336. Owning Together: What Could Go Wrong?

Owning property with others, whether it’s a spouse, sibling, friend, or business partner, can seem like a smart financial move. It can reduce costs, create investment opportunities, and simplify certain aspects of ownership. But without proper planning, it can also lead to serious financial and legal complications.

In this episode of the A Wiser Retirement® Podcast,  Shawna Theriault, CFP®, CPA, CDFA®, and Estate Planning Attorney Arun Gupta break down the most common pitfalls of joint ownership and how to avoid them.

Related Podcast Episodes: 

Ep 314. The Simple Estate Planning Error That Could Hurt Your Family

Ep 233. How Second Marriages and Blended Families Impact Estate Planning

Related Financial Education Videos:

How to Reduce Capital Gains When Selling Real Estate

Should I invest in real estate or stocks?

Other Links:

AG Law

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Transcript

A Divorce Turns Into A Fight

SPEAKER_03 0:00

Two longtime friends start investing in rental properties together. It goes great for years until one of them goes through a divorce. Suddenly, the ex-spouse now has legal claim to part of the properties. The partner never saw it coming. Today we're gonna discuss what can go wrong if you own property together.

SPEAKER_01 0:18

Welcome to a Wiser Retirement Podcast, where we cut through the noise and bring you real, honest conversations about investing, retirement, and building lasting wealth. No sales pitches, no gimmicks. Just insights to help you stop guessing and start planning your financial future.

SPEAKER_03 0:37

Welcome to a Wiser Retirement Podcast. I'm senior financial advisor Shauna Therriel. And today I'm joined by estate planning attorney Arun Gupta.

SPEAKER_04 0:46

Hi, Shauna.

SPEAKER_03 0:47

Good morning. Good morning. How are you?

SPEAKER_04 0:49

I'm doing great. How about you?

SPEAKER_03 0:50

Doing wonderful. Doing wonderful. Uh today we're back together. We always talk about all these things with estate planning. It's one of my favorite subjects. Hopefully, one of yours too, I assume. Yes. Or else you're in the wrong career.

SPEAKER_04 1:02

You know, I guess it has to be at this point.

Why Co-Ownership Creates Disputes

SPEAKER_03 1:05

Might as well, since you're so good at it, right? Um, so today we're gonna talk about owning together and what could go wrong. Like owning properties, owning real properties, owning businesses and all of those things, and then titling of assets and all that fun stuff and what could go wrong. We see this all the time, right? Yes. Um, we looked up this stat and we were talking about it before the show started that property is the number one cause of inheritance disputes, that 51% of disheritance disputes are about land or property and not about cash.

SPEAKER_04 1:37

Yeah. And I would completely that makes a whole lot of sense to me because the problems that I see are generally this is the one type of asset that there's so much more involved than just a dollar value. Right.

SPEAKER_03 1:53

Which that could be a problem too.

SPEAKER_04 1:55

Like value is yes, of course.

SPEAKER_03 1:57

Splitting it. What like we're gonna go through like so many different, you know, problems with that um land or property. And I guess that could be businesses too, which you know, I don't know how much you see that, but certainly real property and houses and stuff. So we'll go through all that. Um it's just interesting, you know, we were talking about different things and you know, uh before, and we'll go through uh some hiccups that you've seen and I've seen and just ways to avoid that. But um, you know, just why people own assets together. You know, obviously um married company, you know, couples buying homes, friends or siblings investing property, um, you know, parents adding children to accounts, business partners investing together. There's so many ways that we don't think about each day um why people own assets together and the problems it can cause. Yeah. So it remind me, and maybe I don't mean to in Georgia or in a state, is it automatically if you're married, married filing or joint tenants' rights of survivorship when you own a property with a tenant?

