Pride Month: A Great Time for Same-Sex Couples to Seal Their Wishes With Estate Planning

Proper estate planning is daunting but necessary for anyone who wants to ensure that their wishes for end-of-life care and the disposition of their assets are carried out. It could be even more critical for LGBTQIA+ families. While laws and attitudes continue to evolve, limitations still exist in some areas. Estate planning is one of them. With June being LGBTQIA+ Pride Month, it’s a perfect time for you to turn your attention to estate planning and prevent the creation of important estate planning documents from slipping through the cracks.

Unless you are married or have an estate plan, your assets and any decision-making regarding end-of- life care will likely revert to your family of origin. Love them or not, that is almost certainly not what you want to happen. If you have no estate plan, every state provides default rules about who might be responsible for your care if you are incapacitated or to determine who would receive your assets when you die.

Marriage Key to Health Care Decision-Making

Many things have changed since the 2015 Obergefell v. Hodges Supreme Court decision that legalized same-sex marriage. Even so, many same-sex couples choose not to marry or to legally formalize their relationships. It also is unlikely these couples have taken the time to create a Will, a Durable Financial Power of Attorney, and an Advanced Health Care Directive or Health Care Proxy. This can have negative consequences, both in decision-making for end-of-life care and asset transfer and inheritance tax issues. These omissions can cause a lot of problems for a surviving partner.

An Advanced Health Care Directive is an important component to every individual’s estate planning. It enables you to appoint an individual of your choosing to make important health care decisions if you are ill or incapacitated and cannot advocate for yourself. If a married couple does not have a Health Care Proxy, your physician will likely defer to your spouse to make decisions about your care. That is not always the case with unmarried same-sex couples. While this is not solely a same-sex issue, it tends to come up more with same-sex partners.

Marriage Influences Survivor Asset Transfer

There’s also a secondary monetary issue. You can title a house deed for joint tenancy with rights of survivorship, and you can name anyone to be your beneficiary on a life insurance policy and in both cases facilitate a seamless transition. But that is not the case with other holdings. Laws vary from state-to-state, and New Jersey, for example, has an inheritance tax. While the inheritance tax does not apply to assets that go to a spouse, it does apply to anyone who’s not your spouse. You could be with someone for 50 years and never be legally married or set up a civil union. This means that everything that your partner would inherit from you will be taxed as much as 16 percent. That can end up being a lot of money.

If you’re not married or have legally formalized your relationship as a civil union, there’s no getting around the inheritance tax. Imagine what happens when your surviving partner takes monies out of your 401(k). Getting taxed on your 401(k) withdrawals is standard. But if you and your partner are not married, an extra 15 percent or 16 percent in tax will be tacked onto the withdrawal. Even having a Will won’t circumvent the issue.

The good news is that same-sex couples who marry can enjoy the unlimited marital deduction for federal estate and gift taxes – a privilege many heterosexual married couples have enjoyed for decades. Gay and lesbian spouses who consummate their relationship through marriage can now generally leave an unlimited amount of assets to their surviving spouse without triggering a federal estate tax, providing both are U.S. citizens. A same-sex spouse can also now rollover assets from a deceased spouse’s retirement accounts to their account without a mandatory minimum distribution or lump-sum distribution. By revisiting their financial and estate plan, married same-sex couples can take take advantage of the marital deduction, rollover assets, and free up considerable liquidity.

Some Other Issues for Same-Sex Couples

Same-sex couples also have unique concerns when it comes to children, especially when only one partner is the biological parent – a common occurrence in same-sex marriages. Typically, when parents die, their assets are passed on to their children. If this is an estate planning goal for same-sex couples, it’s important to reach out to a family law attorney to discuss adoption.

One last item that occasionally arises in families. There’s sometimes a stigma attached to same-sex marriages that can also create problems even when Wills and other estate planning documents have been prepared. At the time of death, people start haggling over who’s in charge or who has rights – the same kind of thing that often happens with second marriages. Because such scenarios may find more fertile ground with same-sex or second marriages, it’s wise to have those important conversations about your end-of-life issues before and while you are preparing and/or reviewing your estate plan. Firmly stating your wishes during the planning stage, not when the family is in crisis mode, is the optimal time to raise your family’s awareness and encourage their understanding.

Get Your Ducks in a Row With Essential Estate Documents

Having a comprehensive plan in place can help you circumvent the complexities of estate planning. Review this list to become familiar with the estate planning documents you need:

At Phelan, Frantz, Ohlig & Wegbreit, LLC, we are always prepared to provide you with the estate planning guidance that is most appropriate for your specific situation. We are confident in our knowledge and ability to successfully navigate through any of the complexities involved.

Call us at (908) 232-2244 and be proactive in creating an estate plan that has your family’s best interests at heart.

AVERAGE AMERICANS TO THE UBER WEALTHY COULD PAY MORE ESTATE TAX TO UNCLE SAM

Proposed Estate Tax Reform Seeks to Cut the Stepped-Up Basis, Raise Tax Rate

A provision in President Joe Biden’s relief plan could cause average Americans along with the uber wealthy to pay more to the federal government when they die, which means your kids or other heirs may get less than they would under the current estate tax laws.

President Biden’s COVID-19 relief package, the American Families Plan, includes a proposal to change the way capital gains are taxed when people pass away. According to economic policy experts, the revision to a tax rule called the stepped-up basis has the potential of being a big revenue raiser for the plan. This, coupled with Biden’s proposed reduction in the federal estate tax exemption to $3.5 million likely will result in tax hikes for not only for the uber wealthy and the well-off but also for everyone who has something of value to pass along to heirs.

The proposed changes are not yet law, and there will surely be lots of Congressional haggling over the measures. But they’re out there and looming. Right now, it’s important for you to keep abreast of what’s going on in Washington and keep in touch with your accountant, financial planner, and estate attorney to make sure you get a handle on how estate tax reform will specifically impact your estate situation.

