A loved one dies and leaves behind a home and a mortgage.

A loved one dies and leaves behind a home and a mortgage.

A common question I get from clients in this situation is:  Will I have to qualify to assume the loan and keep the house?

The Garn-St. Germain Depository Institutions Act of 1982 allows relatives inheriting mortgaged homes to take over or assume their mortgage if you choose. Under this Act, you will not need to refinance mortgage or even assume it. Normally you or the representative of the estate would notify the mortgage lender that you are inheriting your relative’s home, will be living in it, and will be making the mortgage payments. When the estate or trust closes and is distributed the property would then be put into your name by way of a deed or if through probate, by a court order recorded with the County Recorder.

Keep in mind that you must continue to make the mortgage payments; otherwise, the lender can pursue foreclosure. Also property taxes and insurance must be paid and that the home may come with property liens attached to it. 

Further, prior to assuming the loan, if the house is “upside down” and it has conventional purchase money, non-recourse mortgage, then you or the estate representative could decide that it would be best to let the house go back to the bank.  In this situation you and the estate would not be personally liable for the debt nor would you be responsible for the deficiency amount that the bank did not receive in a foreclosure.

However, keep in mind that if there is an equity line of credit or some type of other debt lien against the house, that those debts might survive the foreclosure and the estate might be responsible for paying them.  Consult an attorney.

Also, on another note regarding the Garn-St. Germain Depository Institutions Act, an important consumer change that came along with the Act was to allow anyone to place real estate in their own trust without triggering the due-on-sale clause that allows lenders to foreclose on a current loan upon transfer to another.

This greatly facilitates the use of trusts to pass property to heirs and minors. The bill states "... a lender may not exercise its option pursuant to a due-on-sale clause upon ... a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property[.]” (The Garn St. Germain Depository Institutions Act of 1982, (U.S.C.) 1701j-3(d)(8)

For more information contact the Law Offices of Daniel H. Alexander, PLC, (800) 530-4529  www.dalexander.com

Thanks to Congress Self Employment Taxes Exceed 15% in 2013

The first payday of 2013 for most Americans won’t be as small as it could have been, but as those paydays come in the weeks ahead, make no mistake, those paychecks will be getting smaller. Every working American will see their take-home pay cut by the 2 percent increase in Social Security payments.

While Congress approved a deal not to raise income tax rates on Americans making under $400,000 (for couples $450,000), the agreement did not extend the employee payroll tax cut that has been law for the past two years or for the self employment tax.

Instead, every worker or self employed person will see the portion of their paychecks going toward Social Security go up 2 %, returning to the same percentage it was prior to 2011. A 2% increase doesn’t sound like much, but what they don’t tell you is the total self-employment tax (social security,  Medicare, Obama care, etc. ) is 15%.

For the self employed, had they been Incorporated (a Corporation) they could have avoided most of this tax (Corporations do not pay self employment taxes).

So if you want to reduce your taxes, gain liability protection, and look profession, call my office and discuss incorporating now. Visit us at www.dalexander.com
 
Law Offices of Daniel H. Alexander, PLC


Daniel H. Alexander, Attorney

Warren Buffet and others Propose a $2M Estate Tax exemption and a 45% rate

What you can leave to your heirs without paying federal estate tax is a burning tax questions Congress is deliberating on amid the approach of the fiscal cliff . Today a group of wealthy Americans put out a proposal that would set the estate tax exemption at $2 million per person, with a 45% teaser rate that would “rise on the largest fortunes,” according to Mike Lapham, director of Responsible Wealth, a project of the non-partisan, non-profit United for a Fair Economy, which is shopping the proposal on Capitol Hill today.

The proposal has some big name backers: Warren Buffett, former President Jimmy Carter, George Soros, Bill Gates Sr., John C. Bogle, founder of the Vanguard Group and Robert Rubin, former secretary of the Treasury. “A substantial estate tax along the lines of what’s being discussed here can provide revenue at a time when our federal government badly needs revenue,” said Rubin on a call to pitch the proposal to Congressional staffers and the press.

“We have the choice of taxing a small percentage of the wealthiest who certainly can afford it, or we can cut social programs for those who need them,” said Abigail Disney, a philanthropist and filmmaker and heir to the Disney fortune.

In 2012 (if you die in 2012) an individual can leave $5 million federal estate tax free, and the tax rate on assets above that exemption level is a flat 35%. If Congress does nothing, on 1/1/13 the exemption level reverts to $1 million per person with a top rate of 55%. President Barack Obama’s proposal is a $3.5 million per person exemption, with a flat 45% rate.

“We think Obama’s proposal leaves too much on the table,” says Lapham. If the estate tax law reverts to the $1 million exemption/55% rate that would bring in $536 billion over the next decade. By comparison, Obama’s proposal would bring in $256 billion less. “We’re trying to find somewhere in between,” Lapham says.

For more go to www.dalexander.com

Protect a Disabled Child with a Third Party Special Needs Trust

A third party special needs trust is either a trust set up with in a persons living trust or is set up as a separate stand alone trust.

The primary purpose of a third party special needs trust is to preserve government benefits for disabled beneficiaries.  Usually the benefits that are trying to be protected are from government programs that have eligibility requirements.  Receipt of an inheritance will disqualify the beneficiary for future government benefits.

