's disappeared or we need to get more information about something that's going on that we just can't necessarily get ourself. And lo and behold, there's so much information out there. There's just so many avenues to find stuff that ... I don't know what your newspaper is down there, but up here you can read the New York Post and everybody's life is on the front page.

So there's not much you can hide. So in real estate, there are two things that I often hear about, and I'm not sure how ... I wouldn't expect this to be a major part of your practice. So feel free to say, "Hey, this is not something I'm interested in." But I hear a lot, "If you're interested in privacy about establishing an Illinois land trust or using a New Mexico LLC, because they can be established to be more private." Are you aware, first of all, of those two tools as means to accomplish this goal?

I'm not, so I can't really speak to it. But I can, again, I would just say that I'm not sure at the end of the day how private you can ultimately be. I mean, you've seen what's gone on, and it may very well be that by using those entities and using trust companies and having them establish certain ownership interests for you, you might be able to create an extra level of privacy.

But you've seen with the various offshore companies and offshore accounts and all of the other things that recently have been disclosed, there's fewer and fewer places to provide that. And it will create that type of lack of detection. My concern primarily, and the reason I'm broaching these questions is, do you remember, what was it, a year or two ago that dentist shot the lion in Africa?

And then was pilloried by the US American society around him for shooting the lion. As far as I'm concerned, that story should be an incredible wake-up call to it and to people. And one of the benefits that we have in today's world is free and easy communication. So it's a wonderful thing that almost any person can have a simple platform for publishing information, and it goes out without censorship and without restrictions.

The problem is that we have created in this country such a polarized society where people feel so strongly about just destroying other people. And whether it was, who was it, the dentist who shot the hunter, and they destroyed his business, just absolutely destroyed his business. He had to lock his doors.

Or the one where Indiana, the pizza maker in Indiana, where the guy, I think the guy's daughter goes on TV to do an interview about homosexual marriage in Indiana, and he just destroyed his business overnight. And he had to shutter his doors. And so one of the concerns that I have is for any person, if you – the dentist just went out for a normal hunt just the normal way that he did with his big game hunts.

As far as I know, although I know there were people that were concerned about some of his practices, but I never saw any evidence to indicate that he knowingly committed a crime. And all of a sudden, everything was destroyed. So in that circumstance, if I were that dentist, and obviously he was wealthy, I mean, his hunts like that are costing tens of thousands of dollars, I would be very concerned about making sure that the Internet police aren't going to have easy access to knowing to what I own and where I hold it.

And I'm very concerned about, as people build wealth, their ability to maintain privacy. Now, the Internet police are also pretty capable investigators and researchers. There have been some interesting stories done where people pull out details and just individual people collaborating can basically expose every detail of your life. But I'm very concerned about this trend and I'm very concerned about people taking simple steps to protect themselves before they wind up on the front page of the newspaper.

Right. No, I agree with you. Because of the advent of the communication systems that we have today, the Internet and all the social media, literally with a push of a button, information goes out and it's worldwide. It used to be years ago, obviously, all you had was the print media and some TV and some radio and whatever.

But of course that's changed now. And there is a, as they say, it's the gotcha society where everybody's trying to get someone because it just sort of, let's put it on YouTube and have the video of the guy shooting the lion or whatever it might be. So yes, it's a problem.

And, you know, it's very, it's almost impossible to control entirely. And I agree with you that whatever you do, you know, you should take whatever steps you can to, you know, maintain your privacy and keep things under control. I think a lot of times things happen when they get out of control.

And so as long as you follow, you know, at least attempt to follow the rules and, you know, do what's, you know, what you're supposed to do. You know, problems arise when you step over boundaries. You know, in New York City, you may remember about six months ago, there was this gigantic explosion that killed some people in a restaurant.

It was downtown Manhattan. And why did it occur? It occurred because the folks were, you know, if I remember, you know, connecting gas lines and doing construction and other things that were outside of the building codes and not getting proper permits to do what they were supposed to do.

Now, you know, you may save a couple of dollars if you do that, but the long term consequence doesn't really pay. So you know, yes, you can, you know, put your real estate holdings in an entity and, you know, run your properties in a professional way. You know, if you go out and run your properties in an unprofessional way or a way that tries to skirt the rules and regulations, even if you don't think those rules and regulations are appropriate, well, then you're going to have problems because people are going to start to complain.

