CORPUS JURIS

6 Things You Need to Know About Florida’s Last Will and Testament

2016-11-02T20:26:00.004-04:00

Florida’s Last Will and Testament.

One final nod to the deceased. One last chance to determine what happens to property accumulated over a lifetime. The closing chapter on a life and all it accomplished.

The Will is one of the most fundamental tools in Florida’s Estate Planning toolbox.

Yes, there are others. Trusts, Joint Accounts, Beneficiary Designations and Intestate Statutes to name a few.

But the Will, if used correctly, can work to supplement the other tools and catch any assets that may have been missed during the Estate Planning process. Kind of a belts-and-suspenders approach.

Consider the following questions in determining whether all of your assets are properly accounted for in your estate plan:

• Does Florida’s Intestate Statute really express where I want my property to go when I pass away?

• What happens to my property if I become the sole survivor of property I own as a Joint Tenant with Right of Survivorship?

• What happens to my life insurance policy, annuities, 401k and bank accounts if my designated beneficiaries die before I do?

• Am I certain all of my assets are included in my revocable or irrevocable Trust?

If you are uncertain about the answer to any of these questions, a Will is an excellent way to make sure you get to decide what happens to your property.

1. Using a Will as Your Primary Estate Planning Tool

A Will can be used as either (a) the primary tool for transferring assets to your heirs when you pass away, or (b) a supplemental tool designed to catch those assets that fall outside of a trust, joint tenancy or beneficiary designation.

If a Will is intended to be the primary tool, most of the estate’s assets will pass to the Testator’s heirs as determined by the Will’s General, Specific and Residuary Gift provisions.

Specific Gifts (or Specific Bequests) are certain items the Testator wants to leave to a specific person or entity. Items like “my leather WWII jacket,” “my Model A Ford,” or “my dog named Precious.” Specific Gifts can be real estate, personal property and even cash if a specific amount is identified (e.g. “I leave $450.00 to my nephew John”).

Specific Gifts are limited to the item described in the Will. If that item is no longer in the Testator’s estate, the gift is revoked and the beneficiary generally does not receive a replacement item.

Florida statutes also provide an alternative to Specific Gifts that can accomplish the same (or similar) results.

Florida law allows a Testator to state in her Will that she has created a list containing items of tangible personal property and that she wants the items to be distributed as indicated in the list. The items and individuals do not need to be specifically identified in the Will.

When the Testator passes away, if the list described in the Will is in existence, signed by the Testator and describes the items and individuals with reasonable certainty the list will be honored as part of the Will.

This is so even if the list was created after execution of the Will.

It is a good idea for the Testator to date the list as the most recent list will take precedent over prior lists. It is also a good idea for the Testator to store the list in a place where it will be found when the Testator passes away.

General Gifts (or General Bequests) are dollar amounts to be paid out of the general assets of the Testator’s estate and are not tied to a specific item.

Residuary Gifts (or Residue) are the remaining assets of the Testator’s estate after all General and Specific Gifts, final debts and expenses are paid.

You can also use a Will to disinherit beneficiaries from assets subject to probate. But keep in mind a Will cannot be used to disinherit beneficiaries from an asset held jointly between the beneficiary and Testator.

2. Using a Will as a Supplemental Estate Planning Tool

If a Will is intended to be a supplemental tool, the Will may contain a “pour over” clause that transfers the residue of the estate to “pour over” into a previously established trust. This allows the Testator to capture any assets that may have been intentionally or inadvertently left out of the trust during the Testator’s lifetime.

A Will can also be used to set up a Testamentary Trust that only springs into effect when the Testator passes away.

Property that is commonly passed to heirs outside of a Will by way of trust, joint tenancy or naming a beneficiary includes:

(a) Retirement Accounts, Bank Accounts, Stocks, Bonds, Certificates of Deposit and Life Insurance proceeds naming a beneficiary,

(b) Real or personal property owned as a joint tenancy with right of survivorship, and

So what are the basic requirements for creating a valid Florida Will?

3. Testamentary Capacity

The person signing the Will must have “Testamentary Capacity” at the time he or she executes the Will. Testamentary Capacity means he or she is:

(a) at least 18 years old or an emancipated minor,

(b) understands the nature and extent of his or her property,

(d) understands the practical effect of the Will.

If a person satisfies items (b) through (d) he or she is considered to be of “sound mind.”

Testamentary Capacity does not mean the person has to always be of sound mind. Only that the person is of sound mind at the time the Will is executed.

A person suffering from Alzheimer’s can be of sound mind during a “lucid moment” and execute a Will.

Florida courts have found instances where intoxicated, physically infirm, disheveled looking and eccentric people to be of sound mind for purposes of validating a Will.

4. In Writing, Signed and Witnessed

If the Will is executed in Florida, Florida courts will not validate it unless it is:

(a) in writing,

(b) signed by the person making the Will (the “Testator”) or by someone else at the direction of the Testator. The person must sign in the Testator’s presence, and

If the Will is executed outside of Florida, Florida courts will look to the laws of the jurisdiction where the Will was executed to determine validity unless the Will is Noncupative.

Florida courts will recognize an otherwise Holographic (or handwritten) Will if it meets requirements 2(a)-(c) discussed above.

Florida courts will not validate a Noncupative (or oral) Will even if another jurisdiction recognizes this form of Will. An oral deathbed declaration would be an example of a Noncupative Will.

5. Witnesses Must be Competent

As noted above, at least two competent witnesses must sign the Will in the presence of the Testator and each other.

Competent means the witness is of sound mind and can provide reliable testimony to authenticate the Will. It does not mean the witness is intelligent.

Although allowed under Florida law, it is not a good idea to have Will beneficiaries or other related or interested people sign as witnesses of the Will. If a beneficiary insists on being a witness, it is a good idea to have at least two independent witnesses with no family or personal interest in the Will.

6. Self-Proving Affidavit

No matter who signs as a witness to the Will, there is no guarantee that the witness will subsequently be able to testify that the Will was executed in conformity with Florida’s statutes.

