It's Time For Gifting

If you have done any estate planning (or even if you have not, in which case you should be calling me without delay), lifetime gifting is an effective way to reduce the overall value of your estate, which could have the benefit of lower estate taxes due and/or asset protection in the context of MassHealth planning.  This year, any individual may make a gift of $14,000 per donee (and an unlimited number of donees) without any gift tax implications at all.  A married couple with joint assets, may therefore, make gifts of $28,000 to as many recipients as they choose without any gift tax consequences.  Lifetime gifting to children or grandchildren can be an effective way of reducing wealth and saving on estate taxes.  Of course, you have to be able to afford to make such gifts and still leave yourselves with sufficient assets to live on, but in families without conflict, the donees (usually the children) may set aside the gifts received in a separate account in their names in case of that "rainy day"
when Mom or Dad may run out of money and need financial assistance.  We have just over one week left in 2013, so if you are considering doing any lifetime gifting for estate planning purposes and have not done anything this year, you still have ten days left to take advantage of the gifting exclusion for 2013.  So go get out those checkbooks and start writing!

Professional Wills

Often, my estate planning clients are engaged in a professional practice of some sort, be it law, medicine, psychiatric care, accounting or the like, and many are sole or principal practitioners.  The customary documents most often do not provide any specific instructions for the winding up or disposition of the professional practice.  As such, in addition to the standard Will, Trust, Durable Power of Attorney and Health Care Proxy, it may be wise for such a client to execute a “Professional Will” addressing the winding up and disposition of the professional practice.  Some professions have regulations addressing file retention, client notification and other such matters, and it is important that a qualified person be in charge of seeing the process through in full compliance with all applicable matters.

A Professional Will differs from a personal Will, in that it is not a legal document, but rather a detailed set of instructions for an appointed “Professional Executor” to follow.  The Professional Executor (“PE”) generally would not be the person named as Personal Representative or Trustee of the other documents, but rather a professional colleague who understands the nature of the practice and the steps to be taken.

The PE should be empowered to do any or all of the following:

1.         Identify all of the clients to be contacted to inform them of the death or incapacity of the professional.  This may be done in person, by phone, or in writing, but should be done with proper sensitivity.

2.         Access all records relating to the practice, and as referred to below.

3.         Change voice mail message, website and any other internet-based sites relating to the professional.

4.         Notify any professional liability insurance carrier of the death or incapacity of the professional, and deal as needed with current or future coverage.

5.         Refer current client matters to other practitioners or to him/her self.

6.         Return files to clients, if they request that, or otherwise dispose of closed client files in a responsible manner (shredding, burning) to maintain confidentiality.

7.         Inform all professional organizations of the death or incapacity, and terminate memberships.

8.         Maintain all other files in compliance with any applicable laws, rule and regulations.

9.         Reconcile all financial records, pay liabilities and collect receivables.

A Professional Will should include:

1.         A list of all of the clients to be contacted to inform them of the death or incapacity of the professional, and a statement empowering the PE to contact those clients.

2.         A statement identifying where all current client files are kept.

3.         A statement identifying where all old files are kept.

4.         Identifying the location of all billing and financial records relating to the practice, including passwords if they are kept on a computer.

5.         A statement identifying the location of all databases of client names, addresses and phone numbers, with passwords if applicable.

6.         A list of all email addresses, websites, and other on-line resources used by the professional and passwords for all.

7.         Location of any keys required to unlock file cabinets or other storage facilities.

8.         Any specific information to be provided to clients.

9.         If applicable, the name and contact information for the professional liability insurance carrier, and any other professional organizations to which the decedent may belong.

10.       Arrangements, if any, for compensation to the PE for the work he or she does.

11.       Any additional instructions to the PE.

If you have already had an estate plan prepared, you may want to consider adding a Professional Will to the document set.  If you have no estate plan, now would be an excellent time to put one into place, and a Professional Will may be a part of such a plan.  It behooves you to leave proper information and instructions in the hands of a trusted person who is qualified to attend to the difficult task of winding up a professional practice in an appropriate manner.

Waiver of Subrogation Clauses

I have a client who owns several residential and commercial rental properties and I have prepared lease templates for him for his use.  These templates include a so-called "Waiver of Subrogation" clause, and the client asked me what this means.  As I was writing him a reply, it occurred to me that i might as well do a post here on this very topic.

To start, of course you have to understand what subrogation is in the insurance context.  It means that if there is an insurance claim paid out by your insurer to you for any reason, and it is then determined that another party is responsible, the insurance company would have the right to go after the negligent party for recovery of what it paid out. 

