Transcript 

Abby Doody:

Welcome, everyone and thanks for joining us on The Retirement Success in Maine Podcast today. I'm Abby Doody and I'm joined by my two cohosts, Ben Smith and Curtis Worcester, the Lucerne Lake and Sebago Lake to my Pleasant Lake. How are you guys doing today?

Ben Smith:

Doing great, Abby, how are you doing?

Abby Doody:

Good, good. So today we're talking about something very near and dear to my heart and I know a lot of fellow Mainers, right? So the concept of a camp. So to many Mainers and people in all kinds of places, camp is a special place where they go with their families all seasons, to enjoy some quality family time, maybe spend some time unplugged from technology, to get away from the everyday life, right? So this can be by a lake, it can be on a mountain, really any setting can have a camp. And so for many generations, these camps have been in families and passing them down can be a big legacy and thing that we want to pass on to our kids and grandkids. But oftentimes, it isn't quite as simple as just passing it down to future generations.

Abby Doody:

So today, we have brought on with us, an attorney who specializes in this transition of camp properties. So he has provided estate planning to individuals and integrates his business practice with estate planning, to help clients develop a succession plan for their businesses and other properties and assets. He's a shareholder of Perkins Thompson and formerly, a member of the firm's Executive Committee. He's been selected by his peers to be included in the Best Lawyers in America 2007 to 2020 in the field of tax law. So please welcome to the show, our guest, Tim Benoit.

Ben Smith:

Welcome, Tim.

Tim Benoit:

Thank you, pleasure to be here.

Abby Doody:

Thanks for joining us, Tim. Yeah, it's great to have you here. So we always start out by talking a little bit about you and so where you came from, your bio. So let's start with where did you grow up?

Tim Benoit:

I grew up in Burlington, Vermont on a lake called Lake Champlain. And so beautiful spot, it reminds me of Portland or Portland reminds me of it. So I've been lucky to live in two great cities.

Abby Doody:

That's great. So can you talk a little bit about your path towards becoming an attorney? How did you start and why did you choose law?

Tim Benoit:

Well, I started out to be a teacher.

Abby Doody:

Interesting.

Tim Benoit:

And I really wanted to do that but I also was very interested in pre-law. I have a double major in history and political science and I found myself attracted to political science and how people get along or don't get along and what are the mechanisms for resolving issues and doing planning. So that's what attracted me to law and I've been on what we call the transactional side of law. I litigate only if I have to but I count it as a success if I avoid court, if my clients avoid court. Now, sometimes you can't avoid it and sometimes you have to take the bull by the horns and go through the process but it's an expensive, emotionally wrenching process that people don't fully appreciate until they're in the thick of it and they get large bills. So I've trended towards the transactional side, a lot of planning to avoid disputes, I try to see where there are tensions and deal with them.

Abby Doody:

So how did you find Perkins Thompson?

Tim Benoit:

Well, I came out of law school and I went to work for an accounting firm, KPMG and I worked there for four years in their tax department and my wife would always say to me, "Yeah, sent you to law school to be an accountant." And so I got some really good experience there, I appreciate what accountants do and I work closely with them regularly. So after four years... And the other thing I've found is, you can't go skiing when you're an accountant because it's tax and all of this.

Abby Doody:

This is true, yes.

Tim Benoit:

So those two things, I moved to Perkins Thompson in 1988 and have been here since.

Abby Doody:

Nice, so can you talk a little bit about Perkins Thompson, their history and what sort of legal services are they best known for and are you best known for?

Tim Benoit:

So Perkins Thompson was founded in 1871.

Abby Doody:

They've been around a while.

Tim Benoit:

They've been around a while. We've historically been a business firm, business law firm. We tend to represent businesses in all facets of their legal needs. Let me just describe a couple of areas. So I represent a number of companies. Some of them, a lot of them actually, have started from Guidance Point. I helped Guidance Point start and these companies have grown into successful companies and again, I enjoy watching the growth of and the success of my clients. Not all of them go anywhere but the ones that do, it's very enjoyable. So Perkins Thompson's a business law firm, we have practice areas. We have a real estate practice, we know real estate really deeply and actually, it helps me in my practice, particularly about the topic today. We do employment law and we have start-up companies. So again, things that deal with businesses primarily, although I represent a number of individuals in estate planning and the like.

