November 1995
Vol 19 No 3
In 1995 we’re all becoming dependent upon computers for just about everything. Those who rely upon computers to store personal financial information and records or to conduct business are at the mercy of an interwoven web of computer data bases that nobody really controls and few comprehend. Even when you maintain a manual records system, when your broker, banker, lawyer, doctor, pharmacist, or accountant depends upon computers, that affects you too.
Your financial position is equally vulnerable. It’s dependent upon the accuracy of a disinterested teller in a bank somewhere, whom you rely upon to maintain records of deposits and withdrawals; or by a day-dreaming clerk punching a computer in a brokerage back office. A single mistake in your credit files could deprive you of needed financing, even of credit cards. Despite Federal law which is supposed to protect consumers, it is virtually impossible to get erroneous entries in credit files corrected. Your net worth depends upon accurate computer accounting of mortgage loan balances. Woe be unto you if the computer printout shows a different balance on your loan amortization than your own records. Even with cancelled checks in hand, it’s equally difficult to make the mortgage company change its records.
We only own what we can prove that we own. For better or worse, the computer is increasingly becoming the source of that proof. Evidence of clear title tot real estate may hinge on something as insignificant as a computer entry made I the county recorder’s office. A friend of mine once bought the wrong property at a tax sale auction because someone had erred when entering the legal description. It’s sobering to realize that a lifetime accumulation of wealth can depend so much upon tiny computer memory chips which contain both the evidence of ownership of your property holdings as well as the means by which it might be accessed.
This is a double-edged sword of Damocles. Ask yourself, using accurate computer records, how many other people can access your supposedly private property records and account information simply by knowing your computer file identification numbers and names? I’ve often used multiple computer data bases to do credit checks on tenants. It’s amazing how far back records are kept and the detail which can be revealed about finances, debts, legal problems, family, lifestyle, marital discord, driving records, employment history with just a routine check. Financial privacy is becoming a rare thing indeed in our computerized world, but there are remedies.
The bad news is that, most of us must continue to rely upon computers in order to do business and to survive economically. We need them to be able to locate and access the information that is vital to us in everyday life. The good news is that, by making tiny alterations in the identification of ourselves, our accounts and properties, it would be just as difficult for anyone else to locate and access that same information. Without too great a stretch of the imagination, we might devise a strategy from this to turn what might seem a vulnerable position to one of strength to use in protecting both our privacy and our assets. Here’s how:
Computers are literal-minded machines which convert data to numerical values. They don’t recognize, as being the same file, names or numbers which vary by just a few digits. Without such recognition, accounts, addresses, files and records can hide forever in a computer file. You can imagine the degree of difficulty a snoop would experience trying to find one letter or numbers omitted or added and see how successful you are. Without that identifying name or number, all the King’s horses and all the King’s men won’t be able to find your private files.
GARBAGE-IN/GARBAGE-OUT . . .
Princess Margaret’s former husband was Anthony Armstrong-Jones. Computers would list his name alphabetically under ‘A’ because, without a break, to a computer this looks like one long word starting with ‘A’. By removing the hyphen, it would suddenly select ‘J’ as the last name. The reverse is true too. Suppose your middle name was a family surname. What do you suppose would happen in computerized records if you were to place a completely legal hyphen between your middle and last name? Your records of real estate ownership, personal medical data, insurance policies and vehicle ownership could very easily be hidden in the computer system away from prying eyes for years. Can you imagine how difficult it must be to keep track of all those Hispanic people who traditionally hyphenate their names when they get married? This might be an ideal time to revive some of those traditions.
Many people have first names that could be last names and vice versa. Names such as James, Dean, Frank, Leslie, Nelson, Griffith, etc. If your name was James Leslie and you completed a computer input document (commonly called an application) as Leslie, James, it would probably reverse the name when it files automatically. Suppose through a typographical error, the comma between the names were omitted? A computer would see you as Leslie James instead of James Leslie. Something as simple as that could throw a monkey wrench into the computer works.