Inheritance With and Without the Stepped-Up Basis

The stepped-up basis is defined in IRS Tax Code 1014 which says the basis of an inherited asset rises to “the fair market value of the property at the date of the decedent’s death.” Inherited assets like your house or equities in your stock portfolio typically have gained in value since you purchased them. These capital gains are taxable, but the stepped-up basis wipes out the capital gains tax when heirs inherit an asset, which significantly reduces the tax liability when and if the inheritor eventually sells the asset.

For example, if the house you bought for $200,000 years ago has grown to a fair market value of $700,000, the $500,000 in capital gains would not be taxed when your son or daughter inherits it. Plus, if years later, they sell it for $950,000, their personal capital gains would be valued against the $700,000 fair market value of the house at the time they inherited it. The same would be true for stock. There would be no tax when your heirs inherit it and upon sale, the gains would be based on the difference between the market value at the time of your death and the time they sell it.

With the proposed Biden changes, the step-up basis would be eliminated, and your heirs would be taxed on the carryover basis of $200,000 either at the time of your death or at a future date when they sell the asset—and the taxation may be at a new, higher 39.6 percent rate (which is another part of President Biden’s proposal). The use of the carryover basis would be applicable on all assets transferred in the estate.

Then There’s the Gift Tax

Currently, the unified federal estate and gift tax exemption is at an historically high $11.7 million and integrates both the gift and estate taxes into one tax system. You can give as much as $15,000 to as many people as you want during the year without being subject to a gift tax. If any gift exceeds $15,000, you are required to submit a form to the IRS but not required to pay a tax until, if and when, you exceed the $11.7 million exemption. On December 31, 2025, that exemption, which was increased under the 2017 Tax Cuts and Jobs Act (TCJA), will sunset to the pre-TCJA level of $ 5.3 million per person. President Biden, however, has proposed that the estate and gift tax exemptions be decoupled and return to 2009 levels: $3.5 million for the estate tax exemption and $1 million for the gift tax exemption with an increased maximum estate tax rate of 45 percent up from the current flat 40 percent rate.

What You Should and Can Do Now

If you’re planning your estate now, reviewing your current plan, or expect to be the beneficiary of an inheritance, we recommend you consider these strategies to better arm yourself for potential changes Congress may make to the estate tax code.

  1. Gather Up all Your Records – If you’re not certain where you’ve put all these records, now is the time to find them, store them in a safe place, and send copies to your accountant and your estate attorney. One reason the current stepped up basis rule exists is that it can be difficult to keep track of an asset’s cost basis. In the case of real estate, for example, records of the kitchen renovation or the addition you built several years ago would favorably impact the carryover basis, making it higher. Similarly, if you reinvested dividends and interest in your stock portfolio, that too, would increase the carryover basis.
  2. Consider Making Charitable Donations or Establish Trusts – You can still donate an appreciated asset to a qualified charitable organization and receive a deduction on the full market value. Trusts will allow you to pass assets to heirs with as little tax as possible.
  3. Purchase an Insurance Policy – If you’re leaving an asset or assets that you anticipate will cause your heirs to face a big tax bill, consider including a life insurance policy as part of your estate. This will help your heirs pay the tax.
  4. Gift Prudently – You must seriously think about how you make large lifetime gifts. Even now, we advise clients who want to reduce their estate or get assets out of their names to gift liquid assets. Gifting liquid assets with no capital gains implications makes more sense than an asset like your house or your stock.
  5. Stay in Touch – Start talking or continue your dialogue with your tax advisors (e.g., your accountant, financial advisor, and your estate attorney). With potential estate tax reform on the horizon, staying connected with these professionals is more important than ever. Change can be daunting but being informed will enable you to be ahead of the curve and, therefore, more flexible and at the ready to make specific adjustments quickly.

At Phelan, Frantz, Ohlig & Wegbreit, LLC, we are knowledgeable of estate tax laws and issues and stay continually abreast of the ongoing changes in estate tax law—and are always available to provide you with the guidance you need for your unique situation.

Call us at (908) 232-2244 to ensure that you’ll be fully prepared for whatever estate tax reform Congress may send your way.

DON’T HAVE A HEALTH CARE PROXY? THE TIME TO DRAFT ONE IS NOW

During the Pandemic and in More Normal Times a Health Care Proxy Is Essential

COVID-19 has taught us many things. Wash hands. Wear masks. Stay socially distant. One item that doesn’t typically make the cut: Draft your health care proxy. In fact, it’s a serious omission.

Your health care proxy, or a durable power of attorney for health care, is the important legal document that gives another individual the legal power and responsibility to make medical decisions for you if you are incapacitated and cannot make decisions for yourself. That person, your health care proxy or health care power of attorney, advocates for you if you cannot advocate for yourself. Your proxy has access to your medical records, talks to your doctors and guides decision-making on care protocols. The goal is to make certain that the care you receive is in accordance with your pre-stated wishes.

Just listen to the news and hear the stories of serious illness and sudden death wrought by the pandemic. If there is ever a reason to have a health care proxy to face potential end-of-life issues, this is it. As important, though, it’s an essential document for every perfectly healthy over-18 adult during more “normal” times. If you haven’t yet visited your estate attorney to draft and execute this document, the time to do so is definitely now.

Draft Your Health Care Proxy Before a Crisis

Research shows that half of all people over 65 who are admitted to a hospital are unable to make health care decisions for themselves. Therefore, it’s a good idea to draft a health care proxy before a crisis and when you are healthy. This will ensure that your agent is prepared and that a trusted person will be available to interact with doctors to make sure your wishes are carried out. If not, you could end up with burdensome and potentially nonbeneficial therapies that could increase suffering for you and your family.  Unfortunately, research has also shown that this is too often the case, and a disconnect occurs between what a patient wants and what is actually carried out.

The health care proxy addresses many aspects of end-of-life care. In the case of terminal illness or a poor recovery prognosis, an individual may want only palliative care, symptom control and pain relief and may wish to decline other more aggressive measures. These aggressive medical measures may include CPR, mechanical ventilation and intubation, blood transfusions, a nasogastric feeding tube and dialysis to name a few. We recommend that you avoid being overly specific in your document, because it is difficult, if not impossible, to fully anticipate the nature of a medical crisis and the needs that may arise.