SPEAKER_04 3:06

So we're if we're talking about real estate, right? Um you you have to there has to be something in the deed that uh alludes to survivorship. Uh if you own property with somebody else, or excuse me, if you own property with your spouse, um, the default absent any survivorship language would be tenants in common. Um and that's not always the case in every state. Sometimes it's presumed if you're a married couple um that it would have survivorship provisions. But I mean, it's always good practice if you if you're if you're married and you intend to own real estate um as as with survivorship provisions, that should be in there. Now, that's not always the case with um another type of asset, financial assets, right? Um the the default in those situations is not going to be tenants in common. Right. It is gonna be, you know, if you die, the surviving account holder is going to own the own the entire account. Yes, that's generally how it works. Now you can still have an account with somebody else as tenants in common, but you know, in in my practice, um, usually um it's almost always the the default for that would be survivorship. But with real estate, you have to be careful. Yes, you can't do it.

SPEAKER_03 4:21

Because it really depends on the state and the deed wording. I've seen that. So it's like you really have to go look at it. Yes. And we'll get into the different types of ownership, you know, what they mean generally as a as a short education in here, but just generally from you know, why people owning assets together from a financial perspective, you know, like we're talking about married couples buying homes together, owning property together. Sometimes, you know, friends or siblings, they will invest in property together, say, okay, let's go in and buy this, you know, beach property or this condo on the beach um together because it's cheaper. We'll do it together. We can both take on, you know, the expenses of that, and then we can both share it and then, you know, all of that. Um, so we've we've seen that a lot. Um one of the hard things we'll get into later is parents adding children to accounts. Um, you know, sometimes too for convenience or avoiding probate. Um, there's nuances to that we need to get into. And then, you know, obviously business partners investing together. And so really, you know, from what you see, you know, I would think an estate planning perspective, you know, like I said, joint ownership adding joint ownership is to ease ease of probate and passing property is probably what you see, you know, a lot of times they'll, you know, maybe parents adding kids to deeds or accounts, which there's a lot of problems with that, and we'll talk about it. Um, you know, family properties like vacation homes.

SPEAKER_04 5:53

Where else do you see people adding it's usually the the most common I see is when someone adds someone to the the either they want to add someone to the deed to their home or they want to add someone uh on on a financial account so that other person can just do it for them. There are other better means to do that because that that creates issues, unintended consequences. Exactly basically you add someone to an account that's your child, you may be disinheriting your your other child, especially if most of your assets are tied to that one account. Um that's what I see a lot. And then a lot of these joint ownerships, it's not always by choice. Someone died and left property to people and now they own it jointly. They didn't probably don't want to, but they can't figure out what they want to do. So, you know, that that it happens a lot too. Um, and and that's where things can kind of get tied up for a while.

Adding Kids To Accounts Backfires

SPEAKER_03 6:46

Yeah. Well, let's talk about that. So, you know, there's the common problems we're we're we're talking about. I really, you know, I I want to talk about, you know, what you've seen and what I've seen, um, what we've seen together just in problems with this. Um you know, the first one being legit you you alluded to it. Let's just talk about I think you and I've just talked about it before, but I can't stress this enough. Like adding your kids to your accounts and your house.

SPEAKER_04 7:14

Yes. So first off, for the for the financial account. Commonly, people will, you know, especially maybe an an elderly parent that has one of their children that just is around more, that helps take care of them more. It's just easier if I add you to the account. Well, it's not difficult to add someone to an account, but it's also not difficult to name that person as your financial power of attorney. That way they can do the thing that you want them to do, which is manage your assets for you, take care of your financial matters signed on your behalf so you don't have to. Um, but that doesn't create an ownership interest in the person that you're adding to that account. So, you know, if you have a million-dollar account uh and you add a child to it, and your intention is to leave everything equally to your two children, and most of your assets are tied up in that, you know, million-dollar account and you die, you know, that surviving the surviving account holder, the child, is gonna have a million dollars. And then they may think, oh, well, they'll just deal with it later. They could, they could, they can even things out. Well, they can even things out, and then there's a tax hit that they're gonna have to go through. And uh, it just creates a lot of unintended consequences, stress, headache, paperwork, you name it.

