Home/Property Ownership

Estate Planning for Rental Property Owners

In all parts of the country, services such as Airbnb have grown in popularity over the past few years. Indeed, these alternatives to hotel stays are popular among homeowners and vacationers alike. If you have a home or other rental property that is generating income, you should understand the following asset protection and estate planning considerations.

Protecting Owners from Liability

Just like any rental relationship, there is risk for the property owner. If anyone is hurt on the premises during their stay – no matter how short – a property owner could be held legally and financially liable for injuries suffered.

The first line of defense is general liability insurance – assuming there is proper and sufficient coverage on the property. In the case of a lawsuit the insurance company should step in and defend the claim up to the policy’s limits. Any damages beyond that may become a personal liability to the owner, depending upon how the property is titled.

If the property is owned by a limited liability company (LLC) instead of the individual(s), then the individual member(s) of the LLC may have some additional protection if the liability insurance coverage limits are not sufficient to cover the total amount of financial liability. It is important to note that in order to receive liability protection through the use of an LLC, the entity must be formed correctly and managed properly. If the entity is viewed as merely an “alter ego” of the member(s), the court may not uphold the liability protection, placing the property owner(s) back on the hook. To ensure that you have the most protection available, you need to consult with an attorney.

Estate Planning Considerations

Beyond liability in the event of an incident, deciding how an asset will be passed from generation to generation is an important part of estate planning. This is particularly true if such property is lucrative – like income-generating rental property. If the real estate is held in an LLC, you have options. You may choose to divide up the membership interest of the LLC among the multiple beneficiaries. With an income producing asset, such as a rental property, it is important to consider your family’s situation and your ultimate goals for the property.

Using an LLC is also helpful for estate planning because you can gift some of the membership interests during your lifetime without losing control, transfer it at the time of your death to the beneficiaries, or have it held by a trust for the benefit of the beneficiaries. Regardless of your personal situation or goals, there is a solution for everyone.

Determining whether or not to use an LLC for rental property is just one aspect of the overall estate planning process. We can guide you through your legal options and help ensure your property is protected and distributed at your death according to your wishes. Do not leave this to chance, contact us today to learn more.

Organizing for Tax (and Estate Planning) Season

It’s the start of a new year, which means tax season — and this year’s April 15th IRS filing deadline — is just around the corner. Soon you’ll be receiving tax forms such as your W-2 or 1099s, and you’ll start thinking about the life events that could affect your taxes in various ways.

This flurry of tax prep activity is the perfect opportunity to get your estate plan in order, too, and kill two birds with the proverbial stone.

Why? Because as you run down your list of “tax prep” questions, you will find that your answers could also impact your estate plan.

Some things to think about:

Did you get married or divorced? Did any of your children or grandchildren?
Did you welcome a child or grandchild into your family by birth or adoption?
Have any of your children or grandchildren reached the age of majority?
Have you dealt with illness or hospitalization? Have you incurred medical expenses?
Did you buy or sell a new property or any other major assets, like a vacation home?
Did you move to another state?
Did you buy, sell, open, or close a business?
Have you made any charitable donations?
Do you have any new life insurance or pension plans?

After you’ve answered these questions, get to work on gathering the corresponding paperwork. That might include deeds, policies, and contracts as well as bills and receipts. Having all of this information on hand can help you prepare your tax forms and whip your estate plan into shape.

Here’s how your tax-related changes can affect your estate planning.

If you already have an estate plan, your number one goal is to make sure everything still represents your wishes, taking into account the past year’s events. Maybe because of a change in circumstances, you need new or updated estate planning documents. Perhaps it’s time for an LLC and an update to your living trust now that you have a small business, or maybe you need to update beneficiaries because of births or deaths. Or, if you’ve had a change of heart about who should inherit from you, you also need to update your plan.

If you don’t have an estate plan, having this information at your fingertips sets you up for a productive conversation with your estate planning attorney. After reviewing your legacy goals, your lawyer can draw up key documents, such as:

A will. Among other things, this document can ensure that your wishes — and not the laws of the state — determine how to distribute your estate.
A revocable living trust. In addition to, or as an alternative to a will, you can establish a living trust, which allows your estate to bypass the potentially long and costly probate process upon your death, gives you extra privacy, and helps to avoid the potentially costly guardianship or conservatorship court process (sometimes called “living probate”) if you become incapacitated.
A living will. This document expresses your desires regarding life-sustaining medical treatment, if you become incapable of communicating your wishes.
A durable power of attorney. This appoints someone to step in and take over your financial affairs if you are unable to do so, reducing the possibility of hard feelings among loved ones or the need for court intervention.