Abby Doody:

That's great. So you provided the perfect segue into our conversation today about camps, right? And this concept of camp. So here in Maine, how do we define what a camp is and what do you think camp means and what do we do at camp?

Tim Benoit:

Well, I don't think camps are camps anymore.

Ben Smith:

Good point.

Abby Doody:

They're transitioning, yeah.

Tim Benoit:

They are expensive lakefront properties and they weren't always that way. I know some families that have had a camp on Lake Sebago for many generations and they'd drive up on a summer afternoon and enjoy the property. But that property right now is worth a couple of million dollars which leads to one of the problems, which is camps are expensive, not only to buy, they're also expensive to maintain. There are high annual costs like real estate taxes and the like. So camp, in my area of law, they're now referred to as legacy properties.

Abby Doody:

Interesting, it's quite a transition from the traditional camp that we think of.

Tim Benoit:

Up to camp.

Abby Doody:

Yeah, exactly.

Ben Smith:

And Tim, from our side is, many times when we sit down with a client and you're discussing the financial plan and assets and things come up because you're trying to tie those assets and the financial resources to those goals, right? And sometimes it's well, not just spending my assets over time but also when I pass, what do I want to do with these assets and where does it go? Which is why I think when it comes to estate planning and things like that, we call up people like yourself as, "Hey, we need someone to help draft these sorts of documents." So the concept and I know you just introduced the idea of a legacy asset but legacy goals on the other side is, how do I make sure that these assets go through for future generations?

Ben Smith:

So that comes up a lot around the asset of a family camp. And as Abby said in the introduction, there's a lot of this emotional feeling here because all those warm feelings of, my family has come here, I have friends from away, that they all come to Maine in the summer because that's the great destination to be and relax and hang out. All this really warm, fun, emotional things and they say, "That's what I want to give to my kids and I want to give it to their kids." So this whole idea of preserving the family camp is something there. So what is it that you are seeing? I know we described what we see on our end but what do you see that people are really emotionally attached to and why is it the camp that does it for them?

Tim Benoit:

Well, I think you hit the nail on the head. It's a place for families to gather and people have really good memories of themselves, their children, their grandchildren, all enjoying this space. And it is a warm, fuzzy, good emotion but on the other hand, I also see really negative emotions when things go south, they don't work as well. But I want to say one thing, sometimes and I find this a lot, the parents have what I call a notion that the kids are going to want to... They're just going to love this camp, they're going to want it. The big change I would say, in the last 30, 40 years, is families are not... They're all over the country now and that is a factor to take into account. And so it's just hard to get everybody together, so the parents might have an unrealistic notion about how this property will work. And Ben, actually, you and I had a client where I met with them and they really wanted to give this lovely property to their kids and I kept asking them hard questions and encouraged them to talk to their kids. And after they talked to their kids, it was clear that the kids didn't want the property.

Ben Smith:

So why go through all the hoops, right? Why do all the work, right?

Tim Benoit:

Well, exactly. And so I do try to identify issues and in that case, it was a lovely property but both families lived in Maine, the kids and their families lived in Maine. They had other places, they did still gather but this particular property was not at the same emotional appeal as it was to the parents. So I've just got to work my way through the fog of those emotions, to really get at what's going to work.

Curtis Worcester:

So Tim, that story you shared resulted in an ingredient if you will, that didn't necessarily work for these parents that wanted to leave this camp to their children. Can we just talk about the flip side? We hear these people have this dream of leaving this camp for generations and generations and just what has to go right in that process? I'm sure based on the conversation we just had, part of it is the intended receivers of the property need to want it. I'm assuming that's ingredient one or one of the ingredients but can we just talk about the process in general and what really has to go right for it to work?

Tim Benoit:

What really has to go right is good communication and sometimes uncomfortable conversations. I'll share a story that basically, the mother and the father were going to give the camp, originally to the daughter and then they changed their mind, they wanted to have it co-owned by brother and sister. Or actually, I take that back, they wanted it owned by brother and daughter basically told them, "If you give him that camp, I will sue him."

