Archives 2015

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Death Deal: Will or Revocable Living Trust?

No one wants to think about death, much less plan for the aftermath. But since is the one most inevitable event in our lives, don’t we owe it to those who love us to make the burden easier for them to bear? That’s what “estate planning” is all about. And it isn’t just for the wealthy.

What if something happened to you tomorrow? Would your loved ones know about all your assets and how they should be distributed? Even if it doesn’t involve a lot of money, your actions now can save a lot of aggravation on top of the heartbreak.

Here are some basics to think about — before you start to plan with an attorney. There are two issues about which you must make some important decisions: peopleand process.

The People Issue: Before deciding on the “form” of your estate plan (will vs. revocable living trust), you need to think about some people issues. You may start by thinking of the list of “who should get what.” They will be your beneficiaries – the people or charities who get the stuff or money you leave behind.

If you have a life insurance policy, your named beneficiar(ies) will get the proceeds. Similarly, if you have an IRA or 40l(k) retirement plan, the beneficiary you named with the plan custodian will get all the assets. But for the rest of your assets the probate court in your state will decide how they will be distributed and to whom – unless you give specific instructions in the form of a legal document, not just a handwritten note.

If you hold title to your house in joint name with rights of survivorship, then your co-owner will automatically get the property. Otherwise, you need to name someone to receive the asset. (And remember that joint tenancy exposes your assets to lawsuits against your co-tenant, as well as limiting options for the property if you become incapacitated. So joint tenancy is not a substitute for an estate plan.)

If you have minor children, you must name a trustee for those assets you want them to receive — whether property, money, or life insurance proceeds. Otherwise a judge will do it for you.

Thinking about who gets what is the first step – but not the only “people” issue. Equally, or more important, is the issue of who you trust to carry out your wishes for your distributions. That person will be the “executor” of your will – or the “successor trustee” of your living trust.

And since you will also be creating two more important documents – a healthcare power of attorney, and a “living will” (which gives your wishes about prolonging treatment at the end of your life), you’ll need trusted people to carry out those wishes when you cannot act on your own. They will not necessarily be the same people as the one you name to carry out the financial and legal issues of your estate.

Suddenly, you understand the importance of trusted adult children, true and competent friends who will likely outlive you, or an attorney who will do more than draw up the necessary documents. Peace of mind demands that you have at least one person you can trust to have your best interests at heart when you cannot act for yourself.

The “Process” of Your Estate Plan: You don’t have to be an estate planning expert to understand the two basic forms of estate planning. These two forms have nothing to do with estate taxes, which will apply only to estates well over $5 million (unless your state has a death tax at lower levels). This is all about how your assets are distributed, how much the process costs, and how long it takes.

If you make a simple will, it will have instructions for the distribution of your property. Your named executor will take your will to the probate court, for which the “estate” will pay a fee. And it could take months or longer for the court to order a distribution of the assets to your named beneficiaries.

However, if you create a Revocable Living Trust, you can avoid the time, expense, and very public probate process of distributing your assets – while getting exactly the same results as a will in giving instructions for distributions.

When you create this trust, you will be the original trustee (or you and your spouse), with complete power to make changes at any time. You name a successor trustee to act on your behalf if you cannot act for yourself. (One big advantage: if you have a stroke or dementia, your successor trustee does not have to go to court for permission to act on your behalf.)

Creating a Revocable Living Trust does no good unless you re-title your major assets – your house, your investment accounts, CDs, and other valuable assets – in the name of your trust. This is a simple process and it does not create a taxable event to change the name on the title, since you are still the controlling trustee. You can buy and sell these assets without any extra hassle, reporting applicable gains or losses on your personal tax return.

As part of your Revocable Living Trust you leave the same instructions as would be in your will, for distribution of your assets after your death. But your successor trustee distributes them directly to the people and causes you designate – without going through the court process of probate.

This is an overview – but you should definitely get professional help from an estate planning attorney in your state to make sure all state laws are followed and details considered. Estate planning is not a do-it-yourself project because by the time your mistakes are discovered you won’t be around to fix them! And that’s The Savage Truth.