But Who to Choose?

This is not necessarily an easy decision. Your first thought may be to choose a member of your immediate family (e.g., your spouse, son or daughter), but that doesn’t have to be the case. Your proxy could be a friend, a more distant relative, or someone from your place of worship—the latter which might be a good choice if there are religious considerations attached to your wishes.

The important point is that your proxy really understands your wants regarding care. He or she must have the emotional conviction to carry them out, even if his or her wishes are different than your own. You must have confidence that your proxy’s emotional connection to you will not prevent him or her from advocating in accordance with your preferences, even if medical professionals and/or other family members think otherwise.

Your proxy’s willingness to speak up includes asking questions of doctors and other health care providers relative to your particular health situation. What’s more, persistence matters. Your proxy must probe fully to understand both the immediate medical situation and the subsequent treatment options.

Important Conversations: The Necessary First Step

Regardless of whom you choose, the important first step is having a serious conversation with your family about end-of-life issues. Once you can determine whom your proxy will be, you should engage that person in further conversations in which you address some medical issues that could conceivably come up. In that conversation, you must also articulate how you feel about those issues. For example, you might say things like: “I want to be at home near family and with private nursing care. I want to be comfortable, yet cognizant enough to recognize my loved ones. I want to be able to say my good-byes.” And one last point: You must ask the person you choose about their comfort level in assuming this responsibility. Even more, you must let that person know that it is okay to say no.

The Yin and Yang of Medical Advances

Today, the many innovations in research and technology have resulted in significant progress in the management of serious disease states and medical conditions and can both work for patients and against them. On the one hand, they have enabled medical professionals to diagnose and determine whether a condition is untreatable or irreversible and enable physicians to prolong life despite these determinations—but at what quality. On the other hand, the ability to diagnose terminal conditions, follow respective treatment protocols and determine how long a patient may live after receiving a terminal prognosis, enables individuals to determine the care they would want to receive under the circumstances.

With full understanding of all available options long before a medical crisis occurs, patients can make care choices, sometimes employing combinations of care alternatives. There is no one answer. There are no set formulas. And thinking about these matters, let alone having an appointed proxy act on them, is never comfortable nor easy. Nonetheless, appointing a health care proxy and executing the document that provides the proxy with legal authorizations to advocate is essential. At Phelan, Frantz, Ohlig & Weigbreit, LLC,we are here to give you guidance and to hold your hand through the process—even as early as the time of your first conversation with your family.

Call us at 908.232.2244 and let us help you address these issues sooner rather than later. While not for the faint of heart, they are important considerations for you and your loved ones.

USING A REVOCABLE TRUST TO PASS ON REAL ESTATE TO YOUR CHILDREN

Act Now to Prevent the Future Hassles of Out-of-State Probate

The concern is a common one: “I want to make it simple for my kids,” say aging parents of adult children. “I don’t want them to experience stress when the time comes to settle my estate.”

Estate attorneys have solutions to honor these wishes. These solutions are, in fact, quite simple to execute, provided they’re completed as part of your estate planning. Failing to attend to these matters during your lifetime may mean you are bequeathing not only an inheritance to your children, but also a probate nightmare, particularly if you own property in more than one state.

Jumping Through the Hoops of Probate in Several States

Many of our clients have a primary residence in New Jersey and own vacation homes or rental properties in other states such as Pennsylvania, Florida, or New York. If the goal is to pass these properties on to future generations in the simplest way possible, the focus should be on ways to avoid probate in more than one state.

States are possessive of real property located within their borders. Accordingly, the appointment of an executor in New Jersey is of little consequence outside of New Jersey. When it comes to the transfer of real property inside their state, individual states reserve the right to make their own determination as to who should be appointed pursuant to their state’s unique rules. And while New Jersey has a relatively straightforward probate process, other states do not. Going through probate in states like Florida and New York, for example, takes considerable time and money. Thus, effective estate planning that for individuals who own multiple properties often requires the implementation of a plan that helps families avoid having to institute probate actions in multiple states.

Transferring Property Into a Revocable Trust: Smart Estate Planning and Flexibility

There are various estate planning tools that can provide you with peace of mind knowing that your assets will be transferred seamlessly to your heirs. One such tool, a revocable trust, also known as a living trust, has multiple features that can benefit you during your lifetime and your heirs when it comes time to settle your estate. A revocable trust provides a prearranged mechanism that will ensure the continued management and preservation of your assets, should you become disabled. It can also set forth all of the dispositive provisions of your estate plan and detail how you want your assets to be disbursed. In addition, a trust protects your privacy and the privacy of your beneficiaries because unlike a Last Will and Testament, which is a publicly available document once probated, a trust is available only to the impacted beneficiaries.

Finally, transferring your various properties into a revocable trust will help your family avoid the nightmare of multiple probate actions and the corresponding costs of different lawyers in different states. Because you are the trustee of your living trust, you still have full authority with respect to how the property is used and managed during your lifetime and all income tax consequences are reported on your personal income tax return.

The creators or “grantors” of the trust, which can be either a single individual or a couple, can establish the terms that will dictate what happens to assets held in trust upon their death. To this end, successor trustees also are named by the trust, which ensures that the grantors’ designated agents have automatic authority to sell, transfer, and manage the property upon the grantors’ death without the need to seek court appointment. In short, when properties are owned or held by the trust, there is no need to probate a Will, whether the property is held in New Jersey or another state.

Further, revocable trusts offer a degree of flexibility. For instance, if you become incapacitated or ill during your lifetime, the successor trustee can step up to assist and run things, offering a seamless transition. In addition, other assets, such as bank or brokerage accounts, can be retitled into the trust. Many financial institutions prefer to manage assets held in this manner as it allows them to respond quicker in emergent situations and serve clients more nimbly than they would be able to if they had to wait for the production of a power of attorney or a court appointed guardian to provide instructions.