SPEAKER_03 8:31

Yeah, I want to talk about that. So let's say you have uh a brokerage account that's worth a million dollars, and you add your son to this account. You have a son and a daughter, and you're doing that so your son can help you with the finances. Issues. Number one, that's a gift. Yeah. Most people don't claim it and it's fine, you know, they have you know, it's technically that's a gift, but even if that doesn't go unnoticed, um, now dad passes away and now son inherits that million dollars a hundred percent. Yep. He does not have to give any to his sister, correct?

SPEAKER_04 9:05

Doesn't have to.

SPEAKER_03 9:06

I mean, absolutely some yeah, no, there's I mean, legally he can keep that money and go. And I've seen that actually happen. Yes. I have seen that happen where you think, oh, you're gonna help, you know, and they don't. And there's and this is deep, but I I do like to point this out because people do this with the house, people do this with property. When you have a joint account and one person passes away, half of the account gets a step up and cost basis. So let's say the cost basis, let's say it's all Apple stock. I'm just making it up, and the Apple stock cost basis is 10,000 and it's worth a million now. There's, you know, uh uh uh 990,000 unrealized gain. If the one person passes away, only half gets a step up and cost basis. Whereas if it was just owned by the dad, son was power of attorney, it doesn't automatically go to sun and the whole account gets stepped up to the million, but now only half of it does.

SPEAKER_04 9:56

I you know, I that's a problem. Yeah, I see it all the time.

SPEAKER_03 9:59

You did not save taxes.

SPEAKER_04 10:01

No, especially it it hurts when you see someone that did it a long time ago.

SPEAKER_01 10:05

Yeah.

SPEAKER_04 10:06

Because immediately I'm thinking there's already a gain right here, and this person that is gonna inherit it when you when you die, the entire thing, they already have half of it. Right. They already have it. So then when they turn around and you know want to sell it, they're gonna have to pay. They're gonna have they're gonna have it.

SPEAKER_03 10:24

When you could have just put it in your name and power, you know, power of attorney and left the beneficiary or through the will, you know, yeah, proper, proper means. And then, so let's say the son, let's keep playing this out. Let's say the son decides, because he does have the decision to either gift half to his sister or not. Let's say he goes ahead and does, because now it's gifting.

SPEAKER_04 10:44

Yep.

SPEAKER_03 10:44

Well, there's a 19,000 annual exclusion.

SPEAKER_04 10:47

If he does it all in one year, well then even technically he's supposed to file a gift tax return. And you know, if if he doesn't maybe there's there's not a tax owed if you use part of your lifetime exemption. Well, if you don't, technically there's a 40% tax on anything that's over the annual limit, which right now is$19,000. Now, the enforcement of these, you know, it it if you give a$20,000 gift to somebody, is the IRS gonna come after you for the$1,000 over the annual exemption? Probably not, but that's not a game you want to play. And it when you get higher and higher in value, then it's really not a game that you want to play.

SPEAKER_03 11:27

No, definitely. I mean, you if you're trying to do things right, that's that's a messy way to do it. Yes. I've seen it with houses before, the same problem, bank accounts, all of that. And even if it's just a hundred thousand dollar bank account or whatever, technically they don't have to pass it through the rest of the family. And now there's just these issues of gifting and it it leaves it very unclear. So, you know, with that, I would do the power of attorney and leave your beneficiaries proper.

SPEAKER_04 11:51

Yeah, exactly. If the if the issue is I want to uh give this to the this person so they can better manage it for me, no, that's that don't put them on the title. If they're gonna get it when you die, don't put them on the title, you know, if that is your intention. Now, it could be different if they're using it for something, there may be another purpose, but absent that, convenience is not the reason to do it.

Inherited Homes And Liquidity Traps

SPEAKER_03 12:12

Absolutely. Um, other things about common problems, you know, let's say, um, you know, let's say I had a situation where um a brother, the two brothers, parents died. One brother was living in the house.

SPEAKER_01 12:30

Uh-huh.

