Estate Planning – What About Your Young Children?

Planning your estate is a very important process because it serves as a precautionary measure against the unexpected. In the event of a sudden injury or an unanticipated death it is important to have your affairs in order to ensure that your belongings and family members are protected. But many people think they are not “old enough” to plan their estate. Others think that they do not have enough money or property and there are some that have convinced themselves that while yes, most people will die – they certainly will be an exception. Unfortunately, of course, this is not true. Death is inevitable and, while the younger you are the better your chance of putting this off for a while, the fact is we should all plan for the eventuality.

Now what about that young couple that has limited assets and maybe a couple of kids. They are just trying to get by, so they certainly are not thinking that they have to do any estate planning.  Instead they are more likely thinking: “What do I have to leave?”  Putting aside the question of financial assets for a minute – the first question that they should be asking is – what about the kids?

There is no more important reason for getting your estate plan in place than removing as much uncertainty as possible from your childrens’ futures.  Who is going to be responsible for raising your children? Is this something you want to leave to chance or do you want to pick the person(s) that are going to take care of your kids?  The most important aspect of the estate plan for the younger couple with minor children is to name the guardian or guardians who will be responsible for your children.

Now, what about the assets that you are leaving behind? You may think that you are just getting by, but that may be different after you are gone. Do you own a home? Do you have life insurance or retirement accounts? You will want to make sure that these assets are left for your children and managed in their best interests. Again – this is something that you do not want to leave to chance. You should and you can pick the people that will be responsible to manage these assets so that you can insure the best possible future for your children.

The fact is just going through the process allows you to answer crucial questions for your family’s future. It will also usually result in discussing succession issues with your family members to make sure that they are willing to take on the important roles as discussed after you are gone. Further, and maybe most important of all, if you have a specific plan in place your children will not be left guessing as to what their future holds. Think about that for a minute – don’t you want to leave your children with as little uncertainty as possible?

The bottom line here is that Wills and estate planning are most definitely not just for the aging individual, but are for any person with assets or people that they would like to protect. The process of estate planning is fairly simple when handled by an attorney and is relatively inexpensive and brief.  It doesn’t make sense to wait – ever, and it certainly doesn’t make sense if you have small children at home!

“Psychological Impacted Events” and the Sale of Real Estate

 Buying and selling a house can be quite daunting with all of the paperwork, agreements, and negotiations that accompany the process, not to mention the money involved.  Buyers are faced with the task of finding a suitable property that fits their needs and is within their financial reach—which is easier said than done a lot of the time. Sellers are presented with the responsibility of preparing the property, providing all of the information to the buyer, and attaining an adequate amount of money for the home. Everyone involved in the process has specific roles and responsibilities that are controlled by various laws and regulations that must be followed to avoid an unwanted claim or worse, litigation.

                                                                                                                                                                                                                                                                                                                                                                                                                                                    One of the gray areas of real estate dealings lies in what the seller must necessarily disclose to the interested buyer.  First it is important to note that in Massachusetts seller’s have limited obligations.  Still, revealing general information about the property is a no brainer. It is customary, for example, to disclose all dimensions of the house, number of rooms, type of materials used, quality of construction, the age of the house, and other various tidbits of information that the MLS listing sheet includes. But how much is one required to reveal about the events which occurred on the property? Legislators have a difficult time determining such boundaries and balancing the seller’s privacy with the buyer’s right to have a full understanding of the home he or she is about to purchase.
         

As a buyer in the market for real estate, one may want to know more about the property he will potentially purchase and find out what really went on in the house he could be living in. Law MGL c. 93 s.114 lays out a standard of disclosure that may be displeasing to an interested buyer because it outlines that the seller need not reveal “psychologically impacted events.”  But what does that actually mean? A “psychologically impacted event” is quite an ambiguous term that only vaguely indicates what a seller is not obligated to disclose. Basically what the law states is that the seller does not need to necessarily reveal any event of psychological significance that occurred on the premises including death of an occupant, paranormal activity, health issues of a prior occupant or if a murder or suicide occurred in the house.  In the interest of the buyer the law also delineates that the seller may not willfully deceive the buyer in any way; otherwise, if the buyer inquires about any one of the previously mentioned occurrences, the seller may not withhold information at that point. The informed individual can ask such questions of the seller if these instances are of interest to him, but otherwise a buyer may find himself purchasing a home with a hidden history.