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10 Surprises When Inheriting Real Estate

Following the death of a loved one, you may become the recipient of an unexpected parcel of real estate. Yet, with every windfall comes great obligations, so be prepared for the surprises you may encounter when inheriting property.

Mortgage Transfer
You may be able to keep the decedent’s mortgage intact when you inherit real estate. Typically, upon the transfer of ownership to real estate which is encumbered with a mortgage, there is a due-on-sale clause contained within the contractual documents that created the mortgage and note wherein the entirety of the mortgaged monies will become accelerated on transfer and become immediately due and owing to the lender (i.e., the entire loan is billed rather than just the installment payment). Nonetheless, recipients of real estate incident to the death of the owner needn’t concern themselves with such a clause because Federal Law preempts (i.e., overrides) the lender’s contractual right to call a mortgage where either the recipient of the property is a relative of the decedent-borrower or where the recipient was a joint tenant on the deed of the property with the decedent-borrower prior to death.

Reverse Mortgage
While a reverse mortgage was a great source of income for the decedent prior to death (it’s available to those aged 62 and older), that money has to be repaid to the lender, including all of the capitalized interest thereon. So, your real estate inheritance with a reverse mortgage will not be owned by you free and clear. Instead, the real estate will be encumbered by a significant mortgage that you cannot make monthly payments on and instead, such mortgage needs to be repaid prior to you calling that real estate your own home. You only have 30 days after the date of death to notice the lender whether you intend to pay off the mortgage from (a) other monies, (b) a refinance, or (c) a sale of the real property. Failure to provide this notice may result in a foreclosure proceeding being brought against the Estate. Nonetheless, there may be equity in the property, even after deducting the payoff fees for this reverse mortgage lien, and it’s incumbent on a beneficiary / executor to act quickly in providing this notice to the lender in order to preserve the inheritance stake (i.e., equity) in the real estate after the lender is paid-off.

Where real estate is encumbered by a home loan, not a reverse mortgage, you may be able to rent your inherited real estate without first refinancing the mortgage from a residential home loan to an investment loan. Relevant to the due-on-sale clause discussed herein with respect to mortgage transfers, the recipient of real property who qualifies for due-on-sale preemption can also rent the property for up to 3 years, during any rental term, without the monies in the mortgage becoming due and owing to the lender through a separate exception to the due-on-sale clause pursuant Federal Law. Without this Federal Law preemption, a person with a residential mortgage for their primary residence would be precluded from renting the property without first refinancing to an investment loan. So, those inheriting real estate can utilize the real property inherited as an income stream instead of immediately liquidating through sale or choosing to occupy the premises themselves. Nonetheless, before you rent out your inherited real estate, make sure to comply with the local Town / Village from where the real estate is located with respect to obtaining any requisite rental permits and through avoiding illegal transient (i.e., short-term) rentals or be prepared to face citations with fines and possible jail time.

Homeowners Insurance
You cannot keep the decedent’s prior homeowners insurance policy following the death of the decedent-insured when you inherit an Estate. While there is a Federal Law that enables certain recipients of real estate to keep the decedent’s mortgage intact, there is no such law with respect to the decedent’s homeowners insurance. Nonetheless, the standard homeowners insurance policy does extend insurance benefits initially and upon death of the decedent-insured to the legal representative (i.e., executor or administrator) of such insured during the interim period existing post-death and pre-distribution to the ultimate beneficiary (i.e., while an executor or administrator is probating / administering the Estate). Yet, this extension of limited coverage may be curtailed by other policy exclusions, such as the loss of coverage if the property is vacant for 60 consecutive days before an occurrence of a peril or some other period set forth within the policy. Make sure to read the homeowners policy, which had named the decedent as the insured, to know the rules of the policy and don’t assume anything.

Testamentary Substitutes
Sometimes you immediately inherit real estate upon the death of the owner; ownership can transfer without the need for a court order or, even, a deed change. If the property was titled as either a joint tenancy or a tenancy by the entirety, pre-death, than the surviving co-owner automatically will receive full ownership at the time of death of the co-owner without the need to file a probate petition with the surrogate’s court. Additionally, when real estate was owned in a trust, pre-death, again, there is no need to go to court to effectuate a transfer of ownership. To determine if your real estate is owned in a testamentary substitute fashion, simply check the deed. Interestingly, real estate that is deeded to a trust, instead of the trustee of the named trust, is an invalid transfer. So, always seek legal counsel when dealing with a decedent’s real estate to ensure compliance with applicable laws in order to obtain your rightful ownership interest. Moreover, tax advice is essential given that testamentary substitutes do not avoid Estate taxes regardless of their ability to keep you out of court.