Most leases provide that both landlord and tenant must maintain insurance.  If there is a loss, then the party sustaining the loss would submit a claim for recovery under his/her policy.  If the claim is a covered claim, the insurer would pay that party under the policy regardless of who is responsible for the damage.  The subrogation waiver essentially provides that if there is a loss caused by the negligence of one party to a lease, the negligent party is will not be liable for the resulting damage to the extent that the damage is covered by applicable insurance proceeds.  It prevents either party from going after the other party, or its insurer, for recovery of a claim paid regardless of who is responsible, so long as the damage is covered by insurance. 

An example where a waiver of subrogation would come into play would be if a landlord's property was damaged.  The landlord would submit a claim and receive recovery under his/her policy if the loss is covered by the policy.  If it turns out the property was damaged by the tenant, then absent the waiver, the landlord's company would be required to pay the claim, but then it could seek to collect damages from the tenant.  With the waiver of subrogation, the landlord's insurer could not pay the claim and then try to collect reimbursement from the tenant; rather if the claim was covered, landlord would receive payment and the insurer would not be able to seek recovery from the tenant thereafter.

Generally, a waiver of subrogation clause in a lease is something that both parties would want to have, since it protects each against liability for damage they may cause which is covered by  insurance.

When Your Appraisal Comes In Low

First in a series of articles addressing mortgage lending challenges...

You find the house of your dreams.  You sign a purchase and sale agreement containing a mortgage contingency, which allows you to get out of the deal and get your deposit back if you are unable to secure a mortgage commitment by a certain date.  You apply for your mortgage with a lender who has no doubt told you "no problem" and may even already have given you a pre-approval letter.  You think the process is just a formality.  Well, beware, my friends, because in today's residential mortgage lending industry, there is no such thing as an easy process.  One of the pitfalls along the way could be the scourge of the low appraisal.  If the appraisal comes in lower than the purchase price, and you intended to borrow 80%, your loan amount will be reduced in order to maintain an 80% loan-to-value ratio, meaning you have to come up with more cash to close.  You may not have the extra cash, or you may have earmarked it for some other purpose.  Yet, your lender has issued a loan commitment letter (though for the lower amount), so the seller argues that the mortgage contingency is satisfied.  What are you to do?
This article http://www.nytimes.com/2013/09/15/realestate/when-appraisals-come-in-low.html?emc=edit_tnt_20130912&tntemail0=y&_r=0 in the New York Times talks about your options with the lender.  As a buyer's attorney, I would always try to include in the purchase and sale agreement some language requiring that the property appraise for no less than the purchase price.  I also include language stating that if the appraisal is lower than the purchase price, the seller has the option to reduce the sale price to the appraised value or some other amount mutually acceptable to the buyer, and if they are unable to come to terms, then buyer can terminate and recover the deposit.  Without this protective language, a buyer might find themselves in a squeeze. 

Estate Planning is Important!!

Well, it has certainly been a long time since I posted on this blog.  I have been posting on my business facebook page (https://www.facebook.com/pages/Law-Offices-of-Judith-R-Pike/118159531528358?ref=br_tf) and between that and all the things that life tosses ones way, this blog became relegated to the back burner.  But now I am going to try to revive it, and hope you will find the new posts as helpful as those which were posted in the past.

Today's topic is estate planning.  I came across a survey performed by Lexis Nexis in 2011, and wish to re-post some portions of the report here, because I think the points it makes are important.

Survey Finds Most Americans Recognize the Importance of a Will or Estate Planning, Yet Few Have Necessary Documents in Place

Results Show Less Than Forty Percent of Parents with Minor Children Have Wills

July 19, 2011 — NEW YORK - A new national survey commissioned on behalf of LexisNexis®, finds the majority of Americans (60 percent) believe that all adults should have a will or estate planning documents in place, yet only 44 percent report that they currently have any such documents. In stark contrast, more than one third (36 percent) of Americans with minor children do not believe that wills or estate plans are among the most important documents to have on hand. Rather, adults with minors in the household rank birth certificates (76 percent) and titles/deeds for property and vehicles (70 percent) as the most important. In addition, although the majority of parents with minors in the household (75 percent) understand that a court will decide who the children’s legal guardian becomes if there is no will at the time of both parents’ death, only 39 percent have any estate planning documents in place.

"The 2011 Wills & Estate Planning survey shows parents may not be taking the necessary steps to ensure their wishes for the care of their children and estate are followed in the event that both parents were to pass, for example due to an accident," said David Palmieri, vice president and managing director of Marketing and Consumer Solutions at LexisNexis. "Additional research indicates that many parents consider wills to be more appropriate for those with significant wealth and as a result, they risk leaving the fate of their children in the hands of the courts instead of being directed by an enforceable legal document."