The Florida legislature has attempted to limit the issues around tracking down witnesses by allowing courts to admit Wills into probate based solely on a Self-Proving Affidavit.

A Self-Proving Affidavit is a notarized document containing the signatures and sworn statements of the Testator and witnesses that:

(a) the testator declared the document to be his or her Will,

(b) the will was signed by the Testator in front of the witnesses, and

Although not required by Florida law, Self-Proving Affidavits are an invaluable tool for expediting the probate process. Otherwise, the person submitting the Will to probate will have to track down other types of proof that the Will was properly executed.

You can find Florida’s Statutory Form for Self-Proving Affidavits here.

4 Things You Need to Know About a New York Quitclaim Deed

2016-11-01T21:03:00.000-04:00

New York quitclaim laws are similar to most other states with a few exceptions.

1. Transfer of Interest

You can only use a quitclaim deed to transfer your interest in the property and nothing more.

If you own a life estate interest in a parcel of property you cannot transfer a fee simple absolute interest in the property. If you own a leasehold interest in a parcel of property you cannot transfer a life estate interest in the property.

At its core, the person granting a quitclaim deed is really only saying "I'm not representing that I have any interest in the property. I'm only representing that if I have any interest in the property I'm transferring that interest to the grantee."

In other words, if you are buying property and you want the seller to represent that he or she actually owns the property you will need to use a different form of deed (e.g. warranty deed).

2. Unclear Language
If the language in the quitclaim deed is clear and unambiguous, you cannot bring in outside evidence to prove the deed intended to transfer something other than what is stated in the document.

If the language in the quitclaim deed is unclear, you can bring in outside evidence to prove the intent of the parties in drafting the document.

If outside evidence does not resolve the issue, New York courts can determine that the document has no legal effect and, therefore, is not a valid quitclaim deed.

How can language be unclear?

Quitclaim deeds are often created based on standardized forms. Depending upon who is completing the form, certain information can be incomplete or inaccurate.

One New York case involved a situation where the mother of two siblings signed a document purporting to transfer property to herself and her son as joint tenants with rights of survivorship.

The document had a fatal flaw: it did not contain a property description. Instead, there was a blank space in the area marked "property description."

The New York court declared the deed invalid and awarded the property to the other sibling.

3. Know What You're Signing
New York law presumes that the person signing a quitclaim deed knows what the deed says even if the person cannot read it. This is especially so if the signor executes the deed in front of a notary.

In short, New York courts have stated that if a signor can read, not to read the document is gross negligence. And if a signor cannot read, not to have the document read to him or her is equally negligent.

4. Title of "Quitclaim" Not Necessary
New York law does not require a document to be titled a "Quitclaim Deed" for the document to be treated as a quitclaim deed.

Instead, New York courts will look at the language contained in the document and the intent of the parties in determining whether a quitclaim deed exists.

One New York court held that a document titled "Letter of Intent" was actually a quitclaim deed after determining that the signor of the Letter of Intent intended to transfer any interest he had in the property to the company to who the letter was addressed.

Want More Info on Quitclaim Deeds?

7 Things Florida Courts Presume About Real Property Deeds

2016-10-23T17:27:00.000-04:00

Remember the 2007 real estate crash? Who doesn’t, right?

Leading up to the crash my law firm was involved in 30 new closings a month. Most of them involved beachfront investment property in Florida’s panhandle.

After the crash many of our clients were left scrambling. The sellers scrambled to close their deals. The buyers scrambled to get out of their deals.

In January, 2008, one of my clients approached me with an interesting question.

He had purchased beachfront investment property in Pensacola, Florida. The deal closed a year before the crash.

His property was valued at over $1 million before the crash. Now it was worth $300,000.

His question: Can I reverse a real estate transaction a year after the closing? This question was on the minds of many Florida investors in the winter of 2008. As with most legal issues, the answer was: It depends.

Florida real property laws can be difficult to navigate. As in most states, Florida statutes and case law create certain “presumptions” about the transfer of real property.

1. Florida law presumes a "fee simple" property transfer
In Florida, courts will assume a real estate deed is intended to convey “fee simple” title to the grantee unless a contrary intention is detailed in the deed.

The term “fee simple” means the seller is transferring all of his or her right, title and interest to the grantee and grantee’s heirs. This is by far the most common type of real property transfer. The buyer is entitled to use the property for any lawful reason for as long as he or she continues to own the property in fee simple.

2. Florida law presumes the language in a deed correctly details the intent of the parties

This makes perfect sense if the intent of the parties is clear.

But what happens if there is conflicting language in the deed? Or the title of the deed says one thing and the body of the deed another? What if the title of the deed says “in fee simple” but the body of the deed contains arguably “leasehold” language?

After reviewing my client’s “deed” this was exactly the case. The drafter of the deed had copied and pasted language from two different legal documents. One conveying title in fee simple. The other conveying a 10 year leasehold.

My client had not taken a close look at the deed until he had a reason to get out of the transaction. He now had an argument that the document he signed conveyed a leasehold interest in the property.

In Florida, when there is conflicting language in a deed courts will look outside the text of the deed to determine what the parties intended.

3. Florida courts will recognize the validity of a lost or destroyed deed if either party can prove the substantive parts of the deed

Although my client’s deed had not been lost or destroyed, I am aware of at least one instance (from 2008) where a buyer tried to destroy signed copies of the deed. There had been a delay in getting the deed recorded and the buyer felt he could get out of the deal by destroying the signed copies. This was not the case.

4. Florida law presumes that a recorded deed was delivered to the grantee

In Florida, a deed does not transfer title to real property until it is delivered to both parties; not necessarily the day it is executed.

Florida courts do presume that a deed is delivered on the date it was executed and/or prior to recording, but these presumptions can be overcome by extrinsic evidence.

