Show Summary

Real estate trusts are very powerful tools. They sound complicated up front, but once you know how to use them, they may make your life easier than ever. Jack Shea is one of the top minds in America on this topic, and joins us today to cram as much as possible into this quick interview on FlipNerd.com, as part of his ‘Top 10 Benefits’ to using trusts for your real estate business. Check it out!

Highlights of this show

  • Meet Jack Shea, one of the nations top Trust experts.
  • Learn Jack’s Top 10 Benefits to using Real Estate Trusts.
  • Join the discussion on some of the ways trusts may simplify your business and set it free from overly burdensome paperwork and recording.

Resources and Links from this show:

Listen to the Audio Version of this Episode

FlipNerd Show Transcript:

Mike: Welcome to the FlipNerd.com podcast. This is your host, Mike Hambright, and on this show I introduce you to expert real estate investors, awesome entrepreneurs and super cool vendors that serve our industry. We publish new shows each week, and have hundreds of previous shows and tip videos available to you, all of which you can access by visiting us at FlipNerd.com or visiting us in the iTunes store.

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And now, let’s get started with today’s show.

Hey, it’s Mike Hambright, with FlipNerd.com. Welcome back for another exciting VIP interview, where I interview successful real estate investing experts and entrepreneurs in our industry to help you learn and grow. Today I have the honor of being joined by Jack Shea.

He’s a legend, and one of the most well known teachers in real estate investing who has been a wealth of knowledge to thousands for well over 30 years. Jack is kind of a sage that has taught generations of real estate investors. And today he’s going to share with us the benefits of holding your properties in trusts. He’s going to go over a number of things, including the top ten reasons. If we can get to them all.

Before we get started with Jack, though, let’s take a moment to recognize our featured sponsors.

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Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions as real estate investing can be risky.

Now, let’s start today’s show.

Hey, Jack, welcome to the show, my friend.

Jack: Good to be here, Mike.

Mike: Yeah, yeah, so thank you for your time. I just want to tell everybody a little bit of a, maybe it’s a joke? I don’t know if it’s a joke. We were kind of talking about where you’re at, and you said you’re at a point in your life where now you’re focused on trying to figure out how to spend your money, and not necessarily making it anymore. Which is a great problem to have.

Jack: Well, it was, cleaned a lot of toilets and evicted a lot of tenants, so… You know, after 30 years of this, and hundreds of deals, it wasn’t like it was a walk on the beach everyday.

Mike: No, that’s obviously… A lot of people, before you become a real estate investor, you’re kind of led to believe it’s the land of milk and honey and everything’s easy. But that’s not how it works, right?

Jack: That’s right.

Mike: Yeah, Yeah. Well, Jack, it’s a pleasure to have you on today. I know you have a tremendous amount of experience and thank you for being here.

Jack: My pleasure. I’m looking forward to it, and I say that paying it forward a little bit, and I wouldn’t take a house or a note if somebody gave it to me. I don’t need it, Mike.

Mike: That’s great, that’s great. Well, today we’re going to talk about trusts, right?

Jack: Yeah, it’s been something, in fact, we were talking about Chicago or growing up in Illinois, it’s been the standard way of doing business there since the 1890s. So it’s not a mystery and my father had apartments in Chicago in trusts, and I was talking how the banks would only loan money if it was in trusts.

When I got to Florida it was part statuted in Florida. So first deal, and every note and real estate deal, and lease and option that I’ve ever done has been in trusts. So, I don’t know any other way to do business.

Mike: Yeah.

Jack: There are some reasons why people coast to coast have been getting involved in more and more. It’s the law of the land, it’s not tough to do.

Mike: Right, right, do you think there’s just some kind of mystery behind it, so it’s not more widely known and people just kind of assume it’s more difficult than it is?

