Second Home Planning with Attorney Dan Penning

Episode: 186
Guest: 
Dan Penning, Penning Group Advisors and Attorneys
Originally Aired: January 25, 2017

The Lange Money Hour - Where Smart Money Talks

The Lange Money Hour: Where Smart Money Talks
James Lange, CPA/Attorney
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TOPICS COVERED:

  1. Introduction of Dan Penning of Penning Group Advisors and Attorneys
  2. Second Home Usually Is a Consumer of Wealth, Not a Producer of Wealth
  3. Second Home That’s Far Away Is More Difficult to Enjoy
  4. Renting Out Your Second Home Has Tax Advantages
  5. Is It Smarter to Rent a Second Home Before Buying It?
  6. Best Ways to Pass a Second Home to the Next Generation
  7. LLC Is Good Way to Structure Ownership, Maintenance, Transfer of Interest
  8. Planning to Avoid Conflicts Is Cheaper Than Going to Court
  9. Penning Group Works With Clients, Attorneys in 33 States
  10. Two Books Provide Basic Information on Protecting Second Home

 


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Welcome to The Lange Money Hour: Where Smart Money Talks with expert advice from Jim Lange, Pittsburgh-based CPA, attorney, and retirement and estate planning expert. Jim is also the author of Retire Secure! Pay Taxes Later. To find out more about his book, his practice, Lange Financial Group, and how to secure Jim as a speaker for your next event, visit his website at paytaxeslater.com. Now get ready to talk smart money.


1. Introduction of Dan Penning of Penning Group Advisors and Attorneys

Dan Weinberg: Welcome to The Lange Money Hour. I’m Dan Weinberg along with CPA and attorney Jim Lange. Our guest this week is Dan Penning. Dan is the founding member of the Penning Group Advisors and Attorneys. Mr. Penning is a nationally recognized expert in cottage law and succession planning for family-legacy assets. The Penning Group maintains offices in Suttons Bay, Grand Rapids and Novi, Michigan. Now, tonight, Jim and Dan are going to talk about cottages, second homes, and we’re going to talk about topics like is a second home really worth it? Is it a consumer of wealth or a producer of wealth? We’ll talk about tax laws affecting second homes, renting out and maintaining those homes, and also planning to pass your property down to the next generation. It’s sure to be a terrific hour of conversation, so let’s get started by saying good evening to Jim Lange and Dan Penning.

Jim Lange: Hi, Dan.

Dan Penning: Hi, Jim, how are you today?

Jim Lange: Good, thank you. So, Dan, before we get into the finances and the taxes and the estate plan, can you tell our listeners what your experience has been on whether families enjoy their second home, whether it’s a country cottage or even something more elaborate like a proper second home in Florida?

Dan Penning: Well, it’s been my experience, Jim, that clients that I work with are seeking ways to try and actually keep their homes in their extended family, so they do, in fact, enjoy them. You know, they’re trying to capture the kids experiences that they had at the second home growing up at the family cottage, let’s say, on a lake or another setting, and those memories and relationships that were built at the family cottage sometimes over generations has spurred the client on to come to see me to try and protect that legacy for future generations. So my experience might be a little bit biased because of the type of work I do that clients that come to see me, generally speaking, because they’re coming to see me, really do enjoy having that second home and having that location, if you will, for their family to gather. However, I have had experience with clients who may come to see me for other matters relating to maybe just general estate planning who have second homes that they’ve approached maybe from a different perspective as far as having an interest in skiing or boating or doing different types of things, and, in those situations, it’s not so much of a location that’s in the DNA, so to speak, of the family, and therefore, it’s more of a new experience for them, and there’s been circumstances in those types of situations where families aren’t always as enthralled or after the fact as happy that they purchased something as they thought they would be.

Jim Lange: Well, one of my premises is … and this goes for just across all finances, is I am a big fan of Jonathan Clements, who preaches the value of buying experiences, not things. So the way I am looking at, and particularly with what you had said about the successful country cottage or second home, is that … and my premise is it’s not necessarily a good financial move to buy one, but that you are buying experiences, and if your children and your grandchildren and your nieces and nephews and family are enjoying something, that even if it isn’t a “good deal,” and even if you could do better by even renting or something like that, that the value and the experiences that you are providing for yourselves and your family is very valuable. Is that fair to say that it might not be a great financial move to buy something like that, but particularly, if you do use it — which is another issue — that what you are ultimately doing is buying experiences and memories for you and your family?