Abby Doody:

Oh.

Ben Smith:

Wow.

Curtis Worcester:

Okay.

Tim Benoit:

Talk about strong emotions. But the point of that was, she communicated to her parents that this was really important. Now, she could have communicated it differently but you still got the message. So that's what I try to do, is just figure out what's important to whom and also be realistic. A big piece of that is, do people appreciate what it takes to own and maintain real property on a lake or the ocean?

Ben Smith:

And Tim, a follow-up to that is... Because I know what you just expressed was hey, here's... Let's use that example, is here's the parents committing to the daughter and the son about maybe what they want to do and I guess what I could see a lot and what we see with estate planning is sometimes parents change their minds. They have different attitudes about well, I thought it was going to be this way but this came up and for that reason, I don't think that's going to work anymore and now I want to do something else. So you could also see where there's this fine line of under communicating, which then people are in the dark and they don't know what's going to happen with things but then you overcommunicate, is maybe I expressed to the daughter, "Oh, this is totally yours one day, this is going to be your thing." And her heart's set on it, she's working towards it and for whatever reason, the parents might change their mind and they communicate that change to somebody else, right? So couldn't you see where obviously that communication is tough as well, to migrate or navigate between these dynamics as well?

Tim Benoit:

It is, it is and I'm finding or I've found that the generation that now is in their 80s and 90s grew up in a culture where you didn't talk about these things. You didn't tell your kids about these things, you just left it and that's the worst extreme. The other is just constantly talking about it and switching and moving things around. I always counsel my clients to try to determine, assess, what's important to whom and gauge interest. So they're asking questions instead of saying, "I'm going to give you the camp." And so that tends to help and the client that we worked with, that basically they ended up contacting their kids to ask outright, "Are you interested in this property?" So it's a careful balancing and all families are different and this will really work well in some families and just is impossible to work in others, there are too many problems. And so that's what I have to do to help my clients figure out what they want to do with these assets.

Abby Doody:

So touching on what you just said, the problems that come up with this transition, so let's take an example of somebody that has a camp and definitely wants to pass it down to future generations. So what are some common mistakes that you see in preserving the asset, right? So maybe not maintaining the camp, I don't know. And then what are the biggest errors that people make when they go about trying to start the transition or planning for the transition?

Tim Benoit:

So if you leave your camp real estate to... Say there's three kids, it automatically defaults to a property ownership, what we call tenancy in common. Which means they all own a one third interest and that tenancy in common in different from how real estate is owned by a husband and wife typically, of a house or something, where it's called joint tenancy by right of survivor. So the survivor automatically owns 100% if the other person dies. In the case of the kids with tenancies in common, they own one third which will pass down to their kids. And so if they have two kids, all of sudden, they have a sixth and so unless you plan for that, you could end up with fractional interests with nobody able to control half the property.

Tim Benoit:

So that's the first thing I look at. And so I typically do not want real estate to be held as tenants in common. The other bad thing about tenants in common is you have this right of partition. So two tenants in common own property and they don't get along, one of them can sue in court for what's called a right of partition, I want to split the property. Well, the property is not legally dividable, it then is partitioned by sale. So there are these legal rights and they're a blunt instrument and typically, I encourage people to put real estate into a trust or a limited liability company, which gets rid of that right of partition. But then you've got to have a mechanism within those entities that allow for people to resolve disputes. But the way the real estate is structured is probably the first thing that I look at.

Ben Smith:

And a follow-up to that, Tim, just to get into that a little bit, in terms of the partition part. So essentially what I hear you saying is, you have those three kids and maybe they're saying, "Hey, I want to split it," and they really can't split it, so they have to then sell their share. So that is essentially forcing a purchase by one of the remainders if they can and if they can't, then it's basically forcing a sale for everybody at that point, right?

Tim Benoit:

Yeah, in a nutshell. You can't force somebody to buy you out but you can make their life difficult enough that they will buy you out or sell the property and that's what the right of partition does. Now, I'll give you an example where I used a right of partition to help my client. So my client was one of five children and this was a property on Moosehead Lake. So they each had a 20% interest, tenancy in common interest. So my client was able to acquire from three of his siblings, their 60%. So he ended up owning 80%, he put that 80% into a limited liability company for future planning but then kept trying to negotiate with his sibling. And this person was passive aggressive at best and just downright nasty at worst. So anyway, that person would just say, "You can buy me out for five times what you think it's worth." And so it was like I said, passive aggressive.