A few years ago the Social Security Administration computerized all its records. Every three years I request a statement of my Social Security account to assure that my earnings aren’t being credited erroneously to another person. You should do this periodically because they don’t correct errors which have persisted more than three years. To my dismay, they had no record of me in their files at all. Decades of Social Security payments had disappeared. After two years, they discovered that they’d erroneously entered me in their files with the wrong gender. A single typographical error had identified me as ‘MS’ rather than ‘MR’. Correcting that single entry suddenly brought back all my files.
Gender errors can be caused accidentally or on purpose when one considers all the names which might be either masculine or feminine such as Chris, Lee, Leslie, Robin, Francis, etc. What about all those thousands of people who use only their initials as a means of identification? A quick perusal of the telephone directory will confirm how pervasive the abbreviation of first and middle names is. Once initials are used in lieu of proper names, then omission of a middle initial can really confuse things. It makes computer searches a lot more difficult.
The same holds true when one uses a middle name rather than first names. This is a fairly common practice. Ross Perot does it. It’s customary for women to select their husband’s surname for their own, but since the inception of the women’s liberation movement, many brides are retaining their own family names as their married name. And, in this day role reversal and ‘house husbands’, from time to time you’ll find married men taking on their wives family name as their own. There doesn’t seem to be any specific law which says what your name has to be. How do all those celebrities manage to have ‘professional names’ that are different from their original names? By legally changing their names. If you want to go through a simple court procedure, you can change your name fairly easily and inexpensively.
Oddly enough, Drivers Licenses and Identification Cards issued in every State seem to be the ultimate form of personal identification. Because birth certificates don’t have photographs on them, they’re not as widely accepted as driver’s licenses when it comes to doing business with most government and civilian agencies that require you to provide photo identification. Whatever your name is on your driver’s license is going to be the one entered into the computer data base, and once entered, the computer is more and more being considered ultimate reality even in the face of conflicting physical evidence. You can see how becoming a multiple computer personality through some of the above strategies can enable you to leave these computer glitches behind you and obtain a little financial privacy.
WHAT ABOUT SOCIAL SECURITY NUMBERS?
Regardless of the variation in names one uses, computers are using our Social Security numbers to identify us. Avoiding giving out your Social Security number is the first line of defense to privacy. With the exception of employers who are required to obtain Social Security numbers for setting up payroll taxes, sellers’ Form 1099 required on real estate sales, and in a few other limited instances, your SSN isn’t supposed to be used for identification. In fact, the Privacy Act passed in 1974 made it illegal for any government agency at any level to deny services to citizens who refuse to provide their Social Security numbers.
You’ll often find yourself in situations in which refusal to give you number will cause inconvenience or embarrassment. I usually leave any space in an application blank when asked for my Social Security number. When queried, I just state that I don’t give out my number. When the other party becomes particularly insistent, there’s a line I’ve used which has worked. I simply say ‘Upon the advice of my attorney, giving my number to you would be a violation of my rights and violation of the law under the Privacy Act of 1974.’ That usually settles them down.
At real estate closings, the Seller must provide a Social Security number, but not the Buyer. Bear in mind that the law pertains to real estate closings. It becomes a little murky when a Beneficial Interest in a Land Trust, personal property, is being conveyed rather than real estate per se. in such case, politely point out to the closing agent that your transaction isn’t covered by any law that you know of, and ask to see a copy of any law which requires Social Security numbers for transfers of personal property. A few vague references to the Privacy Act doesn’t hurt at this point. But, if you wait until the last moment to bring this up be prepared for closing delays while they feverishly consult with their attorneys.
An easy way to avoid giving your personal Social Security number is to hold assets in the name of other entities. Partnerships, Limited Liability Companies, Non-Grantor Trusts, and Corporations may each apply for a Federal Employer Identification Number (EIN). This can be preferred when you’re asked for an identifying number and want to avoid a hassle. When it comes to corporations, they aren’t required to provide an identification number at real estate closings. Treasury Regulation Section 1.6045.3T(c)(2)(d) entitled ‘Exceptions for Certain Exempt Transactions’ says in part’ . . . No return of information is required with respect to a transferor that is a corporation. . .’ I usually send a copy of this regulation to the closing agent in lieu of providing a federal identification number.