It’s a new year, and new possibilities are in the air. As long as you’re getting started on your taxes, take a few extra moments to get the ball rolling on your estate planning as well. By getting organized in this way, you’ll be well on your way to making 2021 an amazing year.

As Anne Burrell once observed, “Organizing ahead of time makes the work more enjoyable. Chefs cut up the onions and have the ingredients lined up ahead of time and have them ready to go. When everything is organized you can clean as you go and it makes everything so much easier and fun.”

Are you ready to develop a comprehensive estate plan designed to achieve your goals and protect your family? Contact us or call our offices today at 832.408.0505 to get started.

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The More You Know: Reverse Mortgages & Estate Planning

You have likely seen several advertisements for reverse mortgages if you have spent any time watching television or surfing on the internet. The concept and sell is a simple one: as long as you own and live in your home, you can supplement your retirement income with a loan that you do not need to pay off. The trade-off when it comes to a reverse mortgage is that you are using your home’s equity to receive that extra retirement income. Even if a reverse mortgage is right for your circumstances, entering into a reverse mortgage is something that should be understood fully before signing any paperwork.

Reverse Mortgages Explained

How they work: Most reverse mortgages are federally insured and have several requirements including: (1) at least one borrower is aged 62 or older; (2) the home must be the primary residence; (3) the borrower must have financial resources to keep up with the home (taxes, insurance, maintenance); and (4) the borrower must own the home outright or have a low enough “regular” mortgage.

Impact on your estate plan: If you plan on leaving your home to your heirs, understand that a reverse mortgage will reduce the value they receive. Depending on when you pass away and how long the reverse mortgage was in place, your home’s equity may have been exhausted meaning that there is nothing of value to leave your heirs. In that case, your heirs may need to pay off or refinance the mortgage to keep the house.

Retirement income: The positive trade-off of a reverse mortgage is that you will have an additional source of retirement income, which can be received in several different ways including: (1) an upfront lump-sum, (2) a monthly payout, or (3) a line of credit. Each scenario has its own tax, borrowing costs, and home value implications. If you’re considering a reverse mortgage, talk to your financial advisor and estate planning attorney first, to make sure you select the best payout option for your circumstances.

Buyer beware: It is important to make sure you avoid scams that are pretending to be legitimate reverse mortgages. One way to help avoid being tricked is to make sure you work with a reputable provider. You should also make sure that a reverse mortgage is a good fit for your financial needs before signing any documents. Finally, consider the estate planning impact entering into a reverse mortgage may have on your intended wishes once you are gone.

The Implications of Reverse Mortgages

There are several factors to take into consideration when you are contemplating a reverse mortgage. Specifically, the effect it will have on your estate plan, the type of retirement income you are trying to obtain, scams to watch out for, and anything unique to your circumstances. There are several questions you should address before deciding whether or not a reverse mortgage is right for you. These include:

Can the life insurance you have in place pay off your reverse mortgage?
Will your reverse mortgage exceed your home’s value when you pass away?
What will happen to others living in the home if you die without paying off the loan?

Seek Advice

In addition to shopping around to find a reverse mortgage lender with terms that are most favorable to you, you should also determine whether a reverse mortgage is right for you and your needs. We can help you learn more about the options available to you and your family when it comes to your applying for a reverse mortgage and the impact it will have on your estate plan.

Parental Warning: If You Own Your Property This Way, You May Accidentally Disinherit Your Own Children

Owning property as Joint Tenants with Right of Survivorship is easy, common, and often disastrous. Sadly, children – both minor and adult – are often disinherited.

While there are several forms of joint ownership, the one most people use (and the one considered in this discussion) is called “Joint Ownership with Right of Survivorship.” When one owner dies, the jointly owned asset automatically, by operation of law, transfers to the surviving owner.

Joint ownership is a very common way for married people to own their assets.
Joint ownership is also commonly used by aging parents and their adult children.

Joint Ownership Just Postpones Probate

In most cases, joint ownership merely postpones probate; it doesn’t totally avoid it. If the surviving owner does not add a new joint owner (or place the asset in trust) before she dies, the asset will have to go through probate before it can go to the heirs. Or, if the owners die at the same time, probate is required immediately.

