Funding Your Trust

         When a Revocable Living Trust (Trust) is created, the Grantor/Settlor, i.e. the person creating the Trust, declares that certain property is going to be held by the Trust and managed by the Trustee .  In most cases, the person creating the Trust is both the Settlor and Trustee.  The process of putting property into the Trust is called “Funding” the Trust.  The purpose of Funding the Trust is to allow property management by a Trustee other than the Settlor i.e. after the Settlor dies.  The Trustee after the Settlor is called the Successor Trustee. 

 If the Trust is not funded, the Successor Trustee may be unable to manage the Trust without obtaining a court decree declaring the trust property belongs to the Trust.  This can be a complicated process and the outcome uncertain.  In addition, if the Trust is not properly Funded, there may be disputes over ownership of assets.  Therefore, if you have Trust, now is the time to make sure your Trust is Funded.   

         There are two parts to “Funding” the Trust.  First, the Trust needs to list the trust property and have language satisfying the requirement for a declaration that the property listed is to become Trust property as soon as the documents are executed.

         The second part is making sure your Trust has legal title to your assets.  For bank accounts, this means you need to notify the Bank or Brokerage that you have a Trust and put the account in the name of the Trust.  For real property, the Settlor must execute a Grant Deed/Trust Transfer Deed showing the real property transferred to the Trustee of the Trust.  After it is executed and notarized, it must be recorded at the county recorder’s office in the county where the real property is located.  It is particularly important to check your documents if you have sold or refinanced any real property because the lender may have required the real property to have been deeded back to you from the Trust prior to a sale or refinance.  If that was the case, you need to make sure the real property is again put in the Trust.  If you have personal property of substantial value which is not titled already i.e. a car or boat, you may want to consider doing an Assignment of Tangible Personal Property to the Trust.

         In conclusion, if you have a Trust, now is the time to review it.  Make sure that all of the assets you want in the Trust have been listed in the Trust.  Make sure that there is language declaring the assets are in the Trust.  Finally and most importantly, make sure there is recorded Grant Deed/Trust Transfer Deed for real property, Assignment of Personal Property for personal property and confirmation of bank/brokerage accounts are in the name of the Trust.    If you do not know whether your Trust is properly Funded, I see people for a free 30 minute consultation in my Walnut Creek and Brentwood offices.        

*THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING ESTATE PLANNING.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.   (925) 939-1680.           

© 2014 Joan Grimes

Should 401k and IRA Plans be Put in a Revocable Living Trust?

A common question people ask when they come in to do an Estate Plan is whether their retirement benefits i.e. the 401K, IRA or pension account should be in a Revocable Living Trust (“RLT”).  As you may recall, a RLT is a legal document created during your lifetime that allows you to leave your real and personal property to beneficiaries of your choice.  A RLT is very much like a Will with one BIG exception: there is no Probate with a RLT.   

The most common asset put into a RLT is real property.  By putting real estate into a RLT there is no probate and minimal time delay incurred in transferring assets to beneficiaries with a RLT because no court approval is required.     

The question is more complicated when it comes to having an estate plan that calls for the RLTs to be a beneficiary of retirement accounts.  The first question we ask is whether there is a strong estate planning reason to name a trust as a beneficiary, or is there a way to achieve the same planning goals without incurring the risks and complications of naming a trust?

Our first choice in drafting most estate plans will be for you to leave your retirement benefits i.e. your pension, 401K and IRA outright to your intended beneficiary.  In most cases, this will be your spouse.  However, what should you do if your spouse is not alive and you want to leave your benefits to minor children or to several beneficiaries?

If you want to leave retirement benefits to minor children or you want to leave to them to several people, these are compelling reasons why a RLT should be the beneficiary or a contingent beneficiary.   If you name a beneficiary who does not have capacity to receive the benefits i.e. a minor child, then a conservatorship will be established by the court at great expense to the minor child.

If you have retirement benefits and are considering making a RLT a beneficiary, you will need to check with your retirement benefit administrator regarding naming a RLT as your beneficiary.  Different companies have different rules.  Sometime they require an attorney drafted designation.  Also, it is critical that your beneficiary designation is correct and reflect your intentions.  Who you put on the designation is the person who gets the money.  They have no obligation to share with anyone else. 