Additional Considerations for Rental Properties: Limited Liability Companies

We frequently counsel clients who have rental properties to place such property into a limited liability company (LLC). Property ownership, especially ownership of rental property, comes with the risk of liability from injuries that take place while on the property, leaving you and your assets vulnerable to claims and/or exposing you and your assets to the risk of lawsuits. If your property is held in an LLC, and it is the only asset in the LLC, your liability is limited to that property, and your other assets are shielded from judgment if the formality of the LLC is honored and assets are kept separate.

Holding properties in trust and an LLC are not mutually exclusive planning techniques. Instead, the property can be placed in an LLC for liability reasons and the revocable trust established for estate planning purposes can serve as the sole member of the LLC. In other words, the trustees hold the LLC and the LLC holds the property. Although the structure is akin to the Russian stacking dolls, it makes sense for a multitude of reasons.

In either case, the trust assets, in this case the property, can easily pass on to your heirs. The trust itself may also continue with the trust assets managed and payments continued to the trust’s beneficiaries. What’s more, if your heirs decide to sell the property, they can do so easily and earn and retain money for that sale.

Life Happens: Realtime Action to Prevent Future Hassles

It’s important to remember that taking action now will prevent issues from complicating your children’s lives in the future. At Phelan, Frantz, Ohlig & Wegbreit, we are here to help you pass your property on to your beneficiaries easily and cost-effectively.

Call us at  (908) 232-2244 to develop an estate plan that will give you the peace of mind you need today, knowing your heirs will be well-protected tomorrow.

MORE THAN DIVVYING UP YOUR ASSETS: YOUR ESTATE PLAN BECOMES A GIFT TO YOUR FAMILY

Lessons of Intention and Preparedness That Stick

COVID-19 has taught us many lessons, including the importance of being intentional, prepared and ready to confront uncontrollable situations. New Year’s resolutions tend to do that for us, too, because they get us started on a focused beginning as we ring in another year. Should you be wondering what to include among your resolutions, consider putting a review of your estate plan at the top of the list. If you haven’t already visited your attorney to create these documents, or review them, it’s definitely time to do so—and pend your estate plan for at least five years when it will be time to re-evaluate it.

More than divvying up your assets

We’ve all heard about the importance of having a Will, but there’s more to estate planning than how to divvy up your assets. A number of our other blogs address the importance of having a fundamental estate plan in place. Two less frequently talked about but related issues include protections for your college or travel-bound 18+-year-old child and the importance of storing your account passwords in an accessible location.

If you’re the parent of an 18-year-old who’s heading back to college, you’d be wise to have your young adult sign a durable power of attorney with healthcare proxy language before taking off. By signing these documents, your children are giving you permission to act on their behalf and be their important and immediate fallback should a health or financial emergency occur.

A helicopter parent…not

You don’t have to be a helicopter parent to orchestrate this. In fact, COVID has highlighted the need for these documents. We’ve heard of too many kids, now chronologically and essentially adults, who went off to school and got sick with COVID. Their parents had difficulty gaining information about the severity of their child’s illness or finding out where their kids had been moved to quarantine. Plus, there were too many unanswered questions about how the school would plan to keep them safe going forward.

The unknown is tortuous

There’s nothing more troubling than the unknown when it comes to your kids’ wellbeing. The Health Insurance Portability and Accountability Act (HIPPA) works as a great safeguard to your individual privacy because it prevents individuals beyond adult patients and their health care providers from sharing information. But as a parent, it could work against you when it’s time to protect your son or daughter if they’re facing a scary health emergency.

COVID, as well as other health emergencies, could require intercession for life-saving decision-making. Your child may have a high fever and be too sick to discuss a need for surgery. Also, the treating medical professionals may need to know that your youngster reacts allergically to certain medications. Even financially, your child could be quarantined someplace in the states or abroad and unavailable to perform time-controlled financial activities like signing a lease or talking to a creditor.

Sowing privacy oats versus clear communication

The reality is, however, that although you can drive your kid to your lawyer’s office, they must cooperate. At 18, your youngsters may be feeling their oats. They may not want you to know their business, even though these documents benefit them as they would any adult who grants a trusted other the power to act on their behalf when situations require. Clear communication with your child about when and how the documents would be used is critical. Helping them understand that having a healthcare proxy and a durable power of attorney in place are safeguards not encroachments. An experienced estate planning attorney can help explain the value of these documents to your new adult and likely will ask you to leave the room in order to ensure complete understanding and consent.

Where are your passwords

Where are your passwords

Another important aspect of an effective estate plan is password accessibility. If you’re like many of us, you may misplace or forget your passwords. Passwords are not one of the first things we think about when it comes to estate planning. But nine-times-out-of-10, they are the key to where important information is located.

It’s a good idea to store your passwords in a special folder or envelope that you turn over to your estate attorney. This will make it easy to put a finger on everything when the information is needed. Also be sure to include your passwords on a spreadsheet that catalogues all your important documents and their whereabouts [e.g., Will, Durable Power of Attorney, Trusts, Living Will and Advanced Healthcare Directive, house deed and mortgage documents, investment and 401(k) accounts]. Storing extra password copies in a safety deposit box that holds important documents is also an added protection, as is providing your attorney and your appointed fiduciaries an extra key to your safety deposit box.

In the end, a gift

A new year, especially this one, comes with hope for the future. A topic like your estate may seem dark, an intrusion to holiday spirit and a counterpoint to positivity. But there’s no escaping the importance of the preparedness that comes with having an estate plan. There’s no time like the present and the symbolism of the new year’s resolution to take action. If you think about estate planning as a gift you’re giving your family, you just may decide that there’s no better way to ring in the new year.

When you turn to Phelan, Frantz, Ohlig and Wegbreit, LLC, we will partner with you on every step of your estate planning process. Call us at 908.232.2244 to set up an appointment, begin a new year with intention and be prepared for wherever life takes you and your family.