You know, then they're going to, you know, send information out that you're, you know, a bad guy or whatever it might be. And then you're going to have people starting to look at, you know, what's going on. You know, so if your grass is growing on your property and it's, you know, over the top of the building, you know, people are going to start to complain to the town and the town's going to say, "Who owns this house?" And we're going to start to fine you.

And pretty soon, you know, the neighbor's going to call the six o'clock news and they'll bring the cameras out and say, "Oh, look at these people. Look at how they're running this house. They've got, you know, chickens in the backyard and they, you know, don't cut their grass." And all of a sudden, you know, you're a media star that you didn't want to be.

So I think that part of it is not only how you own things, but it's how you conduct yourself and how you conduct your business. There's no guarantees, but as long as you do things professionally and in a way that, you know, is supposed to be done, so to speak, you lower the risk of, you know, things going wrong.

Again, no guarantees and things, you know, as they say, things can go wrong. You know, if they can go wrong, they will go wrong. But you know, don't do anything, you know, just haphazardly. If you're going to be a real estate investor, you know, don't go into it and say, "Oh, you know, so-and-so did this.

I'm going to make a million dollars," because it's almost a guarantee that you're going to lose. You've got to understand what you're doing. You've got to be professional. You've got to, you know, as they say, dot your I's, cross your T's, and try to do everything as best you can.

And if you do that, I think, you know, most of the time, you're going to come out ahead and you're going to also feel good about what you're doing. So that would be, again, you know, another very important line of advice that I would, you know, give. Yeah. I fully agree with that advice.

I think all of us should walk in the light in everything that we do. You know, when I prepare my tax returns, a question I ask myself is, "Am I ready to hit publish and publish this on the internet?" Because it's certainly been a transition for me going from a private, somewhat anonymous person to being a public figure, and to some degree, I come under-I feel that burden of scrutiny.

And I agree with you that our business practices must be excellent in everything that we do. We must be excellent. I don't want to go back to the world of filters and sensors and et cetera. I don't want to go back because the fact that anybody in the world can pull out their cell phone and point it at a police officer or point it at an agent of government or point it at a gang member or something like that, record and live stream that video to the world – that is an incredibly positive thing and it will lead, as it has already been leading, systematically to the rollback of oppression and to the expansion of liberty.

My concern is with that, we've lost the gatekeeping function. And so historically, if the newspaper reporter came out and interviewed you, the newspaper reporter first had a professional reputation to maintain of doing an excellent job. Then they had an editorial staff and a fact-checking staff who would say, "Can you prove this?

Is this documented? Do you have this interview? Do you have this evidence?" And so then when the story was published, there was a higher likelihood that it was true. Well, in today's world, there's no accounting for truth. Nobody is liable for it. Anybody can say anything that they want and something can go viral in moments without anybody having control over it.

And so the best example is from time to time, there was a big one six months ago when Mark Zuckerberg established one of his charitable trust or whatever and it said if you post this – no, it was the Facebook privacy thing about, "Hey, I'm posting this because Facebook is going to take my property.

Facebook, you do not have permission." Well, this thing is a total hoax but people lack – most people lack any ability or like just desire to fact-check anything. And so they spread misinformation widely and you put these things together, it leads to a recipe of – it leads to a real risk that you have to protect yourself not only from the dangers of misbehavior, doing gas work without permits and appropriate safety precautions but you also have to protect yourself from the danger of somebody spreading malicious unfounded allegations or perhaps even more importantly in the world we live in today of somebody taking issue with you based upon a political or moral stance.

I come back again to the baker in Indiana whose business was essentially destroyed because they had the unfortunate circumstance of having a politically unpopular opinion and being interviewed about it on the news. The activists came in, destroyed the Yelp site, had to shut the business down for a few days.

I've never gone back and followed it up to see where things are today. Those were – that was based not upon any misbehavior. That was not based upon discrimination in business practice. That was not based upon mistreating of employees or breaking any laws. That was based upon an ideology, a political ideology of disagreement and saying let's use these tools and let's spread it.

And it's actually a major concern. I mean I was stunned to see – I don't know if you saw the article in the New York Times a couple of weeks ago where the Obama administration admitted that in the wake of the Iran negotiations that they had seasoned and salted the experts in advance of that, all of the social media experts in advance to say kind things about the Iran deal.