2. Second Home Usually Is a Consumer of Wealth, Not a Producer of Wealth

Dan Penning: I think that that’s a great comment, Jim, that you’re buying experience as opposed to buying the thing as it relates to an investment. My general experience, and let me emphasize general, my general experience is that the second home — we call it family cottage or cottage law in my practice — is a consumer of wealth and not a producer of wealth, and that goes with the point you made that the second home is really a consumer of wealth in the sense that it costs money and there are expenses that have to be paid, but in exchange for that cost, you are, hopefully, as a family, getting that value as far as the time to use the place, enjoy the location wherever it may be, have the family come to the location, holidays and other vacations and special times of the year, and buy that experience. So, indirectly, you’re buying the experience through paying the expenses for the vacation home, but generally speaking, it’s my experience in my practice that, for the most part, the cottage or second home, condominium, whatever it might be, is a consumer of wealth. So, in other words, you may have it as an investment because it’s in a valuable location, and then, based on the market of value, it may be going up, and you hope that it is, but, in my practice, clients aren’t really looking to turn that cottage into a liquid or semi-liquid asset or transition it to that. So, most of the time, it is a consumer of wealth, not a producer of wealth.

Jim Lange: I would agree with that. You brought up the issue of location, and this happens to be one of my little issues. I do have a small second home, or family cottage, to use your terminology, and it’s roughly an hour from my house, and I’m kind of outdoorsy. I like to hike and bike and kayak, and there’s a great mountain range called the Laurel Mountains in western Pennsylvania. It’s not too far from Ohiopyle, and my place is kind of at the base of a big ski resort called Seven Springs. It’s at the very base, not right at the ski resort, and I love it because it is a base. I drive there. I will bicycle from my place. There’s hiking nearby. It’s very close to Ohiopyle. And I get a fair amount of use out of it, and the reason I get a fair amount of use is because it’s only an hour away. I have clients that have these second homes … now, I know you have a place actually that’s now your primary residence in Michigan, but I have clients who live in Pittsburgh, and then they have a second place in Michigan or upper state New York or somewhere very far, and the practicality of it is that they don’t get to use it that much just because, you know, if it’s a five-, six-hour drive, and you have to drive both ways, you know, how often are you going to get chunks of at least four days or five days to take advantage of it, assuming you’re still working? Do you see a pattern of people getting places close to where they live, or far, and whether the far places still have been successful because it’s maybe so nice that it’s worth the drive?


3. A Second Home That’s Far Away Often Is More Difficult to Enjoy

Dan Penning: Well, definitely having experience that, over the course of my lifetime, I had in my primary practice in the Detroit area in Michigan for many, many years, 25-plus years, and we, as a family, had a second home near Traverse City, Michigan, which is about a 4½ hour drive, and for our family, based on our circumstances, my wife would go to the family cottage the day after the kids got out of school and stay there until the kids started school, and then I commuted back and forth; but, to your point, I went up usually Thursday nights to make that four-hour drive and came back very early on Monday mornings to spend the weekends there, and there’s an old adage that that’s a long run for a short slide, and I would certainly subscribe to that as well. I think that it really has to be a situational thing for a particular family to do, or make a long-distance location work. I think technology, or the advent of technology, helps people be more mobile, so, perhaps, what I see is families where the parents are able to work remotely, and I see that a lot in my area up here in Traverse City in northern Michigan. We have a lot of people that come here summers from other states and come here and work their various jobs from their remote locations at their cottages, but even though that’s commonly done, I think that’s still the exception rather than the rule. So, then, you get into a situation where a family has a long-distance cottage, they find that they’re not using it as much as they thought they would, then they start to rent it, and, unless they use a local rental agency, that can create some problems. So, yeah, in my experience, I think that if, unless the circumstances specific to the family really are friendly to them being able to kind of pick up and go to that location for a longer term, long-distance commutes to second homes in a typical situation are really difficult.

Jim Lange: OK. Well, why don’t we get into, let’s say, some of the hard information, some of the finances? So why don’t we start with the tax rules? Because I know there is some tricky tax rules about the number of weeks you can use it and whether people rent it out, or whether it just sits vacant for the time that they are not using it. Can you tell us a little bit about the general U.S. tax rules?


