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Should I draft a Will or should I be placing my assets in a Trust?

Estate Planning, Health Care Proxy/HIPPA, trusts, Uncategorized, , ,

When it comes time for you to devise your assets, you may be asking yourself, “Should I draft a Will or should I be placing my assets in a Trust?” A Trust in most instances does not replace a Will. An effective Estate Plan requires a Will. Whether there is a Trust component within the Will, or a Trust outside the Will, you almost always need a Will.

Advantages of Creating a Trust:

Tax Avoidance-Property can be left not outright to your children, but in a Trust for their benefit for life. Eventually, the property is distributed to your grandchildren. No federal or Massachusetts estate tax could be imposed on the property that is in the Trust at the time of your child’s death. However, the federal government does impose “a generation-skipping transfer tax” upon the death of your child; there is an exemption available to your grandchildren.

Control and Flexibility- A trust provides a resolution to different concerns and financial circumstances. If you feel that your children or grandchildren are not wise or old enough to handle your assets, you could appoint a qualified Trustee to handle the financial matters for the benefit of your children or grandchildren.

TYPES OF TRUSTS

  1. Testamentary Trust-This is a type of trust that is created in a Will. The disadvantages of this type of trust are that the Trustee’s handling of the assets is subject to supervision of the Court and in cases where a minor is involved, “a guardian ad litem” will be appointed. Also, the Trustee must file annual accounts with the Probate Court and, ultimately, the assets in the Trust and the activity of the Trust will become a matter of public record.
  2. Revocable Trust-In contrast to a Testamentary Trust, you could create a Revocable Trust during your lifetime while retaining the right to revoke it or amend it. Then you would be providing in your Will that your property is to be added to your Trust. You would have unlimited access to your property and could manage it in any way you want during your lifetime.

Like so many things in life, there are the advantages and disadvantages.

The disadvantages of a Revocable Trust regarding real property are transfer of Title to the Trust requires deed preparation, title examination, and recording. In cases where a mortgage needs to be obtained, a Trust may cause disqualification in certain circumstances. On the other hand, once a piece of real property has been placed in a Revocable Trust, there will be no need to include the property in your Probate Estate, which can make things much easier for your heirs. Relatively recent legislation in Massachusetts permits a Trustee of a Trust to file a Certificate stating only the basic abilities of the Trustee to act for the Trust.

Much more to follow!!!

BY: Caroline J. Hanania

Associate Attorney

Topkins & Bevans

Attorneys At Law

781-890-6230 Ext 225

DISCLAIMER: PLEASE NOTE THAT THIS IS NOT LEGAL ADVICE. PLEASE CONSULT AN ATTORNEY REGARDING ANY LEGAL MATTERS

Behind in Your Mortgage: A Few Principles to Guide You

closing, Condominium, Mortgages, real estate law, Uncategorized

There are some rather complicated areas involving who is in front of whom in terms of real estate transactions, and you need to know these, especially if your mortgage payments are in arrears. Most of us have at least a first mortgage, and many of you have second mortgages, as well. If those are the only encumbrance on your home, it is reasonably simple to keep track of where you stand on these security instruments. The first mortgage comes first; the second mortgage has equity only if the principal balance of the first mortgage is less than the outstanding balance on the first mortgage.

These days, many first mortgages are “under water”. That means that the value of the dwelling is less than the principal balance of the mortgage note. It has been estimated that as many as one in four homes in America is in this position. I bring this up because some homeowners are trying to get a “short sale” approved to sell their home, move into a rental facility, and stop the noise of dunning calls from their mortgage Lender. The fact that there are so many homes “under water” and there is a high presence of second mortgages clouding resolution of the difficulties facing the home owner is a fact of our times. Many times the first mortgage lender will say “yes” to a diminished mortgage payoff, but the second mortgage lender will say no. The second mortgage lender, with no equity, has little to lose. Therefore, it is often the second mortgage lender who will prove the greatest obstacle in getting a short sale approved.