SPEAKER_03 12:31

And, you know, because his parents had moved, they let the brother move in with his wife and children living in the house. So parents eventually passed away, and there's two brothers. This house goes 50-50 to the two brothers. Well, it's very messy because you have the brother that's living in it, doesn't have the money to buy out the other brother and give him his half. So let's say the house is worth 300,000. Technically, brother living there is supposed to give brother not 150,000, but he doesn't have liquidity to do that. Yes. So now you have a situation where, you know, the one who didn't have the home is faced with, you know, having to either kick his brother out, have this conversation, all these things. It's like, what do you do in that situation? It's like, well, what do you do? It's like, you know, I mean, you hope your brother does the right thing and says, hey, let me try to get a loan or do whatever. Uh that whole thing is just very messy.

SPEAKER_04 13:28

No, it is. And there's again, especially when it's with siblings, because everything is so loaded. Uh, there's emotion involved. You want to do the right thing, but the right thing, no matter what, is gonna hurt somebody. Yeah. Um, and it's it's tough to deal with. And, you know, taking care of all of this on the front end is always worth it. Um, you know, if there was something in writing that said how this is supposed to be dealt with, it's just gonna make life easier. And in a way, it kind of takes out the am I doing the right thing, am I not? Because you're following what the document tells you to do. You can almost just use that as an excuse sometimes, you know. Listen, uh that's why I did it. And it's true, you know, that that should be the reason why you do something because you have to do it that way. Um, and you know, you brought up liquidity. That's a huge issue, especially when it comes to real estate. It's it's tied in this property. Um, and if you gotta pay up sometimes, right? And there's it might force a sale, it might put everybody in a situation where they may, you know, otherwise they may not have wanted to be in it. And when you let something drag out, those the then it really adds up, you know, foregone rent, yeah, uh all kinds of things um that that make it even harder.

SPEAKER_03 14:45

That's just a hard family situation. But things to think about if you're the parent and you're in that situation, you know, you have to kind of for think, okay, what happens if I pass away and my one son is living here and the other one doesn't have this. And, you know, maybe it's like, hey, maybe you decide to leave him the whole house and you equalize it by giving him other assets. So it's not, you know what I mean? So it's like, well, and it's up to the parent, really. And some parents are like, well, I'm not here, it's not my problem. Most are not that way, though. You know, so it's like if you think about your one son living here and your other son is not, and the dynamics there, you know, maybe you change the way the estate is flowing and you leave the house to the one son and these other assets here, yes, just to make it simpler so that it's not, you know, confrontational or what have you.

SPEAKER_04 15:29

You know, you know, you're you're talking about this. I've got a client right now. Um, she owns property uh in another state with four of her other siblings, you know, inherited it after their parents passed away. It's been going on for eight years. They don't know what to do with the property. They just don't know what to do. It's been deeded out of the estate into each of their names. And my client's the one that kind of handles everything. And it's been such a headache for her that she's making sure, you know, when I die, I'm this is going to my kids, but I'm I'm making an exact plan. If you can't decide what is gonna happen within 120 days, then this happens. And that's it. You know, um, you're gonna sell it if you can't agree to buy it, buy the other one out, or what have but the decision is not going to drag out for eight years. Um you're gonna you're gonna have to you're gonna have to do what this document says, and that's it. Right. Um, and she she's speaking from life experience, she's dealt with so much stress and headache. It's not worth it. It's not worth it. Yeah. And a little bit of foresight can instead of just punting, yeah. Sometimes it's better to just be clear and make the decision for your kids.

SPEAKER_03 16:41

Yeah. Yeah. I think that's fair. That's definitely fair.

SPEAKER_02 16:46

Before we go back to the episode, did you just finalize a divorce or know someone who has? Download our post-divorce financial planning checklist, a free guide from Wiser Wealth Management. It covers everything from updating accounts to building your new financial future. Visit wiserinvestor.com forward slash guides to get your free copy. All right, let's get back to the episode.

Divorce And Shared Vacation Properties

SPEAKER_03 17:12

Another thing we see all the time, you know, thinking about like divorce too.

SPEAKER_00 17:17

Uh-huh.