Tim Benoit:

So based on our advice, the client initiated a partition action to buy that person out. Now, that was a risky proposition but it ended up working. So a partition action says, this land was not dividable so it had to be by sale. So the fifth sibling who was in Hungary... We had to hire attorneys in Hungary to serve that person and do all kinds of crazy stuff but which we did. So we had a partition action, so all of a sudden, this person's faced with oh, I got to do something. So we had an appraisal, we made an offer to that person to buy them out. The other person didn't have an appraisal, so if we went to court, that person had no evidence about the worth of the property. And so it was likely that the court would allow my client or order my client to buy the person out, even if it was against what that other person wanted to do because they owned 80% and they made a reasonably fair offer. So the end result of that was a negotiated settlement. Now, the fifth brother got a premium on it, not that much, it was maybe 5% but then my client ended up owning 100%. And so that is now in a limited liability company and I'm actually working on making gifts at the end of this year and the beginning of next year, membership interest to that client's children.

Ben Smith:

Interesting. I want to explore that a little bit more a little bit later with you but I want to ask about and just expand on what Abby asked about the errors people are making. And one that I guess I want to just ask your opinion on, it feels like from a legal perspective, that there could be times when people are putting these sorts of assets into some sort of legal structure, that maybe it's either too restrictive or maybe too loose on how things work. And so I guess almost thinking about the drafting of The Constitution type thing of hey, if I want this to work for next generations, you just described over the last 30, 40 years, hey, especially lakefront properties are really going up in price, taxes are changing, there's attitudes that are changing from people that might inherit these. So almost, I think as you're going through this process with your clients, that this is something that might happen, that there is a possibility to keep these properties and assets in place for generations, that you're almost wanting to have a flexibility included but not to maybe have it be too flexible that it just causes it to go haywire as well. So what are your thoughts around that because I can see where that's a really tough thing to accomplish?

Tim Benoit:

It is and first of all, I tell my clients that this type of property will not usually survive more than two or three generations. It just doesn't. Too many interests because you've got it owned by siblings and then you have it owned by cousins and then it goes down to... So I tell my clients that upfront, so I say, "Then we have to build in a mechanism to allow one or more of the parties to buy each other out." But the other thing I tell them is, "We want to structure this in a way that does not aggravate relationships, sibling relationships." Because that's easy to do, I can tell you. And most of the time, it's done by just doing nothing, not talking about it or doing anything. So those are the two big areas that I see errors arise from.

Ben Smith:

And Tim, I'll say this too and I know with the work I've seen you do with some of the clients as well is, I think there is always this standard goal of maybe preserving the asset but I think there's an under realized appreciation that by putting an asset in the middle of relationships, sometimes it's going to cause friction between relationships. And maybe people haven't thought about that a lot. That I want to also keep this asset in a place that also minimizes the conflicts that might come up in the future, right? It doesn't mean you can avoid it completely but I don't want to cause people to start fighting either, that may be breaking up my family.

Tim Benoit:

Well, it does. So the big issues are family's all over the country. So that goes to use of the property, are they going to use it? And then the other issue is, how are they going to share the expenses? And if I never use it and I'm paying one fifth, one fourth, one third of the expenses, I don't feel good. So those are the areas that I explore.

Ben Smith:

In your opinion too, in terms of with an asset like this, like a camp, whatever it might be, it feels like there almost should be some sort of financial resource, like liquid money that goes along with that in a way. Just because hey, in terms of taxes and things that might come up, if it was more of a self-contained asset as well, maybe that would help.

Tim Benoit:

That's a nice thought.

Ben Smith:

Maybe that's my error in thinking.