                                                                                                                                                                                                                                                                                                     So who does this law protect and how does one use it to his or her advantage? Largely it protects the seller and alleviates the legal responsibility to disclose information that is potentially harmful to the sale of his home. Even though buyers generally communicate with the real estate brokers more than the actual sellers, this law provides a provision for the seller to, best said, “avoid” such information.  The law does protect the buyer by necessitating that there is no willful deceit and that the seller is straight forward in responding to the buyer’s inquiries. It aims to protect the buyer from unscrupulous behavior on behalf of the seller and broker in the way of intentionally lying about the events on the property. If “psychologically impacted events” are of interest to you when purchasing a home be sure to discuss this with your attorney or buyers agent and ask your seller or seller’s agent.

A Few Facts About Probating an Estate

If you own property in your own name at the time of your death, that property can only be passed to your heirs through the probate process. Property that is held jointly, such as a joint bank or brokerage account, or real estate owned with another with rights of survivorship do not pass through the probate estate. Instead those assets belong to the surviving owner. Similarly, assets with beneficiaries, such as life insurance or a retirement account pass outside the probate process. But for those independently owned assets – you will need to go through the probate process. If that is the case, here are some important points to keep in mind:

• If you have executed a valid Last Will & Testament your property will be distributed precisely as set forth in the document, and your chosen Executor will Petition the Court to be appointed as the representative of your estate.  If you do not have a Will, then an interested person will need to file to be the Administrator of your estate.
• Once the Petition and the related documents are filed the Court will issue a citation that will have to be sent to the interested parties and published in a local newspaper. This notification will provide a date by which objections must be filed, if none then the petitioning party will be appointed. This will give the representative the full and complete right to control the estate assets.
• The first major duty of the personal representative will be to file an Inventory with the Probate Court.
This will set the value of the estate and be what the final accounting will be based upon.
• It is very important to remember that the probate process will take at least one year from the date of death, and many estates take much longer. Creditors have one year within which to file claims against the estate.
Federal and State estate taxes must be filed within 9 months of the date of death, although an extension can be granted. While this must be remembered, it also is a fact that most estates do not have sufficient assets to result in the payment of estate taxes.
Distributions can be made by the legal representative as soon as he or she is appointed – but if the representative wants to make early distributions he or she also has to be very careful to make sure that enough assets are kept in the estate to pay all debts and expenses. The representative does not want to be in the position of trying to get assets back – if it is even possible.
• The estate will close out with the approval of the final account which will include all of the assets and disbursements.

Don’t Be Afraid of a Short Sale

Home values remain low and there are many, many homeowners that owe more than their house is worth. With unemployment still at record levels (although perhaps improving some) many owners are not able to make their monthly mortgage payment. Foreclosure suddenly is something that must be considered. However, before things get to far down the road it probably makes sense to consider the possibility of a short sale.

What is a short sale? Very simply it is an agreement by the lender to accept less than is owed on the outstanding mortgage to allow the house to be sold to a third party. While nobody wants to sell “short”’ it is often the best alternative if you find yourself too far behind on your obligations. Why would a lender accept less than what is owed?  Ultimately it is all about the money and lenders will prefer a Short Sale if it limits their loss (as compared to taking ownership of the property through a foreclosure). For this reason a lender may even delay a pending foreclosure to facilitate a Short Sale.

Before deciding to move forward on a short sale you should discuss the pros and cons in detail with an expert real estate attorney. To assist in those discussions you should consider the following:

Benefits of a Short Sale:

• You can avoid a foreclosure. Very simply a short sale is better for you (and probably the lender also) than a foreclosure. You control the sale and can generate the maximum offer. You may not be getting a profit, but you will lessen any deficiency that you could be obligated to pay.
• No more mortgage payments to make or owe. This will end the stress of missed payments and will start you on the road to getting your credit situation back in order.
• You will likely be eligible, under current guidelines, to buy another home in 2 years instead of 5 to 7 years if your home is foreclosed.
• If your credit report does not reflect a 60-day+ late pay, you may be eligible to buy another home immediately. So, in an instance like this you may choose to get ahead of the curve.

Drawbacks to a Short Sale

• Waiting for the bank to respond to an offer is frustrating. Overall you have to understand that lenders are not concerned with your timing. They are going to proceed at their pace regardless – you may even lose a buyer – so this can become a very aggravating experience.
• You may end up owing money to the mortgage lender even after you sell your home. While you will avoid foreclosure, the mortgage lender may sue you for the balance of the mortgage. Often they will not do so, and some mortgage lenders will forgive the balance of the mortgage; but they are not under any legal obligation to let you off that easily.
• If the mortgage lender forgives the balance of your loan, you may owe taxes on the forgiven debt. One of the great benefits of bankruptcy is that debtors never pay taxes on the debt that is forgiven during bankruptcy. Please check with your tax adviser.
• The short sale could affect your credit report for up to 7 years – but here you have to think again that perhaps the alternative is less appealing.

