 Welcome to finding your piece of the rock, Think Tech Hawaii. I'm your host, Abe Lee. I have been a real estate licensee since 1973. I'm the owner of Century 21, I Property Hawaii, and work with over, or close to 100 wonderful agents in real estate sales. I started Abe Lee seminars in 1980. I have taught over 11,000 students. They helped them to get their real estate licenses, and I teach continuing educations for licensees to renew their license every two years. Our show is dedicated to helping buyers and sellers understand the process involved in real estate transactions. Our special guests will talk about legal issues, escrow, title, getting a loan, surveys, home inspections, insurance, contracts, wills and trusts, and much, much more. Today, we're especially privileged to have this handsome young man, Ethan Okura, who happens to be, by the way, my wife's nephew. But Ethan is an accomplished dancer, singer, dancer, pilot, in addition to being a terrific estate planning attorney. So Ethan, thank you so much for joining us today. Thanks for having me, Abe. OK. So tell us, for some of the people that may have not seen you before, a little bit about your background and your life and how you got into real estate law. Well, I grew up in Hilo on the Big Island. My father had his law practice here in Hilo. And he always told me, maybe you don't want to go into law. Go into business or do something else. And sure enough, I was a rebellious kid and went to law school. So I became an attorney like him and came back to work with him after three years in New York City, where I went to law school. I went to Columbia University for law school, worked at a lawyer's law firm called Clifford Chance in their New York City office. And after doing the grind there for a few years, moved back to Hawaii to join my dad in his practice. And he has since retired. And I'm carrying the tort. Right. Now, what's your specialty in law? Ocarina Associates does exclusively estate planning. And estate planning is helping people to plan how to protect and deal with their assets. So the most common is wills and trusts, but also dealing with real estate transfers, hours of attorney health care directives, anything that we need to protect a person and their assets from incapacity, disability, from estate taxes from probate, and from creditors and divorce, and pretty much whatever you think of if it ties to protecting your assets or yourself. And that's what we deal. Great. And today's topic is going to be on how to protect your assets from lawchairs and creditors and how to hold title, which may be a different way or better ways to protect the assets. So let's go start with the real basics and the four tendencies that people can hold title to property in Hawaii. If you don't mind, you can go through the basic characteristics of several T, and it's in common, joint tenancy, and then tenancy by the entirety. Absolutely. So these are the things that you learn in your first year real property class in law school. So any attorneys out there should know this stuff. And I understand that when you're teaching your seminars and your classes for licensees for people becoming real estate agents, that they also have to learn these concepts, right? Correct. Yeah. So tenant in several T, that's the first type of tenancy you can have. This means that you're the sole owner of that parcel of property. And it's a little tricky, because when we hear in English several, it sounds like more than one. But when we say tenant in several T, the concept is that it is severed or cut off or separated from any other owner. So a tenant in several T is the only owner of that property. And don't get confused with the several in there. It's really for one owner. So that person can lead it to whom they want. They can borrow against it. They can mortgage property. If they get sued, a creditor could take it away from them. In divorce, their spouse might get awarded part of that property. But tenant in several T means you own it by yourself. The next kind of way to just to clarify, you could have a stock corporation. So you could have millions of stock holders. But if it's in the name of that corporation, then it's several T. Is that right? Exactly right. So if the parcel of land is owned by one owner, and that owner is a corporation or an LLC or a limited partnership or partnership, then it would still be a tenant in several T because there's one owner, the entity. But the entity might have dozens or hundreds or thousands of owners if it's stock in a corporation. So that's exactly right. Okay, now with tenants in common, the idea is that there's more than one owner and a tenant in common will own an undivided interest in the property. And that means that each owner has access to the whole of the property, even if you're a 1% owner and a 99% owner, that the two people own it in those percentages. It's not like there's 1% of the property that the 1% owner can use and they can't go on the rest of it. No, that's not how it works. With undivided interest, each owner has access to the whole of the property. But if there's any income, like say there's produce grown