Own Nothing, Control Everything

A real estate investor offered to buy me lunch in exchange for information.  He wanted to know how we hold title to our properties; in other words, whose name is on the deed?

When we met, he explained that he’d gone to the deeds room in the courthouse to look up which properties Kim and I own.  After much research, he concluded that we don’t own any houses – and he was right!

But how can I be a real estate investor and not own any real estate?  Easy answer: We don’t own any properties personally!  Having assets in our names can be reckless.  Plus, it can wreak havoc on our estate plan when we die.

(NOTE: I’m not an attorney or a CPA, so what I say is just my opinion.  Seek competent council before you make any big, life-changing decisions.) 

We use trusts to hold all of our property – both real and personal.  In other words, everything we own is held in a series of trusts that are controlled by our trustees.  We do this for two main reasons: estate planning and anonymity.

Let’s talk about trusts and estate planning.  Most folks have a will.  Upon death, their will gets probated.  This means a judge determines the validity of the person’s will.  And here’s the frustrating part: if anyone disagrees with anything in your will, that person(s) can sue your estate.

Oh, it gets even better.  Did you know that once your will is probated that it becomes a public document?  This means anyone – and everyone – can read it.

A trust works differently.  If I have a trust holding a rental property, the second I die, my beneficial interest in the trust transfers to the successor beneficiary.  No muss, no fuss.  Best of all, because a trust is a private document, no one can see behind the curtain.  As your net worth increases, privacy becomes more and more important!

Shifting gears, here’s something to ponder: You buy a new Mercedes Benz.  You drive from the dealership to your best friend’s workplace.  He happens to be the police chief.  You stop in front of the police station and out steps your buddy the chief, along with five of his deputies.  As you’re showing them your brand new Benz, a homeless man with a buggy runs his buggy down the side of your just-off-the-lot Mercedes scratching the paint down to the steel. 

What can you do about it?  As witnesses, you have the chief and five deputies, plus the whole thing was caught on hi-def video.  Answer: You can’t do anything!  The homeless man is not going to be arrested.  More importantly, you’re not going to sue him because he has nothing except what’s in his buggy.  No one is gonna sue someone who doesn’t have any assets.  Doing so would be a complete waste of time and money.

The lesson: Become the homeless man with the buggy.  Said another way: You want to own nothing and control everything.  Trusts allow you to do exactly this!

Earlier, I said that as your net worth increases, privacy becomes more and more important.  You don’t want folks knowing your business and trusts allow you to accomplish this goal.  This is why the investor who bought lunch wasn’t able to find any of the properties we control. 

I use land trusts to hold real estate and personal property trusts to hold things like checking accounts, stocks, cars, furniture, horses, even my underwear!

I do all of my own trust work, and I learned how to do it from Jack Miller and Dyches Boddiford.  Dyches has a great trust manual you may want to consider getting: Visit his website at Assets101.com. 

Hope today’s column helps you to become a wiser, safer real estate investor!