5. Florida law presumes reciting consideration in a deed means consideration was received by grantee

A deed arising out of the sale of property (as opposed to a gift) is not valid in Florida unless both parties receive some benefit or “consideration” for signing the deed. In most cases, the seller receives the benefit of payment and the buyer receives the benefit of owning the property.

It is common practice when drafting a deed not to include the exact amount of the consideration paid for the property. Instead, most attorneys will simply include a statement saying something like “for $10.00 and other good and valuable consideration…” to account for the consideration requirement.

Florida law presumes that this recitation is enough to support the requirement of consideration. This recitation can be rebutted, but it would likely take an evidence of fraud.

6. Florida law presumes sellers have the mental capacity to execute a deed

Unlike a Will, Florida law does not require all of the formalities for establishing that a seller has the mental capacity to execute a deed. However, Florida courts will consider evidence of lack of mental capacity in determining whether to cancel a deed.

7. Florida law presumes “undue influence” if grantee has fiduciary relationship with grantor and grantee actively procures deed

Why Do I Need an Advance Healthcare Directive?

2013-08-21T14:20:00.001-04:00

Right now you are the person in charge of deciding what type of medical care you receive. Well, you and your insurance company. But what will happen if (and likely when) you are no longer able to make medical decisions for yourself. That day may be twenty years from now, OR it could be tomorrow.

Consider the case of Terry Lynn Schiavo which ignited a firestorm of controversy when it pitted the Parental Rights of an adult living in a vegetative state against those of the adult’s Spouse.
Terry Lynn was a healthy 26 year old married woman living in St. Petersburg, Florida when she suddenly collapsed from a heart attack and fell into a coma. Lack of oxygen had caused massive brain damage. Almost three months later, doctors determine Terry Lynn was in a persistent vegetative state.

Eight years after her heart attack her husband, Michael, petitioned to have her feeding tube removed which would result in termination of her life. Michael’s petition resulted in a legal battle with Terry Lynn’s parents that lasted eight years in both Federal and State Courts. Michael argued her actions while in the vegetative state were involuntary. Her parents argued Terry Lynn was able to communicate and that she did not want to die. Ultimately, a Judge determined Terry Lynn would want to die and ordered the removal of her feeding tube. To this day, no one really knows what Terry Lynn wanted.

Make Your “End of Life” Medical Care Wishes Legally Binding
The Terry Lynn Shiavo case sent every State scrambling to enact its own laws for “End of Life” care. The result: Advance Healthcare Directives including (1) Living Wills, and (2) Healthcare Power of Attorneys. Each of these is a legal document that records a patient’s wishes for “End of Life” healthcare.

Complete Your Advance Healthcare Directive Now
Why now? Because right now you have time to think about the kind of “End of Life” healthcare you would like to receive. How long are you willing to live in a coma? How long are you willing to live in a persistent vegetative state? Do you have religious or personal objections to certain medical procedures? Also, right now you can talk to your family or close friends and let them know your wishes. It may be that the person you want to handle your “End of Life” care is not willing to “pull the plug” (like Terry Lynn’s husband). It may be that the person you want to handle your “End of Life” care is not willing to take on that responsibility.

Laws Vary from State to State
Each state has enacted its own set of laws regarding Advance Healthcare Directive. You will need to execute an Advance Healthcare Directive for the state where you reside or where you expect to receive medical treatment.

Top Five Things People Regret at the End of Their Lives

2013-07-03T15:32:00.001-04:00

A recent article spells out the Top Five things people regret having done or not done when they come to the end of their lives. The article is based on answers to questions an end of life nurse has posed to her patients over the years. The list includes:

1. Having been too concerned with what others wanted them to be and not what they wanted to be. Leaving dreams unfulfilled.

2. Spending too much time at work.

3. Not expressing their feelings enough.

4. Losing touch with friends over the years.

5. Not making happiness a priority.

When making your "Bucket List," you may want to keep these things in mind.

How to Transfer Ownership of Real Estate?

2013-04-25T20:16:00.000-04:00

Transferring ownership of real estate requires the owner of the property to prepare and record a legal form known as a "Deed" with the Clerk of Court in the County where the real property is located. There are a number of different legal Deeds that can be used to transfer ownership. The two most common types of Deed are the "General Warranty Deed" and the "Quitclaim Deed." The General Warranty Deed gives the new owner a guarantee that there are no problems with the chain of title to the property, while the Quitclaim Deed makes no such guarantee.

Keep in mind that the General Warranty Deed and Quitclaim Deed are only the two most popular types of transferring ownership in real estate. There are a number of Deeds that can do anything from transferring only partial ownership in real property to naming a successor to the property owner should the owner pass away. In most states, templates for the General Warranty Deed and the Quitclaim Deed can be obtained from the Clerk of Court in any County.

Locate the Clerk of Court in the County where the real estate property is located

In most counties the Clerk of Court's office is located at the County Courthouse. Keep in mind that there is a difference between the County Courthouse and a State or City Courthouse.

Request a template for either the General Warranty Deed or Quitclaim Deed from the Clerk of County Court. If the property is being transferred because it has been sold, the buyer will most likely require the seller to guarantee that the seller actually owns the property and that the chain of title shows that there have not been any unlawful transfers of the property in the past. The seller guarantees clear title using a General Warranty Deed.

If the property is being transferred as gift to a relative or the seller is paying only a nominal monetary amount for the transfer, the seller is not likely to be willing to guarantee the chain of title. In this case, a Quitclaim Deed should be used to transfer ownership of the property.

Obtain the Legal Description for the real estate property being transferred

The phrase "Legal Description" refers to the legal phrase used by the County Tax Assessors office to describe the property being transferred. The Legal Description is NOT the property address. Instead, the Legal Description is a description given to the property based on a survey of the property.

The Legal Description to the property can be found by looking at the Deed given to the current owner of the property when he or she originally obtained ownership of the property. In most Deeds, the Legal Description is the document marked "Exhibit A" attached to the Deed.

If the Legal Description is not found on the property owners Deed, a copy of the Legal Description may be obtained from the local County Tax Collector's office or County Public Recorder's Office.

