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) 530-4529www.dalexander.com

$1.5 million Jury Award in Motor Vehicle / Personal Injury case

Remember if you need professional and aggressive representation due to an injury, give the Law Offices of Daniel H. Alexander, PLC a call (800) 530-4529 - www.dalexander.com

On Feb. 18, 2011, plaintiff Gregory Hall, 43, a technical support troubleshooter for a cable television company, was driving south on a State Highway in a Dodge Neon when a northbound tractor-trailer truck filled with liquid propane and owned by J.P. Noonan Transportation turned left in front of him. Hall, whom police said was driving at or below the 50 mph speed limit, collided with the truck, which was driven by Brian Cannon. Police reported that Cannon had failed to yield right of way.

Hall sued J.P. Noonan for Cannon's motor vehicle negligence.

Cannon said that he never saw Hall's car. The vehicle in front of Hall was signaling a left turn, and the road had been widened at the intersection of Poland Spring Road to allow southbound vehicles to pass on the right, which Hall did.

Hall's lower leg was shattered in the collision, requiring at least three major surgeries to insert a pin through the bone segments, then to replace the pin when the leg failed to heal in a timely fashion. He also required extensive plastic surgery and skin grafts to repair significant soft-tissue damage to his shin area with tissue harvested from the back of his leg. He also required several other procedures to tend to skin grafts and cut away dead tissue.

While the plaintiff has been able to return to work, he still experiences chronic pain in the leg and has had many activities curtailed due to the injury.

The jury awarded $1.5 million broken down as follows:

$170,000 Personal Injury: Past Medical Cost

$14,000 Personal Injury: Past Lost Earnings Capability

$1,316,000 Personal Injury: pain & suffering

Making Home Affordable Program has been extended through 2013!

Many clients have asked me about the Making Home Affordable Program (Act) and its planned expiration at the end of 2012. FYI it has been extended through 2013!

In an effort to enable more struggling homeowners to take advantage of the Making Home Affordable Program, they have extended the application deadline of the program to December 31, 2013. They have also expanded the eligibility criteria for MHA to be able to offer assistance to more struggling homeowners.

So if you did not qualify before you may now qualify. Check them out at:www.makinghomeaffordable.gov

For more information stay tuned to www.dalexander.com

Daniel H. Alexander, Attorney at Law

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.

It is year-end and taxes are on everyone’s mind

It is year-end and taxes are on everyone’s mind. You may not be able to do much about the fiscal cliff, but you can fix your will and trust or just make a gift by year-end.

Procrastination is understandable, especially about death and taxes(you know what Thomas Jefferson said). Yet it’s still surprising most wealth people haven’t taken advantage of the incredibly favorable estate and gift tax law expiring at the end of 2012.

Congress enacted a $5 million exemption for both gift and estate taxes through 2012. It drops to only $1 million January 1, 2013. That’s a free pass to give away up to $5,000,000 without tax. If you are married, that’s up to $10,000,000 for a married couple with no tax.

Such an opportunity may never come again. Lifetime gifts of appreciating property can allow even more appreciation to escape estate tax. You can even impose conditions and controls so gifts aren’t squandered. Trusts, LLCs, and insurance (held in a trust) can increase the amount escaping tax yet allow you to retain control so beneficiaries don’t have unfettered access to the assets.

The estate tax remains a political game and the only certainty is that the rest of 2012 is a, Estate Planning bargain, and you don’t have to die to take advantage of it. Between now and December 31, 2012, every couple with $5M or more of assets should consider this before it’s too late.

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.

What will Congress do?

Estate Tax and “Fiscal Cliff” update – November 2012

Death and taxes may be life’s two great certainties. But thanks to the upcoming elections and the looming “fiscal cliff,” the relationship between the two is getting increasingly cloudy for affluent families—and making estate planning a challenge.

What we do know is this: if Congress doesn’t act by the end of the year, the exemption on the estate and gift tax for individuals will drop from $5.1 million to $1 million. (This is a tax on the transfer of assets between non-spouses. It’s known as the gift tax when the giver is alive and the estate tax, or “death tax,” after the giver passes away; both count toward the taxpayer’s lifetime exemption.)
The decline to $1 million would cause the number of estates owing estate tax to soar nearly 15 fold from this year to next, from an estimated 3,300 estates in 2012 to 52,500 in 2013, according to the independent Tax Policy Center. What’s more, the top tax rate would increase from 35 percent to 55 percent, and surviving spouses would no longer be allowed to claim any exemptions not used by the spouse who died. People are going to get walloped.