Jack: And that’s not a bad thing, because some of the contingent fee attorneys and bureaucrats think so. But does my partner, Mark Warda, attorney, wrote the law book. He says, “Trust the form of ownership, real estate offers benefits owning, without owning it in your own name.” Major benefits to him are privacy, no public record, protecting from liability, and avoiding probate. But it’s an agreement that someone else holds your property in their name, but you retain all the benefits, the tax benefits, the financial. You pay taxes on everything, just not in your name. And that takes a lot of the trouble out of owning real estate with jealous tenants, attorneys, or frivolous things. It takes that off the table.

Mike: Yeah, that is always a concern of people is if I get sued, is somebody going to take away all my properties. And there are some issues there that trusts seem to help out. I will tell you, I had somebody else on the show, a long time ago, last year, that talked about trusts, and I don’t use trusts, and when I heard it, it sounded like it made a whole lot of sense. I have a rental property portfolio.

And, since that time, this is one thing that really kind of got me scratching my head is, we don’t manage our own rental properties. But our property manager told us that somebody that was a distant family member of a house that we purchased a year or two earlier, had just gotten out of prison, and was threatening the tenants in the house, saying that that’s his house, and he was going to find out who owns it now and was threatening all sorts of stuff. And it kind of got me thinking, and like, gosh, in the city records, if you just go into the normal CAD, Central Appraisal District, my office address is on there. And that was kind of a scary thought, too, it’s that public.

Jack: Yeah, well I do a class. They said I’m doing one May 2 in Philadelphia, Cherry Hill. Doing one later in California. Done them all over the country. And there’s a book, that Mark Warda wrote, and it’s got 230 pages, 37 forms on a CD, and people can fill them out. It’s like filling out a lease, or a contract, name, and a dates, and, uh, address and stuff that’s not complicated. And there are some guidelines. People need to pay attention to it. But, we’ll be talking about the dozens and dozens of benefits, and a lot of people can’t find an attorney, or qualified attorney. You can do it yourself with the right guidelines.

Mike: Yeah.

Jack: The documents.

Mike: Yeah. Well, Jack, you want to start talking about some of the benefits? Why don’t you maybe take a second, and just, for those that are listening, they’ve heard the word trust a million times. They don’t actually know what that is. Can you actually on the most basic level tell us a trust is.

Jack: Mike, it’s a contract between two people. I’ll be your trustee for a year for a couple hundred dollars, and I agree to only obey and do what you tell me to do. And you’re the beneficiary. You’re the 100% beneficiary. And, so, I will do that. It’s a performance agreement between two people. And lists duties, and the trustee is authorized to do this that and the other. Nothing without your direction.

And there’s thousands, I mean, there’s many kinds of trusts. But there’s a simple, revocable trust is available in Texas and all 50 states, and there are 6 states that have a statute. So, there’s a revocable trust, that’s about six pages, and once people get into a lot of cases where they wish they had done it. They got the lawsuit or the [inaudible 00:08:55] accident, and, it’s a no cost deal. It’s a no tax, no cost deal. It’s just changing from your name, to Mary Jones trustee of the Golf Investment trust, or whatever you want to call it.

Mike: Okay, okay. So, let’s talk about some of the benefits.

Jack: Well, I have my top ten. But, other people have other ones. But, basically, the privacy of ownership gets you the most things. We have a personal property trust for mobile homes and notes, that keeps your name off of that.

We have a checkbook control trust, which I have been using for many years, to get your IRA funds from the custodian into your corner bank, where you have your checkbook. Control it. You can do notes and loans, and I do my realtor’s commissions, tax returns. And, Gordon Ross was on with you, and he will set up my website. JackSheaRealEstate.com is my website. He’s doubling his IRA every year with these notes.

So it’s three kinds of trusts we use. And we use an interconnected for each of them.

Mike: Yeah.

Jack: It takes a lot of the grief off. I do financing in a trust, with a UCC like cars are financed. So I hold the beneficial interest. And I don’t have to foreclose. So I’ve taken dozens of houses back, no sheriff, no register book.

Mike: Wow.