SPEAKER_03 17:17

Um, you know, let's say, you know, a couple goes in and buys a a beach property or like a condo with another couple, you know, like, okay, the two couples, we're gonna, we're gonna go buy this beach property and go in together and we're gonna, you know, share the expense and share um, you know, going there and and all these things, and we'll rent it out and we're gonna be partners in this, you know, in this one property. Well, then maybe one of the couples gets divorced.

SPEAKER_04 17:43

Yeah. And then so messy. Oh, no, it's messy.

SPEAKER_03 17:45

Because it's like you had this friendship that, you know, one is like, and sometimes it's weird because it's like, who are you still friends with? Because sometimes it's all like that dynamic of you don't agree with whatever, and maybe you're still friends with one and not the other. But now you're trying to negotiate half of the property in a divorce proceeding and still maybe have rental income and dealing with all of the it expenses and somebody doesn't want to pay. That could just be really messy.

SPEAKER_04 18:12

Oh, yeah, it's so much more than it's not just pick and sides of you know who you're gonna go to dinner with now. No, it is uh they need to settle their divorce, and this is property. Now, how when did you purchase it? Is it marital property? Um what happens if the one of the spouses needs the liquidity? Then they're gonna come to you and maybe they're trying to force a sale and you even want to sell. Yeah. And then all of a sudden, beyond the uh emotions involved in it, you may have to pick a side because it's in your financial interest to pick a side, and then things just get way messier, and then you just get mad at everybody.

SPEAKER_03 18:47

Yeah.

SPEAKER_04 18:47

You know, why do you have to get divorced? Now you're making my life harder. Oh, and that that happens all the time. Um, and again, you when you brought this up in my head, I'm thinking, this you you can put the property in an LLC.

SPEAKER_03 19:04

Yeah, you can have an operating agreement that it should be an LLC if it's a rental anyway, and it's with people that are not, you know, married and all that.

SPEAKER_04 19:12

And you have to address those three important questions. What happens when someone wants out? What happens if someone gets divorced? What happens when someone dies? That's it. Those three things have an answer for.

SPEAKER_03 19:23

Yeah.

SPEAKER_04 19:24

It doesn't have to be that complicated, but those three questions, you should have an answer for. Yeah. Because those things happen a lot. One, you're gonna die. Um, there's a, I don't know, 40, 50% chance that you get divorced. And I don't know if you want out, I'm guessing over a 10, 20 year period, they're you're gonna want out at some point.

SPEAKER_03 19:41

Well, you could even be in a situation too, remember, like let's say you bought it with siblings or something, and it's like one sibling, we've all seen this. And it's like maybe they lose their job or they come into some financial issues and they can't, you know, and then there's a problem with the condo or the whatever, and we have to do a repair or we have to pay somebody and they don't have the money to do it. No, and they're supposed to pay half, but what are you gonna do? Like go after your brother or your sister for the half, and so then you're like, I have to do this, and so now you're paying, like, that's messy too.

SPEAKER_04 20:11

But and but you feel like you should because you're the eldest, or this is just that they're in a bad spot. No, of course, yeah, but yeah, it's hard. It no matter what, there is a negative emotion stress that is unnecessary if you can put it on paper beforehand. And that doesn't necessarily mean there's not gonna be problems afterwards, but at least you have direction, right? At least you know there's a roadmap to a you know resolving this.

Tenants In Common Vs Survivorship

SPEAKER_03 20:42

Yeah, it's it's really just thinking about you know, in beforehand, how are we gonna handle if these situations arise? Yes, you know, yes, and going in with your eyes wide open and having a plan to handle if something like that happens. Yes. The other thing, um, going through different type of joint ownership types. So we we kind of started on that. And so this is something that many don't know about. So there's really, you know, joint tenants with rights of survivorship, there's tenants in common. Um, some have community property states too. We're not in Georgia, but there are some community property. But but really the main two are joint tenants with rights of survivorship and tenants in common.