If you are considering leaving retirement benefits in a RLT, the beneficiary of the trust must be a person or group of people.  You can’t use a trust to leave retirement benefits to a charity, your church or another trust or any other entity.  That is not to say that other assets of your trust cannot go to a charity or church or another entity, just not the retirement benefits. 

Today retirement benefits are very valuable.  Take the time to understand what your current estate plan for the benefits is and what other options are available to you and your family.   For most people, an Estate Plan including a RLT and all of the ancillary documents including a Power of Attorney and Healthcare Directive should not cost more than $2,000-2,500.  Most attorneys allow people to make payments over time for the work.  If you have separate property from a prior marriage,  business interests that need to be included or a taxable estate, it may be more, but then it is even more important that you properly plan for distribution of your assets in accordance with your wishes without the prying eyes of the public and court system. 

I see people every day for a FREE 30 minute consultation in Walnut Creek and Brentwood.

This article provides only general legal information, and not specific legal advice.  Information contained is not a substitute for a personal consultation with an attorney.  LAW OFFICE OF JOAN M. GRIMES, PHONE (925) 939-1680, 1600 S. MAIN STREET, SUITE 100, WALNUT CREEK, CA  94596;  191 SAND CREEK ROAD, SUITE 220, BRENTWOOD, CA  94513     © 2014 Joan Grimes 

Real Estate Basics - TV Interview

The Power of Chapter 13

       One of the most overlooked financial tools available to individuals including small business owners today is Chapter 13 of the Bankruptcy Code.  Unlike a Chapter 7 which can require liquidation of assets and has very strict eligibility requirements, a Chapter 13 has greater flexibility in eligibility and allows individuals to retain their assets while paying back something to their creditors from future income.  Some of the powers of a Chapter 13 Bankruptcy include:

1. Availability of Bankruptcy to High Income Debtors - A Chapter 13 allows individuals who would otherwise not be eligible for Chapter 7 bankruptcy to repay debts to the extent of their ability through a 3-5 year plan.  In most cases, Debtors repay between 5-10% of their unsecured debts.
2. Continuing Business Operation- Unlike a Chapter 7 where a trustee can close down a Debtor’s business, a Chapter 13 Debtor has the right to continue operation of the business and has the exclusive right to sell, lease or otherwise use the business assets, in the normal course of operation.
3. Chapter 13 Plan May Modify Secured Creditor Rights -  One of the great advantages of a Chapter 13 bankruptcy at this time is ability to strip a lien on your principal residence that does not attach to any equity.  Here is a common example:  Principal residence has current fair market value of $300,000.  The first mortgage has a balance of $400,000 and the second mortgage has a balance of $100,000.  Because the second mortgage does not attach to any equity in the property, the lien can be avoided or “stripped” in a Chapter 13 thereby removing the balance of $100,000 at the completion of the Chapter 13 case.  In addition, if you have other real property which is not your personal residence, you may reduce the secured claims to the current fair market value if you can pay the fair market value of the real property with the contract rate of interest over the terms of the Chapter 13 Plan which cannot exceed 5 years.  Where this makes most sense is on the small rental property.  On cars, the Debtor can reduce a loan balance to the fair market value except that a reduction is not allowed on cars used by the Debtor for his personal use if it was obtained within 910 days of the bankruptcy filing i.e. you need to have had the car loan for 910 days prior to bankruptcy filing. 
4. Curing a Default -  A Chapter 13 Plan can cure a default on a loan with no interest being paid in most cases.
5. Discharge greater than Chapter 7 -  A Chapter 13 discharge can encompass many other types of debts which cannot be discharge in a Chapter 7 including criminal matters and taxes.  However, the most frequently used provision is to eliminate debts to a spouse, former spouse or child incurred by the Debtor in the course of marriage dissolution or separation except to the extent those debts constitute “domestic support.”  What this means is that “hold harmless” provisions on real estate obligations and community property settlements obligations can be discharged.     

          The above are just some of the advantages of a Chapter 13 bankruptcy case.   While it may not be as quick and easy as a Chapter 7, it may provide the debt relief which cannot be obtained with a debt consolidation or repayment plan.  If you are considering a default on your home or other debts, I urge you to seek legal counsel as soon as possible to fully understand the consequences of the decision and the options available.  I see people for a free 30 minute consultation at  my offices located in Walnut Creek, Antioch and Brentwood.

