Imagine that you’ve recently sold your company and have decided that now is the perfect time to buy a second home in Arizona—maybe a luxury family compound in Paradise Valley located on multiple acres, or a trophy golf property in one of the amenity-rich private clubs like Silverleaf or Desert Mountain in Scottsdale.
Back at home, you’ve tried to keep a low profile regarding the sale and your corporate attorneys have advised that the parties use Non-Disclosure Agreements (NDAs) to keep the sale out of the media. You may remember signing the NDA as part of the lengthy closing package of documents, but probably not. In either case, you were careful only to share the news with a few close friends and work colleagues.
Now the exciting part of your new Arizona adventure begins. A referral from a “friend of a friend” to a local real estate agent that did a good job for them (albeit on the purchase of a lower-priced home) and you are touring properties during a sunny 70-degree day in paradise. A few months later, and you have now closed on your new home.
About a month or so after moving in, you start to receive congratulations from some of your out-of-state neighbors and new Arizona friends on the impressive multi-million dollar estate that you’ve just purchased. Uncomfortable about this disclosure of information, you inquire as to how they know—only to find out that local newspapers including the Phoenix Business Journal and Arizona Republic routinely report on “luxury” real estate transactions for their readers. You also find out that the buyer and seller agents posted about your sale on their social media accounts for their own marketing and mentioned you by name.
Your agent never advised you on how to create privacy for your transaction and how to use the same NDA that was used for the sale of your business to keep the information private. Also, when asked about how to take title to the property, you assumed that putting it in your own name wouldn’t trigger any privacy concerns. This hypothetical example happens frequently.
There are several important considerations to discuss with your real estate agent and advisors to help prevent unwanted attention to your transaction.
As an attorney and former wealth manager, I’ve worked with clients to help structure deals so that all parties can maintain privacy and obtain estate planning goals simultaneously. Now, as a real estate agent and founder of Valley Luxury Partners, I bring these same sources of information to my clients.
The first step is to determine if the client has a strong desire for privacy in the transaction and if so, discussing the preparation of a well-drafted NDA to be executed by all parties.
It’s also commonly misunderstood that there is confidentiality when discussing a potential sale of your property with a listing agent. In Arizona, until there is a signed listing agreement by both parties, the information provided to a listing agent is not confidential.
The next step is to ascertain if the client has done any estate planning previously and if so, coordinating the acquisition of the new property with the existing estate plan.
A significant number of clients will have a revocable trust or “living trust” in place already. Some of the advantages of a revocable trust include:
No Probate Court
Skipping the probate court process is the number one benefit. Probate is the administrative court proceeding where your personal representative is appointed and the payment of debts and distribution of assets is supervised, generally by a judge. Probate can be time-consuming, cumbersome, public and quite expensive. By placing assets such as a home, cabin or business interest in a revocable trust, or by naming the trust as the beneficiary on non-probate accounts such as life insurance or brokerage accounts, your assets will be distributed according to your wishes and free from court supervision.
Revocable trusts are flexible, allowing you to make changes or amendments up until your death. Along with amending it, you can also name unrelated, out-of-town individuals to act as the administrator; something that can be cumbersome with a will.
A revocable trust is not made public upon your death and your estate will be distributed in private. It also allows money to be available immediately after death. The trustee will be able to use the money to pay for estate taxes, administrative expenses and debts.
It is important to understand that you must retitle all of your assets that are to be held in the revocable trust. While this can be time-consuming, it is the only way to reap the benefits of this type of trust. If you choose not to retitle an asset or you forget about one, it will fall outside the trust and will be handled separately. Also, when the concern for privacy is paramount, having your own name as the name of the trust will not suffice to create confidentiality for your real estate transactions since deeds are a matter of public record.
For maximum confidentiality and limiting liability when purchasing real estate, the use of Limited Liability Companies (LLCs) and revocable trusts are recommended. The property can be purchased by the LLC and a revocable trust can be the owner of the LLC. This allows for liability protection and estate planning benefits while conferring privacy as well.
Again, it is important to note that when forming an LLC for privacy protection, the name used should not be associated with your personal name and the statutory agent of the LLC should be a law firm or other party to avoid disclosing your name in the public record.
It has been suggested that privacy is the only luxury that billionaires don’t have, as evidenced by high-profile scandals involving Jeff Bezos and other celebrities. Taking the time to discuss your real estate needs with a competent professional who will work with your trusted advisors can help protect you from unwanted attention by the media and community at large. It is a proactive step that you can take in preventing identity theft and other online malfeasance.