Reasons given for not making a will or estate planning a priority vary widely. According to the survey, 37 percent of Americans cite a current focus on "essentials," such as paying bills and buying groceries, as the top reason they don’t have any estate planning documents. Other reasons cited by survey respondents include:

• Not necessary (18 percent)
• Too complicated to deal with right now (16 percent)
• Too expensive (14 percent)
• Belief that their spouse and/or children will automatically receive any assets that they have (13 percent)
• Too time consuming (6 percent)

 Other findings indicate that age and gender play a role in whether a person has a will or estate planning documents. For example, the majority of Americans report that they are most concerned about preserving their health (70 percent) and having enough money to retire (50 percent) as opposed to protecting their financial assets (43 percent), while women are more likely to be concerned about maintaining their weight (47 percent) than protecting their financial assets (44 percent).

Additionally, Americans 18-34 years old are more likely to report that they are most concerned about preserving their health (64 percent), having enough money to retire (52 percent) and maintaining their weight (51 percent) rather than protecting their financial assets (44 percent). Interestingly, one in five Americans 18-34 years old (22 percent) believe it is becoming less important to have wills because people are living longer, healthier lives.

There is no need for me to repeat any of the messages of the above article-- they speak for themselves.  Let me just say that everyone should have an estate plan, regardless of your age and stage of life.  Parents of minor children should provide for guardians and create trusts to manage assets until the children come to an age which is appropriate for them to inherit a potentially large sum.  Older folks should put their affairs in order as a true and huge gift to their surviving children upon death.  These are just two examples of classes of people who should do estate planning, but it applies to anyone and everyone with assets and opinions about where those assets should go upon death.  So delay no longer--- call me to get started on that estate plan you have been putting off for any number of years.  You will not be sorry.

 

What Homebuyers Want in 2012

Throughout my years of practicing real estate law, I have found so interesting the changes in trends as to what sorts of properties are desirable at different times.  The following is a reprint of an article written by Michele Lerner of bankrate.com that discusses what is important to homebuyers in 2012.  Interesting how the priorities have changed over time.

 What Homebuyers Want in 2012

Homebuyers in 2012 have some advantages over prospective buyers in other years: low interest rates and low home prices in most markets. Those advantages don't necessarily translate into confidence about a home purchase. Buyers want to be sure they are buying a home that will at least maintain its market value, if not appreciate over the coming years. In order to feel more certain about their choice of home, today's buyers desire a property that meets the three main factors that make a residence a good value: price, condition and location.

Roxanne Gennari, a sales associate with Coldwell Banker Residential Brokerage in Princeton Junction, N.J., says local real estate markets across the country vary in their strength. "Since no one knows when the market will truly level out and values will start to climb, buyers are trying to insulate themselves from buying an overvalued home," Gennari says. "Buyers are looking for the best deal they can get. In many cases, they only want to buy if they can get a house at a certain price."

Here are six important items on homebuyers' checklists in 2012.

Buyers want homes that maintain value

"The most important thing to most buyers is the financial stability of a neighborhood," says Leisa Frye, a Realtor with Better Homes and Gardens Real Estate Metro Brokers in Roswell, Ga. "Buyers want to make sure their home won't be worth less in the future, so while they are focused on getting a good deal, they are looking for some control over not losing value in the future. They want a discount on already low prices as an insurance against potential declining value."

In Massachusetts, Gary Rogers, broker/owner of Re/Max on the Charles in Waltham, Mass., says buyers don't always find the bargains they look for.  "Lots of buyers expect rock-bottom prices, but there are no steals out there," Rogers says. "Buyers are trying to get superlow prices, but sellers who are already pricing their home at market value are not accepting those kinds of offers."

Buyers want homes in move-in condition

 Ben Coleman, broker/owner of Century 21 Hartford Properties in San Francisco, says homebuyers looking for a bargain sometimes think they want a fixer-upper -- until they see one. "Some buyers may be willing to do a little bit of cosmetic work like replacing the carpet or having something painted, but most are looking for a home in ready-to-move-in condition," Coleman says. "The preference is for a maintenance-free home, although few homes are truly maintenance-free."

Gary Rogers says the desire for ready-to-move-in homes may be a side effect of home-and-garden television programming.  "People used to love 'This Old House' and think they wanted to do their own work, but now they watch shows on HGTV like 'House Hunters,' where everyone leans toward homes that are in turnkey condition," Rogers says.

"Buyers don't want to deal with contractors," says Leisa Frye.   "And they don't want a paint or carpet allowance. I tell my sellers to do everything before they even think about putting their home on the market." 

Homebuyers want homes in handy locations

While the real estate market has changed in myriad ways over the past decade, the mantra "location, location, location" has not. Location is tied closely to value, so buyers have become even more interested in purchasing in a desirable area.