Jack: We have different ways, the purchase price is not disclosed in the court house, seasoning issues. We partner, say, you and I, and Gordon could be 30% on the back of a napkin, we write our shares and we can trade our shares back and forth. No courthouse, no tenants in common. And, I do a lot of that, and it just makes it less expensive and faster.

Mike: Then setting up a legal entities, yeah. If it’s in a trust, is it recorded somewhere? How would a title company know if someone was trying to sell your property and you had it in a trust?

Jack: Well that’s a good question, Mike. It’s just the deed. If you decide to put your property, but everything that I have purchased went from the seller to my trust, but didn’t go through me.

Mike: Okay.

Jack: So, I’ve never had anything, including the house I’ve lived in, in my name. You won’t find my name in the public records, ever. So the deed from you, to Mary Jones trustee of the Bay trust, that’s what’s recorded. No name of the beneficiary. The trust agreement is a private agreement that nobody get’s to see. That’s where your name, your children, your successors, they’re all delineated in there for future. If something happens to you, voice probate, the children get that property that microsecond.

Mike: You, because you’ve named the beneficiaries in the trust?

Jack: In the trust, not the deed.

Mike: Right, right. Now, in the event that you wanted to sell a property, how would the title company know? You’d have to basically show them a copy of the trust at that point?

Jack: Nope, no, don’t show them a copy of the trust. You send the direction to your trustee, to say Mary Jones, deed this property to John Brown.

Mike: Whoever.

Jack: John Brown is buying this property.

Mike: Sure.

Jack: Title company, and we do them everyday in my 1031 exchange business. We do thousands of exchanges, and lots of people use trusts, and title companies are used to it. It’s not a glitch. They search the title, and the deed goes from your trustee, Mary, to your buyer, and you get the money.

Mike: Okay, okay. Well, maybe you can take a second and talk about choosing a trustee, and what happens in the event that something happens to them.

Jack: Yeah, good point. We could spend probably an hour on that.

Mike: Sure.

Jack: And that you need to be, to have somebody that’s trustworthy. But, we have learned ways to protect yourself from a rogue problem trustee, which we go into. And there’s ways that you can record stuff that the trustee can’t leave town with your stuff.

Mike: Okay.

Jack: That’s a good question. The primary question, and I use Mark Warda, attorney, who’s a trustee for 1,500 trusts, so he’s not going anywhere.

Mike: Yeah.

Jack: Soon. He’s been my partner and friend for 30 years, and he is an attorney. And, people don’t worry about certain people. But it’s the primary question and that’s- that’s good.

Mike: Yeah, yeah. So maybe you could take a second, too. I heard you talk about probate. So, a lot of times, as a real estate investor, I’ve been in several situations where somebody passes away, they didn’t have a will. The probates can get really messy, especially if they have distant family members, family members that don’t talk any more. Family members that are deceased, or in prison, or nobody knows where they’re at. And literally, I have lots of houses we’ve just never closed, because we could never get clear title because we couldn’t find some of the people that are beneficiaries of that. Talk about how a trust kind of solves that problem?

Jack: Well, it goes immediately to the heirs mentioned in the trust document.

Mike: Okay.

Jack: It’s notarized, two witnesses, though sometimes it behaves like a will, and sometimes it behaves like a trust. But at that point, it may have to be shown, but it’s the end of the game. And to make sure the transfer goes to your children if that has to happen, it’s there. So, they can show it. Bring it to court, show it to the judge. This is it. There’s the children, or the whoevers. And you know, what’s his name? The state was, the California millionaire? Howard Hughes, the state was probated in five different states. You know how long it lasted? Till the money ran out. Five years.

Mike: Yeah.

Jack: Then all of the money was consumed.

Mike: Yeah.

Jack: So, avoiding probate. It’s not part of my plan, but I’ve seen it a lot of times, where it came into play. So, among the dozens of benefits, that’s a big one.

Mike: Sure, sure. Well, where are we going to go from here, Jack?

Jack: Well Mike, once you might decide to get into the trust business. My opinion of that is get a new operating system. Like you would with a computer program, a new Windows. Get Photoshop and Excel, and Outlook, and all that.