there, rent earned, then it gets split according to their percentages, 99% 1%. And if the property is sold, then they would get their 99% 1% share of it. But while they're using it, they both get to use the whole property and neither tenant in common can bar the other property owners from access unless there's some kind of tenancy agreement that restricts their use. Okay, how about joint tenancy? Joint tenants, okay, like tenants in common, you have multiple owners of the property. The difference here is with joint tenants you have a right of survivorship. So when you have multiple owners with joint tenancy, if one of them passes away, the other joint owners automatically own the rest of the property. So let's say four siblings inherited a property from their parents when they died and it's in all four siblings name as joint tenants. Well, when one sibling dies, that sibling spouse and children don't get that share. It goes to the other three living siblings. And the last sibling living ends up owning the whole thing 100%. Even if they started with 25% each. And so the last survivor can leave it to whomever they want in their will or it will go to their heirs if they don't have a will. With the tenants in common, the difference was any owner who had, let's say it was four siblings that owned 25% each as tenants in common, when that sibling dies, it doesn't automatically go to the other siblings. It goes according to that. Siblings will, the one who died, it goes according to their will. If they didn't have a will, it goes to their heirs, their closest living relatives. So it might be their spouse or their kids instead of the sibling. So that's the main difference with tenants in common and joint tenancy. And now in tenancy in common, it can be equal or unequal shares, but in joint tenancy, it always has to be equal shares, is it? That's correct. Joint tenancy in Hawaii has to be in all equal shares. It cannot be unequal portions. Okay, great. How about the last one? The tenancy by the entirety. This is the most exciting tenancy we can talk about. And I know it sounds kind of nerdy talking about getting excited about how you give old real estate entitlement. But when we talk about teching our assets from creditors, nowadays you hear about so many lawsuits, people sue each other for this and that. Well, the tenants by entirety provides a small degree of creditor protection. Tenants by the entirety is similar to joint tenants, but it's only available for married couples or reciprocal beneficiaries. So if your husband and wife or husband and husband, wife and wife, if you're married legally or if you registered as reciprocal beneficiaries, which is a form of status you can register in the state of Hawaii for people who are not allowed to be legally married, then you may own the property as tenants by the entirety. And when we say entirety, it's because originally it was the marital unit that owns it altogether entirely. And so one spouse cannot sell off or mortgage or lose their share of the property to a creditor because it's considered owned by the marital unit in whole. So with tenants by the entirety, let's say there's a husband and wife and the husband and wife own their own as tenants by the entirety. It's 50-50 ownership equally, like joint tenants, it has to be equal shares. And then when one of them, let's say the husband gets sued for his construction job where he had a problem and someone got injured or maybe he was a doc during God, a malpractice lawsuit, but the wife had nothing to do with that lawsuit. Now when the creditor tries to come and collect on their judgment, they can take the family's assets, his bank accounts, any joint bank accounts they might have together. They could take anything in his individual name, but they shouldn't be able to touch anything in the wife's name since she wasn't involved with the liability or the claim or the lawsuit. And anything that's tenants by the entirety that's held by the couple that way would be protected against the creditors of just the husband. Now won't protect them if the husband and wife are both liable. Let's say they both signed on a mortgage and they stop paying. In that case, if it's held by tenants by the entirety, the bank can foreclose and take that property away. They both owe against it. Okay now, I know we're not gonna talk about trust today, but usually when you have a trust, it's the trust for the husband and trust for the wife. And they usually held it in tenants in common, but didn't you say that they changed the law in Hawaii so that you could be in tenants by the entirety and be in tenants in common and still have tenants by the entirety protection? That is exactly right. So back on July 3rd, 2012, Governor Adam Bacromby signed in the new law that allowed us to hold our real estate in trust, in a revocable trust and still keep the tenants by entirety protection, effective as of two days earlier, July 1st, 2012. So if you set up your estate plan with your revocable trust prior to 2012, I guess prior to July 2012, and you put your own or rental properties or other real estate into those trusts back then, then they have