Articles Posted in Real property

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san-francisco-210230_640-300x225I can usually tell when mortgage rates begin to drop because my phone starts ringing with former clients who are trying to refinance.  Often, their loan broker wants them to supply assurances that, if the living trust owns the house, the trust gives the Trustee the power to mortgage the property and use the house as collateral so that the lender’s interest is secure. (That’s a lawyer way of saying that the lender wants to be certain that, if the mortgage isn’t paid, they can take the house.)

Sometimes the lender wants a letter from an attorney certifying certain things are true about the trust — usually that it is revocable, that is valid under California law, and the Trustee has certain powers including the power to borrow. Often, they want this letter right away because it’s holding up the deal.

The issue underlying all of this paperwork is that some (but not all) lenders are uncomfortable because something other than the individuals applying for the loan owns the property (the trust). Here’s an article that explains this in more depth from SF Gate.

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42198970 - picture of beautiful village house with gardenMany of my clients come to me with a very Californian problem: they bought their home many years ago for a fraction of what that home is worth today. For example, their mid-century house near downtown cost them $125,000 in 1973 and could be sold for $3.2 million next weekend. While that’s an excellent problem to have in some ways, what it means for a person who needs to sell that home is that they are going to have to pay a lot of capital gains on that sale.

Capital gains taxes are levied upon the difference between what someone buys an asset for (called ‘basis’) and what they sell that asset for–the lower the basis, the higher the gain, and the higher the tax.  In 2016, the maximum for long-term federal capital gains taxes (for assets held longer than one year) is 23.8% for high income families. In California, you need to add another 10%-13.3% for capital gains , so roughly a 33% total tax is what you’d expect to pay for capital gains at both the state and federal level.

Each person is entitled to a $250,000 exclusion on capital gains taxes for the sale of their primary residence, so if a married couple sells, they’ll have $500,000 excluded from tax.  In many parts of the country, that means people can indeed sell their residence and pay no capital gains taxes. But not around here.

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house imageGovernor Brown has just signed into law a bill that, for the first time, allows people in California to transfer a home at death with a deed that names beneficiaries.

Transfer on Death Deeds are an inexpensive way to transfer real property without having to go through the time and expense of probate or establishing a revocable living trust. Such deeds have been available in many other states, but efforts to permit them in California have failed for nearly ten years.

Starting in January of 2016, and lasting until January 1, 2021 (unless extended), Revocable Transfer on Death deeds will now be legal in California. Just as you can designate a bank account or brokerage account as a “payable on death account,” a Revocable Transfer on Death Deed lets you name beneficiaries for real property. Upon your death, your beneficiaries become the property owners by filing an Affidavit, a death certificate, and notice of change of ownership. That’s it. No probate and no trust administration necessary.

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questionmarkThe Wall Street Journal recently published an article entitled, “The Trouble with Trustees” that outlined the issues that can come up between a trust beneficiary and a Trustee. The article focused on several themes that we’ve seen over the years:

  1. Frustration–a beneficiary is frustrated that they don’t have direct access to trust assets, even though a trust was established precisely to prevent that beneficiary from having direct access to trust assets.
  2. Poor communication – a beneficiary is angry because they don’t feel that they understand how trust assets are being invested or distributed or because a Trustee is not willing to disclose information about the details of a transaction.
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united-states-151582_150California is a big state, and it’s easy to get near-sighted. Because California has no state-specific gift or estate taxes, it’s easy to focus almost exclusively on the federal estate and gift tax exemptions when planning for the taxes due after there’s been a death.

But nineteen states and the District of Columbia levy their own state estate taxes or inheritance taxes, with widely varying exemptions and tax rates, and these taxes can come due, even to California residents–either because they own property located in another state, or because they inherit assets from a resident of a state with an inheritance tax.

If you, for example, own property in a state with an estate tax, like Minnesota, you might find an estate tax bill due as a result.  Estate taxes fall on the estate of the person who died; Minnesota currently exempts property worth up to $1.2 million, then levies a maximum estate tax rate of 16%. So, if your luxury duck blind is valued at more than $1.2 million,  your estate may owe tax on the transfer of that blind at your death.

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plane-50893_150Inevitably, in the summer months, I get phone calls from people who are about to take a trip somewhere, often within just a few days. Sometimes they have a Will or a trust that’s out of date; sometimes they have no estate planning documents at all; sometimes they have just finished getting divorced and are in a panic because they haven’t gotten around to updating their Will or trust.

Much as I try to help everyone who calls, sometimes (often) there’s just not enough time to update their documents before that plane takes off or the road trip starts. What to do?

Although none of the documents I’m about to suggest take the place of a well-drafted Will or trust, they can serve to get something in place before a trip, quickly and with minimal or no expense. Upon your return, you can come in and get the job done right — but at least you can take to the skies with some peace of mind.

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house.jpgLots of people own their homes as joint tenants. Usually, this is because when they bought their house the title company suggested that they hold title this way. Sometimes, two people who aren’t married buy propery together and hold it as joint tenants as well.

Joint tenancy, though ubiquitous, isn’t always the right way for two people to own property together and sometimes it can have really unfortunate consequences. If you are a married couple, holding property as joint tenants can result in unnecessary capital gains taxes if the property is sold after one person dies. If you are two unrelated parties, holding property as joint tenants may mean that the property won’t pass as you intended it to pass after your death.

What joint tenancy means, legally, is that both tenants own an undivided fifty percent of the property and that if one joint tenant dies, the surviving joint tenant owns the entire property by right of survivorship. This right of survivorship happens automatically by operation of law upon the death of the first joint tenant. No probate is required to transfer the property, which is why title companies encourage home owners to take title in this way.