RJP Estate Planning

Alternatives to a Reverse Mortgage

If you’re 62 or older, you may be able to convert the equity in your home into cash with a reverse mortgage. This loan lets you borrow against the equity in your home to get a fixed monthly payment or line of credit. Repayment is deferred until you move out, sell the home, become delinquent on property taxes and/or insurance, the home falls into disrepair, or you pass away.

A recent Investopediaarticle, titled "5 Top Alternatives To A Reverse Mortgage," examines some of the top alternatives to reverse mortgages.

1. Refinance Your Existing Mortgage. If you have an existing home loan, you may be able to refinance your mortgage at a lower interest rate and lower your monthly payments to free up some cash.

2. A Home-Equity Loan. This is basically a second mortgage which allows you to borrow money against the equity in your home. The interest is typically tax deductible for loans up to $100,000.

3. A Home Equity Line of Credit. A home equity line of credit ("HELOC") lets you borrow up to an approved credit limit on an as-needed basis, and you pay interest only on the amount of money you actually withdraw. These are adjustable loans, so your monthly payment changes with the interest rates. Interest on a HELOC is usually tax deductible for loans up to $100,000.

4. Sell Your Home and Downsize. The original article also suggests that you think about selling your home to give you access to your home equity. This can be a great option if your current home is too big for your current needs or too difficult or costly to maintain.

5. Sell Your Home to Your Children. One way to do this is a sales-leaseback agreement, where you sell the house to your kids, then rent it back using the cash from the sale. Your children get rental income and will be able to take deductions for depreciation, real estate taxes and maintenance.

The original article says that reverse mortgages may be good for those who are “house-rich and cash-poor.” That is, people with home equity but too little retirement income. Before you decide on which option (if any) is right for you, you should definitely speak with an experienced estate planning attorney.

To get additional information on how to properly set up an estate plan for you and your family,
please visit our website at www.rjpestateplanning.com.

Reference: Investopedia (October 17, 2014) "5 Top Alternatives To A Reverse Mortgage"

A Real Life Case of When There's No Will

The legal dispute surrounding the roughly $200 million estate of the late Charlotte developer Henry Faison has been resolved, with his company winning forgiveness of more than $100 million in loans he’d extended to it. The assets were in dispute because Faison tried to update his will so that a large portion of his wealth would go to a charitable foundation rather than to his company, Faison Enterprises. Despite a trail of emails and memos outlining that intention, he didn’t sign the legal documents making it official before his sudden death in 2012 at 78.

In North Carolina, a written will isn’t valid unless it is handwritten by the decedent or is signed by that person and witnessed by two uninterested individuals.

In this recent court case filed by Faison's sons, Jay and Lane, they asked the court to force Henry's company to allow the assets, including $105 million in loans extended by Faison, to pass to his foundation. The dispute centers on Henry's June 2000 will, which left the residuary of his estate to Faison Enterprises.  

However, Henry changed his mind in summer 2012.

As The Charlotte Observerdetailed in a recent article titled "Settlement reached in lawsuit over late developer Henry Faison’s estate," Henry decided to leave most of his personal wealth to a charitable trust he planned to name after his dog, Skeebo. This change would avoid about $110 million in federal estate taxes and allow the foundation to support conservative causes, according to court papers. But Henry passed away right before he could sign the will or the documents creating the trust.

Faison Enterprises argues that the sons are proposing a type of “post-mortem tax and estate planning” prohibited by state law. The company’s lawyers said Henry repeatedly declined to sign a 2012 draft will—even though he had it for more than two months before he died. They said his 2000 will should be followed.

The original articlereported that the parties came to a settlement and that agreement was incorporated into an order from the Superior Court. The judge directed that the loans be distributed to Faison Enterprises, which means the company won’t have to repay them. He also required Jay and Lane Faison, co-executors of their father’s estate, to refund $1 million in interest the company paid on the loans and pay the company’s legal fees up to $2.5 million. The judge’s order also permitted Faison Enterprises the option to purchase certain properties owned by the estate.

After all legal fees, distributions and other expenses are satisfied, the remainder of the estate goes to the Skeebo trust.

This is a pretty straightforward situation that went sideways real fast because the decedent failed to make his intention known by signing a valid will and have his estate planning documents, such as a trust here, in order. You can avoid this type of prolonged and heated litigation by speaking with an experienced estate planning attorney. Get your business succession plan set and your personal asset distribution strategy defined to prevent your heirs and business associates from fighting in court after you're gone.

Reference: The Charlotte Observer (October 17, 2014) "Settlement reached in lawsuit over late developer Henry Faison’s estate"

End of the Year Planning Starts Now

As we approach the final months of 2014, it’s once again time to consider year-end tax, estate, and financial planning issues.

A recent article in the Physician's Money Digest, titled 10 Financial Planning Tips for Year-end," offers some helpful financial planning tips for the year-end.

Here are just a few of the items in the article that you should consider as the year comes to an end. If you have any questions, talk to an experienced estate planning attorney.

• Think      about adding to or opening a tax-advantaged 529 education plan for future      education expenses, which allows you to make five years’ worth of gifts in      one year.
• Make      your last-minute charitable donations, and maximize your itemized      deductions by donating property, or appreciated stock (i.e., contributions      are deductible if you itemize deductions).
• For      2014, you can make gifts up to $14,000 (per person) to as many people as      you want without any federal gift tax.

• If      you're over 70½, be sure you’ve taken your required minimum distribution,      including all of your IRAs in the calculation.
• Review      the beneficiary designations on your IRA’s, 401(k)s, and insurance      policies to confirm the correct info, and don't name your estate as a      beneficiary!

There are more tips in the article.  After you read the original article, review your own year-end options and ask your estate planning attorney to review your specific situation, too.

Reference: Physician's Money Digest (October 17, 2014) 10 Financial Planning Tips for Year-end

Why Do You Need a Will?

This article gives the example of a businessman who had named his son as the nominee in all his investments. Since the son was managing all the father's investments, it was convenient. But since the businessman passed away without making a will, now his daughter is finding it difficult to prove that she, too, has a right over her father's investments. In fact, in the case of the father's equity investments, the daughter may not get anything. The daughter has to get a judge involved, which is cumbersome and can get sticky.

One of the big reasons to make a will is to distribute the wealth as you want and avoid many of the headaches and expenses for your heirs, especially when you have immovable properties and disputes over their value. This caution is discussing in a recent article in The Business Standard titled "Why you should make a will." If there is no will and more than one legal heir, the distribution of assets is conducted by the court under probate law. This can be time-consuming and cumbersome.

Does the will need to be in a specific format?  

Generally it doesn't, but it must be properly signed and attested for it to be effective.

A will can be written in any language, but the words should be clear and unambiguous so that there's no question about the testator's intentions. The assets in the will should be detailed, as well as the recipient. The person executing the will should sign it, and it should be witnessed by two who saw the testator sign the will. The Business Standard reminds us to avoid a conflict of interest and not have a beneficiary or heir attest a will as a witness. Your estate planning attorney can help you with this.

Does a will need to be registered?

The registration of a will isn't required, but this does provide evidence that the proper steps have been taken.

What about an executor?

The testator appoints an executor to administer the will. It can be anyone he or she is comfortable with and trusts. It can be a family member, friend, attorney, or another individual. The executor is tasked with carrying out the instructions in the will for the distribution of the property and other assets.

For more answers to questions like these, take a look at the original article and speak to an experienced estate planning attorney.

To get additional information on how to properly set up an estate plan for you and your family,
please visit our website at www.rjpestateplanning.com.

Reference: The Business Standard (October 19, 2014)  "Why you should make a will"