Many of my clients have estates worth between $1 million and $2 million, and while that may make them wealthier than the average American, many of them don’t feel rich at all. That’s partly because, to value an estate for tax purposes, the law adds up the total net worth of an individual or couple, including everything from real property, businesses, securities and life insurance to the baseball collection in the attic. Yes life insurance and IRA’s are included in this calculation. Under current law, the exemption is $5.1 million for an individual and $10.2 million for a couple, if you have a proper Trust, but if the law follows its current trajectory, some families could see their entire exemption eaten up by their home or business alone.

The estate and gift tax are one significant area where consumers could feel the effects of the fiscal cliff, the $600 billion mixture of tax hikes and automatic spending cuts that will go into effect on Jan. 1 if Congress doesn’t act before then to prevent it.

That leaves just a couple months for people with sizable estates to use up some of their exemptions now—and that’s not much time. Estate plans tend to be complex, involving various moving parts that usually require the help of attorneys, accountants and financial planners. While you might be able to file a complicated tax return by pulling an all-nighter with TurboTax, the same can’t be said for an effective estate plan.

Remember, the time spent designing the nature and structure of this most final of acts is well invested.

To find out more, go to the Law Offices of Daniel H. Alexander’s website atwww.dalexander.com or call us at (800) 530-4529 for a free consultation.

What Can We Expect for the Estate Tax in 2013?

What Can We Expect for the Estate Tax in 2013?

The answer currently is: WHO KNOWS? Another year has passed and the estate tax laws are still up in the air.

The current status of the estate tax, many people find it difficult to find peace of mind when it comes to thinking about transferring their hard earned assets to their loved ones when they are gone. Congress continues to postpone addressing the federal estate tax issue, and clients continue to be wary about making estate planning decisions.

In 2012, an Estate of a United States citizen can give away assets worth approximately $5,000,000 without their estate having to pay any federal estate tax. This amount is called a Federal Estate Tax Exemption. Unfortunately, these exemptions are scheduled to go down to $1,000,000 and the tax rate on Estates over the exemption amount will increase from 35% in 2012 to a 55%. Yes I said 55%!

Now is the time to act!

Regardless of the uncertainty that many people feel as a result of the current federal estate tax condition, if your estate is likely to be worth more than $1,000,000, now is the time to act.
What can be done you ask. Well, first pick up the phone and set up an appointment with my office and then we will discuss the following:

1) For a married couple we can at the very least draft a credit shelter trust (also known as an A-B Trust). An A-B Trust, or a similar trust with similar provisions, allows your Estate, if you are the first spouse to go, to fund the “B” trust with assets equal in value to the available federal estate tax exemption at your death.

All other assets you have will go into the “A” Trust and will be left to your spouse free of estate taxes. Your spouse (called the Surviving Spouse) will live on the “A” portion of the trust while they are alive (and also have access to the “B” trust if the “A” trust is diminished). Upon the Surviving Spouses death (now you are both gone), the “A” trust will then claim the second estate tax exemption and then the trust assets will be disbursed to your heirs or other beneficiaries.

2) What if your Estate is larger than both exemptions? (e.g. - if the exemption is $1,000,000, then with an A-B Trust your combined exemptions would be $2,000,000.) If your estate is larger than $2,000,000 you could set up an Irrevocable Life Insurance Trust (ILIT).

Then, if your ILIT purchases a life insurance policy, the life insurance proceeds will be distributed to the named beneficiary’s of the ILIT estate-tax free upon your death. In the contrary, if you have a life insurance policy outside of an ILIT, the proceeds will be part of your estate and subject to estate tax.

3) You could also give assets away. Currently, in 2012, an individual can give up to approximately $5,000,000 in assets away and avoid gift tax on the gift. However, keep in mind that this will reduce the amount of Estate Tax exemptions available to your Estate because if you gift more than $13,000 to any one individual in a year you have to report the gift and the IRS will then be keeping track of your gifts and will deduct those gifts from your Estate exemption when you are gone.

Protect a Disabled Child with a Third Party Special Needs Trust

A third party special needs trust is either a trust set up within 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 www.dalexander.com

A tax-shelter that eliminates capital gains, recapture taxes, and gives 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.

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

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. Unlike cash donations, they are typically made from assets in your estate rather than disposable income, and come to fruition upon your death.

Our 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. 

Bankruptcy Means Test

I am always asked questions about the bankruptcy means test, which is an objective standard of determining if a debtor qualifies for bankruptcy under Chapter 7. Old bankruptcy law often made it relatively easy for filers to meet the criteria since bankruptcy courts used considerable discretion in determining eligibility.