tenants in common ownership. That's how the title is held. It was not possible to keep the tenants by entirety protection while putting the property in trust. And so many estate planning attorneys like myself were torn before 2012, what to recommend to clients? Do we have them keep it in tenants by the entirety to get the better credit or protection? But then when one spouse dies, it all goes to the survivor and well, there's no more tenants by the entirety protection at that point. Or did we tell them to put it in their trust to get the advantages of avoiding probate, protecting against estate taxes and some of the other advantages of credit or protection tied with trusts once you pass away? And that was a dilemma. Well, ever since 2012, now we can have our cake and eat it too. We can set up revocable trusts for our clients. We can do it with either separate trusts or a joint trust that they create together. And we can put their property that they already own as tenants by the entirety into the trust and preserve the tenants by entirety protection while it's still in trust and getting the benefits of all the trust planning. So it's a fantastic solution. And one other thing before we go on to protecting the assets and creditors, in a joint tenancy and tenancy common, if one of the owners wants to sell the full property and the others don't want to and the one that wants to sell go to court and do what they call a partition suit sale. Can you touch on that? Sure. So let's talk about tenants in common and joint tenants where you have multiple owners. With joint tenants, they all have an equal share. Tenants in common, it could be different percentages or could be equal. In either case, any one owner can break the joint tenancy or the tenants in common and sell their share to whomever they want or give it to a family member if they want. And so they're not restricted from breaking that ownership up. But it's only their share. So if it's a 25% piece, they've got to find someone willing to buy their one fourth share and become partners with their siblings or other owners. And that's almost impossible. You know, as a real estate agent, to find a buyer was gonna come in and buy part of the property with strangers as partners. Never gonna happen. But like you mentioned, one solution they have is to go to court to do something called a partition action. And partition means breaking up the property. In the old days under English common law, it might have meant actually breaking the parcel up from let's say a hundred acres of the estate into 25, 25, 25, 25 and giving each person a share of the property. Nowadays with a parcel that's a home, for example, that may not be able to be subdivided or split into shares smaller, the real remedy in almost every partition action is just to offer it for sale to the public and they can take it to auction and anybody, including the current owners can bid to buy it out at the highest price. And if you're, let's say there's one fourth each and you bid it up to a million dollars and nobody else outbids you, you can buy the property for a million. If you already own one fourth, your 250,000 is for yourself. So you only have to base 750 to buy out the other shares. And it's a way to force the buyout of the other co-owners, joint tenants or tenants in common. If for example, you want out and you're not getting along, well, there is a way that the law provides for you to do that. Okay, thank you. That really is interesting. So now let's go on to how do you protect your assets against lots of some creditors and what would you recommend as an attorney? Well, that's a great question. And it actually, I have done four hour seminars on just that one topic and I still didn't have enough time to cover it all. So we may be hard pressed to get it all in today but we can cover the big overview outline of the concepts. When we talk about asset protection and protecting assets from creditors, it's best to think of it as a series of defenses, kind of like a medieval castle. When you had a castle, let's say in France or England or Germany and you're worried about the enemies attacking, well, what you did was you cleared the forests around the castle so there was open fields and you could see the enemy approaching and you could have your archers shoot from the top of the turrets and try to catch some of them before they get there. Once they arrived to the castle, you had a moat where the water kept them out and you had a drawbridge to keep them away and so they had to cross the water. Then you had the castle walls which they had to climb and you could have your soldiers pouring hot oil or big rocks off the walls to keep people away and it was really difficult to get in with those layers of protection. So it's the same thing with protecting our assets. We wanna have multiple layers. There's no one solution, silver bullet solves everything with like one flip of a switch. So it's about how to structure things and the most common thing that we recommend to people to start with if you have a smaller budget or you don't want the complexity, the simplest way to get protection is start with a good