Tim Benoit:

Does one of the children who lives in California want to see some of their share of the so-called liquid assets go into an endowment for a camp they never use? These are things to think but your point is a good one and here's how I approach it, so I analogize it to a condo association. You've got to train your children to manage this property and I advocate that you have an annual meeting, you have an annual budget, you get everybody to buy into it. You say, "Here's your share." And then some of these properties are rented because again, the family doesn't have the means or some of the siblings don't have the means to pay their share. And then you're in the business of renting and so you've got things to think about. So like I said, there's a lot of moving parts but that's the way I try to get people to think about it.

Ben Smith:

Got you and now I want to ask a question about... Okay, so say you mentioned where you're structuring this asset in an LLC or a trust and one of the things that you pointed out was hey, when you start going too many generations, it splinters so many ways. It'd really be difficult to continue. So it feels like at some point, there's an appropriate time to end the preservation of the camp, that there's an exit clause almost that should happen there. So what are really the steps to take to really end these structures? And really... I don't want to use... Maybe it's a very poor neutral term, is to dispose of the camp at that point or liquidate it to the intended heirs. So what are generally the conditions you would need to say, this is the time to end it? And then what do I have to do once that decision's made?

Tim Benoit:

So what I see... Because there's no epiphany about, now's the time to end this. What usually happens is one or more of the siblings say, "Yeah, I never get there, you've got to buy me out." And that precipitates the resolution. Now, these LLC, as I said before... Well, first of all, I just want to say, I favor LLCs over trusts. Trusts have fiduciary obligations woven into them which gives parties some leverage in negotiations, so I avoid those like the plague. And limited liability companies are really creatures of contract. So everybody's an adult, you agree, here's what you've got to live with and I don't owe you a fiduciary duty and vice versa. The question becomes, in that scenario where I don't use it, you buy me out, what do I have there that facilitates that? So I have a number of different ways but the one I seem to be using the most of is what I call put up or shut up. Which is, you want me to buy you out? Okay, I'll buy you out but you're going to take a 25% discount or a 50% discount and I'll pay you over time.

Tim Benoit:

And then if nobody wants to buy that person out, the shut up part is, the property has to be sold. So say you have three kids, one of them says, "You two have to buy me out." One of the people who want to say says, "I'll buy you out." And so you end up with a 50% membership interest. Well, no you don't. You end up with a 66 and two thirds interest and a one third interest, which has its own issues but you have a resolution at that point. But if in that same three member situation, if the other two or any one of them doesn't want to buy that person out, the result is, it gets sold and the property's split. Nobody gets a discount, they just split the proceeds. It seems to be the way that works the best. As long as people go into it with their eyes open and yeah, I can't force you to buy me out at fair market value, I can force you to buy me out at, I get a discount. Then it seems to work.

Ben Smith:

So Tim, what I like is and again, for maybe the audience here that might not be used to the business sense in terms of ownership and shares and things like that, obviously this is probably a pretty new concept. So I want to ask a little bit more about that real quick, on the structure of an LLC. So I put my family camp into an LLC and we're creating a share structure, right? Maybe right today where me and my spouse owned all of those shares today but based upon my death or our death, then those shares then go to these different places. Is that a function of the will essentially, where, here's my assets? Or is it a function of an LLC, almost like the CEO of the organization, there's a change of control upon certain actions?

Tim Benoit:

So an LLC, limited liability company, you should think of it more like a partnership as opposed to a corporation. You got 50% members, mom and dad. So what we usually do is people engage in gift giving programs, using the $15,000 annual exclusion to avoid having to file gift tax returns. So with three children and I'm doing this right now, each parent can give each one of them, interest worth 15,000 and you calculate what that percentage is but it's worth 15,000. So you get a real estate broker to give you an appraisal or an estimate of value. And if you get it in November, you can then makes gifts in December for 2020 and then make gifts at the beginning of 2021 using the same appraisal. So mom and dad essentially can give away $120,000 worth of value in that scenario, 60,000 for each year and that's using one. And so that leads to a bunch of other stuff, when you start giving away things but that's one of the ways we manage lifetime gifts. I do not want a property to go through probate if I can avoid it. The LLC is actually owned by the revocable trust of mom and dad, so it avoids probate, manages itself. Probate, again, provides an opportunity for people to get a judge involved and we're trying to avoid that.