However, When Congress passed the Bankruptcy Protection Act of 2005 it took away the Courts ability to use considerable discretion in determining eligibility. As a result, most filers must now pass the bankruptcy means test to qualify for Chapter 7 bankruptcy. (Generally - The bankruptcy means test does not apply to disabled veterans that incurred debt while on active duty or while serving in homeland defense activities.)

The First Step to the Means Test

The first part the means test compares your average monthly income for the six months prior to filing for bankruptcy with the state's median family income. If your income is less than or equal to the state median income for a family of your size, then generally you can file for Chapter 7.

The income calculation should include the following sources:

• wages, salary, tips, bonuses, overtime, and commissions
• gross income from a business, profession, or a farm
• interest, dividends, royalties, pension and retirement income and annuity payments
• rental and real property income
• child support or spousal support
• unemployment compensation
• workers' compensation
• state disability payments

Income excluded from the calculation includes:

• Social Security retirement benefits and disability payments
• Tax refunds
• Supplemental Security Income
• Temporary Assistance for Needy Families

Second Step to The Means Test if you are over the Median Income

If you make more than their state's median income, it is necessary to complete the second part of the means test to determine eligibility. If after deducting all allowed expenses (actual and standardized expenses) your disposable income is enough to pay some portion of unsecured debt in a Chapter 13 repayment plan, then the debtor does not qualify for Chapter 7, unless there are special circumstances that you can prove to the court, which is generally a rare occurrence. Again the Bankruptcy Protection Act of 2005 took away the Courts ability to use considerable discretion.

Governor Brown signed into law AB 571

On September 1, 2011, Governor Brown signed into law AB 571, which significantly amends and streamlines Chapter 5 of the California Corporations Code governing dividends and distributions by corporations. The principal changes effected by AB 571 were to replace the rigid and antiquated balance sheet and liquidity tests contained in the existing statute with a simpler test, similar to that used in most other states, which permits a solvent corporation to make distributions to its shareholders so long as the value of the corporation’s assets would exceed its liabilities (and, if applicable, preferred stock preferences) after giving effect to the distribution. AB 571, which will become effective on January 1, 2102, was sponsored by the Corporations Committee of the Business Law Section of the State Bar of California and introduced in the California State Legislature by Assemblyman Curt Hagman.

Chapter 5 of the Corporations Code governs “distributions” by corporations and covers California corporations as well as, by virtue of Section 2115 of the Corporations Code, certain out of state corporations that have sufficient ties to California. The Corporations Code defines distributions to include dividends and share repurchases. Prior to the adoption of AB 571, Chapter 5 of the California Corporations Code required these corporations to satisfy a solvency test and one of two additional tests (namely, a retained earnings test or a two-pronged balance sheet and liquidity test) in order to make distributions to their shareholders. The general solvency test, which prohibits distributions that would render a corporation insolvent, remains unchanged by AB 571 and will continue to operate as an important protection for creditors against improper distributions. A corporation can satisfy the retained earnings test, which also remains unchanged under AB 571, if it has retained earnings prior to a distribution that equal or exceed the amount of the distribution. Because the retained earnings test necessarily requires a corporation to have retained earnings, a corporation with low or no past earnings history would likely be unable to satisfy the retained earnings test even if the value of its assets exceeds the amount of its liabilities. As a result, such a corporation would need to satisfy both prongs of the balance sheet and liquidity test of the existing statute in order to make distributions to shareholders.

Under the two-pronged balance sheet and liquidity test of the existing statute, a corporation is permitted to make a distribution only if, after giving effect to the distribution, the corporation’s total assets equal or exceed 125% of its total liabilities and the corporation’s current assets equal or exceed its current liabilities (or 125% of current liabilities if the corporation’s average earnings before interest and taxes for the two preceding fiscal years is less than its average interest expense during the same period). In making the balance sheet and liquidity calculations under the existing statute, certain assets and liabilities are excluded altogether, and, consistent with generally accepted accounting principles, assets are generally required to be valued at their historical carrying value (which is not necessarily reflective of the current fair market value of those assets). Corporations that are unable to satisfy both prongs of this balance sheet and liquidity test and that do not have accumulated retained earnings are prohibited from making distributions to their shareholders under the existing statute, even if the fair market value of their assets exceeds the amount of their liabilities. As a result, the rigid and formulaic two-pronged test contained in the existing statute prohibits many financially healthy corporations from making distributions to their shareholders. Corporations and legal practitioners alike have been frequently frustrated by the complexity and unnecessarily rigid restrictions that are imposed by this two-pronged test.

What can your business learn from Steve Jobs?