umbrella insurance policy. Now many of your clients, people, listeners may have heard of that. Essentially an umbrella policy is liability protection above and beyond the basic liability protection that you'd get with your homeowner's insurance or your automobile insurance, which is the general source of liability for most people. Our accidents, kids' friends drowning in your pool or breaking their neck on your trampoline or slipping and falling on your stairs or a guest or a friend or something. So that's how a lot of people get sued, right? Injuries on your property or from your vehicles. And for those of you with teenage kids who are driving, if you own the car and your kid's driving, well, guess what? You're reliable. And if they're a minor, you're reliable for their actions. So that's where a lot of liability can come in. And it's not that expensive. Usually for under a thousand bucks, you can get a million or $2 million of coverage of umbrella insurance policy on top of your basic standard liability. So if you got $1 or $2 million of coverage, most of the basic threats that you might face would be covered and you'd be protected from. And that's where I recommend most people to start. Now, if I'm gonna go on and talk about what else we can do, there is a concept that we usually discuss of inside liability versus outside liability. And that's an important distinction to understand when we're structuring what's the best ask protection plan for someone. And when we say inside versus outside liability, we're talking about specific assets. So some of our assets can generate liabilities. One example I mentioned was your car, right? That's an asset that could generate liability. Another would be a rental property. If you own a rental property and the tenant slips and falls, they could sue you as the owner and come after your personal assets. One solution for that is to set up a limited liability company to own the rental property. Now, instead of you owning the property, you own the limited liability company, so called LLC. And the LLC is the tenant in several T, the sole owner of the real estate. And you could own the LLC by yourself or with a spouse or with a partner. Now, once the LLC is the owner, if a tenant slips and falls and they get hurt and they wanna sue the owner, well, the owner is now the LLC, not you personally. So your personal assets like your home and your bank accounts and your stock accounts should have a great degree of protection from getting sued by that tenant through suing the owner of the property where they got injured. Now, if you did something negligent yourself, then you could also be personally liable even though you had it owned in an LLC. So it's not foolproof, but it does provide a great degree of protection, especially if you have independent professional property managers running that property management for the tenants. So that's an example of inside liability. Liability generated from inside your asset, your rental home, and that LLC provides a shield to protect your assets from claims coming within inside that asset. Now, how does outside liability work? If you have someone suing you for something you did, maybe it was malpractice as a doctor or you caused a car accident or you owned the car that caused the car accident, maybe your kids were driving or a spouse. Well, in that case, they can sue you personally and they have a claim against you and say you got a judgment for a couple million dollars against you and you own a rental property free and clear and you were smart enough to put it into an LLC to protect that asset from your creditors. Well, it will protect you from inside liability. The tenant cannot sue and get through the LLC to come at you personally. But anyone who got a judgment against you for your car accident, they can collect on that claim and they could take your LLC away from you and now you lose that rental property to the outside creditor. So that's where the LLC only protects from inside liabilities. It doesn't protect the assets inside the LLC from your personal liabilities and claims if you are the owner of the LLC. And I'll just touch on it. It's probably too much to get into detail but one solution for that is to create an irrevocable asset protection trust that can own the LLC instead of you. So now you don't own the LLC, you don't own the whole. Your asset protection trust owns it with an independent trustee. You can get all the rental profits coming out of the LLC. You could have the LLC or the property distributed to you from the trust at some point but as long as it's owned by the asset protection trust and you've passed the window of time for creditors to come after you a couple years, then when a claim arises in the future, they can sue you, they could get a judgment against you, they can't collect on that judgment against the LLC or the property in the LLC if it's owned by the irrevocable asset protection trust. And that was a mouthful. So if you didn't get it, don't worry, maybe in the future we'll go into greater detail about these asset protection trust at some point. But do you want any clarifying questions on that, Abe? No, that's