Estate Tax
Before you cash in from your inheritance of your Estate be prepared to pay taxes. Estates of decedents domiciled in New York may be liable for both state and federal Estate taxes. Nonetheless, New York Estates which are valued under $2,062,500, for those dying on or before March 31, 2015, are exempt from all such taxes. Additionally, Estates valued between $2,062,500 and $5,340,000 will only be subjected to New York State’s Estate taxes, which range from 5.6% to 16%, and will be exempt from federal Estate taxes. However, Estates valued over $5,340,000 will not only face New York State’s Estates taxes, but also require payment of a federal Estate tax bill, at a rate of 40%, for the amount that the Estate is valued in excess of $5,340,000. Be sure to check your state’s Estate tax law to learn what you owe.
Capital Gains Tax

While the inheritance of an Estate may be subject to Estate taxes, it will fortunately be exempt from any capital gains tax that would have otherwise been due and owing by the decedent had they transferred the real property themselves pre-death. Capital gains tax in New York can reach a rate of 31.5% when combined with federal capital gains tax (check your state’s capital gains tax before proceeding). This type of tax is assessed on the gain that a long-term asset has realized from the date of purchase to the date of sale. Fortunately, inherited Estates receive a stepped-up basis to the date of death value of the property for capital gains purposes and, therefore, avoid a great deal of this cumbersome tax on future transactions.

When property is owned by the decedent themselves, in fee simple absolute, or with another person, as tenants in common, then the inheritance can only be transferred through a court proceeding called probate (the proceeding is called an administration, not probate, if the decedent dies without a Last Will and Testament). In such a proceeding, court fees will become due upon filing the requisite court papers. Thereafter, an individual will be appointed by the court to serve as the fiduciary of the Estate (i.e., appointment is by way of the court issuing letters testamentary or letters of administration), charged with marshalling and distributing the Estate assets, while preserving the value of the Estate in the process, on behalf of the beneficiaries / heirs of the Estate.

Heirs at Law
It’s often disheartening to find out that your spouse died without having a Last Will and Testament; particularly when you learn that your spouse’s estranged children from a prior marriage now own part of your prized Estate. New York State utilizes a table of consanguinity that prescribes the heirs at law when a decedent died without a Last Will and Testament. Pursuant to this table, a surviving spouse only receives the first $50,000 and then, must split the remaining Estate assets, 50 / 50, with the decedent’s surviving children. Alternatively, where there is no spouse and no children surviving the decedent, the table of consanguinity goes as far as great-grandchildren of the grandparents of the decedent to identify the heirs at law to that Estate.

Right of Election You read your parent’s Last Will and Testament at least five times to be sure that it actually says that you get everything while disinheriting your wicked step-parent, but before you throw your celebratory bash at your real estate, first become familiar with your step-parent’s right of election. In fact, you cannot disinherit a spouse completely, except if the surviving spouse expressly waived their rights (i.e. incident to a prenuptial agreement). So, regardless what the Last Will and Testament states, your wicked step-parent can elect the greater of $50,000 or 1/3 of your parent’s entire net Estate.
Bonus Concept: Selling your inherited real estate before ensuring your rightful ownership (i.e. confirming deeded ownership through a testamentary substitute by way of competent legal advice or a distribution pursuant to an order of the surrogate’s court in an probate / administration proceeding) will result in a dead deal, headaches and potential litigation. Don’t jump the gun from thinking you inherited something to disposing of the real property. Instead, be measured in your new found real estate windfall, obtain proper counsel to perfect your rights.

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Living Trust management can change on disability

Living Trusts, when drafted properly by an experienced attorney, can provide a variety of solutions to your problem. In any Living Trust, there are three positions of authority: 1) The Grantor is the person who created the Trust, and has the legal right to modify or revoke the Trust; 2) The Trustee is the person who manages the Trust’s day to day business; and 3) The Beneficiary is the person who the whole structure is designed to support and assist.