Steve Jobs, who died Wednesday after a long battle with cancer, is hailed as the person who saved Apple, who made it cool and who made ease of use essential to technology. These same features are now sought after in many business sectors. When the rest of the business world moves in a given direction, it is a safe bet that there is good reason for all professions to move in the same direction.

This month’s issue of Fast Company contains an article on what the late Steve Jobs can teach us, titled, appropriately enough, "What Steve Jobs Can Still Teach Us." It is no accident that the article appears in an issue devoted to design, and the importance of design in our modern economy. The issue quotes Sohrab Vossoughi, President of ZIBA Designs, saying “This is our moment. We have made every other factor of American business as efficient as possible. Now it’s about effectiveness. And this is where design comes in.”

Mr. Vossoughi spoke about all businesses when he referred to the efficiency of American business. Progress, however slow, seems to be happening. This article examines whether there is a role for design in the new normal. The author refers to Jobs 2.0, after return to Apple, as a “user-experience savant.” Here’s the full description:

"... the years away reportedly helped him begin ceding more responsibilities to others. He became less enamored of tech for tech's sake. He blossomed into a user-experience savant. A reporter who asked Jobs about the market research that went into the iPad was famously told, "None. It's not the consumers' job to know what they want." It's not that Jobs doesn't think like a consumer--he just thinks like one standing in the near future, not in the recent past. He is a focus group of one, the ideal Apple customer, two years out. As he told Inc. magazine in 1989, "You can't just ask customers what they want and then try to give that to them. By the time you get it built, they'll want something new."

Lawyers are notorious for not being “user friendly”. Is there a lawyer in private practice who could be described as a “user-experience savant” in the same manner Jobs is? I try to believe I am that lawyer, but it is impossible to be available, or “user friendly” at all times.

Is your business moving in this direction? Can you use technology to create an easily customized display showing real time spend versus a budget, or work progress versus plan design. Do we need to eliminate the impersonal email and use a collaborative space for planning and strategizing, and bundle it all in an easy to use, easy to understand package, that is catchy and cool?

Lets get together and strategize so your business, and you, are a success. A little business planning goes a long way!

How Long Can I Stay in My House if I Filed a Chapter 7 Bankruptcy?

Many times I am asked by potential bankruptcy clients: “How Long Can I Stay in My House if I Filed a Chapter 7 Bankruptcy?”

There is not an exact answer. As part of a Chapter 7 Bankruptcy, the automatic stay provision of the Bankruptcy Code protects the debtor that filed for bankruptcy, at least temporarily, regarding a foreclosure (i.e. it stops a foreclosure). Usually, shortly after filing for Ch 7 bankruptcy, the mortgage company will file a Motion for Relief from Stay in which they ask the Court to lift the automatic stay so that they can generally pursue a foreclosure.

In a Chapter 7 bankruptcy this motion is somewhat of a formality as most debtors generally do not have a defense to the motion and plan to surrender their home at some point. One thing you should be aware of is that the court can award costs and attorney fees to the mortgage company that filed the motion.

Once the motion granted and the stay ifs lifted, the mortgage company can start the foreclosure process again. Depending on where you live this process can take anywhere from a few weeks to a few months.

Although not something you should plan on; in many cases the mortgage company does not file a Motion for Relief from Stay as perhaps they do not want to spend the money to file the motion or they are not ready to foreclose. If the mortgage company does not file a Motion for Relief from Stay, the stay will remain in effect until your case is discharged and closed, which is generally around four months. At that point the stay would terminate and the mortgage company could start the foreclosure process since the discharge was issued.

Banks pursue judgments against former homeowners after foreclosure!

Banks are increasingly pursuing deficiency judgments against former homeowners who lost their homes in foreclosures.

In California, in most cases, when you purchase a home, the loan or loans are purchase money “non-recourse” loans, meaning that the bank will not be able to pursue the debtor if the house later goes into foreclosure. However, what most home owners do not understand that this generally only applies to a primary residence and only to purchase money loans.

So in the case where the home owner refinances, take a little money out to do home improvements, or tacks the “point” for the cost of the loan on to the new refinance, they are changing their “non-recourse loan” into a “recourse loan” which allows banks to pursue a deficiency judgments against former homeowner.

Most clients that I talk with in this situation tell me” “no one told me that my refinance changes my loan into a “recourse loan!”

Lenders may sue borrowers for mortgage debt that isn’t covered in a foreclosure sale in 41 states and the District of Columbia, creating a “foreclosure hangover” for former homeowners, the Wall Street Journal reports. Some banks told the newspaper they are most likely to pursue homeowners when they perceive them to be “strategic defaulters” who stopped paying their mortgages because of a decline in property values.