Mike: Right.

Jack: Get a new way to run your real estate. It’s a management tool. The tenants don’t know who the people are. They can’t find out. The bureaucrats, they send stuff to Mark. They can’t get through that filter without a court order and a major problem. So, it’s a management tool.

I mentioned the partner, with guys, without going to the courthouse. And if you decided you wanted someone money on your share, instead of loaning you money, I’ll buy half of your share, $25,000. And a month later, you go make some money. And I’m mad because you didn’t cut me into your game book. It’s just on the back of a piece of paper.

Mike: Okay.

Jack: And financing is a big thing for me, because I loan money. A lot of money. To fixer guys, tenants, owners, or, tenants, and it’s done under the uniform commercial code, where I have the beneficial interest, assigned to me, it’s in the drawer. It’s like the car title guy, the buy here, pay here guy. You don’t pay, I’ve foreclosed on like 11 houses in one day. I left three guys a message on their cell phone, they’ve been foreclosed. It’s over. Bring me the keys, and they did.

Mike: Yeah.

Jack: No sheriff, no registered letter. So, it’s tough enough to take stuff back in the drop off. The Florida prices went down. The Chevrolet houses went from 140 to 70. They went in half. Well the guys that own those, owed 75. So I took them back with enough pain, but I’m still standing and they’re not.

Mike: Yeah.

Jack: So lending is a big tool, a big item to me, under the uniform commercial code.

Mike: In terms of, let’s say you were buying rental properties, for example, like I do, and I use a lender. Without talking about any sort of exotic financing you might do, but just traditional lenders, are you able to purchase it. The lender has first deed a trust, and put the property in a trust?

Jack: Some do, Mike, and some don’t. It’s hard to train a bank. Private people are well secured with that. They like it. But, I would say that if you had a really good deal and your bank did not like that, and you could get a three and three quarters, four percent. I’d say, take it in your name. Close on it. And a month after, put it into a trust.

Mike: Just deed it over.

Jack: And they can’t call the loan due. So, some, it’d be quicker and easier than trying to train a banker. But, you’re exactly right. They get the first deed of trust, and a personal note signed by you, so what’s the difference?

Mike: Right.

Jack: There is no difference, except, they say we don’t like it. So, you either go somewhere else, or go by their rules for a short time. And the fact when you get it out of your name, even though you owned it previously. If I loaned you the money, our deal would be that you still have to manage it. So nobody is for sure that you are still in charge.

Mike: Right.

Jack: So, that’s a big one. And, so you have a gift thing going. But the whole buying and selling negotiations in trusts take a lot of the stress out. My rules are, Mike, I’m authorized to offer $10,000 down with this kind of financing. If you can agree to that, we can sign a deal. If you want to come back, I can take it back to the trustee and we’ll go to the beneficiaries and it’s a cost or delay of ideas. If you want to do a deal today, here’s the deal.

Mike: Right.

Jack: And, it’s not that we wouldn’t make an adjustment or whoever the characters are.

Mike: Yeah.

Jack: So it takes the hostility of being mad about beating up on somebody that’s… Same with buying. Authorized to put this much down and these kind of terms. That’s their plan. That’s the way the trust rules.

Mike: Right.

Jack: So tenants, our lenders, borrowers, we treat people right. Our properties are good, so no anger situations with people. So, that whole new operating system has personal property. You’re trading back pieces of paper, without going to the courts.

Mike: Right, right. We’ve definitely had issues where, we don’t manage our properties. Somebody has been unhappy with the property management’s response to something, and they’ve tracked us down. Somehow they’ve gotten a hold of us directly. And we’ve just basically tried to push it back the property management company. Like, you need to go fix this because that’s why I pay you. But, the fact is they were able to get a hold of us. It’s not a secrecy thing for the wrong reasons, it’s just that you want to be private about what you’re doing.