SPEAKER_04 21:25

Yes. And that essentially means if you own something with survivorship provisions with somebody else, uh the ownership interest is going to default to the surviving account holders at the at the original account holder or the first account holder's death. Tenants in common uh would mean at that person's death, whatever their interest is is going to be distributed pursuant to either what the terms of their will, trust, some sort of governing document will say. Um uh so that that's big picture wise, that's that that's the the general distinction between them.

SPEAKER_03 22:00

So basically, if you have two individuals, you know, if if it's two individuals that own a property 50-50 joint tenants with rights of survivorship, if one dies, it passes automatically to the surviving tenant.

SPEAKER_04 22:12

Yes.

SPEAKER_03 22:13

If you have tenants in common, and this is usually like if you're doing siblings or you're doing, you know, somebody that you're not married to necessarily. Yes. Um, you know, and sometimes on the deeds, even if you are married, if it doesn't say with rights of survivorship, it's kind of tenants in common, right? Joint tenancy. Yes. And so that matters. So you want to check your accounts um and your your deed, because your deed is a little that's more of a gray, I mean, it's not automatic. Like you have to make sure that's in there.

SPEAKER_04 22:41

I feel terrible for clients that I mean the deeds from you know the 1981, you can barely even read it. It and it just doesn't have that tenant the survivorship language in there. And this may not even be discovered until 10 years after the first spouse died, because then when the second spouse is maybe nearing death, uh, and maybe they didn't have to probate any of the first uh that when the first spouse died because everything they thought was just joint and just passed to the other one, and then they discover well, when I die, that 50% that was owned by the first spouse, that there's a cloud there. And the only way that that's going to be handled is by then probating the first spouse's estate. And it's just it's more to deal with when you can you can you can update your deed, you can just look at it and see what it's interesting. Or or you know, uh have a professional look at it and guide you and tell you this is what it says and this is what what my recommendation is. Sometimes it's as simple as you know, John and Jane are transferring their interests from John and and Jane as tenants in common to John and Jane as joint tenants of right of survivorship.

SPEAKER_03 23:52

Yeah.

SPEAKER_04 23:53

And that's it.

SPEAKER_03 23:54

Is that just a form?

SPEAKER_04 23:55

That's a deed. It's a deed. It's a it's a it's a you're quick claim deeding it, and that's it. You're just changing.

SPEAKER_03 24:00

It's so simple.

SPEAKER_04 24:00

It's it's very simple. All that it's it's yes, it's thousands of dollars.

SPEAKER_03 24:04

Tenants in common is like, okay, if one of them passes, their portion goes via their will or however their estate is set up.

SPEAKER_04 24:13

Yes, that's right.

SPEAKER_03 24:13

Now it may go back to the spouse, but you may have a situation where you have siblings or friends, which if you ever rent a property, you should probably do an LLC. But I see it all the time where you're like, you know, to your point, the the woman that you're, you know, client you currently have, she has four siblings or three siblings. It's the four of them, and she wants her portion to go to her kids.

SPEAKER_01 24:32

Yes.

SPEAKER_03 24:32

So if it was joint tenants of rights to survivorship, then they would just pass to the surviving tenants versus tenants in common, it would go to her heirs based on her will. Yes. So that is the differential there.

Trusts, Deeds, And Broken Survivorship

SPEAKER_04 24:44

Yes. And, you know, a lot of my clients use revocable trusts as their main estate planning vehicle. Maybe a client um or maybe a person owns a home with with their child, uh, and it's with survivorship provisions, but they they don't want to deal with probate for for the rest of their assets too. And so, you know, they we create a trust for them and then we make sure that everything is titled to the trust. Well, if I deed that property, the 50% from the client's name to the revocable trust, it's going to break the survivorship provisions on the deed automatically. So if she dies, okay, if her intention was it should go to the child that's already on the deed, then we need to be clear about that in the trust because otherwise it just becomes part of everything else. And that may not be an intention. Or you may think I own this with somebody else, I'm just changing it from myself to my trust. Well, if you do that, then the survivorship provision is broken.

SPEAKER_03 25:45

Because you can't have an individual in a trust to have a survivor basically because it's not a person.