This official admitted in print in the New York Times as a named source, not in any kind of anonymous off the record, as a named source, yeah, we went ahead and we positioned these things. We positioned these experts, I think it was 40-something experts out there to agitate for our position and this was publicly admitted.

So in the climate of these things with regard to wealth, the concern is this is a major risk that we have to take steps to protect ourselves. Those steps come by keeping to ethical, careful business practices that we should always be proud for our books to be shown to the light of day.

We should be proud to invite any news camera, any crew onto our property to demonstrate what we're doing in the activity. But we also have to be thoughtful in how we prepare for baseless allegations which people could assume to be true either because they lack the ability to fact check and research them because in the press there's no innocent until proven guilty, there's guilty until proven innocent.

Thankfully, the courts still have a different standard but in the press that can destroy a business overnight. Of course, I understand. So I didn't mean, sorry, I used that as my soapbox but it's a concern for me. But I think what you say is just sort of fundamental and in the United States people have the greatest liberty in the world and because of the liberty there are certain aspects to it that you can't necessarily control.

But I think that just being diligent and understanding it like you said is very important. So did you want me to say a few words about estate planning and getting into the topic? Yes, you stole it all. I was just going to go there. I'm going to go to the segue and segue in there.

So tell me about how this different type of entity ownership can affect probate in the settlement of our estate, please. Sure, yeah. And it's important because when you own, no matter what you own, again, it's important to have a plan. So you own a house in your name, you own a house in an LLC, you own a house in a corporation, but what happens with respect to your estate if something happens to you?

Well the most important thing that anybody should, that everyone should consider is that they first need, that they should have a will. They should do their will. Because if they don't have a will, and this is statewide, all states are the same, if you don't have a will, your assets are going to go pursuant to the laws of the state.

So for instance, in New York, if you don't have a will, you die without a will, in New York your assets are going to your spouse and children, and if you don't have a spouse or a child, it's going to go to your parents, your parents going brothers and sisters, nieces and nephews, and on down.

Problem that presents is that you don't have the opportunity to plan who's going to get what. Now obviously if you have a wife and children, that's sort of, most of the time, easy, although you know, it may very well be that you don't want a child to have control over assets or have all of the assets or you've made gifts over time to one child and you're going to benefit other children in your will.

But in many cases, folks don't have a spouse or children, and their parents may be the people next in line, and it may not be the best estate planning to leave your assets to your parents, who may be elderly and not in a position to either handle those assets or it may very well affect the parents' estate plan by loading up all of those assets into their estate.

And then you get down to brothers and sisters and nieces and nephews, and again, who do you really want to benefit? So the most important thing is to actually think about doing a will so you have a plan in front of you. And then once you take that step, then you have to think about, "Okay, well, I'm doing my will.

What do I want my will to say?" And again, I think, you know, nowadays you can go online and you can do a will and you can look at all of this information, and many people do that. But I think that particularly if you're owning property and there are significant, potential significant consequences to what you're doing, again, it's a good idea to sit down with a professional so you can understand, you know, A, what is the will going to accomplish, and B, you know, what's the best way to have this document signed and executed so it will be effective?

And another important aspect here, and again, I talk about these things because in my experience it's the most ignored or misunderstood area. People need to understand what a will can do for them. A will is going to control an asset that's in your name alone. So if I have a piece of real estate that's in my name or in a company that I control entirely, that, the will's going to say where it goes, pursuant to the will provision.

But if I own something jointly with somebody else, so let's say I own the real estate, but it's jointly owned with my wife or with my brother or my friend, right, that property is going to automatically go to that person if you own it as joint tenants with rights of survivorship.

And I'm pretty sure, I mean, again, I'm talking New York law, but, you know, for the most part I think the laws are pretty uniform along those lines throughout the country. So people don't really consider all of the aspects of their plan, and that same rule is going to control with respect to assets that have beneficiaries.

So let's say you have a retirement account, let's say it's a 401(k), let's say it's a pension, let's say it's an IRA, or let's say you have life insurance. All of those assets can have designated beneficiaries. So when you put that beneficiary on there, when you die, that asset is automatically going to go to that person, regardless of what your will says.