Jack: Yeah, trouble with the contingency. The attorney, finding, I know people that had 17 properties. They had eight that they had not gotten into trusts. They were doing it gradually. And they had a real accident, and the contingency being law firms looked up $850,000 properties. They said, “We know how to collect. We’ll take this lawsuit.” And, people with land trusts in all different names, different states, they can’t connect them.

Mike: Right.

Jack: The one place where the accident happened, maybe they’ll get an insurance claim, or they’ll get whatever’s in that trust. They don’t get your other 20 or 40, I know people with 140 houses. And they’re all firewalls, separate from each other.

Mike: Right.

Jack: So, that new operating system opens up some tools that elevates my real estate game above people in the street that are doing it at an auction. I have tools of doing financing that the beneficial interest, contracts for beneficial interest instead of contracts for deed. And leases of beneficial interest. So we have a dozen different tools, that other people don’t have.

We talked about Pete Fortunato making, selling pieces, selling pieces of the trust, pieces at a time. And to me, we’ve developed, Mark and I, some of our investors, a lot of these tools of using a trust. We used the personal property trust as an LLC manager. We used it in coordination with the land trust. And that IRA trust, all connecting with each other. Legally, honest, ethically, it just makes life more enjoyable.

Mike: Sure.

Jack: In some ways, more profitable.

Mike: Yeah, oh, maybe, Jack, can you take a minute and talk about some of the benefits, other than a probate, which you already talked about, to inside of your family if you wanted to give properties, or share properties with your children. Other things that might be benefits inside of your family. Because most people that are doing this are looking to build some sort of legacy, right? So…

Jack: Well, that’s a good point, Mike. It’s on my list of 40 benefits. Well, you and your wife, say you have two children. This guy has two children. It’s now $14,000 a year per child. So a husband and wife can give $28,000 to each kid, each year, by taking a percentage of the beneficial interest. That’s very difficult to do with the deed to the property.

So, they, each year… so that’s $56,000, and maybe after a couple years, the kids own the property, and they pay tax at their tax rate. And I know people whose kids are going to high school and college with the rents from the property, and they have segued them over to the kids and talked to a lot of people. The kids aren’t interested in Air Jordan shoes as much anymore. Well, say, it’s your money. Go buy some. Well, I don’t think so. And they end up MP at the game, the thing, GameBoy or whatever it is.

Mike: Yeah.

Jack: Four hundred bucks. So, that’s a good way. And people do that for whatever, say, $140,000 house that sees prices, value 180 to 5, you figure out what percentage of that beneficial interest is $14,000. And that’s say, maybe 17.2. You deliver that each year to the kids.

Mike: And you just rewrite the trust, or you kind of write an amendment to it, or?

Jack: No, no, you notify the trustee that Mike is not 100% owner, but Mike is now 83% and 72% and he reflects and Mike Junior is 14, 28 and his share is coming up. Until Mike Senior goes to zero and Mike Junior… Now, he may be 12 years old and that’s okay. So he will pay tax on that, but it will help send him to college.

Mike: Sure, sure. And, where do you kind of document that? Help me understand?

Jack: Well, you assign a beneficial interest, a piece of paper that says, “Here’s 14% of the trust to Mike Junior.” You assign that percentage of beneficial interest, and the trustee has a book that says who owns what percent. And say you and I and Charles were 30% and we trade, then he enters that. But in your family, your share goes down, and his share goes up, so the total is 100%. So, he just enters it. And say it sells, then people get whatever percentage they own. And if there is a probate situation, well, the children own it. But when it sells, the children get wherever they are, and pay tax on it, and you’ll get the rest.

So, the paperwork is quite simple, it’s private. Emails do, don’t have notaries and witnesses.

Mike: That’s great. Jack, I know that you’re trying to squeeze a weekend of training, or a lifetime of training, into a short interview session here, so I can appreciate that. For folks that want to-

Jack: The e-book that I put down, or that I put on my website, Secret Benefits of Trusts, is more detailed of what we’ve been talking about today. Each of those items, and some we skipped over, and it’s a download on our website. And ultimately people need to buy a book or take a class with CDs and get the rest of the story, and it’s like an all day session. To operate effectively, safely, with directions to the trustees. So, like a corporation, there are minutes that you keep the paperwork square.