WE ARE DEBT RELIEF AGENCY AND HELP PEOPLE FILE FOR BANKRUPTCY. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UP IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION. 

GRIMESBKLAW.COM  PHONE 925-323-7772   © 2011 Joan Grimes

You Can't Take It With You...Or Can You?

FIXTURES

When a person knows that a home is going to be lost in a foreclosure, it is very tempting to try and take everything that is not nailed down and sometimes stuff which is nailed down.  Sometimes, the homeowner thinks they have a right to take everything they purchased or maybe they think the removal of the property will not affect the value of the property.    However, before anything is removed from a home in foreclosure, here are the laws you should know.

First, under California Civil Code Section 2929, “no person whose interest is subject to the lien of a mortgage may do any act which will substantially impair the mortgagee’s security. “  A violation of this law, will give rise to a claim for “waste.”  Also, while California Civil Code Sections 580(b) and (d) create bars to deficiency claims by a lender after a trustee’s sale, there is an exception for “bad faith waste.”

Second, bad faith waste is anything done with reckless, intentional or malice towards the lenders.  So, if property is intentionally removed from the property even if it was not done with recklessness or with malice and it substantially impair a lender’s security, a claim for waste will still remain.  The statute of limitations for bringing the claim will usually be 4 years from the date of the foreclosure.

Third, claims for waste usually arise when fixtures or permanent items are removed.  An easy definition of a fixture is anything nailed down or becomes permanently attached to a property whether inside the house or outside.  So that means the following should not be removed:  built-in anything including bookcases, bbq and shutters.  It also means that light fixtures, doors and tile work should not be removed.   If it is nailed down, screwed in or was especially made for the house, it should stay with the house. 

Fourth, a claim for waste can continue in bankruptcy under Bankruptcy Code Section 523(a)(6) if the court finds a wrongful act, done intentionally and which necessarily causes injury and is done without just cause or excuse.  The possibility of a claim being made is REAL.  We had a judgment entered against a debtor in Oakland in 2010 for waste for removal of fixtures valued at $77,000, 

In conclusion, if a property is going to be lost in foreclosure, nothing should be removed from the property if it is nailed down or has become a permanent part of the property.  It is fine to take the washer/ dryer, refrigerator and anything that is just plugged in.  If you have a favorite lamp or chandelier and want to take it, it should be replaced with a similar quality product.   

If you going to be losing a home, a real estate or bankruptcy attorney will be able to advise you whether a short sale may be a better alternative for you than a foreclosure.  Also, if you have other debt which you are unable to pay off such as credit cards, lines of credit or car loans, a bankruptcy may be the best alternative for you.  I see people every day for a FREE 30 minute consultation in my offices located in Walnut Creek, Antioch and Brentwood.

WE ARE A DEBT RELIEF AGENCY.  WE HELP PEOPLE FILE FOR BANKRUPTCY.  THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN   MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.  GRIMESBKLAW.COM

© 2011 Joan Grimes

Buy and Bail 2011

There is no question that it is very, very difficult to see people moving into your neighborhood buying your same house with better upgrades for half the price.  It can make your blood boil.  And then you find out that they bought this new home at half the price while they still owned the first house that was completely underwater and now they are letting the first house go into foreclosure.  This is crazy.  This is Buy and Bail.   

Buy and Bail is really just strategic default planning.  The current home no longer makes financial sense and I need a roof of my head.  And, oh by the way, it looks like a good time to buy.  This is absolutely fine. 

Buy and Bail is a problem if you commit loan fraud in the process.   In 2008, the government tried to crack down on Buy and Bail by banning the use of rental income from an existing home to qualify for a new mortgage loan unless the first property had at least 30 percent equity.  Unfortunately, recently, we are seeing many new instances where rental income is being allowed with no equity in the existing home. 

If you tell the new lender or agent of the new lender i.e. mortgage agent that you are going to rent out the old house, but really don’t intend to rent it out, you have a problem.  If you say that rent on the old place will conveniently be the same as the mortgage payment, but you know that rents in the area are only one half of the mortgage, you have a problem.