Curtis Worcester:

But Tim, I want to back up a little bit to what Ben's initial question was, he talked about ending that preservation of a property and I want to rewind even further than that. Say I'm coming to see you, say I own a camp and I have that dream of wanting this camp to stay in my family, whether it's to my kids, then to my grandkids or whoever, is there a point where you look at my situation and say it's just not worth it? Is that an asset base? So say my camp's not that nice and it costs a lot to upkeep or there's a ton of repairs I have to do, is there an arbitrary number or a way you assess values? To say, "You know what, Curtis? That's just not a good idea to pass that on to someone."

Tim Benoit:

Well, even if a camp is physically not that attractive, if it's on the water, it has value. And it could be torn down and sold, so it has value. Again, it goes to the communication of talking to your kids, do they want to use this property? And so there's never to me a, I walk away from it or sell it now kind of thing. In that instance with Ben, the clients still lived there but on their death, that property would be sold and the proceeds put in their trust for the benefit of their kids.

Abby Doody:

So you talked a little bit earlier about how camps have changed, right? So 40 and 50 years ago, a camp was very different than it is today and what's being passed down is very different, so have the legal structures changed along with the camps themselves, right? So the properties are very different now than they were then, does the legal structure go along with that?

Tim Benoit:

Well, you didn't have limited liability companies until 1994 in Maine. So before that, it was pretty much trusts but as I said before, I tend to avoid trusts now because of fiduciary obligations. If they used the trust, they were thinking ahead. Most people just died and the property went through probate and then within the probate process, you had this asset and other assets and then there has to be a plan of distribution ultimately, of those assets. And that can be a negotiation in and of itself. One person saying, "I want the camp, I want the money." And then you got to make the sausage. That's what was more typical I would say 30, 40 years ago.

Abby Doody:

Are you seeing more and more people put their camps into things like trusts or your preferred method, LLCs? Is it becoming more common practice because of bad experiences that they've had dealing with camps being passed down?

Tim Benoit:

Well, I've seen enough bad experiences that I tend to recommend anybody who has this kind of property and they do want to have it passed down. I've also seen parents say, "We're going to use it for our lifetime but then we want it sold and the kids can't buy it," and I'm going, "Really?" But I've seen that and so it's all over the place. But what the LLC does and a trust, the same thing, is it provides a mechanism for managing the property and managing the relationships.

Ben Smith:

Tim, in regards to that too is, I'm just trying to think about if we have somebody that says, "I want to pass this property to future generations." They go through all this work and then they maybe change their mind, right? They say, "You know what? 10 years down the road, son's in Arizona, daughter's in Alaska, there's no way they're coming to Maine and they're going to enjoy this camp." So they've done all these structures, they've done all this, is it more difficult to sell the camp then if it's in the name of a trust or the name of an LLC? Does that complicate that whole transactional process at all?

Tim Benoit:

The mere fact of it being owned by an entity does not complicate it because it can just sell. What complicates it is the relative ownership of the members. So I've described to you a process by which parents give away percentages and I had and I'm having clients right now, cross the 50% line, which transfers control to the younger generation. Now, we have ways of managing that. When a senior generation crosses that ownership line, in this case, it is really the objective, to give it away, to get it out of their estate. It's a highly appreciating asset, you just get it out of your estate but I want to use it. That's what they tell me, "I want to use it." So when they cross the 50% line, they lose control and it becomes important but as I said before, the goal is to try to change... To get this out of your estate while still maintaining the right to use it. So we put the parents in a lease where they actually lease the property.

Abby Doody:

Interesting.

Curtis Worcester:

Yeah, that's interesting.

Tim Benoit:

And what they're paying for rent is generally at least the annual operating expenses as a rent. And if they rent it for more, then you're funding a reserve for capital expenses and maintenance. And then you have parents, so I've got some parents who are now in their late 60s where we're putting them in a lease that has an initial five year term with a right to renew for three five year periods. So we've got it out there long enough but the idea that the parents are renting it is to support the fact that they have in fact given it away.

Abby Doody:

Interesting.

Tim Benoit:

The IRS can't come back and try to grab it and say you never gave it away.