Selling Your Home? Keep Your Eye On the Ball to Get From Contract to Closing

Selling your home is a major undertaking, and there are many tasks required to move from contract to closing. If you take your eye off the ball, a lot that’s preventable can go wrong. Heed these reminders to prevent your home sale from coming to a screeching halt.

It’s All in the Pricing: Make Decisions Logically, Not Emotionally

2020 has been an epic year for the suburban New Jersey real estate market as city dwellers flock to the suburbs, in large part because of COVID-19. The increase in prospective buyers led to bidding wars which in turn led to many houses selling for tens of thousands of dollars (sometimes more!) over the listing price. Higher than normal pricing worked for sellers if their buyers were purchasing without a mortgage but against them when buyers needed to borrow to complete the sale. Because comparable pre-Covid sales could not support the high selling price, in many cases a lender’s appraisal did not match the agreed upon purchase price. This puts the parties in a position of having to scuttle the deal or renegotiate the purchase price if a buyer cannot or is unwilling to pony up the extra cash or restructure the terms of their financing.

It’s important to remember that price is a reflection of market circumstances, past sale performance on comparable properties and what the current lending market will bear. You must temper the excitement of bidding war reality and bring your house to market at a fair and reasonable price. Pricing your home is one situation where following just your pocketbook can get you into trouble and leave you holding the bag on what you thought was a done deal.

Freeze Your Equity Line

Unlike a conventional mortgage, a home equity line is like a credit card that can be used by a homeowner to make purchases that have no relationship to the property. However, the line of credit is secured by the property and the bank that extends the credit has a lien on the property as a means of insuring they are paid back.

Although the proceeds of your sale can be used to pay off your home equity loan balance at closing, the title company and buyer’s attorney will require that the line has been blocked or frozen from future use well in advance of closing. This prevents a seller from making a last minute, high-price purchase which is not reflected in the payoff amount and prevents the release of the bank’s lien. It often takes banks weeks to issue formal confirmation that a home equity line has been frozen. And while your attorney may be able to obtain the payoff amount, she will not be able freeze your home equity line for you. To avoid closing delays, homeowners should request a “freeze letter” well in advance of closing.

Dig out the Paperwork: Poor Recordkeeping Could Get You Into Hot Water

Decreasing interest rates have caused many homeowners to refinance their mortgages, and you may be one of them. In any refinance or lender change, documentation is required at the conclusion of each loan to verify that the loan has been properly discharged. It’s wise to have these documents on hand to move your real estate deal forward. Left undone, a title search may reveal undischarged liens on your property and, once again, prevent your buyer from getting clear title. This is another potential obstacle that can be prevented by keeping records related to all refinancing and associated loan payoffs through your period of ownership.

Cover Your Bases: Get the Necessary Certificates From Your Town

Two key municipal certificates may be required to move your closing to final: the fire inspection certificate that confirms your fire alarm system, carbon monoxide warning system and fire extinguisher are functioning properly; and a certificate of occupancy. Failure to schedule inspections confirming that everything is up to speed can delay your closing. Your realtors typically will arrange these inspections, procure the documents and deliver them to your attorney in advance of closing. If, however, you’ve sold your house on your own, you will be responsible for arranging the inspections and getting the documents. No documents, no closing. So make sure these items are on your closing preparation checklist, and this includes reaching out to your realtor to make sure they’ve taken care of this detail as well.

The Past Can Haunt You: Disclosures and Permits are Necessary to Complete the Sale

happy couple with SOLD sign

Diligence leads to succesfull sale

If you’re like many homeowners, you’ve likely made improvements to your home during the time you lived there. Relatively minor renovations, like replacing flooring or countertops, can generally be done without obtaining a permit from your local municipality. But major projects like a new roof, an addition or other structural work, electrical or duct work, water heater or HVAC replacement may require a permit prior to getting started. The permit is more than a rubber stamp. The permit means that your town knows that the work is being done and inspected the work upon completion of the project to confirm it has been done to code. You should file an Open Public Records Act (OPRA) request with your town’s building department when you list your home to confirm that all permitted work has been properly closed. If your prospective buyers find an open permit first, it may be difficult for you to schedule the appropriate town inspections to get the permit closed before your scheduled closing.

Be Ready for the Final Walkthrough: Do What You Say

The final walkthrough is the inspection that takes place a day or two before closing. The walkthrough is designed to make sure that repairs negotiated in the original home inspection have been completed, that all major mechanical systems are still working properly, and that the items you committed to leaving for the buyer in the contract (e.g., refrigerator, washing machine, a wall-mounted TV, etc.) are still in the home. Your house must also be in the same condition it was when you signed the contract with the buyer and there can be no physical damage from the move.

During the final walkthrough the buyer makes certain that all repairs negotiated in the original home inspection have been completed. Typically, receipts or other documentation of completed remediations are turned over to your attorney following your receiving an inspection checklist and negotiation on the items that will be completed. Forgetting to actually complete an inspection item or shortcutting the solution by completing it sloppily can cause your buyer to put the brakes on closing. Failure or forgetfulness in doing what has been required in the home inspection can delay closing and how long the delay or whether the deal will be canceled will depend on the magnitude of the issues involved. Alternately, you may have to make a financial concession to the buyer which lessens your profit. Money may also be held in escrow until the appropriate remediations are made. But if you and the buyer can’t reach agreement, your closing stands the risk of delay. And because omissions such as these may interfere with the trust with which your buyer approaches the deal, you risk your sale being terminated.

It’s Not Over Till It’s Over

When it comes to selling your home, no truer words were ever spoken. If you want to get from contract to closing, you need to cover all your bases. Think reasonably. Be on top of every detail. Follow through on everything you say. It’s only then that you can be certain that you have done everything you could to ensure a successful sale experience and enjoy the freedom to move on to your new home.

At Phelan, Frantz, Ohlig & Wegbreit LLC, we understand that selling your home is a huge and important undertaking. We are here to guide you in your decision-making and ensure that you complete all the proper steps that lead to a successful sale.

Call us at 908.232.2244 and enjoy the seamless selling experience that will ready you for your next passage.