Joint Ownership Can Cause You to Unintentionally Disinherit Your Beloved Children

Surprising to most parents, assets titled as “Joint Tenants with Right of Survivorship” are NOT controlled by their Will or Trust. In fact, if you are the first owner to die, you can’t control what happens to that asset.

If you add a spouse who is not the parent of all of your children as a joint owner, you will disinherit your children from a previous relationship.
If you add one child as a joint owner, you will disinherit your other children.

The transfer of ownership takes place immediately upon your death. Even if your Will or Trust directs that you want someone in particular to receive your share of a jointly owned asset, it will still go to the surviving owner. The surviving owner can then do whatever he or she wants with the entire asset.

Here’s an example:

After Robert died, Joan owned their vacation home outright. She remarried a few years later, and she added her new spouse’s name to the title. When Joan died, her children were shocked to learn that the new husband now owned the property, even though their father had always promised it would stay in the family and go to the three of them.

Other Risks of Joint Ownership

While it’s easy to add a co-owner’s name to a title, taking someone’s name off a title can be difficult. If the person does not agree, you could end up in court.
Your assets are exposed to the other owner’s debt and obligations. For example, if you add your adult son on the title of your home and he is successfully sued, you could be forced to sell your home.
There could be serious gift and/or income tax consequences.
If you add a minor as a joint owner, the only way to sell or refinance the asset is through a court guardianship.
If you need to sell or refinance and your co-owner is incapacitated and unable to conduct business, you’ll have to ask the court to appoint someone to sign for your co-owner (even if that co-owner is your spouse). Once the court gets involved, it usually stays involved to protect the incapacitated owner’s interest until the incapacity ends or the person dies.

Actions to Consider

To avoid both inconvenience and tragedy, call our office immediately to set up an appointment and have your asset ownership reviewed.
We will review your asset ownership and explain what will happen to your assets if you become disabled and when you die.
We will show you how to own your assets to best ensure your estate plan works, meaning it does what you think it’s going to do.

Joint ownership with a sibling, life partner, business partner, child, spouse, or anyone else, puts your assets and your children’s inheritance at risk. It may cause significant and unnecessary taxes and cause your estate plan to fail. To avoid both inconvenience and tragedy, you are invited to call our office right now.

3 Tips for Every New Homeowner

Congratulations on the purchase of your new home. Whether this is your first home or an upgrade/downsize, the purchasing of a home is a big event in your life. When these major life changes occur, it is important that you are properly prepared. Below are a few things for you to consider now that you finally have the keys to your new home!

Update Your Address

Now that you are in your new home, it is very important that you update your address with the appropriate entities. Your local United States Postal Office will have a form you can fill out. If you cannot make it into the post office, you can also update this information on their website. This will assist them in forwarding your mail to you.

To ensure that you don’t miss any important tax notices or refunds, you will also want to update this information with the Internal Revenue Service, using Form 8822, and your local state tax agency.

Make Sure Your House Title Coordinates With Your Estate Plan

While it is still fresh in your mind, reference your new deed to see how the property is titled. Then, you will want to reference your estate planning documents to make sure that your property has been titled properly to achieve your estate planning goals.

For example, if your previous plan had a specific provision distributing your old property, you will want to make sure that you update this provision since you no longer own the previous property. On the other hand, if this is your first home and your estate plan includes a trust to avoid probate, you will need to make sure that your home was titled in the name of the trust and not in your name individually.

Check Your Life Insurance Coverage and Beneficiary Designations

Unless you were fortunate enough to pay cash for your new home, chances are you now have a large monthly mortgage expense. In order to protect your loved ones, it is important that you check your life insurance coverage. Should you die before paying off the mortgage, it is a good idea that you have enough life insurance to meet that obligation should you have a surviving spouse or children that will likely continue to reside in the home. Even if they choose to not remain in the home, the life insurance can provide valuable assets during what is usually an emotionally difficult time.

This is also a great opportunity to double check your beneficiary designations. Life changes happen so quickly that sometimes this can be overlooked. If your designations do not match up with the rest of your estate plan, you may end up inadvertently disinheriting a family member or having the money fall directly into the hands of an individual without any guidance.

Lastly, now that you have a home and homeowner’s insurance, call your insurance agent to make sure that you are getting all of the discounts that you are entitled to. Many insurance companies will offer discounts when you bundle services. If you already have car insurance through a carrier and use the same company for your homeowner’s insurance, you may be entitled to a better rate that if you had both policies separately. In addition, homeowners often get discounts that renters don’t.

We’re Here to Help

Buying a new home is a big step and we are here to help. Give us a call and we can help make sure that your new purchase and estate planning are working together to carry out your goals.