Banks can be particularly insistent about getting their hands on your Social Security number, but I know of no law which says this is their right. What the law does say is that, without a Social Security number or EIN, they’ve got to withhold from your account for potential income taxes. The reason that they want your number is to avoid the bookkeeping and accounting costs of doing the withholding. It’s a lot simpler to tell all their fledgling bureaucrats that everyone should have an I.D. number to open an account, even when it’s for a checking account that earns no interest. Suppose you could hold funds in a neutral account which had its own Federal I.D. number?
Florida passed a law a few years ago that made it mandatory that real estate brokers open special escrow accounts with their own Federal I.D. number in order to protect clients’ earnest money and rental deposits from the potential claims of the brokers’ creditors. In every State the SS4 Form can be obtained from the local Social Security or IRS office. It enables the applicant to obtain a Federal I.D. number expressly for the use of opening a fiduciary account at a bank. In situations where no earnings need be reported, these non-interest-bearing accounts can hold personal deposits without any traceability to yourself. In one instance, a stock broker opened over 100 of these accounts by means of which he segregated his client accounts to provide financial privacy for this clients.
HOW DO WE KEEP REAL ESTAET OWNERSHIP PRIVATE?
In today’s troubled world, it can be hazardous being known as the owner of many types of properties. In previous letters, we’ve talked about the new Lead Paint laws, asbestos, formaldehyde, radon gas, and tenant liability. This is increasingly worrisome in view of the EPA’s Superfund clean-up costs, fines and penalties which are applied jointly and severally to past, present and future owners of contaminated properties. It certainly pays to avoid having real estate linked to deep pockets anywhere in the chain of title. Fortunately, there are several remedies at hand.
Commencing with the present, you might want to carefully consider not taking title to property in your own name. If you placed your property into Trust, at least your name wouldn’t be associated with it in the public records. I prefer the use of Land Trusts. In some States, corporations, other trusts, partnerships and limited liability companies can act as Trustee. The Beneficiaries can also be entities other than yourself. In most jurisdictions, neither the Trustee nor the Beneficiary is liable for the property itself, thus only the Trust assets themselves can be levied to pay liability claims. But, a lien against the trust could affect all properties in it. You can see that it would pay to hold each property in a separate land trust to keep a claim against one property from spreading to another.
You can construct a variety of combinations of beneficiaries which will enhance your rental business posture, provide for meaningful estate planning tax strategies, and afford you a high measure of privacy. After all is said and done, there’s absolutely no better protective device than to have the ultimate beneficiary be a Limited Partnership or Limited Liability Company. If you set your Trusts up as Revocable Trusts owned by an LP or LLC, you get the best of the world of privacy and protection at relatively low cost, limited paperwork while retaining a lot of control and flexibility. It’s a step you might want to seriously consider.
Privacy and protection can be employed along with some of the kinks in title law to deflect a lot of flack that might be aimed in your direction. I’ve got a theory that only the weak and defenseless owners become targets, so why not make it even harder for others to identify and attack your assets? Let’s say that you’re all set to buy a property which you intend to place into a Land Trust organized under the laws of one State, the Beneficiary of which will be a Limited Liability Company in another State. You lend the Trustee 100% of the money to buy the property and record the lien against it. Highly leverage property isn’t very attractive, especially when it’s also held in a Trust with an LLC as the Beneficiary. But you also take another step.
When the property is deeded into Trust, a ‘Remainder Estate’ might be deeded at that same time to another Trust with the original grantee merely holding an ‘Estate for Years’ which might terminate in a few years. When the Deed is recorded, the recording clerk has been trained to look only at Grantor and Grantee. Few have the skill or attention for detail, to pick up the fact that the ultimate owner of the property will be someone else. Because no additional deed need be recorded to transfer title from the first owner to the ‘Remainderman’, he won’t appear in the records at all. Nobody will realize he owns the property.
This brings us full circle back to that unthinking, unyielding bureaucrat who relies entirely upon his computer to tell him who owns what. With the above arrangement, all records will reflect the original owner. If a successful suit is lodged against the Trustee and Trust property, it may only claim the value for the Estate for Years. When the Remainder Estate takes title, the liens will be extinguished automatically. If a liquidation sale is held, there should be few bidders for the short period of ownership. On the other hand, if the holder of the Remainder Interest should be sued for an unrelated matter, with a judgment lien recorded in the public records, it won’t attach to his future interest.
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