Enroute to Your New Home: You Could Be Headed for a Buyside Flop Without the Appropriate Due Diligence

It’s a crazy real estate market right now in large part thanks to COVID-19. In the tristate area, people have been flocking from the city looking for suburban surroundings in which to raise their families. Eager buyers have bid up prices as they vied to land that very special house they were determined to call home. It’s been an exciting, heady time, and for both buyers and sellers, there were many happy outcomes.

It’s always gratifying to see clients achieve what they set out to accomplish. Unfortunately, however, not all the stories have happy endings. Sometimes buyers get so set on a particular house that they’re willing to cut corners to have their offer accepted. But as human nature can sometimes show us, over-eagerness can cause even positive events to turn sour. In matters of the heart, that could lead to a bad marriage. And, in real estate, much like with love between partners, acting too quickly, can cause deals to go south.

There are standard precautions you should take in doing your due diligence on a new home that can prevent a deal breaker from turning up too late. We can’t guarantee that taking these precautions will prevent you from being disappointed if you uncover an undesirable issue that prompts you to withdraw your offer. But thoughtfully approaching what is likely to be one of the biggest purchases of your lifetime will save you from the risk of lost time, lost money and an abrupt end to your transaction that may have steep financial consequences and the lost opportunity to bid on something else.

Here are three instances when moving too quickly and without appropriate due diligence could cause your real estate deal to implode.

Decommissioned Oil Tank: Far From Buried Treasure

Back in the day, the trend was for homeowners to convert from expensive oil heat to gas. To do this, the practice was to decommission the oil tank – most often located underground – by pumping out the oil and filling it with sand.  Fifteen years ago, there was no reason to worry—or so it seemed.  In most instances, this practice was sanctioned by town inspectors and environmental regulators. We have since learned, however, that many of the decommissioned tanks had holes and had leaked before they were decommissioned. For this reason, industry standard today dictates that even properly decommissioned tanks be removed.

Particularly in and around Union County, it is recommended that every potential home purchaser conduct a scan for underground tanks during the inspection period. Discovery of a tank can derail a transaction, particularly if the parties were intent on a quick close. If the tank is pulled and found to have leaked, soil remediation must take place and the New Jersey Department of Environmental Protection must review the test removal, remediation, and test results in order to issue a No Further Action letter sanctioning the work that was done.

Anxious buyers might be tempted to take a credit for tank removal to allow the sale to go through. But underground oil tanks represent an unknown financial liability. Remediation is costly, and it’s difficult to predetermine the cost without testing. A small leak can cost $5,000.00 to $10,000.00—larger leaks tens of thousands of dollars.

Even worse, you could close on the property and move into a nightmare: discovery of an active spill that has reached the water table. What if traces of the oil get into your new next-door neighbor’s water? Contractors are telling you that you could be spending $120,000 or more to clean it up.

If you’ve set your sights on an older home that weathered the transition from oil to gas, it’s imperative to hire an independent environmental company to test the soil and the tank for leaks and corrosion. A written report certifying that the tank hasn’t leaked and tainted the soil is the only proof that can guarantee that the property has not been compromised by oil.

Waive the Appraisal Contingency: Pay a High Price for a Low Appraisal

Appraisal contingency is a mustThe appraisal contingency is very important when you’re financing your purchase, because lenders rely on the value of the home in determining how much money they will loan you. Buyers seeking to borrow 80% of the purchase price need the home to appraise at full value or else they face having to restructure their financing, pay private mortgage insurance, or find ways to come up with additional cash to close. That said, waiving the appraisal contingency has become a trend in a highly competitive market as a way to beat competing bids from other buyers. It is important that you fully understand what you are giving up if you intend to take this tack. Do you have funds to make up the out-of-pocket difference? Or, even if you have the money, would paying extra eat up your cash and/or savings?

Understanding the Importance of the Title Contingency and Title Insurance.

A title search will dig up all kinds of information—things like if there are any liens on the property or, believe it or not, that a third party has an interest in your home. A title search may reveal that the seller has failed to pay their income taxes for a period of time, leading the IRS to put a lien on their home. If the seller also has a mortgage, it may be that the proceeds from the sale are insufficient to cover the amount due on their mortgage and the amount owed to the IRS.

In another troublesome scenario, a title search could reveal that a distant relative, or an ex-spouse, actually has a claim to the home’s ownership. The third party can rightly say that the seller did not have permission to sell the house to you. If that happens, a judge could support the party’s claim.

Part of the title search includes paying for a survey of the property to make sure there are no encroachments (from neighboring fences or sheds) or easements on the property that interfere with its use.  Some buyers are reluctant to pay for a survey, feeling it is an unnecessary additional cost among the many expenses of buying a home. Reluctance to obtain a survey to save a few hundred dollars can have a tremendous impact, however, if these issues later are discovered.

The title search gives everyone a chance to eliminate trouble spots before proceeding with the sale—or to call the sale off, if anything too serious is uncovered. The title insurance policy purchased during the transaction provides future protection if these issues arise after closing. The important thing to remember about not cutting corners on the insurance is that you must purchase title insurance to protect you as well as your lender.

Long story short, it is not worth it to cut corners in purchasing a house, even if you believe it to be the home of your dreams. If you waive any of the above protections, and then find an issue that leads you to want to terminate, it can create a dispute with the seller about the legitimacy of your termination and may put your deposit at risk. Trust that there will always be another property if the first one doesn’t work out and protecting yourself is the best path forward.

At Phelan, Frantz, Ohlig and Wegbreit, LLC we want nothing more than for you to have a seamless closing and a purchase that gets you the house you want. But we also know that moving too quickly and without the proper due diligence can result in financial consequences, lost time and the huge disappointment of a transaction that could be abruptly terminated. While ultimately, decisions are yours, we want to remind you that contingencies, inspections, and title insurance are rights to which you’re entitled. Our guidance is always to exercise the due diligence activities appropriate for your transaction and circumstances. Because our goal remains constant: enabling you to purchase the home you want and being in the position to fully enjoy it.