One Call You Must Make After You Buy a Home (That You’ve Probably Forgotten)

During the home buying process, you worked with a lot of individuals: your realtor, the seller’s realtor, the title company, the loan officer, and the home inspector. Now that you have finalized the purchase of your house, there is one more expert you need to call: your estate planning attorney.

Aligning Your Ownership with Existing Estate Planning

First, your attorney can help you review the new documents associated with your home purchase in conjunction with your existing estate plan to ensure that everything aligns and works towards your overall estate planning objectives. If your existing estate plans include a trust that owns all of your assets, it is crucial that your new home is titled in the name of the trust and not in your name individually (or jointly if married).

General Review/Update of Your Estate Plan

Since you have engaged in a new life-changing event, now is the perfect time to review your existing plan. This is a great opportunity to make sure that the individuals you have appointed in the crucial roles of guardian, executor, agent, or trustee are still able to carry out those duties when the need arises. With the passage of time, these individuals may have moved away, died, or otherwise undergone a life change themselves that makes them a less than a desirable candidate to act on your behalf.

While you are reviewing your estate plans, it is also important that you review the dispositive language. Do you still want to have your assets divided the same way? Have the needs of your beneficiaries changed over the years? To ensure that you are protecting and providing for your beneficiaries, you need to make sure that the provisions are set up for the best-individualized protection.

Lastly, if the purchase of your new home is in a different state, you will definitely want to visit an estate planning attorney. By changing states, the documents you previously have prepared may not adequately protect you and your family. Each state has unique laws regarding trusts and estates, you will need to make sure that any documents you are currently relying on are enforceable in your new state. Unenforceable or not-optimized documents can be just as bad as having no estate planning documents at all.

Give us a call.

Buying a new home is a great new adventure. Give us a call so we can make sure that you are embarking on this new chapter in your life fully protected.

Joint Tenancy Pitfalls: The ‘Simple’ Fix That Can Leave Your Family Broke

There are many ways to own your assets. When you die, it is only natural that you want your family to share in the bounty of your hard work. As a way to simplify the transfer process and avoid probate, you may be tempted to add a child or other relative to the deed or bank account utilizing the ownership type of joint tenancy with right of survivorship (JTwROS). However, while this type of ownership delivers a lot of potential benefits, it may also be masking some dangerous pitfalls.

Under JTwROS, when one owner dies, the other owner(s) inherit the deceased owner’s share of the property proportionately. Its benefits are specific: ownership is transferred automatically without entering probate. Because the property is transferred outside of probate, it is possible to keep this inheritance out of the clutches of creditors of your estate. On the surface, this seems like a smart way to streamline the inheritance process, sidestep creditor baggage, and bureaucratic charges. But the risks may outweigh the benefits.

You May Pay the Price

One of the main problems with JTwROS is that when you enter into this kind of agreement, you open yourself up to additional liability. When you agree to a JTwROS, you put your assets on the hook for the other owners’ creditors, ex-spouses and flights of fancy.

Another problem with JTwROS, as it relates to real estate, is that there are now multiple owners of the property. You must now get the approval of the other owners if you would like to mortgage, refinance, transfer, or sell the property. It does not matter if you are the only one who is occupying the property or paying the expenses, by adding additional people as owners, you are giving away control.

With respect to any bank accounts, once you add an additional owner, that individual, as an owner, has the right to go to the bank and withdraw whatever money is in the account. The bank is merely going to make sure that the individual is listed on the account and will freely turn over your money to him or her. If a joint owner’s creditor serves the bank with a garnishment order, they can also seize the money in the account, even if the joint owner was only added to help avoid probate.

Disinheriting Loved Ones

While JTwROS can have some impacts on you, it can also disrupt your estate plans because instead of property getting handed down, it’s handed over. For example, if someone with children remarries and a new spouse is added to the deed as a joint tenant, that new spouse will inherit the property, not the kids or grandkids. Because there’s a new spouse involved, the new spouse’s family will then be the ones to inherit upon his or her death, leaving the whole ‘branch’ of the original family may be disinherited—and not always intentionally!

Questions? Give Us a Call

Although there are some advantages to a JTwROS, don’t let simplicity or speed be your only measures. Give us a call so we can discussing all of your options and tailor a solution that will best fit your needs.

Home/Property Ownership

Aligning Your Ownership with Existing Estate Planning

General Review/Update of Your Estate Plan

Give us a call.

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