Ben Smith:

Right, so Tim, we've asked about the what and the why and the how and a lot of that but maybe the thing we haven't really touched on is when. Because it feels like what's happening right now is, people then, they start addressing their estate planning, is this whole, now I'm going to go create an LLC trust structure, something along those lines, to then give it away. Maybe from a best practice, would it make more sense to maybe just have this structure be upfront when we're buying this camp, we think is something we're going to love for a time, just go ahead and put that into that structure at that point?

Tim Benoit:

Yeah, anytime I have clients that are buying that kind of property, I recommend they put it in an LLC right away. And if they don't want to give anything away, they just keep it in an LLC. So it's for management, they can get old and you need to have people be able to take over this and not have it run through probate and the like.

Ben Smith:

But this would allow for hey, this LLC owns this asset. Well, maybe we go out of this camp and we've relocated to North Carolina, we buy a camp there because it's closer to the grandkids or something, we could essentially just swap out assets into this LLC as we're going, right? Could it only own one piece of asset?

Tim Benoit:

Whether they want to have, in that scenario, a South Carolina LLC or a Maine LLC, those are the details we think about. The other thing we need to think about is, is there a mortgage? Because you can't just have an LLC because first of all, it can boot you out of the secondary market and the cheapest mortgages. But revocable trusts work there in that instance because that won't kick you out of the secondary market and the cheapest mortgages. And then at some point in the future, you may transfer the property from the revocable trust to an LLC of which the revocable trust own the LLC. So it depends on the circumstances.

Abby Doody:

Are there any things to think about from a tax perspective, from buying things in an LLC versus a revocable trust? Are there any issues that come up there?

Tim Benoit:

So an LLC, if it has more than one member, is a partnership. And if you have a lease, you're collecting rent. But it's a relatively simple... If you're renting it among yourselves and the rent's just paying the expenses, it really isn't a tax issue as if you were renting to third parties. Revocable trusts, they're ignored. It's like for tax law, they're ignored. And if it's a single member LLC, it's the same thing, it's just ignored, doesn't exist for tax purposes. But if you have two members, you've got a partnership and you may be filing a tax return and you get a K1 that says, your share of the income and expenses is this and it's usually minuscule because nobody's making any money on this.

Ben Smith:

So Tim, I think I want to make the point here is, we've asked about scenarios and different things, obviously what you've just highlighted is, just the fact of just coming and sitting down with somebody like yourself and saying, "Hey, this is what I have, this is where I'm going with it," and you asking some really good questions of, "What about legacy concerns? What are you thinking about? Is this a permanent place you want to be at? Are you going to move from place to place?" All those things really factor into your advice, as to say, "Hey, based on this, this is why this structure would make the more sense or this is why it's something else or don't do anything," maybe is the option as well.

Tim Benoit:

Doing nothing is always an option but it's completely tax based, who are the people in front of me and what are they like and what are the family like and do they care about... I've had people say, "I don't want that child over there to get a dime." And so I've got to factor that in and protect their other children from the person over there who's going to make mischief. So everyone's different, every situation's different.

Ben Smith:

Which I think from an advice perspective, as advice practitioners, all of us on this recording today, say well, that's what you've got to do, right? Is you just sit down the really good ones, ask really good questions, really do a lot of investigation, do discovery, try to figure out all the pieces. To then say, "Let's put this all together to make the best solution we think is customized to you." I'll just say, we have obviously, experience with you already, Tim, in lots of different ways and that's why we wanted you to come on the show today and really explain it. So I think you did a phenomenal job there.

Tim Benoit:

Thank you.

Curtis Worcester:

So Tim, we've reached the final question of this podcast episode. It's a question that we ask every single one of our guests regardless of the topic of conversation. As you know, the name of our show is Retirement Success in Maine Podcast. So we like to ask and I want to ask you, what is your personal definition of retirement success? And then looking ahead to your own retirement, what'll make that, in your eyes, a successful experience for you?

Tim Benoit:

So for others and myself, I think it's the same thing. My view is that you're financially comfortable and you have the means to do what you would like to do and spend time with your family. And also have a family that's as intact as it can be. Because that doesn't always happen but with good planning and good communication, it does. So that to me, is retirement success. Where the parents are stopping by and giving ridiculous gifts to the grandchildren and taking them skiing and doing all that stuff, that's the kind of stuff I see.