So people sit down and they think about, "Well, I'm going to do my estate plan, I'm going to write my will, and I'm going to say, 'Okay, leave everything to so-and-so.'" But they don't remember that 20 years ago, you know, they put a different person on as the beneficiary of, let's say, their IRA when they opened it up and they went into the bank and they sat down and they filled out the form, or they put them on their insurance, or they've got these various things through their employer that they filled out 20 years ago when they first started to work there.

So a lot of times I'll sit down with clients, I'll say, "Okay, what are your assets? You own this, you own that. And who's your beneficiary on your retirement account, your 401(k)?" And they'll say, "Oh, I don't really remember. I filled it out such a long time ago. You know, maybe it was my brother because I wasn't married back then, or my life situation has changed and I put my parents down and I don't want my parents to get it because it's going to screw up their estate plan.

You know, they shouldn't have all this money into their accounts now." So when you sit down, you've got to think about all of these things. You've got to think about what you own. You have to think about how you own it, and then you have to develop a plan that's going to reflect what your intentions are.

And these intentions and circumstances can change over time. So you constantly have to think about whether or not you should update your will. Now, obviously you don't have to update a will every other day, but you know, five years, 10 years, situations change. People die. People are no longer intended to be beneficiaries.

So you really have to consider all of these aspects. And you know, it's just part of, if you're going to take on the responsibility of owning stuff and building up an estate, you should make sure that an estate can benefit somebody in the future pursuant to what your wishes are.

And you really need to think about estate taxes as well. Now, on the federal level, you don't have to worry about estate taxes until you get to, I forgot the exact number this year, it's 5.4 million, I think 5.435, something like that million dollars. So anybody that can have an estate, you're not going to have federal estate tax if your estate is under that number.

And if you have a spouse, everything you give to your spouse, you give to them tax free. That's what we call a 100% marital deduction. So technically speaking, on the federal level, two people that are married can dispose of over $10 million of assets without worrying about any, you know, with proper planning, without worrying about any federal estate tax.

Now, on the local level here in New York State, the cutoff point is, I forgot what it is exactly, is 4 million something, and within a year or two, it's going to be equal to the federal exemption as well. I know down in Florida, I don't believe you have an estate tax at all.

And I don't believe you have any local state tax as well. So depending on the jurisdiction that you're in, you know, state income tax. So depending on the jurisdiction you're in, you know, you have different considerations and different impacts, you know, that may occur. So it's important to sit down with your professional advisors, and it's important to plan this out.

You know, some people do regular wills, some people do what we call living wills, you know, where they put everything in a living trust, where they put everything in a trust right away. So, you know, those are all planning vehicles that people need to think about and discuss so they understand.

And again, you can go on the internet, you can learn a lot about this. You know, I have a website that has loads of articles about real estate, about wills. I publish a blog every week, a New York Probate Lawyer blog, where I publish an article every week about, you know, some aspect of probate law or guardianship.

So there are loads of resources that people have at hand where they can learn about, you know, these different areas, and they should take advantage of it. Yeah, it takes a little time and effort, but it's well worth it to make sure that things occur. I mean, every day I'm involved with cases in the surrogates court, which is the probate court here in New York, where things just weren't done right and people are fighting about various things, whether it be will contests or other things.

I mean, you know, I've seen cases where people do wills and then, you know, they end up doing another will and they don't tell people about it. And then the second will is found and they're fighting about whether or not that will is valid. You know, recently in the news you read about Summer Redstone, who was the, you know, head of Viacom, and there is a trial going on as to whether or not his, you know, this woman who he was friends with has the right to make decisions for him and whether there's a health directive that's valid that he signed for her.

And you know, this fellow obviously is suffering from dementia and, you know, he has to go through a trial to see, you know, who's going to make decisions for him. And this is a fellow who's, you know, the head of Viacom that owns CBS. So you know, no matter what you do, you know, you read every day about all of these, you know, these issues.

You could just recently, Prince, you know, died and apparently didn't have a will. And you know, so they have all these relatives saying, "Oh, you know, I'm his next of kin. I'm his sister. I'm his, you know, half-sister and brother and I should share his estate." I'm sure if he had, you know, if he had the opportunity to go back and change this, you know, he'd say, "Well, I want, you know, this to happen." Maybe he'd want to set up a foundation or give some of his works to a charity.

Who knows? But if you don't do it, you know, you can't, you know, can't see it fulfilled. So that again is, you know, some very important advice that I would give to folks to, you know, think about these things and understand it in connection with all of their real estate and, you know, whatever assets they have.