For example, the typical programs that are based on financial need are Supplemental Security Income (SSI) and Medi-Cal, which is California’s Medicaid program.  Housing subsidies, also called the Section 8 program, In Home Support Services, food stamps, and utility payment assistance are also based on financial need.

Social Security and Medicare are not based on financial need, but are based on age and earning records.
For example, a couple has two adult children who are to receive their estate of $300,000 after they are gone.  One child is receiving SSI due to a disability.  Additionally that child has difficulties with money.  That child is also eligible for Medi-Cal benefits for his continuing medical problems.  If this child received his share of the inheritance out right he would be disqualified from SSI and Medi-Cal.  That child would then have to spend his inheritance to live and for medical care.  The child will have no assets left form the inheritance and have great difficulty in returning to the SSI and Medi-Cal programs.

Instead of leaving assets directly to the disabled adult child, the parents could establish a Third Party Special Needs Trust.  This trust would not be under the control of the child and therefore would not disqualify the child from the above government benefits.  Additionally the child would not be able to revoke it and use the assets on his own which would help in cases of children who have difficulty handling funds.  The trust would have an independent trustee (for example the other non-disabled child) and the trustee would manage the funds and pay out for the beneficiaries “special needs” for their lifetime.

A Third Party Special Needs Trust can own various assets, such as a house, that are used by the child, but due to the ownership by the trust, the assets are not counted as being owned by the child.  The trust could also pay for services required by the beneficiary, such as telephone, education, car repairs, etc., without affecting the beneficiary's eligibility for the government programs.

The above mentioned type of Third-Party Special Needs Trust has no obligation to notify the state or pay back Medi-Cal payments after the beneficiary's death because the Special Needs Trust was funded through the parents trust, a third party, and the beneficiary did not own the assets in their name.
For more information on Special Needs Trusts please contact Attorney Daniel H. Alexander and the Law Offices of Daniel H. Alexander, PLC http://www.dalexander.com/

create a tax-shelter that eliminates capital gains, recapture taxes, and give your heirs a nice tax break

Want to create a tax-shelter that eliminates capital gains, recapture taxes, and gives your heirs a nice tax break?

All you have to do is die.

You may not want to rush to take advantage of this extreme tax strategy but you should know that keeping your home until death, and in a living trust, has distinct advantages. At death, your estate avoids both capital gains and recapture taxes, and passes the home to your heirs at a fair-market stepped-up basis.

Unfortunately may people decide, without advice, to put their heirs on title with them as Joint Tenants.  The problem is the heir(s) take over at your tax basis and may have to pay capital gains and recapture taxes when selling the home.  Plus if the heirs have creditors they could then attach your home if they obtained a judgment against your heir(s).

The best advice it to get advice.  Find out more at www.dalexander.com

New California employment laws for 2012 affect your business’ day-to-day operations and policies.

New employment laws passed in 2011 could affect your California business’ day-to-day operations and company policies in 2012. Review the summaries of these new laws provided by CalChamber and how each of these California laws could affect your business by clicking on the link below:

http://www.calchamber.com/hr-california/white-papers/Documents/Final%201...

For example:

AB 22 prohibits employers and prospective employers, not including certain financial institutions, from obtaining and using consumer credit reports (credit information) about applicants or employees.

SB 459 provides new penalties of between $5,000 to $25,000 for the "willful misclassification" of independent contractors, defined as "avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor."

AB 469 requires employers to provide nonexempt employees, at the time of hire, a new notice that specifies, among other things, specific information regarding payment of wages. This legislation also increases penalties for wage violations.

AB 551 increases the maximum penalty from $50 to $200 per calendar day for each worker paid less than the determined prevailing wage and increases the minimum penalty from $10 to $40 per day for violations of prevailing wage obligations.

To keep updated be sure to follow me on Twitter: @dalexanderlaw or visit www.dalexander.com

Gift Planning: Plan Now to Give Later

Gift Planning is finding ways to make charitable gifts now or after your lifetime, many times while enjoying financial benefits for yourself.

Planned gifts are sometimes referred to as "stop-and-think" gifts because they require some planning and, often, help from your professional adviser, such as the Law Offices of Daniel H. Alexander, PLC. Unlike cash donations, they are typically made from assets in your estate rather than disposable income, and come to fruition upon your death.

The Law Offices of Daniel H. Alexander, PLC's featured charity this month is The Esplanade House. Visit them at: http://www.esplanadehousechico.com
 
The Esplanade House Children's Fund Mission Statement is: "To provide a safe, healthy and nurturing environment for homeless families while implementing a goal-oriented program designed to help homeless parents and children move from crisis to self-sufficiency."

The Esplanade House is a transitional supportive housing program for homeless families in Chico, California. They are celebrating 20 years of Service to Chico and I am helping them with fund raising and Gift Planning through Wills and/or Trusts. I am offering a free consultation to all that want to discuss Gift Planning through their Estate Plan.

The Esplanade House, Hope for the Next Generation documentary is scheduled to air on PBS and other local television stations. To view the documentary go to: http://www.youtube.com/watch?feature=player_embedded&v=jvAmX4girwE

To find out more to to  the Law Offices of Daniel H. Alexander, PLC's website at: www.dalexander.com