4. Renting Out Your Second Home Has Tax Advantages

Dan Penning: Yes, I think that you need to keep in mind that there are some rules that apply generally state-to-state regarding property taxes and how various exemptions or credits may be treated depending on the use of the cottage. From a U.S. global-type perspective for U.S. income-tax purposes, typically, if you’re renting the property or treating it as rental property, that’s if you’re renting it for more than two weeks a year, OK? So, you get into the depreciation and the various other tax rules. I’m not a CPA, but essentially, there are baseline requirements that the U.S. government, through the IRS, has promulgated, or put in place, whereby you have to meet those rules to be able to acquire certain deductions. Now, payment of property taxes, the real-estate taxes, to the local municipality where the property is located is deductible, as well as mortgage interest, just like on your primary residence, mortgage interest paid on a mortgage on a second home is also deductible on your tax return.

Jim Lange: So the real issues in terms of deductions, you’re always going to be able to deduct the property taxes, you’re always going to be able to deduct the interest that you’re paying on the loan, but let’s say some of the tax differences might be on some of the costs of maintenance and depreciation and things like that, and is it fair to say that if you’re using it more than two weeks a year that you don’t necessarily get all those goodies compared to if you’re not using it two weeks? Then some of those expenses like depreciation and repairs and all the maintenance that you do on the property then do become a tax deduction.

Dan Penning: Yes, it’s basically kind of an inverse relationship. If you’re not using it, you get more of the goodies you referred to as far as some of the potential deductions, and again, that depends on how you’re filing your taxes and whether you itemize or you don’t itemize and there’s all those issues. But if you are using your family cottage personally and using it a lot for personal use, then you’re probably limited to the income-tax deductions for the mortgage interest and the property taxes paid to the local municipality.

Jim Lange: And the other thing is, and I’m going to bring this into the modern age, you mentioned using a local agent, and personally, I never rent my place out. I don’t even use it all that much, but the times I don’t use it, it sits. But I am a frequent traveler to different places and I rarely stay in hotels anymore. I go to VRBO.com, I go to Airbnb.com, and I’ve rented places for $5,000 a month, sometimes more, and I wanted to know if you have experience in whether these, let’s say, new modalities like Airbnb and VRBO and Home Away have changed the dynamic? Because, to me, I far prefer that to a hotel, and if I’m going to an area, and particular since I’m outdoorsy, I like finding places that are in pretty outdoor areas that might be closer to the “family cottage” rather than somebody’s primary residence in Detroit, Michigan. Have you found any dynamic, or are your clients not really VRBO-type people and they just want the place for themselves and it’s not a matter of money or issue or renting out?

Dan Penning: Well, I think if the question is, you know, as I understand it, was is the VRBO-type concept as opposed to finding a local rental agency to handle your rentals, is that concept catching on? Certainly, here in the Traverse City area, which is in northern Michigan where I am, I see it just multiplying exponentially every year. I ran into someone late this summer on Labor Day on the beach in front of my residence, where she was from Brooklyn, New York, and had two children and they lived in Brooklyn, and her children, I think, were 6 and 8, and she was renting a location through VRBO and commenting on the fact that her minor children, it was the first time that they had a home where they could just run out the back door into a green lawn area and play, and that was so different from their urban-dwelling experience. So, that was just an example, but I see it and hear of it more and more where people are utilizing that service to utilize rentals of places, and to your point, too, I think then you get into the benefit versus renting, and you talked earlier about paying for the experience. You get into the benefit of renting versus owning a place. I mean, certainly, if you own a place, that is static. It’s your place. It has a set amount of expenses at a minimum and sometimes more, and especially with the hurricanes we saw earlier this year, people had homes along the east coast to Florida, I had several people talk to me about, well, it was great that they rented their place in Florida as opposed to owning a place and had to worry about it. So that, I think, has merit and has become on the radar of many, many people, although a lot of the people, again, I deal with have, let’s say, generational cottages that have been in the family since great-grandfather built it, and has moved down from generation to generation, which, that’s kind of a different experience, and like I said earlier, too, that’s more in the DNA of the family and is kind of a different approach and attitude towards the vacation home.


