GTH Estate Planning Blog

Nils has started a small commodities account with his broker step-nephew Sal. He didn't tell Lars about it at first, just opened it with some of the investment income that comes into his personal checking account. Lars is on all the accounts but this one, actually two now, the checking account and the commodities account.

Nils says he isn't trading commodities futures like Lars had seen a lot of in the late seventies. Nils is buying ETPs (Exchange-Traded Products), more a way of owning the commodities than of wagering on short-term price movements. Gold has certainly been a good thing to own lately (although maybe Nils is now getting in at the top).

Nils's talk of betting triggers several thoughts in Lars. He recalls reading that Wild Bill Hickok did a lot of drinking and gambling and womanizing, meeting his end while playing cards in the No. 10 Saloon in Deadwood, South Dakota. Sat for once without his back to the wall, and was shot in the back of the head. How Western-sounding is all that?! What caused him to look it up was his college buddies pointing out Lars had drawn Wild Bill's "Dead Man's Hand" in a late-night poker game in their fraternity. Both black aces and both black eights. The fifth card in the legendary hand is undetermined. They didn't have Google then; Lars had to check it out at the library.

The research in that story of Lars is probably more representative of his nature than the poker. He doesn't like to gamble. He and Kyra have gone to Las Vegas a couple of times with Nils, who enjoys playing craps until his allotted funds run out. Lars barely knows how to play blackjack. For him the trip is more a chance to stay in a nice hotel, have drinks and a first-rate dinner, and see a show. They saw Cirque Du Soleil there last time. Wonderful stuff. Lars didn't mind the expensive tickets; these actors (or whatever they were called) seemed more physically intelligent and deserving than most pro athletes.

We're still at the business dinner where Lars is looking for an opening to ask Nils why he bought last time, for cash. He's satisfied Nils that putting his California place in an LLC isn't a good idea. He's still swimming around in related thoughts, though. An LLC does offer liability protection. Lars has to stop and get it straight how that works each time he explains it. He's not a lawyer, though. It's hard enough to avoid tax mistakes.

He recalls while Nils is off at the bathroom, an unfortunate case he'd heard about at a seminar. A woman in her eighties had a stroke and went to assisted living. Alerted to the benefits of estate planning, her attorney son helped to transfer her residence to a family partnership. She then gave partnership interests to her family, to reduce her taxable estate. As Lars remembers it, the debt on the home didn't go into the partnership but the partnership proceeded to pay it on behalf of the woman. It also made cash distributions to mom to support her, but didn't give money to the other family partners. The courts nullified the gifts of partnership interests to her family, and brought everything back into the taxable estate. The speaker at the seminar had indicated disdain for such poor planning, but Lars has learned that it isn't that easy when dealing with real people and their money. But there is a lesson from this and other cases, as Lars has summed up in his mind to keep it simple: a family partnership or LLC should be run as much as possible as if it's a venture of unrelated people.

Nils comes back to the table and announces "I'm buying tonight." Perfect.

Lars can't decide whether he's putting too much importance on Nils's uncharacteristically buying their last month's business dinner, for cash. Not really that big a deal for a wealthy guy to do, but it felt funny. Lars brings it up with Kyra and again she's sensible. If it seems a little curious, and especially if he does it at the next monthly dinner, why not just ask him about it in a light way. Kyra is able to live some of the things Lars knows only in his head: if something seems a little odd, but only a little bit, just call it right then but with a suitably casual air.

The next evening at Guy comes up quickly it seems. Lars doesn't want to be or seem overanxious with his seemingly minor, several-weeks-harbored question. First another small mystery: why Nils and Sylvia obtusely dissed Lars and Kyra for Thanksgiving. How was it at Sal's?

Nils warms to the subject of his broker step-nephew. He moves readily into Sal this and Sal that. One of the thises or thats is Sal's probing of Nils's estate plan. Nils is clearly flattered by Sal's interest. It strikes Lars as being possibly out of line, but maybe he's being too proprietary with the old man's affairs.

One of Sal's great Thanksgiving suggestions that feels like a dig to Lars, is it seems an oversight Nils's houses aren't in his real estate LLCs, for protection from liability. Isn't that one of the main reasons the other properties are in limited liability companies?

Another uncharacteristic thing at Nils's and Lars's next monthly dinner meeting at Guy. Nils buys.

This meeting is about the real estate LLCs. This is where most of Nils's wealth and business curiosity lies. Lars has helped to shepherd the holdings into three limited liability companies, with Nils owning 60% of each. If that percentage is applied to the total value, Nils's share is over $10 million. This doesn't include the residences in Washington and California.

What about the other 40% of the LLCs? Nils has given that over time to relatives, out of some combination of generosity, love of family, and a grudging willingness to reduce his taxable estate. The biggest company of the three leases property to retailers and restaurants in a formerly run-down part of the city that has become trendy shopping. The rents there! Even in this mostly frustrating economy, some expensive things seem to sell. One of the other LLCs has an older but solid multifamily residential property. The third is a newer commercial development with (both Nils and Lars think) too much debt.

The properties are in LLCs, rather than held in Nils's own name, for several reasons. If operated properly, limited liability companies can be just that: protection from lawsuits, or more accurately isolation of liabilities within each entity. The company structure allows centralization of management, in this case with Nils and Lars as Co-Managers, keeping the passive investor relatives in the background. And having an entity rather than individual ownership of real estate makes it easier to give away some of the ownership.