"Location has become even more important recently than it used to be, with buyers wanting to be near the city or at least near some kind of public transportation," says Gary Rogers. "We're seeing empty nesters move into Boston while 20-something and 30-something buyers are moving just outside the city in order to afford to buy."

In San Francisco, Ben Coleman says living within walking distance to amenities and to public transportation is the No. 1 priority for most buyers.  "We talk about Walk Score all the time now, which tells you how close a particular home is to things like a coffee shop, a grocery store, and a bus or subway stop," Coleman says.

A functional home is what homebuyers want

The days of homebuyers going after the biggest, best house they can afford (and sometimes can't afford) are over.  "Buying a home used to be all about size and luxury, but now it's about buying a functional home; one that is satisfactory and just large enough," says Roxanne Gennari.  "Some people still want a big home, but those that have owned one often want something smaller and not some rambling home that's expensive to heat."

Gary Rogers  says homebuyers want smaller homes for several reasons. "It's partly a reflection of the recession, that people are being more careful and conservative," Rogers says. "They are concerned about the manageability of their home, property taxes and utility bills, and they want to be able to save money even after they buy a home."  Rogers says that while empty nesters are particularly eager to downsize, almost all buyers share the same sensibility about size.  "It used to be OK to be extravagant, to look for a home that had 2,500 or 3,000 square feet when they really only needed 1,800 square feet," says Rogers. "Times have changed."

Buyers want homes with open floor plans

Buyers in Georgia look for homes built in 2000 or later, mostly because the floor plans of 21st-century homes reflect the way people live today, says Leisa Frye.  She says buyers don't particularly want formal living rooms because they don't have formal furniture. A living room frequently is converted into a study or another family room.  "Everyone wants an open kitchen and family room, or at least a direct view from the family room into the kitchen, so that the family can be together even when someone is cooking," Frye says.

Buyers in the San Francisco area prefer a great room and an open floor plan, says Ben Coleman.  "A lot of older homes in this area weren't built to be open, and have small rooms and small closets," Coleman says. "Those homes that have been renovated or can easily be changed into a more open design are extremely desirable."  Coleman says natural light is important to buyers, especially in combination with open rooms.

Buyers want a first-floor bedroom

Whether it is a master suite or a guest room or even a flexible room that can be converted into a bedroom someday, many homebuyers look for a first-floor bedroom. This trend, predicted for a decade or longer, finally seems to be coming to fruition now that baby boomers are getting older.  "The baby boom generation wants a first-floor bedroom because they are forecasting that they will stay in their home longer," says Gary Rogers. "In addition, we're seeing more extended family members moving in together, especially since people are staying healthy longer and living longer."  Leisa Frye says homebuyers in her area prefer a guest suite on the main level rather than a master suite, unless they are elderly.  "Buyers in their 30s, 40s and 50s usually want the master bedroom upstairs, so they can be near their kids," says Frye. "If there are no health issues, they want to be upstairs, but they also want a bedroom and a full bath on the main level for their elderly parents and in-laws who live with them or even just visit."

Beware! You may be bound by an Unsigned Purchase and Sale Agreement

A recent decision in Massachusetts Superior Court has held that a series of emails between and buyer and seller containing all of the material terms of an offer to purchase, and indicating acceptance of those terms, was sufficient to create a binding contract between the parties, even though the actual purchase and sale agreement was not executed by the parties.  In reaching this finding, the court applied principles of the Uniform Electronic Transaction Act to the ancient statute of frauds law (which requires a contract for the transfer of real estate to be in writing), and concluded that the conduct of the parties in using email to negotiate the terms of the transaction constituted an agreement to conduct the transaction by electronic means.  Since the exchange of emails contained all of the material terms of the deal and the parties expressed an intention to be bound, the Court found that an enforceable contract existed despite the lack of an actual executed purchase and sale agreement.

This case follows a series of prior decisions in which Offers to Purchase have been held binding in cases where the terms are sufficiently complete and definite and the parties intended to be bound at the time.  Many parties erroneously believe that an Offer to Purchase, and now written email negotiations, are just a formality, or an expression of intent, and that a binding contract is created only upon the execution of a final written purchase and sale agreement.  This recent case adds yet another twist to the proposition that the parties may be bound even in the absence of a signed P&S if their email negotiations are comprehensive enough. 

So buyers and sellers beware:  if your Offer, and now your email negotiations, contain all of the material terms and evidence an intention to be bound, you may indeed be bound to such agreement even if you never reach the point of executing a purchase and sale agreement. The law appears to be catching up to the 21^st  century, and some very ancient principles are now being interpreted in the context of modern technology.