There are a few other “wrinkles” which you may wish to know about. The first is real estate taxes. Real estate taxes take priority over mortgages. Without this framework, few cities and towns would be able to survive. Many of you may be aware of the situation in Milton where a homeowner has accrued several hundred thousand dollars in back taxes, and faces a tax sale which will obliterate much of the equity which a mortgage lender has in the property. This is a unique situation, and, perhaps, one which could have been avoided by a more aggressive course of action by the Town. Normally, if a Town or other municipality brings a serious real estate tax deficiency to the attention of the mortgage Lender, the mortgage Lender pays the taxes to maintain its secured position. I am not familiar with all of the facts in the current delinquency. All I can say is if you are a person behind in mortgage payment and taxes, it may be in your interest to have your mortgage Lender pay the taxes, rather than be left in the situation which appears to currently obtain. The interest rate on delinquent taxes is Fourteen (14%)per cent per annum.

The last area which may be of interest is common area delinquencies for condominiums. A recent statute has made these items prioritized and Condominium Trustees can hold auction sales which knock out the secured position of Lenders. Again, if you are falling behind in this area, I urge you to contact your Lender, who may be willing to make these payments, too, to protect the Lender’s equity in your Unit.

Reverse Mortgages Revisited

closing, Estate Planning, Mortgages, Reverse Mortgages, Uncategorized

Reverse Mortgages Revisited

There is probably more misinformation in existence about Reverse Mortgages than any other mortgage product in history. Much of the misinformation has been founded on fact. Reverse mortgages have, in the past, been extremely expensive mortgage products.

Lately, many of the premier players in the Reverse Mortgage market have been leaving the business. In some instances, this exit was occasioned by poor performance of the collateral in resale, so that large financial losses were absorbed. In others, the recession in land values made fewer and fewer properties attractive for Reverse Mortgages, because the former plethora of equity in the real estate no longer existed.

In any event, there is now a leaner group of mortgage lenders in the Reverse Mortgage field, and the landscape has changed, so that many Reverse Mortgages can be originated with much the same costs as conventional mortgages. Furthermore, now that there seems to be some stability in real estate values, especially in Massachusetts, this may be the time to consider Reverse Mortgages, not only for the traditional uses which the products have served but for some innovative uses not heretofore utilized.

Traditionally, Reverse Mortgages were a “mortgage of last resort”. A senior was in straitened financial condition and could not afford to purchase basic necessities, like food or, more importantly, various medications which were required for preservation of decent health. If that person had equity in his or her home, the funds generated by a Reverse Mortgage provided a lifeline for the person in question. Many times this person had equity in his or her home and nothing else. The person’s children were placed in the situation of making gifts to his or her parents or letting go of the inheritance which the parent wished to leave but could probably not afford to maintain.

Regrettably, those kinds of situations continue to exist and the Reverse Mortgage is one way to deal with them. On the other hand, there are some more positive uses of Reverse Mortgages, and you may wish to consider these, as well.

    1. Get a run-down, tired home in shape for selling. Suppose your home has plenty of equity (even no mortgage) but you do not have any spare funds to upgrade plumbing. electrical systems or a sound roof to attain a good price for your home. Using a Reverse Mortgage may be just the vehicle to take some money out of your home, address the major issues, and then market and sell your home for a fair price, not a price based on all the negatives which marketing an old house often produces.

    2. Take money out of your home and use the funds to make lifetime gifts to family members. Reverse Mortgages are not only for people who have financial problems. They can also be used by people whose financial situation is stable but who would like to make distributions of funds to family members while they are alive. None of their children want to live in the family home. Why not liquefy the real estate with a Reverse Mortgage and remove all the responsibility of selling the home after the person dies?

In the coming posts, I intend to explore other possibilities presented by Reverse Mortgages and how they can be utilized effectively. There has been a lot of “piling on” regarding this product, and I think there are times when Reverse Mortgages can be effective options for seniors.

As Easy as A, B, and C

Estate Planning, Health Care Proxy/HIPPA, trusts, Uncategorized

2011 and 2012 are strange years because the US Congress has made an unprecedented move to eliminate Federal Estate taxes for all but the really privileged few. The threshold level of assets in your gross estate must exceed $5,000,000.00, if you pass away in either of those years, before you will need to pay any Federal Estate Taxes. That being the case, at least for Federal Estate tax purposes, the allure of the Revocable Trust, which was a standby for many middle and upper middle class individuals, has begun to lose its allure.