Your father’s Trust named him to occupy all three of those roles. However, it also specified that should he die or become disabled, the role of Trustee should be passed to you. When you become Trustee, your sole task is to provide for and support the Beneficiary (your father) using the assets that he placed into the Trust. The role you seek to assume is detailed and time consuming, and as a caring daughter you are happy to take on the burden.

But you do not want to insult your father by insisting that he has become too confused or forgetful to manage his own financial affairs. How do you handle this situation?

The Trust should provide a clear definition of what it means to become disabled. When he signed the Trust, he agreed that if he matched that definition he would be treated as disabled. Solid Living Trusts should provide that a Beneficiary is considered disabled if 1) that Beneficiary realized he is becoming frail and signs a notarized statement agreeing that he is disabled; or 2) a licensed physician who provides care to the Beneficiary signs a notarized statement declaring that his patient has become too ill to manage his own financial affairs; or 3) a court rules that the Beneficiary is disabled.

Legally, you have four options. First, discuss the situation with your father in light of the agreement which he signed. He may agree to sign a declaration of disability.

But if your father is in that grey area of being capable one day yet forgetful the next, he may be insulted if you raise the issue of taking over Trust management. Hence, a second option is to discuss with him your desire to be a resource and to assistant to him during these difficult times. Ask him if he would consider, as the Trust’s Grantor, issuing a modification to the Trust adding you as a Cotrustee. As a Cotrustee, you would have complete authority to manage the Trust’s financial affairs for his benefit. He would still be listed as a Cotrustee as well, so he will not be surrendering any of his own powers. Rather, he will be gaining an assistant who can lift some of the management burden while he is having difficulties.

Third, if he is too ill to participate, then meet with his doctor to seek a written declaration of disability. You want to avoid the fourth option – court – whenever possible, focusing instead on the other approaches.

Once you become Trustee or Cotrustee, your first job is to be certain all of his assets are titled into the name of the Trust. Check all of his bank accounts, investments, real estate, auto titles, etc. Hopefully he has also named you as Agent in his Durable Power of Attorney, which gives you authority to act on his behalf to change ownership of his assets into the Trust. (If he has not signed a Durable Power of Attorney, he should do so while competent, at the same time he signs the Trust Amendment. He should also have a Will to support the Trust, and should have Advance Medical Directives).


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Financial Elder Abuse Near You

Elder financial abuse is being called the fastest growing area of crime in America. And it may be happening in your family, if you aren’t paying attention to a caregiver — or a relative — who, under the guise of being helpful, is syphoning off an elderly person’s life savings.

According to a study by the Journal of General Internal Medicine, 60 percent of the adult protective services (APS) cases of financial abuse nationwide involved an adult child of the elderly person. Much of this theft is committed by their own family members under the guise of “helping them” — or simply rationalizing that the money would be theirs someday, so why not now.

Women are twice as likely to be victims as men. Most are between the age of 80 and 89, and are living alone, trying to maintain their independence. But elderly men are similarly abused, as the generation before the boomers lives longer thanks to medical science, and become more dependent on caregivers.

Who pays? We all do. It’s not just the humiliation when the senior realizes what has happened. Many are too frightened of their caregiver, or of being left alone, to even report this crime. But once the money is drained, these seniors become wards of the Mediaid system — shuffled off to nursing homes and receiving the least competent care — all paid for by the taxpayers.

A recent MetLife study estimates the cost of financial elder abuse at $2.9 billion a year – and rising.

The only good news is that Financial Elder Abuse is becoming a trending media topic. This past month saw National Senior Citizen’s Day. As part of that recognition there is more publicity about financial elder abuse.

The Consumer Financial Protection Bureau (CFPB) has just this month issued a report a guide to help assisted living and nursing facility staff better protect the people in their care by preventing and addressing financial abuse and scams. The guide helps staff recognize, record, and report financial mistreatment by family members or other trusted people handling the finances of an incapacitated adult.