Fill in the Deed template obtained from the Clerk of County Clerk

The term "Seller" in the template refers to the current owner of the property. The term "Buyer" refers to the individual or company to whom ownership of the property is being transferred. Include the Legal Description in the body of the Deed if it is short enough to fit in the space marked "Legal Description."

If the Legal Description will not fit in the body of the Deed, write the phrase "See Attached Exhibit A" under the section marked "Legal Description." Attach the Legal Description to the Deed using a separate sheet of paper marked "Exhibit A" at the top.

Take the completed Deed (including the attached "Exhibit A") along with a blank check for a Deed recording fee to the Clerk of the County Court. The recording fee will be charged for entering the transfer into the County records. Most counties base their fees on the value of the property being transferred.

Make copies of the the recorded Deed for both the seller and the buyer. The recorded Deed is the deed the Clerk of the County Clerk has stamped the date and time when the Deed was recorded.

How to Keep the State From Taking Real Estate When an Owner Dies With No Will

2013-04-24T12:55:00.000-04:00

There are a number of popular tools for ensuring property does not end up in the possession of the state when someone passes away without a Will. Three of these tools include: (1) the state's particular "Intestate Statute," (2) naming an heir in the property deed, and (3) setting up a trust. Each of these tools is designed to allow a property owner to determine who will take ownership of his or her property upon passing away. It is important to note that one of these tools (Intestate Statute) will likely require a legal proceeding to determine ownership while the other two (property deed and trust) do not.

Intestate Statute

Every state in the United States has adopted its own set of laws for dealing with property owners who pass away without a Will. These laws are called "Intestate Statutes." The objective of these Intestate Statutes is to create a one size fits all system for distributing property to the heirs of a deceased person. In general, Intestate Statutes attempt to determine how the deceased would have distributed his or her property had he or she created a Will. To that end, most Intestate Statutes assume that husband and wife would have left property to each other (as opposed to a third party) had they created a Will. If no Will or other document disposing of the property can be found, a court will most likely award the property to a surviving spouse under the Intestate Statute. If there is no surviving spouse, the property will likely be awarded to the deceased's children in equal shares.

Naming an Heir in the Property Deed There are a number of different ways to leave property to an heir using a property deed. The most popular property deed is the Warranty Deed. While the Warranty Deed is useful in transferring property in a real estate sale, it does not allow the new owner to name an heir in the deed itself. If the new owner passes away owning property under a Warranty Deed, his or her heirs will have to file a petition in Probate Court (either under the Intestate Statute or a Will) to determine who should inherit the property.

On the other hand, if the owner of real estate passes away owning property under an Enhanced Life Estate Deed, Life Estate Deed, or Transfer on Death Deed, the property will pass to the decedent's heirs without having to go to court.

Trusts

Setting up a trust is very much like creating a fictional person whose job is to own and manage your property for your benefit. There are a number of tax, legal liability and estate planning benefits to setting up a trust. In general, a trust is a legal entity created to take possession of property either before or after you pass away. When you pass away, the trust is still “alive,” and continues to be owned and managed for the benefit of your heirs. Since the property is owned by a trust and not a real person, legal judgments against a real person do not attach to the trust property.

FHA Streamline Refinance Requirements

2013-01-23T14:13:00.000-05:00

Although the real estate purchase sector in the United States as a whole is still struggling to return to where it was before the crash, one section of the real estate market has taken off in recent months: Mortgage Refinances. This is due primarily to historically low interest rates and new FHA Streamline Refinance Requirements.

Historically Low Interest Rates
There are several reasons for a recent spike in Mortgage Refinancing. First, interest rates on refinances are extremely low. Several years ago, refinancing your home at an interest rate lower than 4.5% meant buying down the rate using the points system. Now it is not uncommon to find interest rates in the 3.5% range without any points. It is, however, unclear how long interest rates will stay as low as they are now.

New FHA Streamline Refinance Requirements
In addition to historically low interest rates, FHA has "Streamlined" its refinancing requirements to allow for quick and easy home refinancing. In many cases, a homeowner who has made his or her payments on time for the past three months can refinance a home (1) without paying for a new appraisal, (2) without having to have their credit checked, (3) without providing proof of income (or even employment), and (4)can be upside down on their mortgage. In many cases, closing cost are relatively low and can be financed. The reasoning behind the new FHA Streamline Refinance requirments is that if a homeowner can make their payment at 6%, they will be able to make it at 3.5%. If you currently have a mortgage in excess of 4%, it might be a good idea to check into refinancing before interest rates go up.

Transfer On Death Vehicle Registration

2012-09-20T16:08:00.001-04:00

The biggest reason you don’t want a vehicle to go through probate is because they depreciate over time. The longer the probate process drags on the less the vehicle is worth. A car worth $15,000 this year might be worth $10,000 the next. The sooner your heirs can get the vehicle transferred into their names, the more they will be able to sell it for. It only makes sense to pass your vehicles to your heirs outside of probate.

Transfer on Death Vehicle Registration
Arizona, California, Connecticut, Indiana, Kansas, Missouri, Nevada, Ohio and Vermont currently have Transfer on Death vehicle registration available. In these states, you simply need to complete the Vehicle Beneficiary Form Registration Certificate and your vehicle will automatically transfer to your beneficiary or beneficiaries when you die.

Revoking a Transfer on Death Vehicle Registration
The good thing about a Transfer on Death vehicle registration is you can change your mind and re-title the vehicle at any time. This is similar to transfer on death real estate deeds. You can revoke a beneficiary designation by either: (a) selling the vehicle which terminates the beneficiary designation; or (b) re-registering the vehicle and naming a new beneficiary or no beneficiary at all.

IMPORTANT: Naming a different beneficiary for the vehicle in your will does not change the beneficiary named in the vehicle registration. The vehicle registration will take precedence.