5. Is It Smarter to Rent a Second Home Before Buying It?

Jim Lange: Well, we’ll get to that in a minute, but you brought up an interesting point because I have a lot of clients who are interested in either moving to Florida, becoming a snowbird, renting there, and for whatever it’s worth, my own personal experience is I like to be in warm places in the winter, and two winters ago, I rented a place in central Florida, and frankly, I didn’t like it all that much. It was much colder than I expected. In the morning, it was, you know, 45, 50 degrees, and that’s when I like to start bicycle riding and that wasn’t all that pleasant. I mean, it wasn’t terrible, but I was awful glad I didn’t buy a place there. And then, last winter, I was in southwest Florida in the Fort Myers area, and I spent time on Sanibel Island, and that was beautiful, but, again, it wasn’t thrilling. I’m a cyclist. All the cycling was flat. This winter, I’m going to go to the Tucson area, which is supposed to be a haven. So, I’m trying these different areas out where if I had bought a home, I wouldn’t have been able to experience these things. So, I like the idea of when you’re thinking of a location to rent for a year or two, make sure that you’re happy there. But let’s go back to Florida, because you mentioned the hurricanes. There’s a book that I think was very good called The Moving to Florida Guide, and the point that the author was making was Florida is wonderful in the winter, particularly like the southwest or the southern part. Maybe not so much central, but that it’s warm, it’s sunny, it’s inviting, people love it, you go play golf, you go play tennis, now everybody’s playing, you know, paddle tennis and the other sport … I forget the name of it, and people are having a great time, and then the hurricanes, then the ants, then the oppressive heat, and his point was don’t move to Florida permanently, but either get a place and become a snowbird or rent. Has that also been your experience, or are people … I’m sure you have a lot of clients who buy a place in Florida and then they become Florida residents.

Dan Penning: Well, yeah. My experiences, the people that are buying a place in Florida have really been experienced in the Florida environment, meaning they visited Florida several times, they perhaps have rented there on a longer-term basis. You know, usually, my experience with Florida second homes is snowbird-type people, and because they have a second home in Florida and they have discovered there can be certain income-tax benefits to being a Florida resident versus a resident in Michigan or some other state, that they make that election. I think that more and more … my experience is in relation to warm-weather locations, and I certainly love the warm weather. In the middle of February, if I’m up in Traverse City, I sometimes wish I was somewhere else. So, nothing against warm-weather locations, but I find that my practice, as it relates to protecting family residences as far as for future generation’s use and enjoyment, is not essentially the same in warmer locations like Florida and so on as it is to, let’s say, the family cottage up in the Adirondack Mountains in New York, or the family cottage out in Nantucket, or the family cottage up in northern Michigan, or up in the Minneapolis area or Minnesota. So, it tends to be a little bit more unemotional, sort of location-oriented, like a place is just a place but people are who you go to see, and so it tends to be really just a function of getting out of cold weather, going down there, having a decent place to stay and maybe not having to carry or move quite so much personal belongings to and from the location so they would rather own it rather than rent it. But my experience, people who are doing that have quite a bit of time spent down there before they’re making that move to buy.

Jim Lange: All right, well, why don’t we get more into your area of expertise, which is, let’s call it, to use your own words, when the DNA is actually part of the family cottage. So, Dan, during the first segment, we talked about that second homes might be more of a purchase of an experience rather than a good investment. We mentioned it might be a much better chance of getting more use if it is closer, let’s say an hour drive compared to a four-hour drive, and then, you also, towards the end, started saying something like, well, if you look at some of the warm-weather second homes or cottages, that yes, people love them and they like to go to the warm weather, but it’s not the same as, let’s say, the lake house in the north, or, in your case, in Traverse City, Michigan, or, in my case, the Laurel Mountains, or you mentioned the Adirondacks. So, why don’t we go to, let’s say, the more classic family cottage, if you will, let’s say, between one and five hours away from the primary residence, most likely in the same state, but it doesn’t have to be. But let’s say that somebody does have that type of property. What are some of the issues that you deal with as an estate attorney? Because, as I understand it, this is one of your areas of expertise. In fact, I don’t know anybody in the country that knows more about these kinds of things than you do. What are some of the issues that you run into when you’re sitting there with Mom and Dad who have owned the place for a long time, and what comes up? What is the nature of the conversation, and what are some of the issues involved?