And, in recognition that much of the abuse happens through the banking industry (which is where the money is), the American Bankers Association has just announced an alliance with AARP to focus on the issue of financial elder abuse. In the announcement the ABA president Frank Keating said: “Our planned alliance with AARP will help us provide bankers, older Americans, and their caregivers, with the tools they need to thwart financial crimes.”

Banks always have to tread carefully between the Federal regulators — who through legislation such as Gramm, Leach ,Bliley have mandated privacy for financial matters — and the various state legislation across the country (because this issue of elder abuse is primarily state-regulated), many of whom have mandated reporting of suspicious activity by the banks.

But according to the American Bankers Association there definitely is a basis for banks to legally report suspected elder financial abuse. The exceptions to the privacy rules allow a financial institution to disclose nonpublic personal information in order to “protect against or prevent actual or potential fraud, unauthorized transactions, claims, or other liability.”

In fact, on February 22, 2011, The Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury issued a report dealing with the issue, and saying: “Financial institutions can play a key role in addressing elder financial exploitation due to the nature of the client relationship. …. We emphasize that all filers should report all forms of elder abuse…” In the report, banks were encouraged to report elder abuse by using the SARS form — the suspicious activity report form, commonly used in suspected money laundering cases.

Surprisingly, and sadly, there is no national law against financial elder abuse. Protection and prosecution is left to the states. And only California and Florida have state laws mandating reporting of financial elder abuse (or abuse of any handicapped adult). Yet almost every state has a department on aging, and its own toll-free reporting number. But only in a few states is activity coordinated between law enforcement, the state attorney general, and the aging departments. As a result, much elder abuse goes unreported, or worse — uninvestigated!

What can you do? Search and publicize your state’s elder abuse hotline number. Remind your local elected police commissioners and public servants that elder abuse is a crime (under fraud statutes, even if there is no specific elder law applicable). And let’s all remember that one day we could be the abused elders! That’s the Savage Truth.

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What Happens to Your Bank Account When You Die?

Although no one wants to think about death, it’s important to be financially prepared for it, so that your money ends up in the right hands. But it can sometimes be confusing to figure out where your assets will go after death. Will there need to be a probate? Who will deal with settling your affairs? And how will your bank accounts pass after death?

What happens to your bank account upon death depends a lot on what you do with it during your life. A number of factors influence what happens with your money upon death, including whose name is on the bank account, whether it’s held in a living trust, and your state’s laws. Here’s a guide to help you figure out where the money from a bank account goes after death so that you can make an informed decision about what you want to do:

Joint account
Generally speaking, if you have a joint account with your spouse that is in both of your names, upon your death, your mate becomes the sole owner of the account. In most cases, you won’t need to go through probate (a.k.a the official proving of a will) before the account is transferred to you.

Payable-on-death beneficiary

If the bank account is in your name alone, but your spouse is named a “payable-on-death” beneficiary of the account, he or she can take over ownership of the account. All they have to do is show the bank your death certificate and the account will be given to him or her.

If you have created a living trust to avoid probate proceedings after your death, then your bank account is owned by that trust. The person you name to be your successor trustee will take over once you pass away and the funds will be transferred to the beneficiary you have named. Your spouse may have to fill out a few forms and show the bank your death certificate.

Power of attorney
Your bank account may be in your name only, but you can give your spouse the ability to access the account through power of attorney. However, as soon as you pass away, your spouse’s right to access those accounts go away. Banks will have different policies about how to handle the account after a person’s death.

The bank may have separate authority to give you access to the account (if it’s a joint account), allow access if you can present a death certificate along with a notarized affidavit of assumption of duties, or allow the executor of a will to access it. If you can’t access the account, you may have to get permission from a probate court judge.

Solo account
If you have an account in your own name, but don’t designate a payable-on-death beneficiary, the account will likely have to go through probate before money can be transferred. Depending on your state’s law and the value of your assets, you might be able to go through simpler, less expensive options. Check to see what probate options are available in your state.

Keep in mind that money in the bank account could be subject to taxes — federal estate, state inheritance, or even state tax depending on your state’s laws.

If the deceased person’s account isn’t one that’s joint or in a trust, be sure not to write any checks or pay any bills using the account. It is off limits until the estate is settled in court.

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