Joint Ownership with Right of Survivorship
As with the Joint Tenancy with Right of Survivorship for Real Estate, titling your car with the Right of Survivorship designation allows the surviving owner (usually a spouse) to inherit the vehicle upon the death of the other owner. Some states have official forms for Right of Survivorship while others require you to write it into the vehicle registration document. Title to the vehicle can be cleared by providing a death certificate to the DMV and completing a new title registration.

Surviving Spouse as Sole Beneficiary of Retirement Accounts

2012-09-12T14:52:00.001-04:00

More often than not, spouses choose to leave their assets to each other when they die. When it comes to retirement accounts this decision makes good financial sense as there are specific state and federal rules that favor leaving the account to a spouse.

Benefits of Naming Spouse as Sole Beneficiary of Retirement Account
For instance, a surviving spouse who is named as the sole beneficiary of a retirement account is not required to withdraw the money right after the deceased spouse's death. This allows the surviving spouse to keep the tax deferred status of the money and not begin making withdrawals until the later of (1) the year the deceased spouse would have turned 70 1/2; or (2) December 31 of the year following the deceased spouse's death.
This rule applies only to the traditional IRA as the Roth IRA is not taxed when the money is withdrawn. This is not the case when a retirement account is left to a non-spouse. A non-spouse would be required to begin withdrawing the money in the year after you die.

"Roll Over" the IRA into the Surviving Spouse's Account
A surviving spouse who is named as the sole beneficiary of an IRA can choose to "roll over" the deceased spouse's IRA into his or her own IRA tax free. When the surviving spouse rolls the money into his or her IRA the surviving spouse is thereafter treated as having been the original owner. The surviving spouse then has the ability to name his or her own beneficiary to inherit the money and to use his or her own age and life expectancy to determine when distributions must be taken and in what amounts. The surviving spouse has the option of rolling the money over at any time after the death of the deceased spouse.

Tax Advantages of IRA's (Traditional and Roth) and 401(k)'s

2012-09-07T13:48:00.002-04:00

I remember working in the banking industry over a decade ago when the Roth IRA was first introduced. For months after the Roth came out I was approached by clients about how the Roth worked and whether they should roll their money into the Roth from their traditional IRA's. Although brand new at the time, it was clear to me that the Roth might work well for my younger clients, but not necessarily for those nearing retirement age.

As the Roth v. Traditional IRA issue has recently come up with a client of mine, I thought I would take a moment to briefly outline the tax advantages of each.

Traditional IRA Tax Advantages
The real benefit to a Traditional IRA is that any money you deposit into the IRA each year (up to the legal limit) can be deducted from your taxes.
That means the amount you deposit into your Traditional IRA can be used to reduce your tax burden. The presumption is that most people will invest in an IRA during the higher income producing years of their lives (30-55) to reduce their tax burden for those years.

The downside to the Traditional IRA is that all good things must come to an end. At some point you will be required to start withdrawing money from your Traditional IRA, and when you do each withdrawal is taxed as income. The presumption here is that you will be in a lower income tax bracket when you retire and the money you take out will be taxed at a lower rate than what it would have been when you were younger.

Roth IRA Tax Advantages
Unlike the Traditional IRA, contributions to the Roth IRA are not tax deductible. Instead, the benefit to the Roth IRA comes in the treatment given to the income from your contributions. In a Roth IRA, all income on contributions accumulates tax-free. This means the better your Roth IRA performs the greater the advantage of having your money in a Roth IRA. To be eligible for the tax free income treatment the contribution must have been in the account for at least five years. Also, unlike the Traditional IRA it is not mandatory that you take withdrawals from a Roth IRA during your lifetime.

Five Methods for Avoiding Probate

2012-09-07T10:54:00.000-04:00

There are numerous ways a person can avoid having his or her property probated. The following are some of the most common methods for avoiding probate:

(1) Living Trust - for more information on setting up a living trust see my article on Intervivos Trust a/k/a Living Trusts;

(2) Title real estate as a Joint Tenancy or Tenancy by the Entirety with your heirs - for more information on joint tenancies see my article Joint Tenancy with Right of Survivorship;

(3) Own real estate through a deed which contains a transfer on death clause;

(4) Name a "pay-on-death" beneficiary for your bank accounts, certificates of deposit, stocks, bonds, vehicles and retirement accounts;

(5) Own bank accounts, certificates of deposit, stocks, bonds, and vehicles jointly with heirs.

Although some of these methods may be done without the help of an attorney or accountant, it is recommended that you at least consult with an attorney and accountant about the proper way to set up each method and the tax consequences that might be associated with each.

POD Accounts and the Uniform Transfers to Minors Act (UTMA)

2012-09-06T15:21:00.000-04:00

It is common for adults to want minor children to inherit money from a bank account without having to go through the probate process. The most common way to do this is by using a Pay on Death bank account and naming a "P.O.D. Payee" to receive the money once the account owner passes away. If the minor child is about to turn 18 or the amount of money in the bank account is never intended to be more than a few thousand dollars, the account owner may just name the minor child as the P.O.D. Payee.

But when the minor child is not yet ready to assume responsiblity for his or her finances it would be better for an adult to be appointed to manage the minor child's finances.
Otherwise, if the amount of money is significant the minor child's guardian will likely have to open a court proceeding and petition the court to be appointed guardian of the money. A court proceeding would likely be expensive and, at very least, delay distibution of the money.

Financial Custodian and the Uniform Transfers to Minors Act (UTMA)
Almost every state has adopted the UTMA which governs the distribution of funds to minors. The UTMA makes naming a P.O.D. Payee custodian simple. To name a custodian as the P.O.D. payee and require the custodian to hold the funds for the minor child simply write on the form provided to you by the bank "[Custodian's name], as custodian for [minor child] under the [state] Uniform Transfers to Minors Act."

If the minor has not reached the age for termination of the custodianship when the bank account owner dies, the custodian will hold the money until the minor child reaches the age for termination of the custodianship. In most states, the custodianship will automatically terminate at the age of 21.

For more information on pay on death accounts read my article Payable on Death Bank Accounts.