You know, it's the, you know, it's just one part of being, you know, responsible about what's going on in your life. So there's one final question for you specifically with regard to probate and specifically with regard to real estate. One of the most valuable benefits of real estate is that – excuse me.

One valuable aspect of real estate is that it's capital property. And so at the death, at my death, if it's capital property, my capital property that I leave to my heirs will receive a step up in tax basis. So for the benefit of the audience, if I buy the property for $150,000 and I die – excuse me.

I own the property and let's say I want to sell it for $450,000. Well, if I sell it while I'm alive, I'm going to incur $300,000 of taxable gain and I'll owe income tax on that taxable gain. But if I die and leave that capital property to my beneficiaries, they will inherit it and at the time of death, it will – they will inherit it with a tax basis of $450,000.

And as long as I am – as long as I can avoid the estate tax by simply being under the exemption amounts and let's assume that for the sake of simplicity because if I have an estate that's in excess of the exemption amounts, I have a $50 million estate.

I've got a plan for the estate tax that would be due on that. But here we're just talking about a person with a couple of rental houses. If I die and leave that $450,000 property to my beneficiaries, they can then take it, turn around. They can sell that property and they'll have $450,000 that comes to them completely income tax-free and – income tax-free which is really nice.

Now if I own that property within a corporation, an LLC or a trust, let's just restrict it to an LLC or a corporation. What is the tax treatment of that rental house for my heirs with regard to them receiving the property? Okay. Sometimes that can be an issue because you may not get within the entity the same step up in basis.

So it is something that you need to look at closely and you need to understand it within the context of your estate and how your ownership of the property is going to benefit you while you're alive and ultimately what your plans are for that property. You're going to be selling the property.

You're going to be taking the proceeds and then reinvesting it during your life. But I have run across that issue in the past and I don't recall the exact provision under the tax code, but I do recall that there have been issues as to whether or not you can get that same step up in basis because you don't own the property individually and it doesn't get stepped up inside of the entity.

So you may not get that same benefit with respect to the step up and then when you sell it, obviously, or the estate sells it or the beneficiary sells it, ultimately you may end up with some type of an income tax gain. So again, it is something you need to look at in your overall plan.

I'll have to keep digging into that. It's a question I was thinking about the other day and I didn't know the answer because I guess it would depend on the valuation of the shares. So an S-Corporation and LLC are both pass-through entities, so we would have to value the member units or the shares in some way.

It's interesting. I'll have to keep looking. I have come across and I can't recall this section of the tax code, but I think that there have been issues about getting the step up because of the intervening layer of the entity. Right. Right. And really what that points you to is that no matter what you do, you need to look at it and understand what you're doing in the context of how you want to plan this out so you understand what the consequence will be with respect to what you're doing and then weigh what you're doing or what the potential result would be from what you're doing against not doing it or doing something else.

And then you can make what we call a good business decision. Indeed. Jules, your website is JulesHasAttorney.com and I'll link that in the blog post and show notes for today's show. Any other websites or resources that you'd like to share with my audience that would be helpful to them?

I think that obviously my website is helpful and I have a blog as I said. I do this myself. You can just type in estate planning. You can type in anything on real estate. When I have issues or questions, you can just go surf the web. I mean there's not one particular area that I would suggest or recommend but anything that you're looking at, obviously look at more than one site because you're going to get additional information and then you're going to be able to assess the value of the site that you're looking at.

Obviously some sites have more information or more detailed information and may really hit the mark on the question that you're asking. And your tax questions, again, you can look them up. It's an amazing thing. I always wonder how all that information gets out there. It's amazing but it's there.

It's like I need this information, I need a recipe, boom. You punch the button and you got it. Indeed. Jules, thanks so much and I'd remind the audience if anybody is in the New York area or New York State and they're looking for an attorney, Jules specializes in probate, estate planning, any real estate work, closings, guardianship, state settlement, estate litigation, those types of things.

And Jules, you offer free consultation, 212-355-2575 for any New York based listeners, right? Absolutely. Great. Jules, thanks for coming on the show. Okay. Thank you very much for having me and have a wonderful day. Thank you for listening to this episode of Radical Personal Finance. If you're interested in building financial freedom for yourself and your family, please subscribe to the podcast with our free mobile app so you don't miss a single episode.

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