The newspaper profiled Joseph Reilly, an unemployed mortgage broker who lost his vacation home to foreclosure. The bank obtained a $192,000 deficiency judgment, and Reilly says “there’s not a snowball’s chance in hell” that he can pay it. He is considering filing for bankruptcy.

In this situation most people, like Mr. Reilly, will be able to gain protection through filing for bankruptcy.

To view the Wall Street Journal article go to:
http://online.wsj.com/article/SB10001424053111904060604576572532029526792.htm

Attorney discovers he has 75 children!

Attorney Ben Seisler picked up extra money while attending law school by donating to a sperm bank. He earned about $150 per donation, the Boston Globe reports. He apparently visited the sperm bank often.

In 2005, he used his donor number to register with an online tracking site called the Donor Sibling Registry. Seisler learned he had at least 75 children, the story says. And the 33-year-old lawyer expects the number to grow to between 120 to 140 children. He uses an Excel spreadsheet to keep track of them all.

Seisler is profiled in a Style network documentary that chronicled the issues, including the anger of the woman who became his wife. The program airs tonight. “What if they all come knocking?” she asks angrily on camera. “Did you think of the consequences that would come out of this?”

The quest is, does Mr. Seisler have his estate planning in order and at lease a paragraph stating something like: "I have intentionally, and not as a result of any mistake or inadvertence, omitted in this Will (or Trust) to provide for any other children and/or issue of mine, if any, however defined by law, presently living."

What did you do in College to raise money for tuition and books?

Size Matters, or does it?

People always ask “how much does someone need to be worth in order to make an Estate Plan worthwhile?”

I generally tell them the amount does not matter as the purpose of Estate Planning in general is to give the person peace of mind knowing that their affairs are in order and that their assets will transfer to their beneficiaries without Probate court and in the most efficient manner.

After all, without proper Powers of Attorney a person could become a “ward of the state” through a conservatorship should they become incapacitated. Also, without a trust in place, most estates will go through Probate. Probate in general takes about 12 to 18 months to finalize and costs between 5% and 10% of the gross estate. So a $100,000 estate could cost as much as $10,00 to probate.

Now the answer that “size does not matter” usually is hard for some to comprehend, so I guess the real answer for those that are concerned about size or numbers is: In California, an estate with over $20,000 in real property, or over $100,000 if it does not own real property, would need to go through Probate if they did not have a trust that controls the assets. The estate would the incur the Probate costs and the time delay.

Having a properly drafted and funded trust would avoid Probate, thereby saving the Probate costs and time.

Crummey Trusts

There are many non-tax benefits to making lifetime gifts to family membrs.

Keeping Control

If you are like most people, you may be reluctant to part with control over how your lifetime gifts will be used once transferred. Unfortunately, when you retain direct control over a gift, the value of the gift (and its appreciation) may be included in your estate for estate tax purposes upon your death. Worse yet, the gift may be taxable at the time of transfer as a future interest gift, rather than treated as a nontaxable present-interest gift.
To qualify as a nontaxable present-interest gift, the donee must be able to exercise complete and unrestricted control over the gift. Fortunately, there are exceptions to this general rule, such as custodial accounts for minors as I previously discussed. Another exception is the Crummey Trust, as created in the landmark case of Crummey v. Commissioner, 397 F2d 82 (9th Cir. 1968).

Although the Crummey case carved a very narrow exception to the general rule regarding the present-interest requirement for nontaxable gifts, the path is narrow that leads to safety. Therefore, it is essential for the success of your Crummey Trust that you follow all of the procedural requirements. Truly, the devil is in the details here.

Crummey Trust Requirements

First, you create an irrevocable trust agreement containing all of the strings you wish to attach to the future gifts to the trust. Second, you make lifetime gifts to the trustee on behalf of your trust beneficiary (or beneficiaries). Third, the trustee must provide written notice to the beneficiary (or their legal guardian, if the beneficiary is a minor) each time you make such a gift, giving the beneficiary a period of time (typically not less than 30 days) to exercise their right to withdraw all or part of the gifted amount.

If the beneficiary does not exercise this withdrawal right, then the gift lapses and the trustee administers the gift for the beneficiary according to the strings you attached. These strings may provide valuable protection for your gifts from divorces, lawsuits, bankruptcies and squandering. Conversely, if the beneficiary exercises this withdrawal right, then you may have gained a valuable insight into their current financial maturity level. In either case, you may wish to revise your estate plan accordingly.

These types of trusts usually involve Life Insurance and are commonly called an Irrevocable Life Insurance Trust or ILIT. I will discuss ILIT's more in detail in future posts.

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