Four Reasons To Avoid Probate

2012-09-06T13:33:00.001-04:00

Probate proceedings consist of five basic steps:

(1) submitting a deceased person's will to probate court,

(2) proving the will is authentic and properly executed,

(3) inventorying and appraising the deceased's assets,

(4) notifying creditors and relatives of the probate proceedings, and

(5) publishing notice of the proceedings in a local newspaper.

While these steps may appear simple and easy, the following are four reasons to avoid having your estate probated:

Probate Proceedings are Open to the Public

It has always struck me how much time and energy my clients spend to keep the contents of their wills private while they are alive.

Clients are often worried about an heir finding out he or she has been left out of the will or that an heir is not going to receive what he or she feels is deserved. Sometimes clients want to keep certain bequests secret from other heirs.

More often than not, clients just don't want heirs telling the whole world how much money they have.

Given the above, it is often shocking to clients when they find out that when they die their will is going to be made public and that anyone who wants can just drop by the courthouse and inspect the will once it has been probated.

Property Owned "out-of-state" Requires a Separate Court Proceeding
A will is generally probated in the county where the person resided at the time of his or her death.

Any property owned in the state where the person resided is usually subject to the jurisdiction of the original probate court. However, any property owned "out-of-state" falls under the jurisdiction of the probate court where the "out-of-state" property is located.

This requires the original executor of a will to file a separate proceeding in the new state, and likely require a new attorney and additional fees.

The Average Probated Estate Can Take A Year or More
Even if the will proving process goes smoothly, the inventory and appraisal process along with locating heirs and creditors generally takes time.

In some instances, the probate court will allow for a small immediate "family allowance" to try to hold the deceased's immediate family over until the probate process has concluded.

It may seem odd that immediate family members would have to apply to the court for the use of its own money, but that is how the probate process is set up. In any case, it can take a year or more before the entire probate process is wrapped up.

In the meantime, heirs are left having to make do until their bequest is finalized.

Probate Can Be a Waste of Money
The national estimated average of probate costs (attorney fees, court fees, appraisal fees, etc.) can be as high as five percent of the deceased's estate.

If there is a legal fight between the heirs the costs can be much higher.

For information on how to avoid probate, you may want to look at my articles on:
Setting up a trust
Executing an enhanced life estate deed
Life estate deeds
Transfer on death deeds
Payable on death accounts, and
Joint tenancies with right of survivorship.

Bankruptcy For The Individual Under The Newly Revised Bankruptcy Code

2012-09-05T15:42:00.000-04:00

An individual person can currently file bankruptcy under one of two Federal Bankruptcy Chapters: Chapter 7 (clean slate/start over) and Chapter 13 (restructure of indebtedness). Chapter 7 Bankruptcy is used to discharge the individual from his or her debts. Chapter 13 Bankruptcy is used to restructure a person’s debts and allow him or her to keep certain assets under a revised payment plan.

Recent Changes in the Bankruptcy Code
Until a few years ago just about everyone who had not filed bankruptcy within the preceding six years and had no disposable income to pay the bills was eligible for Chapter 7 bankruptcy.
This meant that the person was eligible for a discharge of his or her debts and could start over with a clean slate even with an elevated income. But under the newly revised Bankruptcy Code, a person must now wait eight years in between bankruptcy filings. An “Income Eligibility Requirement” has also been added to the bankruptcy code.

Income Eligibility Requirement
In brief, the Bankruptcy Code now determines a person’s eligibility for Chapter 7 bankruptcy relief by looking at the person’s (1) household income, and (2) annualized median income per household in the county for the six months leading up to the bankruptcy filing. A bankruptcy court may look at the county where the debtor resides at the time of filing bankruptcy to determine the median income to be applied in the case. If the debtor resides in a county with a lower median income, the Bankruptcy court may require a lower household income than for someone residing in a county with a higher median income county.

There are exceptions for someone with a higher household income than the median county income. Some exceptions include legally required payroll deductions, living expenses and secured loan deductions. Once these exceptions are accounted for a debtor may be eligible for Chapter 7 relief even if his or her household income is higher than the median.

How the Income Eligibility Requirement Might Temporarily Help Bankruptcy Debtors
It may sound strange to say it, but the length of time now required to prove a person’s eligibility for Chapter 7 relief can be temporarily helpful to the debtor. One instance where the additional income requirements may be helpful is when the debtor has filed a petition for bankruptcy and is no longer able to make payments on his or her home mortgage. Once the Debtor files bankruptcy, an Automatic Stay goes into effect. This means a mortgage holding bank is legally required to stop the foreclosure process until the Automatic Stay is lifted by the court. Bankruptcy courts are less likely to lift an Automatic Stay until the Debtors income has been determined. The longer it takes to determine the income, the longer the Automatic Stay prohibits foreclosure proceedings.

Once the Automatic Stay is lifted, a typical foreclosure proceeding can take an additional 3 to 6 months to conclude. Given the current economic climate, it is not uncommon for Debtors to remain in a home “mortgage free” for a year or more.

Special Warranty Deeds on Foreclosed Homes

2012-06-27T14:28:00.000-04:00

In a standard “arms-length” real estate purchase, the Seller of the property executes a General Warranty Deed to the Buyer. The General Warranty Deed warrants (or insures) that title to the property is clear and unencumbered and that if a problem with the title arises in the future the Seller will pay the attorneys fees or other costs required to clear up the title problems. The General Warranty Deed insures the title going back to the beginning of time.

An “arms-length” purchase is a purchase where there are no special deals between the two parties like those that often occur between relatives or other close friends where the “quit claim deed” is often the deed of choice.

Special Warranty Deed and Foreclosed Homes
Given the current real estate climate, many buyers are purchasing foreclosure homes from banks. In these situations the bank is the Seller as the bank has taken the property and retitled it in the name of the bank. Although purchasing a foreclosure home from a bank is considered an “arms-length” transaction, most banks will not provide the Buyer with a General Warranty Deed. Instead, most banks will only agree to provide the Seller with a Special (or Limited) Warranty Deed.