Curtis Worcester:

That's awesome.

Abby Doody:

That's great. Well, as Ben said, thanks so much for coming on the show, Tim. I think you did a great job, I think it's going to be really useful for a lot of people who have these legacy properties, to have a starting off point to think about some things, so thanks again.

Tim Benoit:

You're welcome.

Ben Smith:

All right, take care.

Abby Doody:

Take care.

Tim Benoit:

Take care.

Abby Doody:

Well thanks again to Tim Benoit for joining us today. I think it was a really valuable conversation that a lot of people will find really useful, really interesting and maybe spark some thoughts about how they can start planning for their properties that they want to pass on. So as we always do at the end of the show, we do a little wrap up of things that we found interesting, our takeaways. So Curtis, do you want to start with what you took away?

Curtis Worcester:

Yeah, I think overall, the episode in general was super informative, I'll lead with that. But a piece that really stuck out to me was when Tim was talking about he sees parents that start gifting portions of the camp to their kids and he brought up the point of once you hit that 50% line or pass the 50% line because then you're at a point where the kids have control of the property at that point. And I'll speak in my own situation here, my father has a camp and if this were to happen there, my dad's only 60 years old but if we all got by the 50% mark in theory, it could go bad if me and my brothers decide to say, "Hey Dad, surprise, we're selling the camp." So I thought it was really cool that he brought up the idea of the parents renting and signing a lease agreement with the kids, so they can continue to use their property for the next 30, 40 years, even though they may not have full control of it. So I thought that was a really interesting and super informative piece that I think people can take away.

Abby Doody:

Yeah, definitely and I think it's helpful to hear from Tim, some of the different ways that they can get around some of these different possible problems of putting it into an LLC and having ownership being given away. So yeah, I found that very interesting. What about you, Ben?

Ben Smith:

Yeah, I think the communication part is pretty valuable and obviously we've had an episode with AmyK Hutchens about the power of communication and how to have some of these hard conversations, so maybe tandeming these two episodes together if you're saying hey, I want to be talking about my camp and what we want to do. Because again, I think when we sit down with our clients, the visual in their head is the kids swimming in the water and the firepit and the bonfire and the s'mores and the friends playing cards on the deck and the nice summer air. All of that is very romantic and you go well yeah, why wouldn't anybody love this? But in reality, things always can be different, right? And this value of hey, I'm communicating, if I communicate that to my kids or who I'm going to gift this too, maybe they don't share that same dream. Maybe what they see when they look at it is being there every weekend to maintain the property where I already have my house. Maybe it's, I have to travel 50 minutes to get to that camp and that's two hours round trip and I got kids that can't sit still for 15 minutes each way and that seems like a lot of work.

Ben Smith:

We all can visualize things differently and the story that we have in our heads... And I know AmyK at that point is like, "A story in my head is..." Well, a story in your head might not be the story in their head and for that reason, maybe that's why they don't want to have that camp. So getting to that point of, maybe there's one child that does, one child that doesn't. And if you knew that, why go through all the work before then figure it out and have to undo it and redo it again? Which there's an expense related to that. So all of those things, I think if we have a little bit more communication going on with what we want, you're more out to get it. And I think that was a pretty valuable lesson from Tim today.

Abby Doody:

Yeah, I totally agree and that seems to be a thread through a lot of our conversations, is the importance of communication and that was again, just highlighted here. So what I found really interesting was using the structure of an LLC for property planning, I never really thought of that, right? So normally, the default is a trust and I just found it really interesting and useful, the idea that Tim brought of putting these properties into an LLC, gifting away ownership, it's just a really cool way of doing it. And that's one of the reasons why we had Tim on here today, right? So not only does he do estate planning, he also does a lot of work with businesses, so that business side and the LLC side really marry well to give some more unique, different ideas about how to plan to have these legacy properties remain in families. So thanks again to everyone for listening today, thanks to Tim again and Perkins Thompson. So we'll have some links at the bottom of the blog about Tim and about Perkins Thompson for everyone to check out. The blog is blog.guidancepointll.com/35. So thanks again for joining us, everyone. We will hope to talk to you soon.