Mike: Right, right.

Jack: My trustee, Mark Warda, will not send anything to a closing agent. I’ll tell him we’re selling Grove street, and he’ll do up the deed and when I say, it’s not to the title company. And he says, “As soon as you send me the direction, I’ll send it.” So for the 200th time I’ll apologize to him for trying to figure out who the blockage in the system was, was me.

Mike: Yeah.

Jack: He’ll do the paperwork but he won’t send it until he gets a written direction.

Mike: Yup. Okay. Well, Jack, we’re almost out of time here. If folks wanted to learn more, I know you’ve got your e-book, tell us where to get that at?

Jack: My website, Mike, is JackSheaRealEstate.com

Mike: Okay, we’ll add that link down below, here.

Jack: It has blogs, or testimonials from Gordon and other people. It has articles about options, exchanges, trusts, and I get legal news, I get inputs from people. So, I’m not trying to sell anything. There are a couple of things.

Mike: I know you have a wealth of information there.

Jack: If you want to order it, you can order it. It’s mainly an information site.

Mike: Sure, sure. I know there is a lot of great information on your site. So we’ll add the link for JackSheaRealEstate.com down below, but for those listening, it’s JackSheaRealEstate.com. But we’ll add a link for anyone that’s driving right now, let’s say. And can’t click over there

Jack: Yeah. It’s hard to put it to work from just talking, for sure. But even people get a CD or something, there’s more depth to the trustee situation, it’s a whole chapter, and to the tax. It doesn’t have a bank account. State tax, so there’s who signs leases and who signs evictions. So, to flesh out the program and launch people safely with their system, they need to spend a concentrated day.

Mike: Sure, sure.

Jack: CDs and DVDs or I’ll come to Dallas and teach one.

Mike: Yeah, yeah.

Jack: So anyway, Mike, to me it’s been a major impact on my investment career. All the notes I’ve written are in personal property trusts, so the privacy, and the safety and the other flexibility of operation, to me is a big item.

Mike: I know for those that this is new to, it’s a complex, and it seems like it gets overwhelming. But I know that after you kind of know what you’re doing it actually simplifies a lot of things.

Jack: If the world thinks it’s complicated, that’s okay, let them.

Mike: Yeah.

Jack: Through your insight you find out. We have a template set up with the same trustee, same beneficiaries, and my wife types in an address and a date and hits Print. We do them in two minutes, three minutes.

Mike: Wow, that’s fantastic. Well, Jack, thanks for trying to fit all your knowledge into a half hour. I know that’s impossible. Thank you for being here with us today.

Jack: Well thank you. I enjoyed it. And people can contact me, drop me a note, look on the website. I’m happy to help them out.

Mike: Fantastic. Thanks so much for your time today my friend.

Thanks for joining us for today’s FlipNerd.com podcast. To watch or listen to more great shows, please visit FlipNerd.com or visit in the iTunes store. To access the most robust social platform in existence for real estate investors, where you can find off-market wholesale deals, great vendors, literally in your market and to socialize with other like-minded individuals, please visit the one, the only, FlipNerd.com.

If you’re not yet a member you can set up a free account in about 30 seconds. It’s pretty much the coolest site that’s ever existed in the real estate investing industry, so get on over to FlipNerd.com.

Thanks for joining us for today’s FlipNerd.com podcast. To watch or listen to more great shows, please visit FlipNerd.com or visit in the iTunes store. To access the most robust social platform in existence for real estate investors, where you can find off-market wholesale deals, great vendors, literally in your market and to socialize with other like-minded individuals, please visit the one, the only, FlipNerd.com.

If you’re not yet a member you can set up a free account in about 30 seconds. It’s pretty much the coolest site that’s ever existed in the real estate investing industry, so get on over to FlipNerd.com.