A Special (or Limited) Warranty Deed transfers title to the Buyer, but limits the time period under which title to the property is insured. A Special Warranty Deed limits the bank’s insurance of the title to the time when the bank first became owner of the property. Anything that may have happened to the property prior to the bank’s ownership is not insured. This is usually not a problem if the bank’s foreclosure process was done properly and all other lien’s on the property (besides the bank’s mortgage) were either paid or closed out.

An Owner’s Title Insurance Policy is Recommended
If you are purchasing a foreclosure home from a bank, it is recommended that you have a Title Insurance Company provide you with an Owner’s Title Insurance Policy. This type of policy will provide you the same protection as the General Warranty Deed. Instead of the bank being responsible for insuring title to the property from the beginning of time, the Title Insurance Company is responsible.

What is a Short Sale?

2012-06-26T16:13:00.000-04:00

A Short Sale is when the owner of a home sells the home for less than what he owes on his mortgage. To do this, the owner is required to get permission from the mortgage holder (usually a bank) to sell the home at a loss to the bank. Since 2008, Short Sales have become more common as the value of houses have dropped in the United States.

Why Would a Bank Agree to a Short Sale?
Banks have a strong incentive to agree to a Short Sale when (1) it has become clear to the bank that the current owner of the home can no longer make his mortgage payments; and (2) foreclosing on the home and selling it at auction will likely bring less for the home than the proposed Short Sale.

Short Sale Example
Suppose a homeowner owes $300,000 on a mortgage he obtained prior to 2008 when home values were considerably higher than they are now. Suppose that after the housing collapse his home now appraises for $200,000 and he has run into trouble making his mortgage payments. The homeowner is four payments behind and the Bank has to decide whether to start the mortgage foreclosure process.
The homeowner realizes he is about to lose his home to foreclosure and decides to put his home up for sale before the Bank takes it and sells it at public auction. The homeowner receives an offer on his home for $250,000. The homeowner submits the offer to his Bank and requests that the Bank release the mortgage on the home for $250,000. The Bank evaluates the offer, decides the offer is higher than they are likely to get at public foreclosure auction and accepts the offer even though it is $50,000 short of the total amount owed by the homeowner.

When Will a Bank Approve a Short Sale?
In general, Banks require for things to be present before they will approve a Short Sale:
(1) The home must be underwater. This means more money is owed on the mortgage than the home is worth; and
(2) The homeowner must be facing a hardship that prevents him from making his payments under the mortgage.

It is also important to note that the Seller in a Short Sale may be required to pay income tax because the IRS may view the Short Sale as a forgiveness of debt. Sellers may want to seek tax advice before accepting a Short Sale.

It is also important to note for the Buyer that most banks will only execute a Special Warranty Deed after a foreclosure.

DUI and Illegal Police Searches

2012-06-20T14:19:00.000-04:00

If you have been arrested for DUI as a result of a DUI checkpoint stop, you may be able to attack the resulting DUI charges based on your Fourth Amendment rights against illegal searches and seizures. Under the Fourth Amendment, any evidence seized as a result of an illegal search may not be used against you. The reasoning behind this is that police should not be able to benefit from violating your Constitutional rights.

The burden is on the prosecutor to prove that the stop was based on specific, clearly articulated facts leading to a reasonable suspicion that you were DUI. The police may only detain you if he or she has specific and explainable facts causing them to suspect that a crime is taking place and that you are responsible for that crime.

Possible Ways to Attack an Illegal Search
(1) Swerving alone may not rise to the level required under the Fourth Amendment;
(2) Driving under the speed limit is not enough unless it blocks traffic;
(3) Failing to signal prior to a lane change is not illegal unless it cannot be done safely; and
(4) Peeling out is not enough to rise to the level required.

Deed of Trust

2012-05-14T09:51:00.000-04:00

A "Deed of Trust" is a legal instrument that grants a Lender a Security Interest in real estate. The Security Interest creates a lien on the property on behalf of the Lender and gives the Lender the right to foreclose on the property should the Grantor of the Deed of Trust fail to satisfy the terms of the loan. A Deed of Trust and a Mortgage are similar in the rights they grant the Lender.

A Deed of Trust involves at least three parties: the Grantor (Borrower), Lender and Trustee. The Deed of Trust transfers ownership of the property to the Trustee who holds the property "in Trust" for the Grantor until the Lender is paid in full. Should the Grantor fail to pay the debt as required under the terms of the Deed of Trust, the Trustee may foreclose on the property and distribute the loan proceeds to the Lender. Any excess amounts would belong to the Grantor. Once a Borrower has satisfied the terms of the Deed of Trust, the Lender must execute a Deed of Release reconveying the property to Grantor.

Deed of Release

2012-05-14T01:53:00.000-04:00

A Deed of Release (also known as a Deed of Reconveyance) is a legal instrument executed by a lien holder (Lender) to release a lien on real property. A Lender holding a lien on real property in the form of a Mortgage or Deed of Trust must execute a Deed of Release once the Lender has been paid in full by the Grantor of the Deed of Trust. In most states, Lenders are required to execute a Deed of Release within a certain time period after the loan is paid off.

A Deed of Release reconveys all rights granted to a trustee under a Deed of Trust back to the Grantor. Once the Grantor has repaid the Lender all amounts owed under a Deed of Trust, the Deed of Release is executed to clear the title from the Lender's lien.

How to Execute a Deed of Release or Reconveyance

Before the trustee of a Deed of Trust will execute a Deed of Release, the promissory note held by the Lender must be paid in full. Once the Note is paid in full, the Lender is required to execute a Deed of Release pursuant to the laws of the state where the property is located. The Deed of Release must:

(1) Contain a notation that the Promissory Note has been paid in full;

(2) Be in a form acceptable to all parties involved;

(2) Contain signatures of all parties involved;

(3) Be recorded by the Lender in the official public records in the county where the property is located;

The borrower should request a copy of the recorded Deed of Release and keep the copy for his or her records.