Editor’s Note: This is the first in a two-part series that describes how home buyers and sellers sometimes fail to include important contingencies in their real estate contract and exercise the appropriate due diligence—and they end up with a deal that flops.

Call us at 908.232.2244 to schedule an appointment and turn your homebuying dreams into reality.

BE THE LIGHT, WESTFIELD!

At dusk on November 29th, the Sunday of Thanksgiving weekend, join your friends and neighbors in Westfield as we light up the night to fight hunger.

Each Luminary Kit sold represents more than $10 raised to fight hunger in Union County. All profits from this event will go to support programs fighting hunger in Union County including the The Westfield Food Pantry, St. Joseph’s Social Service Center, PCW’s Agape Local Food Boxes and Agape Community Kitchen, The Rotary Club’s Backpack Program and the Elizabeth Coalition to House the Homeless.

To learn more or to PURCHASE LUMINARY KITS go to:  bethelightwestfield.org

This event is sponsored by the Westfield United Fund, the Presbyterian Church of Westfield and the Rotary Club of Westfield.

Please help us line our streets the Sunday of Thanksgiving weekend with the light of hope burning within our community…Be the Light, Westfield!   

To Transfer or Not: Should You Deed Your House to Your Adult Children?

Thorough Research, Careful Evaluation and Attorney Consult Can Help You Decide

“Should aging parents transfer their home to their adult children?” You’ve probably heard others, perhaps even your friends, ask this question. This is a topic that also frequently makes the news.

The answer: There is no one “right” answer. No easy answer.

The best guidance is to diligently do your homework and consult your estate attorney. Research the pros and cons of a house transfer from a parent to an adult child. Then, determine how the implications of the transfer will apply to your particular family situation. It’s only then that you’ll be positioned to make a decision that works for you and your family.

Preserving assets: a top priority

The most important consideration is to preserve assets. A house is typically your largest asset, especially if your mortgage is fully or significantly paid off. It is, therefore, undesirable to put a drain on any of your assets while you are alive but in need of the long-term care that can bankrupt you financially or force you to sell your house. In these situations, people often wish to seek relief by turning to Medicaid, the joint federal and state program that helps people with limited income and few assets cover health care costs.

Puzzling over Medicaid and some misconceptions

People often think they are ineligible for Medicaid coverage of nursing home costs and doctor’s bills simply because they own property or have some money in the bank. They believe that getting their home out of their own name will enable them to receive the benefit more easily and often use it as a go-to strategy. The reality is, however, that the transfer of assets can have wide-ranging impacts which, in the end, can impact your ability to be considered eligible for Medicaid.  What’s required is understanding the rules and making a legal and financial plan, typically with legal and financial professions, to ensure they are met.

Medicaid eligibility requires that an individual’s combined assets be less than $2,000 in order to receive help with payment for care. In certain situations, your home is not considered a countable asset for Medicaid eligibility purposes, especially if you, your spouse, or a dependent relative continues to reside in the property.

Medicaid’s five-year lookback period is perhaps the largest factor that must be considered. Any gifts or uncompensated transfers that have been made in the five years immediately prior to the Medicaid application will result in a penalty period and delay eligibility for months, even permanently. Therefore, an ill-timed transfer could penalize an individual rather than enhance eligibility.

Still, there are circumstances in which it is legal to transfer a house, but these circumstances often come with a double-edged sword. You may freely transfer your home without incurring a transfer penalty to:

Adult daughter with elderly parents

That being said, Medicaid can put a lien on your house for the amount of money spent on your care. Similarly, if the house is sold while you are still alive, you will likely have to satisfy the lien by paying back the state. There is also an option called estate recovery which under certain conditions allows the government to recover the cost of your care from your estate.The appropriateness of a decision to transfer one’s home for Medicaid purposes is one with which many seniors and families struggle. More often than not, it’s a choice dependent on an individual’s unique circumstances and the real-time monetary values involved in a situation.

For example, a typical scenario which could favor moving the home out of a couples’ name may involve a 70-year-old couple, say, a healthy wife and a husband suffering with Alzheimer’s. The cost of the husband’s long-term care may be exorbitant and the wife will need money to live on herself.  And there is always the desire to leave a financial legacy of their hard-earned money for their kids and grandchildren.

Avoiding a hefty tax bill with a Will or Trust

Taxation is another reason you may give thought to transferring your home to your adult children. In lieu of simply handing over the deed to your son or daughter, there are other ways to transfer your home out of your name. The fact is that gifting your home can involve a hefty bill that taxes your son or daughter on the capital gains derived from your home’s increased market value.

Say you bought your home 50 years ago for $25,000, and now it’s worth half a million dollars. That $475,000 increase comes with a huge tax hit for your kids on the capital gains earned between the purchase price and the current market price. That tax could be avoided if they inherit the property after you die. In the latter scenario, your kids will receive what’s called a step-up basis equal to the value of the house at the time they inherited it rather than the value of the house at the time you purchased it.

Worrying needlessly

People are also skittish about probate and sometimes rush to judgement and transfer their home willy-nilly to their kids. In reality, in most states—New Jersey among them—probate is nothing to fear. In fact, most states even have simplified probate procedures for smaller estates. If you are really worried about probate, you can also establish a living or revocable trust to avoid probate—not estate taxation—but this may not really be necessary depending on the cost and complexity of probate in your estate.

Probate is quite expensive and time-consuming in only a few states, such as California and Florida. In those states, as well as in the situation in which you own homes in more than one state, you may want to work with your estate attorney to develop strategies for wealth transfer. In general, however, many individuals perceive probate as something much more daunting than it actually is.

Trusting your kids: a must

One of the most important considerations for you when reflecting on how to treat your home centers on the conversations you have with your children about your intentions regarding your assets. If your objective is to keep the house in the family, it’s essential that you trust that your adult children are aligned with that value especially while you are alive.

This goal is often compromised when adult children live out of state and feel increasingly detached from the home in which they were raised. They could also be facing their own, sometimes extreme, financial difficulties which could subject your home to liens and/or require your adult child to sell your house to satisfy his or her creditors.