Briefly described, the Revocable Trust, especially when the person involved took the additional step after signing to put his or her assets into same was a vehicle which gave tax advantages and almost always reduced the expense and frustration of Probate. People used Revocable Trusts to take advantage of the then current Federal Estate tax exemption, which up until 2011 and 2012 was in the $3,000,000 range.

The post is written to express my view that the news of the death of the Revocable Trust as a valuable Estate Planning tool is extremely premature. I frequently recommend to my clients with estates over $1,000,000 that they consider putting Revocable Trusts into place. These are my reasons:

  1. Massachusetts Inheritance Tax starts at $1,000,000. That being said, there is no Inheritance Tax when a husband passes his assets to his wife, or a wife passes her assets to her husband. The tax only impacts people upon the death of the second to die. This follows the pattern utilized in the Federal Estate Tax system exactly. The problem of Massachusetts Inheritance Tax arises upon the death of the surviving spouse. There is no unlimited exemption, and all assets over $1,000,000 will be taxed by Massachusetts. The C Trust capture the credit.
  2. There is another, more practical advantage to the A, B and C Revocable Trust. The Trust can be used as a vehicle to accept the life insurance proceeds of the person who establishes the Trust. You may wonder why this is advantageous. For one thing, many people with younger children have life insurance for their family. The primary beneficiary is almost always the surviving spouse, and that makes perfect sense. What if a couple with adequate life insurance and small children was on a plane headed for California on September 11, 2011? Both spouses perish, and the young children come into a small fortune at the age of 18. My experience tells me that 18 is too young an age for children to have a lot of money. If the life insurance beneficiary is the Revocable Trust, the surviving spouse still gets use of the insurance proceeds, but the children do not get their principal until they are older and more mature.

Drafting an A, B, C Trust is not super-complicated or super expensive. If any of the situations I have described to you apply to your situation, speak to your attorney or trusted advisor about setting up the Trust. You will be doing a lot of people whom you love a wonderful service.

    

Buying a Home—Assemble a team

closing, Condominium, Mortgages, real estate law, Uncategorized

If you have not gone through the process, you have no idea of how many “little things” are involved in purchasing a home. It really is not as easy as finding a suitable property, submitting an acceptable Offer, closing on your mortgage loan and moving in. At every step along the way, there are decisions and choices which need to be made. More importantly, these decisions need to be made at a time when there is more “pressure” on you than you can imagine, so you are not always at the top of your game, and you can make important mistakes which you wouldn’t make if you were treating a home purchase like any other project, which you analyze and dissect before the process begins.

In a word, you are best served by putting together your team of professionals as soon as you decide that you are in the market to purchase a home. This means interviewing, and selecting the right professionals, before, not after you settle on a property. These are the categories which need your selection:

Buyer’s Agent: Buyer’s agency is a relatively new concept, but it is designed for you, the Buyer. The Buyer’s Agent is working for you. The Buyer’s Agent will tell you what he or she thinks the property is worth. The Buyer Agent will negotiate your Offer to purchase. The Buyer Agent will help negotiate inspection issues which may arise after you get the report from the Inspector. Ask people you know who have bought homes recently for suggestions. Interview the prospective Buyer’s Agent. Ask how many homes he or she has closed on in the past eighteen (18) months. Speak to more than one person.

Real Estate Attorney: Interview more than one candidate. Make sure the person does real estate. Ask the person how many deals he or she is now working on. Does the attorney have enough time to give you effective representation? Will the attorney give you fixed fee pricing rather than bill by the hour? Will the attorney give you a discounted price if the attorney also does the title work and conducts the closing? Find out in advance what the attorney’s “all-in” pricing will be.

Home Inspector: Home Inspectors are licensed. Speak to more than one. Ask if there have been any Complaints filed against the inspector in the past year. Ask the inspector to give you the names of people for whom he or she has done recent inspections. Have the person lined up in advance of the need. If you do this, you will not need to accept “second-best” because you are under time pressure.

Mortgage
Professional: Believe it or not, rate is not all that important when you are purchasing a home. You can always “correct” your rate somewhere down the road. Reliability is the key ingredient here. Will this person’s company show up with the money on the date set forth in your purchase and sale agreement? Ask to speak with satisfied customers. They will let you know whether promises are kept.

A team in place will make the home buying process go much more smoothly. Take the time to prepare. Your team will help you through the rough spots.

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