really fascinating. How many people actually do that? You know, in Hawaii, not a lot. When we see wealthy clients, a lot of them will have some kind of complex structure because they're already planning to protect against estate taxes or death taxes anyway with irrevocable trusts. And so often we have these creditor protection structures built in. And yet there are a handful of people who do come for that type of protection even though they're not multi-millionaires. You don't have to have a lot to protect. And whatever's a lot for you is worth protecting if it's just your home. And you know, it's worth a few hundred thousand dollars. Maybe it's on one of the outer islands where land's a little cheaper than Honolulu or Wapu. But still, that's your life savings. That's what you've got to protect. The asset protection trust can, but if you and I have had clients with just a few hundred thousand that have opted to go this route just to protect in case anything happened, they wouldn't want to lose what they've saved. And what's funny is, most people who come to me specific before asset protection trusts come after they've been sued or they're worried about being sued because something happened. They got into a car accident. They had a malpractice lawsuit as a doctor. And then they start panicking and they call us and say, what can we do? Sometimes there are minor things that we can do to help better structure their situation, but usually it's too late once the claim has already arisen. To do good credit or protection, solid credit or protection planning, we have to do it before the claim arises. And unfortunately it's hard to motivate people to come see the lawyer, spend a little money, go through the little bit of work it takes to set it up unless they're already panicked because they're being threatened, but then it's usually too late. So those who have foresight and come early are the ones that are protected and they can sleep easy at night and they don't have to. Okay, Ethan, this is fascinating, but can you believe it? We only have three minutes left. So here's my question to you. You said you do seminars. How do they find out about your seminars? Well, we would post about them on our website at okuralaw.com or they can call our office at 808-593-8885, 808-593-8885 to ask about it. We don't have any seminars scheduled at the moment, but periodically we do have them. And so if people are interested in a specific type of seminar, ask protection, qualifying for Medicaid for long-term care and nursing loan costs, basic estate planning, complex estate tax planning, then they can call and let us know they're interested and we'll be sure to reach out to them when we do have a seminar available for them. But you also have a lot of the articles on your website if I remember, because I went to your website the other day and you have different topics that are listed. That's right, yep. We have a bunch of articles that we've written. I tried to do a blog once a month for the last 10 or 15 years or so, so there should be a hundred or a couple of hundred articles on everything from powers of attorney to asset protection trusts to that new law back in 2012 when you could now put your property into trusts and keep tenants by the entirety. So there's a lot of stuff there. I guess I should go back and try to update some of them because some of them may be outdated, but it gives you a great background and general understanding of some of these concepts before you come in for a consultation so you'll know exactly what the issues are and we can help design what the best strategy is to solve your problems. Terrific. Now folks, Ethan has done estate planning for some of my clients that I didn't even know they had Ethan do their estate planning. Later I talked to them and they go, oh yeah, Ethan did the estate planning already. So I'm very proud that Ethan's our nephew through my wife and wonderful young man, smart as a whip and really easy to talk to. So if you have any interest in knowing more, please go to the website, okorollaw.com. If you're interested in learning more about real estate and pre-licensing and learning how to be a better prepared homeowner or buyer or seller, then go to ablyseminars.com or class schedule. And even if you're not intending to get a license, you're welcome to take a class just for educational sake. If that Ethan's sister took my class and she's a very wonderful successful real estate broker as well as the office manager for Ethan's law firm. So folks, go to thinktechkawaii.com and look at the archives of the wonderful shows that are posted. There's literally thousands of different topics that are on Think Tech Hawaii and they welcome donations as well. So thank you so much Ethan for being here. I think we need to have you come back one more time for what it's called retirement plans and how to do the IRAs and the CEPs and things of that nature. So we got your schedule for one more. Happy to do so, thank you. Okay, thank you so much. And folks, happy new year. Please go to thinktechkawaii. Go to okorollaw.com and to ablyseminars.com and hope you have a wonderful 2024 Aloha.