6. Best Ways to Pass a Second Home to the Next Generation

Dan Penning: That’s a great question, Jim. I think that some of those issues that come up, and mainly probably the first one that comes up with clients is how do we pass ownership of our cottage to the future generations or to our children? How should we do that? What form of ownership? How will they own it and maintain it, and then, even in their instance, how will they transfer ownership to their children if that’s a goal of theirs? So, passing ownership and the form of ownership is a thing that is typically a very important issue. Another thing is, how to we continue to provide access and use of the cottage to our children if you own something together? If you go back to the days when we were kids in the sandbox, we as individuals, we don’t share things really well, typically. I mean, we get taught to share and encouraged to share and so on, but we tend to be a little bit selfish, and therefore, in relation to owning something like a cottage as opposed to just a shovel and a pail, now we’re talking about owning a cottage together. So, how do we set up a system that provides access and use and a fairness to all of that for the next generation, for our kids? Also, issues can be how do we protect a cottage against various risks? Like if you have a cottage, a lot of times, activities that go on at a cottage are not dangerous, but they’re risky. I mean, you have people running around on docks and going near the water. So things are happening that could be of risk to the cottage as far as liability and insurance issues. So, those things come up. Also, I kind of alluded to it earlier, how do we avoid conflicts among family members? How do we set up a system that maybe gets in front of the conflicts that can occur relating to various issues concerning expenses or use or even transfers of ownership, if somebody wants to exit ownership? And so promoting the family harmony is really a lot of times a very key factor, and then also, as I mentioned, issues concerning, “Well, if one of my children doesn’t want it and I have three children, how can I provide a system or a structure whereby the child that wants to not maintain ownership can get out of ownership in such a way that they receive their economic value, but not at the expense of the other two as far as them having to sell it?” Maybe set up some buy-sell type terms that can facilitate people keeping the cottage and being able to pay on an installment basis or at a more user-friendly basis to the person that’s exiting. So all of those are typical issues and important issues that we typically see and address with clients.

Jim Lange: OK, you gave a terrific laundry list of issues, and then, at the very end, you suggested one solution in the event that one of the children is not as interested, or isn’t interested at all in maintaining the family cottage. So now, why don’t you give our listeners the answers to these issues, and I’ll give you the first part of your answer because I know you are an attorney: The answer is, it depends and every situation is different, but some of the general principles and solutions that I use are …?


7. LLC Is Good Way to Structure Ownership, Maintenance, Transfer of Interest

Dan Penning: Are basically to implement a structure for the ownership use, maintenance and potential transfer of interest, like an LLC, a limited liability company. In the past, attorneys used a trust, which was kind of a traditional concept as far as setting up a trust to hold title to real estate, and then put into that trust various terms and conditions whereby a trustee, a person in charge, would then be able to manage the property according to those terms. We’ve now evolved to having other tools available to us in our attorney toolkit, so to speak, one of which is a limited liability company that, when that type of entity makes sense, gives a lot more flexibility to a lawyer and to a family who wants to implement some planning, because with a limited liability company, we typically have what’s called an operating agreement, which is really the rulebook as far as how people who are the owners in the limited liability company, which, in turn, then owns the property, how those owners relate to each other and relate to the asset of the company, which is the property. So a lot of times, where it makes sense to implement a plan for a family, we’re using the tool of a limited liability company, and in that operating agreement, we’re putting rules into that operating agreement and terms regarding things like how do the expenses of the property get paid? How to use the property, what are the use rules? Who gets to use it when? And also, if somebody wants to exit ownership. How is that process implemented, and then how does that person receive their economic benefit? As well as how is it managed? Are we going to appoint a management committee which is representative of the various families that own a percentage of the property and then make decisions, and how are those decisions then going to be made as far as, is it a majority rule, a simple majority, or does it require, in some instances, a super majority or a unanimous vote? So, those are the kinds of things that we implement through a structure of a limited liability company, and an operating agreement to address those things.

Jim Lange: Well, let me ask you this. What I suspect that some of our listeners are hearing and they’re going, “Oh, there’s a lawyer going ka-ching, ka-ching, ka-ching, trying to drive up fees for both the attorney setting it up,” which by the way, in the big scheme of things, might be secondary to some of the costs of maintaining it, particularly if you have to file a tax return for it, and the other thing that I’m thinking about is transfer taxes. Is there a threshold value that you would say … I mean, you’re not going to go through this for a $50,000 cottage, are you? Or maybe you are?