Then, too, if your child divorces, your house could be considered an asset to be divided or dealt with as part of the property agreement with his or her former spouse. Finally, there are health situations in which a transfer could work to your adult child’s disadvantage. Your grandchild, for example, could become disabled and require Medicaid or other government benefits. The fact that your adult child owns your house could prevent your grandchild from qualifying for those benefits.

At Phelan, Frantz, Ohlig and Wegbreit, LLC, we are here to help you navigate these challenging conversations and decisions so that you can better evaluate your options and determine the best way to preserve your assets, among them your home. We will help you gain clarity around your unique family situation and will work tirelessly to guide you to effective strategies that will best serve your wishes and the future needs of your family.

Call us at 908.232.2244 to schedule an appointment and ensure that the legacy you leave to your loved ones fulfills your every intention and keeps the best interests of you and your family top of mind.

 

 

 

2 IMPORTANT DOCUMENTS PARENTS AND COLLEGE-BOUND KIDS NEED TO DISCUSS

Pragmatism versus privacy

It may seem like just yesterday that your son or daughter was breaking the bonds of home to go to preschool. Now, the kid on whom you’ve devoted so much time and care over the years, whom you’ve laughed and cried with through joys and sorrows, is heading off to college or even a gap year abroad.

Your kids are 18 now, or almost so. Chronologically, they are adults, and entitled to all the rights that come with adulthood. Privacy is among those rights. Believe it or not, even if you’re paying college tuition for your kids, claim them as dependents on your tax returns and insure them on your health insurance plans, you cannot intercede on issues concerning their health or finances without their permission.

healthcare proxy and durable power of attorney

You don’t have to be a helicopter parent to have them sign two important documents, a healthcare proxy (also called a healthcare power of attorney) and a durable power of attorney. By signing these documents, your children are giving you permission to act on their behalf when situations necessitate this. These documents allow you to be your kids’ important and immediate fallback in a health or financial emergency. Otherwise, you may face delays in gaining information or, in a worst-case scenario, be required to petition the court for conservatorship or guardianship.

Thanks to the Coronavirus (COVID-19) pandemic you may be looking at an early summer send- off for your college bound youngster, and we’re only now getting out of lockdown. Still, scheduling a trip to your attorney’s office is a priority. Having your young adult understand the importance of these documents and sign them is a must-have addition to your summer parental to-do list.

Not about spying

Your youngsters may be feeling empowered by their new independent status. You certainly respect that independence and want them to use that privilege wisely. The issue is not about your need to keep an eye on them. There’s an important distinction to be made between their desire to keep the events of their lives close to the vest and the necessity of them—like all adults—having responsible people to assist or take over in critical situations.

Your child’s medical records, for example, are like the medical records of all adults: protected by the Health Insurance Portability and Accountability Act (HIPAA), HIPPA states that health records are private between the adult patient and their health care provider. Without authorization, parents are not entitled to access their adult children’s records. In fact, under HIPAA, medical facilities (including college infirmaries) can withhold information about whether your child is admitted.

Sadly, situations requiring intercession in decision-making could be life threatening. All too often we hear of bad accidents or hospitalization from alcohol poisoning. Or, your youngster could have a ruptured appendix and be too sick to discuss a need for surgery. There could also be nonlethal issues. Your kids may have to head to the college infirmary, and the medical staff must contact you for history on your child’s allergies to certain medications.

Even financially, while studying abroad, your youngsters may be unavailable to perform time-controlled financial activities. You could be called upon to sign a summer apartment lease on their behalf or talk to one of their creditors. In fact, you’ll be able to conduct all financial business for your child when he or she signs this document—anything from writing checks, buying/selling or renting real estate, contacting creditors and making investments to contacting his or her insurance company, renewing his or her vehicle registration, or putting money in his or her bank account—even wiring funds to the American embassy where he or she is living.

Both the healthcare proxy and the durable power of attorney may kick in from the moment your child signs it, which is the preferable handling. Alternately, your adult child can specify that it be activated by a specific event, for instance, if he or she becomes incapacitated. The latter, called a springing power, however, requires that someone (typically a medical professional) must decide when an individual is actually unable to advocate for him- or herself. In life-threatening moments, determining incompetence can take added precious time when you can’t spare it.

Their willingness is all

As you might expect, you can take your rising freshman to your lawyer’s office, but at the end of day, he or she must be willing to sign the documents. At 18, your youngster may still think you are clueless—even more, that now on the brink of true adulthood, they don’t want Mom and Dad to know their business.

The mentality of “what happens at college, stays at college” is understandable and learning to manage crisis independently is an important part of the college or young-adult experience.  More importantly, your children have the right to maintain their privacy.  But the reality is that health issues arise, and financial matters often must be handled quickly. Having a healthcare proxy and/or a durable power of attorney in place are critical safeguards that benefit your adult children—just as they benefit any adult who grants another trusted person the power to act on his or her behalf when situations necessitate this.  As in any case, communication with your child about when and how the documents would be used by you is critical.

Alternate appointees for strained relationships

As a parent, you are the best person to be in charge of your child’s medical and legal matters. But sometimes parent-child relationships are strained. In these situations, you or your attorney can encourage your child to appoint another trusted adult like an aunt, uncle or older sibling. In these cases, it’s also a good idea to name an alternate. Your child’s first choice may be unable or unwilling to serve in this role at a given time.

The primary message to convey to kids is that it’s imperative to have a responsible person at the ready to act in their stead if and when time-sensitive health or financial issues arise.

At Phelan, Frantz, Ohlig and Wegbreit, LLC, we understand this is a delicate conversation for you to have with your children and know we can be of assistance. In these situations, because your children become our clients, we’ll discuss these issues with them privately. At a time when these young people are on the brink of being the most independent they’ve been in their lives thus far, we will counsel them. And as we do with all our clients, we will guide them to act in their best interests.

Call us at 908.232.2244 to schedule an appointment for your young adult and put these important documents in place.

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