Buy and Bail is a problem if you have junior lien(s) on the old house that are recourse loans i.e. they were not the original loan or loans used to purchase your primary residence.  If you have recourse debt and don’t qualify for bankruptcy, you will be stuck with the debt.  If you qualify for bankruptcy, the new home loan payment may be so low that you do not qualify for a Chapter 7 and will be stuck in a Chapter 13 for 3-5 years paying back some or all of your creditors.

Buy and Bail is a problem if the foreclosure or short sale of the old home leaves you with tax liability.  Every transfer of real property is a taxable event.  There is no free lunch with the IRS and State Franchise Board.  If there was cash out or accrued interest on the old home, you will need to know whether you will have any tax liability if the property is later foreclosed or short sold.

Buy and Bail is a problem.  It is very tempting, but it can end up very bad.  Remember, if something sounds too good to be true, it is!  A Buy and Bail may put you in the middle of the ocean without a paddle.  Don’t do it.  If you are considering a Buy and Bail, seek legal counsel prior to proceeding. Buy and Bail has serious consequences which should be analyzed by a bankruptcy or real estate attorney prior to commencing the purchase of a new home.  This is a complicated area of the law, but a bankruptcy or real estate attorney should be able to make an analysis of your particular situation fairly quickly.  I see people for a free 30 minute consultation in my offices located in Walnut Creek, Antioch and Brentwood.

WE ARE A DEBT RELIEF AGENCY.  WE HELP PEOPLE FILE BANKRUPTCY.  THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN   MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.

Can’t Afford Your Real Property Taxes?

As the mortgage crisis enters its third year and unemployment rises above 10% in many areas of California, more and more people are unable to pay their property taxes.  If you are in default on your property taxes or considering a default, here is the law you should know.

First, property taxes are a secured claim against the real property.  They are not a personal debt and there is no criminal penalty if you cannot pay your property taxes.   If your home forecloses and there are delinquent property taxes at the time of the sale, it will not follow you.  Therefore, if you do not have the money to pay the taxes, do not borrow the money from a credit card or 401k account/ 401k loan to make the payment.  In the event the home is lost in a foreclosure and you borrowed the money, you will still be required to repay the credit card debt (even potentially in bankruptcy because taxes paid with a credit card may be  non-dischargeable) or through the 401k loan. 

Second, if you cannot pay your property taxes when due, the County cannot immediately foreclose on your property.  In fact, it is very rare for a county to foreclose on real property for non-payment.  In most places in California, real property must  remains in tax defaulted status for five or more years before it will become subject to the Tax Collector’s power of sale.

Third, if you cannot afford to pay your property taxes, you have several options.  A good option is to enter into an Installment Plan of Redemption which is a 5 year plan that allows a taxpayer to pay defaulted taxes in five installments.  However, prior to applying for an Installment Plan you should contact your mortgage lender to make sure they will allow the payment plan to pay taxes in default.  Sometimes, mortgage lender will automatically advance for the past due taxes and establish an impound account for past due taxes and as well as establishing an impound account for future taxes and insurance.  The negative consequence of a lender paying the taxes is that they usually require the past due taxes to be repaid over 1 year versus the 5 years allowed by the County.  However, the positive consequence is that the accrual of interest by the County is stopped and if you qualify for a loan modification, the past due taxes are in most instances paid through the modification.  Another option is to see if you qualify for tax payer assistance.  The common form of assistance is through the Property Tax Postponement for Senior, blind and disabled persons which allows qualified homeowners to postpone payment of all or a portion of the property tax due on their home.

Fourth, make sure your property is being taxed at the it’s current fair market value.  If you feel that your current assessed value is not the current market value, you may request a review by the County.  This process is commonly referred to as a Proposition 8 review.

In conclusion, there is no free lunch if you are late on your property taxes.  However, there are options available to you.   This is a complicated area of the law.  You are in the deep end of the pool.  Do not swim alone.  The buddy system is essential.  Seek a buddy in legal counsel prior to taking any action.  I see people every day for a FREE 30 minute consultation in my offices located in Walnut Creek, Antioch and Brentwood.

WE ARE A DEBT RELIEF AGENCY.  WE HELP PEOPLE FILE FOR BANKRUPTCY.  THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN   MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.