SPEAKER_04 25:49

It's considered, even though it's interesting. I did not know that. Even though a revocable trust is considered an extension of the person and it's taxed at their social security number and it's not a separate entity for the IRS. It is for purposes of of deeds, it it would be. Now, I'm I I'm I'm sure that there is some argument that has been made that and it's gone up there, but generally speaking, on the surface, it it's gonna it's gonna break it's gonna break it's gonna break the survivorship.

SPEAKER_03 26:18

Interesting. I did not know that. That's so interesting.

SPEAKER_04 26:20

Yes.

SPEAKER_03 26:21

So the titling matters, and you should definitely look at your deed to see how it is. And and if you want it to go to the survivor, whoever that is. I mean, sometimes you want it to go to the survivor, but I still think the whole step up and cost basis needs to be addressed because let's say in that situation where you have the two brothers and you're like, okay, well, I want it to go to them, so I'm just gonna put it in their name now. Well, then you you know, they're losing the step up and cost basis. There's there's nuances to that and gifting. It you know, the cost basis stays with it. So really the better thing is to just leave that whole property in your will to them.

SPEAKER_04 26:54

Generally speaking, yes. If the intention is that they're gonna that you want them to have the u use of it uh title-wise, basically, when you die, it's better for them to inherit it when you die. So that if they don't want it later, that their theoretical, you know, capital gains hit is is just gonna be lower.

SPEAKER_03 27:14

Yeah.

SPEAKER_04 27:15

Um, it's now But I guess we have to think about liability too.

SPEAKER_03 27:18

It's like, okay, but they're living in the house. So there's just so many things to consider, which we would talk about. But for for purposes of yes.

SPEAKER_04 27:25

Is is if you think that there is a dilemma or a question that you have as to how something could be handled, uh it's almost always a signal that, hey, we'll just get this in writing, we'll take care of it. Right. We can we can address any other questions that we have about this too when we get this issue taken care of. And really, don't just amend this. You can change this in the future. Um, this is you're not locked into an operating agreement. Um you can change the terms of it if something happens. Yeah. Um, but but it is a good idea. Again, those, those, you know, when someone wants out, when someone dies, when someone gets divorced, those things happen too much for those to just be in the air, you know, um, or for it to kind of be thrown on one person.

SPEAKER_03 28:07

Yeah. I mean, just all of that. If there's any question to, you know, how is it taxed, what the estate plan is, if if you're sitting here going, how, you know, thinking forward, how does this play out? I definitely think getting with your advisor, finding an advisor, talking to an estate planning attorney and thinking through the taxes, what does the estate plan look like? Um, you know, what happens if we get a divorce? What is the liquidity and have an investment strategy or have a strategy to handle it in all those situations and communicate it with the air. Sure. Even.

SPEAKER_04 28:39

And there are probably people listening out there that maybe they're getting a little scared of, oh, I didn't maybe I didn't take care of this. I don't, I don't know what my documents say. Well, guess what? If you talk to someone, I will meet with clients and I'll look at everything. They're in good shape. This has been addressed. They just don't know that it's been addressed because it's life happens and it's been decades. But hey, you actually have provisions that address all of these very issues, and that's a good thing to know. You know, that's it's peace of mind. And so if you have a question about it, you you can, you know, you may be pleasantly surprised with the answer of, hey, uh, we did take care of this already. Yeah. This is addressed. My deeds in good shape. Um, I don't have to do this complicated thing. I don't have to do a new operating agreement. There's provisions in there that says what will happen.

LLCs, Agreements, And Clean Exits

SPEAKER_03 29:26

Basically, we started talking about that. How do we do this correctly? You know, um, putting agreements in place. Um, you can do things like when you're in business or you're in, you know, rental properties, you know, having an operating agreement like you talked about for the LLC, um, a pro property co-ownership agreement. I don't know if you ever do those or not. Um, you know, I guess it's just having in writing, obviously, with the LLC and all of it.