8. Planning to Avoid Conflicts Is Cheaper Than Going to Court

Dan Penning: Yeah, well, in my experience, we have. We’ve done cabins where the economic value of the cabin is very limited. Let’s say it’s a $40,000 cabin with scarce indoor plumbing on a river, but that’s where three generations of the Smith family learned to fly fish, hunt and come together at various points of the year and have some camaraderie. So, I’ve actually done planning for those types of relatively low-value economic value assets, but extremely high-value emotional assets where there’s pictures on the wall of a great-grandfather and father and grandpa and various grandchildren fishing and hunting and doing different things. So, the economic value is not always the driver that brings people into my office as much as the emotional component, and as I mentioned earlier, sort of is this location or cottage or a particular structure in the DNA of the family. So, the planning, from a lawyer’s perspective and what we do, is not so terribly expensive that it’s prohibitive of the planning, and I, a lot of times, mention to clients that if they have a family cottage that they’re looking at passing on to the next generation, if they don’t implement some sort of a plan … when I was with my larger firm in my career, I would indicate that if they wanted to go down the hall and check with the litigation guys, usually a retainer just to start litigation, or deal with a family dispute, was probably going to be two or three times the amount of the entire cost of the plan that we would use to get in front of those issues. So, planning is always cheaper than litigating, and so it’s not so cost prohibitive, and then also to the point of ongoing expense, if you have something like an LLC, typically, unless it’s earning income, there’s no tax return required to be filed for an entity that has less than $600 per year in income, and so, therefore, there’s no separate tax return, and there’s no requirement for an LLC in most states as far as any sort of annual activity or anything you would have to go to a lawyer to do on an annual or ongoing basis. Most states simply send out a notice that requires an LLC to file a form and pay an annual filing fee, which the clients can do on their own and doesn’t require a lawyer or legal representative to do it for them.

Jim Lange: This, by the way, is getting very interesting for me. Let’s say that a hundred people come into you with, let’s call it, the cottage with what you would call family DNA, in other words, not the place in Florida that they don’t really care about, that they don’t really care if the family sells or retains after they’re gone. But let’s say that the idea is to keep it in the family. Is it relatively standard, is that your starting point, “Oh, OK. Well, Mr. and Mrs. Jones, what I’m going to recommend is that you establish this LLC and that we’re going to transfer the ownership of the cottage to the LLC, and we’re going to have an operating agreement.” Is that a relatively standard type of advice that you give?

Dan Penning: Yes. Again, it’s not cookie cutter. Sometimes, a trust does make more sense than an LLC for various reasons, like the family wants more centralized management. They’d rather have fewer rather than more people in charge of decision-making, and let’s say, the cottage really is in the family’s DNA and there’s no desire to provide a process for children to exit ownership. So, maybe that issue is not as important. So, depending on the family and its desired goals, the tools might be a little bit different, but an LLC, generally speaking, provides the most flexibility and can accommodate various goals and objectives in a much easier way than other types of tools. But that doesn’t mean we don’t consider those things if the situation warrants.

Jim Lange: So, Dan, I’ll tell you some of the things I was thinking about as you were speaking, because we’re an estate-planning firm as well as a financial firm and a CPA firm, and our real areas of expertise are IRAs and retirement plans. So, the type of clients we typically attract are people who have the majority of their wealth in IRAs or retirement plans, and that’s where we feel very comfortable and we think we can add a huge value for the amount of time and the fees that we spend. But some of these people come along with family cottages, and we sometimes spend more time on the family cottage and planning for it than we do on the two- or three-million-dollar IRA, and, very frankly, even though we do our best and we try to anticipate some of the issues, we are not specialists and I don’t have any desire to become an expert in this area. As you’re telling me, you know, “Gee, you ought to think about an LLC, or, in some situations, a trust,” I’m thinking, “You know? This is not really an area I want to get into. On the other hand, clients have this need.” And I was thinking, “Well, this guy Dan, he really knows his stuff, but he’s in Michigan. Can he help people where he isn’t necessarily licensed to practice law, or does he make a deal with one of the local attorneys where the local attorney is doing ‘the legal work,’ such as perhaps the transfer of the deed, or even setting up the LLC?” But can you tell us how you have worked with people from other areas and even other states, either with or without an attorney, and whether this is a service that you do hold yourself out as an expert and get work, literally from all over the country, in this probably not fantastically popular to a lot of people, but very important to the people that it does apply to?