Concerning credit issues – for many homeowners the chance to buy another home in two years makes the short sale an obvious choice once you find yourself upside down. Also, good credit behavior can begin to supplant bad credit in as little as two years.

The bottom line is that while we all want to make money when we sell our homes, in today’s economy that just is not always possible. A short sale may be the best choice for some. Do not make this decision without doing your homework and discussing with a qualified real estate attorney, but do consider this as an option if circumstances warrant.

IMPORTANT CHANGES IN HOMESTEAD LAW

One of the most important and simple steps that every homeowner should take when considering their overall asset protection plan is the recording of a Homestead Declaration to protect their primary residence.

Until now that has required the actual recording of a Homestead Declaration at the Registry of Deeds.  Doing so results in protecting your home from most creditors (up to a maximum value of $500,000.00 and potentially more if you are over the age of 62).  Important changes will take place in regard to this law as of March 16, 2011.

In considering these changes, it is first important to stress that Homestead Declarations created prior to March 16, 2011 will continue in full force and effect, in other words if you have a Homestead now you do not have to do anything.  However, the new law includes important changes concerning the creation and termination of a homestead, and the effect of homestead protections on mortgage transactions.

Perhaps the biggest change is that the recording of a Deed now creates an “automatic homestead exemption” in the amount of $125,000.00. So for the first time – even if you do nothing – you will still have protection on your home in the amount of $125,000.00.  This “automatic” homestead benefits the owner and the owner’s family members who occupy or intend to occupy the home as a principal residence.

Homeowners will retain the option of creating additional homestead protection in the amount of $500,000 which must be created by a separate written declaration.  Our recommendation is that all homeowners file this written declaration. All homeowners must sign this declaration, which is a new requirement.  Before only one owner signed the Homestead Declaration.

There are also new requirements for law firms like ours that close mortgage transactions. The closing attorney or settlement agent now must provide the borrower/buyer with notice of the right to declare homestead protection, receipt of which shall be acknowledged in writing by the borrower/buyer. The notice must include a summary of the differences between the automatic homestead protection and the enhanced benefits acquired by making a declaration of homestead. As we have always done, we will continue to offer the service of recording a Homestead Declaration on behalf of our borrowing and purchasing clients without charge except for the registry recording fee.

One other point to remember, while the recording of a homestead does protect against most creditors, it does not affect a mortgage, lien, or other encumbrance previously existing. Therefore, there is already a lien on record, a new filing now will not protect against that creditor. Also, as always, a homestead will be subordinate to a mortgage encumbering the home executed by all the owners of the home.

If you have any questions about the new homestead law please feel free to contact us at your convenience.

Medicaid Planning

Proper Medicaid Planning can serve to protect many of the hard earned assets that you have accumulated over the course of a lifetime. These are some things that you should consider:

Medicaid considers only certain items in determining eligibility for benefits, for example your residence is generally not considered a countable asset, and neither are household furnishings or most tangible personal property (such as jewelry, etc…)

A personal residence will often be considered a non-countable asset for Medicaid eligibility as long as you indicate during the application process that you intend to return to the home. You should always seek assistance during the application process.

Gifts of personal property (furnishings, televisions, home improvements, etc…) to friends and relatives may be allowable for purposes of becoming Medicaid eligible – but again consult an expert before taking any steps.

Medicaid does have the right to recover the funds it has paid for your care after your death by filing a claim on your probate estate. As such, if you have sufficient time you may want to consider a transfer of your residence to another family member while retaining a life estate.

If you are married, Medicaid will allow the healthy spouse to keep certain assets. The specific amount is often dependent on the particular circumstances, and can often be increased by appealing Medicaid’s initial decision.

You cannot simply transfer assets to your children or others to become eligible. Medicaid will look back five years from the time of your application. Mistakes in transfers during the five year period could result in an extended period of ineligibility – often time extending well beyond five years – there is no cap on the period of ineligibility. The particular period will depend upon the value of the transfer.

If you begin to plan early enough, and the circumstances are proper, you may be able to consider long term care insurance, reverse mortgages or annuities to preserve your assets

The earlier you begin to plan the more assets you are likely to preserve, however, even at the time of application there are some things that can be done to assist in preservation of assets.

Proper Medicaid planning also requires that you have other estate planning documents in place, particularly a will and the durable power of attorney (which is of particular importance should you become incapacitated during your nursing home stay).