SPEAKER_04 29:51

Almost every anytime that I almost all of the clients that I have that own own pro I'm gonna use an LLC as the vehicle to do it because you're already adding that liability protection. But it doesn't have to be through a formal entity. It could be two people own the property. What, you know, how are they? It's a contract, right? Right. Um, but uh again, have it have it in writing.

SPEAKER_03 30:12

Yeah, and definitely cover who's gonna pay the expenses, what happens if somebody wants out, um, you know, how to resolve disputes and all of that. Um, you can do buy-sell agreements. Um, you can use, you know, life insurance to help with some of this. Um, you know, a lot of times that's used when, you know, you have businesses where, because that's a whole nother, yeah. Yeah. It's like, what if you have, you know, business partners and you know, then you get divorced or pass away, and then the spouse steps in and they're part of the partner. Right. And so that should be definitely dealt with, you know, transferring or structuring a business with other partners and how do you handle that situation? Um, you know, if you pass away or get divorced, you know, is your spouse gonna then step in as you and then be partners with everyone? So from what I've seen, I think I feel like a lot of businesses address that, but some of the smaller mm businesses may not.

SPEAKER_04 31:10

Most of the ones that don't address it in my experience. Yeah. Um because a lot of times obviously, if the person dies, the business is essentially over, right? Um and i it if if that's not the intention or if there's some sort of workaround, and then all of a sudden a spouse who doesn't know what they're doing, um, and they're not, you know, in that industry, maybe it'd be better served if they had appointed somebody else, maybe to kind of handle that.

SPEAKER_03 31:37

Yeah.

SPEAKER_04 31:38

Um, but again, putting something in place is is is gonna be the answer to almost all of the issues that here were that we're that we're talking about. Absolutely. It doesn't have to be some fancy formal thing, right? You if you write down on a sheet of paper some of the things that you want addressed, you're already making progress. Yeah, you know.

Final Checklist And Next Steps

SPEAKER_03 31:54

Yeah, just like we we talked about, and just in summary, before you start ownership of an asset, ask the questions, what if somebody wants out? What if somebody dies? What if we get divorced? How do we want to handle it? And then, you know, really just starting that discussion, not when you're looking at houses or what have you, but you know, during that whole process and understanding if you're going to be partners with someone, you know, and they're uncomfortable conversations sometimes, but it has to be played out because it's gonna be more uncomfortable later, I assure you, with the stuff we've seen.

SPEAKER_04 32:23

Yes. Um have the conversation that you have before you actually own it is going to be so much better than we're in it now, what?

SPEAKER_03 32:32

Yeah.

SPEAKER_04 32:32

Guaranteed. Yeah.

SPEAKER_03 32:33

And I mean, people usually have the best of intentions, but when, you know, things happen and emotions happen or finances happen or life situations arise, you know, we do the best we can at the time, but sometimes your hands are tied.

SPEAKER_04 32:45

No one goes into a marriage thinking they're gonna get divorced, right? You just have to plan for these situations.

SPEAKER_03 32:50

Absolutely. Absolutely. Well, thanks for listening to today's episode. If you're interested in learning more about wiser wealth management or want to schedule a consultation to meet with one of our fiduciary financial advisors, you can do so by going to wiserinvestor.com or you can click on the link in the episode notes. See you next week.

SPEAKER_00 33:09

Thanks for listening to a Wiser Retirement Podcast. We hope you enjoyed today's episode. Make sure to subscribe wherever you're listening. That way you don't miss any new episodes. We'd also appreciate if you could leave a rating and review. If you have any questions about anything that was discussed today, head to wiserinvestor.com and reach out. This podcast is stricted for informational purposes only and is not to be considered as investment advice or solicitation to buy or sell any financial products, securities, digital assets, or any other investment vehicle, or basis to make any financial decision. Wiser Wealth Management Incorporated is a registered investor advisor with the SEC. The host and or guest may personally own securities, digital assets, or other investment vehicles mentioned on this podcast. Neither the host nor guest of the show are compensated for their participation, and no referral fees are paid to or received by any host or guest for clients, listeners, or similar interests. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor, tax professional, insurance professional, andor legal professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.