9. Penning Group Works With Clients, Attorneys in 33 States

Dan Penning: Great question, Jim. Yes, we have a system that we’ve developed because of the demand for it. Frankly, with the advance of the internet and searching for various services, we tend to be identified as a resource for people from multiple states. I think I am up to now about 33 states, as far as providing people in 33 different states with plans. The way we approach that is, typically, we’ll work with a client and talk to the client about their planning, and most of the time, a client that contacts us with a family cottage or that type of asset is the type of person that’s had some relationship with a lawyer in their state, whether that be having a lawyer previously represent them in the purchase of some real estate, or an estate-planning lawyer, or perhaps a lawyer that’s assisted the client in their business operations. So a lot of times, clients who contact us have that relationship with a local licensed attorney in their state. So, what we do is partner up with that attorney, because the work that we’re doing is really categorized in relation to that family’s cottage. So we can really create a plan that sort of plugs into the client’s overall estate plan or wealth plan, and therefore, the attorney that’s working with that client, like you said, you’re working to plan for the two- or three-million-dollar IRA, and the $300,000 cottage is consuming a lot of time. So, we find that a lot of professionals who haven’t done this type of planning as it relates to cottage law are really eager and, frankly, welcoming of us to be involved in the process because we can provide that solution as a component to the overall plan, and provide that documentation, and then the local attorney does things like preparing the deed for that state, as far as transferring the property into the trust or the LLC, and also forming the LLC perhaps in that state. We’re using the documents we prepared and reviewing them to make sure that they’re locally compliant. So we’ve come up with a way to do that, and that happens all the time. As I said, I think we’re up to 33 states now where we’ve done work and provided clients with information and planning services that they can then utilize with their local attorney to implement on a final basis.

Jim Lange: Well, Dan, this is actually very valuable to people, and I’m going to take the liberty of providing your contact information. So, we’re talking about a group called the Penning Group, which are both advisors and attorneys. We’re talking with Dan Penning. His direct telephone number is (248) 893-1418. He can also be reached at dpenning@penninggroup.com. I have never worked with Dan. I don’t have any financial interest in Dan’s company, but it sounds like a good resource for somebody who has a, we’re calling it, cottage, but it could also just be a regular second home where the goal is to keep the cottage in the family. Could I ask for maybe two other resources for … let’s say, the clients don’t want to pay a couple thousand dollars, which, I assume it’s that or more for you to come up with a full solution from beginning to end. Are there other resources in terms of books or forms or anything that the do-it-yourself client can have? Or even if somebody is open to the idea of using your group, what would be a good starting point for them to read more?


10. Two Books Provide Basic Information on Protecting Second Home

Dan Penning: Well, first of all, as far as our operations, we don’t charge a client anything to talk. I mean, most of the time, our initial contacts involve conversations and phone conferences that we provide for no obligation …

Jim Lange: You have two minutes, by the way.

Dan Penning: Yeah, the client doesn’t know whether they want to do this and how it’s done. So, we’re essentially a free resource as far as an initial contact, OK, within reason. The other resources a client may want to utilize, there’s an excellent book which was drafted by my predecessor, Stuart Hollander, who passed away suddenly in 2007. That book is called Saving the Family Cottage, by Stuart Hollander, and I know if you go to Amazon or one of those providers that that book is in circulation and an excellent book. Another book that is good as well that I’ve seen is written by Douglas Hunter, and it’s called The Cottage Ownership Guide. And so, those books are available at your local booksellers or nationally and provide excellent resources for a person who’s thinking about this, perhaps to read the book and process some information, and then, as I said, we’re happy to speak with anyone to talk with them about their situation.

Jim Lange: Well, Dan, again, you have been a great source of information. For readers or listeners that might be interested, Dan’s direct dial is (248) 893-1418. His e-mail is dpenning@penninggroup.com.

Dan Weinberg: And thanks again to our guest, attorney Dan Penning, and, of course, to Jim Lange, and all of The Lange Money Hour episodes are archived soon after they air on the Lange Financial Group’s website, which is www.paytaxeslater.com. Just look under “Radio Show.” Special thanks as always to the Lange Financial Group’s marketing director, Amanda Cassady-Schweinsberg, and to our producer, KQV’s Amy Vallella. I’m Dan Weinberg. For Jim Lange, thanks so much for listening and we’ll see you next time for another edition of The Lange Money Hour, Where Smart Money Talks.

 

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