General Warranty Deed

2012-05-11T12:34:00.000-04:00

When a Grantor executes a "Special Deed" or "Special Warranty Deed," he or she is only warranting that they own the property and that no title defects arose during the time they owned the property. A Special Warranty Deed provides more protection than a quit claim deed, but less than a General Warranty Deed. A General Warranty Deed warrants title to the property from the beginning of time.

Why Use a Special Warranty Deed?

Special Warranty Deeds are most often used in Commercial Real Estate Transactions. This is so because often the owner of Commercial Real Estate is less intimately connected to the property and less willing to warrant against things that happened before they become owner of the property.
Special Warranty Deeds can also be used to convey title to Residential Real Estate, but this is not usually how title is passed for residential property. Usually a General Warranty Deed is used when dealing with Residential Property.

What Has to be Included in both a Special and General Warranty Deed?

All Warranty Deeds must contain:
(1) a statement indicating that consideration has been given for the property;
(2) the Grantor and Grantee's names and addresses;
(3) the County where the property is located;
(4) a legal description of the property;
(5) signature of the Grantor;
(6) Notarization.

What Does a General Warranty Deed Promise the Grantee?

(1) That Grantor owns the property and can legally transfer title to Grantee (Seisin);
(2) That there are no liens against the property that have not already been disclosed to Grantee (No Encumbrances);
(3) That Grantor will defend Grantee against third-party claims to ownership (Quiet Enjoyment);
(4) That Grantor will deliver all documents required for marketable title (Further Assurance)

A Special Warranty Deed limits these promises to the time when the Grantor became owner of the property.

Why Use a Warranty Deed?

2012-04-17T14:24:00.001-04:00

A Warranty Deed is one of the most commonly used forms of conveying property in the United States today.

The Warranty Deed is primarily used by "arms-length" parties (i.e. not friends or relatives) because it provides the buyer with certain assurances related to the seller's right to sell the property.

A "Special Warranty Deed" assures the buyer that the seller has not done anything to the property while the seller owed it that would damage the title or marketablility of the property.

The Special Warranty Deed does not warrant title to the property for anything that happened prior to seller owning the property.

A "General Warranty Deed" assures the buyer that title to the property is free and clear of liens from even before seller owned the property. In most instances, it would be better for the buyer to require a General Warranty Deed than a Special Warranty Deed simply because it provides more protection to the buyer.

Another common form of conveying property is the Quit Claim Deed.

This type of conveyance is often used between family members because it simply tranfers one family member's ownership interest in a piece of property to another family member. There are no warranties as to the title or marketability of the property.

Other forms of conveying property include the Enhanced Life Estate Deed, Transfer on Death Deed, Life Estate Deed.

What is a Power of Attorney?

2012-04-11T09:52:00.002-04:00

A Power of Attorney or POA is a document granting one person written authority to legally act on behalf of someone else. POA's can be used in real estate transactions when one party (buyer or seller) cannot attend the closing. A third party can be given POA to sign the closing documents on behalf of the absent party.

POA's can also be drafted and executed in preparation for the future incapacitation of the party granting the POA. This type of POA is called a Durable Power of Attorney. Many people will execute a Durable POA prior to an upcoming major surgery or when they are concerned about the onset of Alzheimer's or other incapacitating disease. Durable POA's are often executed in conjunction with a Living Will.

A Power of Attorney can be either General or Limited. A General Power of Attorney grants permission for the agent to act on behalf of the principal in all matters in general. A Limited Power of Attorney grants permission for the agent to act on behalf of the principal in a defined matter or set of matters. Read my post on Agency for more information on the rights and responsibilites of an agent.

Life Estate Deed v. Enhanced Life Estate Deed

2012-04-10T09:31:00.000-04:00

I am often asked by clients whether the Life Estate Deed and the Enhanced Life Estate Deed work the same way when it comes to transferring and owning property.

The simple answer to this question is: No.

Although both deeds sound similar in name, each has its own unique benefits and limitations.

Life Estate Deed

For instance, when you execute a Life Estate Deed naming a "life tenant" and a "remainderman", both the "life tenant" and "remainderman" have a vested interest in the property at the time the deed is executed.

The "life tenant" may use the property during his or her lifetime, but owes a duty to the "remainderman" not to dispose of or otherwise destroy the property.

View my other post on the Life Estate Deed for more information on how it works.

Unlike the Life Estate Deed, the Enhanced Life Estate Deed does not grant a vested interest in the property to the "remainderman" at the time the deed is executed.

Enhanced Life Estate Deed

The owner of the property may dispose of the property at any time without the consent of the "remanderman."

Read my other post on the Enhanced Life Estate Deed for more information on how it works.

Both deeds also contain certain similarities.

The biggest similarity in the two deeds is that they are both designed to avoid probate by passing property to a remainderman without having to go through the court process.

What is an Agent?

2012-03-06T17:40:00.001-05:00

An agent is a person (or business) who is authorized to act on behalf of another person. A general agent is an agent who is authorized to conduct multiple transactions involving a continuity of service. For instance, a general agent might be someone who has guardianship or conservatorship of another person and is responsible for writing checks or making financial decisions for the ward.

A special agent is authorized to conduct a single transaction or a series of transactions not involving continuity of service. An agent who has been given a limited power of attorney for the purpose of closing a real estate transaction would be considered a special agent.

Master, Servant and Independent Contractor
Two types of agency relationships include the Master and the Servant. A Master is a principal who employes an agent to perform service in the Master's affairs and who controls or has the right to control the physical conduct of the other in the performance of the service.

A Servant is an agent employed by a Master to perform service in his affairs whose physical conduct in the performance of the service is controlled or is subject to the right to control by the Master.

Another type of relationship is that of the Independent Contractor. An Independent Contractor is a person who contracts with another to do something for him but who is not controlled by the other nor subject to the other's right to control with respect to his physical conduct in the performance of the undertaking. The Independent Contractor may or may not be an agent.